The Housing Bubble

It’s Friday desk clearing time for this blogger. “More than a million U.S. homeowners are expected to hand over their house keys in 2009, as they lose property to foreclosure. Judging by the increase in trustee’s sale notices, Bonner County has been swept up in this ugly national trend. Laura DeLand, a Realtor in Sandpoint said one client had a 10-acre property with a home and a barn on the market and couldn’t move it, despite a sizeable discount. ‘They owed $350,000 on it and I had it listed for $289,000,’ the Realtor said. ‘We still couldn’t sell it. The price spread is huge. You’re not talking about a difference of $20,000. You’re looking at $100,000 and up any more.’”

“‘I think the biggest share of these are people who got in and then the market changed,’ said Judie Bluemer, a mortgage consultant for Wells Fargo Home Mortgage. ‘They’re so upside down on their mortgages that they’re just walking away from them.’”

“New homes were springing up everywhere in 2005 and 2006. More than 1,400 new single family homes were built in those years, but far fewer, in the years following. ‘We saw a decline in 2006 –roughly 500 permits. This past year we dropped another 300 building permits so it’s probably just a reflection of the local building climate,’ said David Weir, Community Development director for the city of Las Cruces.”

“Residents said the slowdown has also hit their neighborhoods. ‘There’s no question the housing market has slowed down here. You can see that, but it’s nothing like the drops in California,’ said Vipin Gupta of Las Cruces’ east mesa.”

“Area home builders sold just 4,695 houses last year in El Dorado, Placer, Sacramento, Sutter, Yolo and Yuba counties as an historic real estate collapse diverted thousands of buyers to steeply discounted bank repos, according to statistics being released today by the Folsom-based Gregory Group. Several builders filed for bankruptcy protection as repos climbed to two-thirds of Sacramento County sales, and the median sales price fell to $175,000.”

“‘There’s a lot of good-quality bank-repossessed properties, good, clean homes that would be in direct competition with the builders,’ said Warren Adams of Security Pacific Real Estate in Fair Oaks. Many are nearly new, he said. ‘I’ve had several listings where they’re still selling the models in there.’”

“Cemex, the largest cement manufacturer in the nation, plans to pull the plug on the Davenport plant and lay off the bulk of its local work force, about 125 employees, for a minimum of six months beginning March 9, company officials announced Thursday.”

“‘Demand does not exist right now in California,’ Cemex spokeswoman Jennifer Borgen said. ‘This closure is purely the market. If you don’t have demand, you can’t continue to produce cement.’”

“The problem of parties in foreclosed homes nearly turned deadly when a man was shot as he tried to attend a large gathering Saturday night, officials said. ‘The people didn’t want him there,’ said Sgt. Kurt Lackman of the Victorville station. ‘This is a very big problem. We get calls every day about trespassing or vandalism at these foreclosed home. Now they’re using them as hangouts and places to party.’”

“With so many vacant homes, Lackman warned, ‘It’s not going to get better anytime soon.’”

“Becoming a mortgage broker in Indiana used to be easy. Too easy. There were no background checks to weed out people convicted of financial crimes, no tests to see whether brokers had taken required classes and understood the complex mortgage world. A company simply had to plop down $200 to get its state license before brokers could start matching home buyers to lenders.”

“‘It was kind of like the wild, wild West out there,’ said Indiana Secretary of State Todd Rokita. ‘You came in, you paid a small fee and boom — you were a mortgage broker.’”

“Shirley Webster, who grew up in the area and owns a home there, says the empty homes attract crime and hurt efforts to rebuild. ‘When we have properties that are in foreclosure, they sit vacant for a long time,’ she said. ‘A lot of people have gotten into these properties that really could not afford it.’”

“Kansas City’s rental housing administrator Dan Schmelzinger was opening the mail one day recently when he was surprised to find an envelope containing a $200 check from Paris. Other checks have come from California, Utah, Arizona, Florida and Washington state. The money is starting to arrive from absentee landlords all over the country and even foreign countries as Kansas City has launched a new enforcement program aimed at owners of problem properties.”

“Jerry Mitchell, a resident and community liaison with the Ruskin Heights Homes Association, said that…his neighborhood…has absentee landlords from California, Alaska, Hawaii, Florida and elsewhere. He cited one example of an owner from Kansas who recently was compelled to clean up a yard filled with a tenant’s discarded belongings after receiving an administrative citation.”

“Driving through his neighborhood, he called the city to report another property in the 11200 block of Corrington Avenue owned by a California landlord. He said the owner started to renovate the property five or six months ago, but then threw a pile of belongings out at the curb and left several weeks ago.”

“The economy has been as tough on real-estate agents as the rest of the state’s workforce. Maine’s Realtors sold 22 percent fewer existing single-family homes in November, compared to the same month a year ago, according to the Maine Real Estate Information System. ‘The conservative lending habits of local banks kept the central Maine market stable,’ said Don Plourde, owner of Coldwell Banker Plourde Real Estate. ‘But we definitely saw folks who got in over their heads with the amount of debt they thought they could handle.’”

“‘We’re seeing 2008 as a better year than 2007, but inventory levels can go down when people don’t put their houses on the market if they’re afraid they won’t get a good price,’ he said.”

“Michael Byrne has a 30-year career in the business and has owned the agency since 1986. There are 20 agents at his firm. ‘Fortunately, we didn’t have the wild speculation other parts of the country did,’ he said. ‘We had more of a gentle landing, not that it didn’t hurt a little bit.’”

“Complete with an Oval Office and Lincoln Bedroom, the Atlanta White House became a symbol of developers reshaping the urban landscape by tearing down modest ranches and bungalows and plopping McMansions in their place. The religiously themed mini-White House – which required the razing of three brick ranches – is now up for sale, facing foreclosure this week if the builder, an Iranian-born entrepreneur, can’t get a $9.88 million selling price.”

“‘There’s an awareness now that some of the homes frankly are too big,’ says Scott Van Duzor, a home builder in Illinois’s Fox River Valley. ‘The McMansion has almost become embarrassing to some people.’”

“Bank of America Corp., GMAC LLC, and WL Ross & Co. are among mortgage servicers that have endured billions of dollars in unexpected costs and added thousands of workers to handle rising foreclosures, denting a business once viewed as a safe haven from the housing market’s collapse.”

“Analysts say billionaire Wilbur Ross, who made a fortune buying bankrupt companies, overpaid when his firm purchased American Home Mortgage Investment Corp.’s servicing unit for $500 million in October 2007 and Option One Mortgage Corp.’s servicing business from H&R Block Inc. for $1.3 billion in May.”

“‘It looked pretty cheap and everyone thought Wilbur was really jumping in at the right time, but it doesn’t look cheap today,’ said Rob Snow, former head of lending at E*Trade Financial Corp. ‘The performance of some of the American Home securities that they are servicing has been absolutely horrific.’”

“‘It’s like a snowball running downhill,’ said Bob Caruso, a former president of Bank of America’s mortgage company.”

“Vice President Dick Cheney said Thursday that…President George W. Bush has no need to apologize for not foreseeing the economic crisis. ‘I don’t think he needs to apologize. I think what he needed to do is take bold, aggressive action, and he has,’ Cheney said. ‘I don’t think anybody saw it coming.’”

“Here it is. The column you’ve been waiting for. The REALLY best award-winning news stories for 2008! Crime rate shows mixed figures: While murder rates were down in our fair city, crimes of dangerous text messaging and toilet papering of trees were significantly higher. ‘We plan to make a notable improvement in these areas,’ said a police department spokesperson. People text messaging, while break dancing, will find a significant increase in fines. Toilet paper will now only be sold at the register to those over 21 years of age. An ID will be required.’”

“City Council fights recession: Members of the City Council have decided to give employees a significant raise. When one city worker was asked what she will do with the money, the 20-year veteran replied: ‘Simple. I’m going to spend it at the Wal-Mart Supercenter in Stockton.’”

“Junior college plans bite the dust: It appears that our city will not be home to a new community college. The college district has an unfortunate shortage of funds due to the recession, higher wage costs, and trustees using private Citation jets for personal transportation. ‘It’s really no big deal,’ said one trustee. ‘Since there are no chain book stores in this town, we figure the people here can’t read anyway.’”

“Dancing mascot fired for indecent behavior: The dancing banana in front of Peppy’s Pistachio Ice Cream Parlor was fired for making obscene gestures with his costume. It seems that the banana’s sexist and crude behavior deeply offended the twisting tomatoes next door at Pete’s Pole-Dancing Palace.”

“Housing picture looking brighter: Reports from local real estate agents say now is the time to buy a new home. New loan programs, now available from the government, pay the homeowners’ mortgages for the next 30 years. To qualify, local residents only need to show that they have no jobs, incomes or assets. With inflation caused by legislative handouts, the average $180,000 home should cost $15.8 billion by the year 2038.”

The East Valley Tribune reports from Arizona. “The mortgage crisis is emptying out East Sierrita Road. Families are leaving the homogeneous neighborhood south of Queen Creek by desperation or by force. Zakary and Rachel Lutterman bought a home on Sierrita during the dizzied real estate market of 2006, forced to the Valley’s fringes by surging prices. The Luttermans could afford the $201,000 price tag with their two incomes, but didn’t study how their lender engineered the mortgage with an adjustable rate. ‘There are just all these little loopholes that, at the time, you don’t pay attention to,’ Rachel said. ‘You’re excited.’”

“The bank foreclosed on the house next door. Months behind on their payments, the Lutterman household is nearing the same end. ‘We got married, we got the house, got the great job,’ Rachel said. ‘Things were going really, really well. And then it all just went downhill.’”

“Tony Ciciora and his wife, Dora Gamez-Ciciora…arrived in the Valley at the peak of the housing bubble, with prices 50 percent higher than they were just two years earlier. Sellers would receive offers on a house within hours of putting it on the market. Dora said the frenzy made her anxious that they were already priced out of the Valley. ‘It was getting like California at first,’ she recalled thinking.”

“Talking with a customer at the salon where she works, Dora said she heard there was a bundle of houses selling for around $200,000 down south on Hunt Highway. Dora and Tony liked what they found there, particularly the price, which at the time seemed reasonable. In August 2006, they moved into a just-finished, 1,700-square-feet house on East Pinto Valley Road that they intended to make their permanent home.”

“The Village at Copper Basin’s fall was as dramatic as its rise. Dora Gamez-Ciciora didn’t need to look for symbolic signs of trouble. A year after buying their home, Dora said she saw nearby houses going for $170,000. Then $150,000. Property records show the houses on Pinto Valley and Sierrita are now worth around $130,000.”

“Suddenly, her husband, Tony, could no longer find construction jobs in the Valley. Dora took a second, part-time job as a waitress while Tony travels to California and Washington state for work. Many of the neighborhood’s remaining homeowners said they are fighting to make their payments. Dora’s next-door neighbor took in a boarder. Others are attempting to renegotiate their loans.”

“Still, a number have chosen to get out. One of the neighborhood’s original owners last year sold a house on Quartz Way for $80,000, property records show.”

The Arizona Daily Star. “The lender for master-planned Gladden Farms in Marana has filed a notice of trustee’s sale for about 605 acres, most of which is vacant farmland just east of the development. The notice filed last month by a division of GMAC Bank also includes a small portion of subdivided but undeveloped lots. Gladden Farms acquired the land in 2005.”

“Dean Wingert, senior VP for Gladden Farms, said in a prepared statement the project’s developer and owners have a long-standing relationship with GMAC, but problems arose following a recent appraisal of the vacant land. ‘They did an updated appraisal of the vacant land, and it came back with a very low value on today’s conditions,’ Wingert said.”

The Spectrum from Utah. “The local housing industry witnessed its worst year in decades in 2008 as diminished consumer confidence, strict lending standard, and a market flooded with bank-owned properties curtailed demand for new homes throughout much of the year. The volume of building permits issued by the City of St. George fell dramatically in 2008, with only 172 single-family residential projects recorded for the year. In contrast, the city listed 493 residential projects in 2007, and over 1,000 at the height of the housing boom in 2005.”

“‘This is the most severe downturn we’ve seen, at least in the last 30 years,’ said Community Development Director Bob Nicholson regarding St. George homebuilding in 2008.”

“Allan Carter, the director of development services for Southern Utah Title Company, said 60 percent of home sales in the fourth quarter of 2008 were either foreclosures or short sales.”

“He said the market for high-end homes remains nonexistent in Washington County, with an existing inventory of approximately 200 homes in the area priced above $800,000. He said only two or three of these homes are sold each month.”

“Tracy Ence, VP of construction for Ence Homes, said the company is heavily involved in the construction of more affordable housing, with prices starting at $155,900 for a single-family home. ‘The market now requires you to have a low-priced home,’ he said.”

The Las Vegas Business Press from Nevada. “Las Vegas has earned plenty of nicknames over the years, such as ‘Sin City,’ ‘The Entertainment Capital of the World’ and ‘Lost Wages.’ Deutsche Bank gaming analyst Bill Lerner has coined a new moniker, ‘The Bone Yard.’ The Wall Street researcher is predicting any number of planned hotel-casino projects or high-rise condominium developments could be halted, delayed or stopped altogether this year.”

“‘We have never tracked a greater number of stalled projects in Las Vegas than today, primarily resulting from a weak consumer, an even weaker high-rise residential market and the limited availability of credit,’ Lerner said in his most recent investors note.”

In Business Las Vegas from Nevada. “The 700-residence mixed-use ManhattanWest faces foreclosure after a senior lender stopped funding the project under construction. After the success with $230 million Manhattan Condominiums on Las Vegas Boulevard South, that is quite a comedown for Alex Edelstein, the dot-com millionaire and founder and CEO of Group Gemstone, ranked as the fifth fastest growing private company in the country. Its development arm, Gemstone Development, built the projects.”

“About two months ago in an interview with In Business Las Vegas, Edelstein said his project wasn’t having financial woes like other projects because he had locked up financing early. That changed last month when a syndicate of 30 Midwestern banks stopped funding its $100 million senior loan with only three quarters of the first phase of the project completed.”

“Sales have been slow with 140 contracts written so far, but the question remains how many are going to close, he says. Buyers of other condos have not been able to close because of the credit crunch.”

“‘The problem is the market value of completed condos and office space has dropped so low that I can’t make a compelling enough case that we will be able to pay the banks back all of their loans,’ Edelstein says. ‘The market has valued this stuff well below what it cost to build and either the market will have to rise or there will have to be some big write-offs.’”

The Review Journal from Nevada. “Home sales nearly tripled in December from the same month a year ago, though median prices declined 32.7 percent, the Greater Las Vegas Association of Realtors reported Thursday. The inventory of homes for sale remained relatively stable, up 0.6 percent from a year ago at 22,144 units.”

“December is traditionally a slow time of the year in real estate because of the holidays and colder weather, said Sue Naumann, the Realtors association’s president. ‘This shows that buyers are realizing that this is a great time to buy a home,’ Naumann said.”

“She stopped short of predicting when local home prices may rebound, but continued to emphasize that the market presents opportunities that ‘can’t last much longer.’”

“Amid predictions that home values will decline further, some real estate skeptics are saying it’s better to hold off a few months for that ’smokin’ deal.’ ‘It’s a tough situation,’ Frank Nason of Residential Resources said. ‘Some of my agents represent investors scooping up deals. They don’t really care if they’ve found the bottom. They’re getting homes below replacement cost, they’re holding them for three to five years and they’re getting cash flow. So to them, it’s a no-brainer.’”

“Median home prices dropped to $175,000 in December, the lowest level since 2003. Condo prices are down 51.4 percent from a year ago at $89,900. Bank-owned properties, or foreclosures, accounted for 41 percent of all listings in December and slightly more than 75 percent of all closings, Nason reported. Short-sale properties, offered at less than the mortgage owed, accounted for 31 percent of listings and 11 percent of closings.”

“The percentage of vacant listings continues to increase, Nason said. He found 65.2 percent of single-family listings vacant in December, compared with 44 percent in the beginning of 2007. Condo vacancies rose to 74 percent from 57 percent during the same period.”

Las Vegas Weekly from Nevada. “There is construction at Inspirada, the massive master-planned community in the southern reaches of Henderson. Several homes are going up, and the neighborhood is full of bulldozers, Port-a-Potties and bundles of wood marked ‘Inspirada.’ But most of the land on the 2,000-acre site is vacant dirt.”

“‘Things stand very poorly,’ says Monica Caruso of the Southern Nevada Homebuilders Association. ‘This is more than a slowdown coming from the boom. The home-building industry is on hiatus in Southern Nevada.’”

“‘Las Vegas really grew in 2004 and 2005 and 2006,’ notes real estate analyst Ken Perlman, with Sullivan Group Real Estate Advisors. On average, he says, around 20,000 new homes a year were being sold in Vegas in the early years of the decade, peaking at a ridiculous 41,000 in 2005, driven both by easy credit and by speculators. ‘Las Vegas really stole demand from the future,’ he notes.”

“‘The age of excess in 2004-06, those days are over,’ says Dennis Smith, president of Home Builders Research. ‘They will never return.’”

“The scene creates an odd visual congruence: an echo of Vegas’ business-as-usual building boom, with the kind of empty, lonely grandeur you might see on old blocks in Detroit or Chicago, where a lone house guards an otherwise decimated block. But people are still moving in. Keith Neuhart moved from Orange County to Henderson with his wife in November. Their home is at the edge of development at Inspirada. He stares out at the rocky fields where the rest of Inspirada may one day rise. But workers, he says, are busy. ‘They’re constantly working every day. There’s always movement and machinery.’”

Please visit the HBB Forum. Post off-topic ideas, links and Craigslist finds here.