The Housing Bubble

The Denver Channel reports from Colorado. “While Colorado property owners know their home values are falling, they may be surprised to learn that their taxes haven’t changed. The tax bills that are coming out now are based on evaluations done in June 2006. That was before the housing market collapsed and foreclosures drove home values down. JoAnn Groff, property tax administrator with the state of Colorado, said the system has a good and bad side for Colorado taxpayers. ‘When we are in a market that is growing dramatically and prices are going up fairly dramatically, then the lag time really does work to the advantage of the taxpayer,’ Groff said.”

The Arizona Republic. “Home sales and prices fell and foreclosures rose throughout northeast Phoenix as the nationwide housing slump continued through 2008. In all of Phoenix, home values dropped 33 percent from October 2007 to October 2008, according to ASU Professor Karl Guntermann’s Repeat Sales Index Report for January.”

“Northeast Phoenix dodged the bullet for a while, said Jim Belfiore of Belfiore Real Estate Consulting. But it is catching up now. He said condos especially are in trouble, with costs of land and construction far outpacing the prices developers can hope to get for their units. He said he expects several projects to fail in 2009. Foreclosures, which have driven prices down, rose in northeast Phoenix from 287 in the year that ended in October 2007 to 807 a year later.”

The Peoria Times from Arizona. “The housing drag on the economy will end, said Economic forecaster Elliott Pollack. But in its place, the commercial market ‘is about to fall in the abyss.’ ‘Is there anything left to shock us?’ he asked. ‘We have a one horsepower economy now.’”

“Even with the oversupply, Pollack said builders are still building. Today, 9,800 units are under construction - a two-year supply. ‘Affordability has greatly improved,’ he said. ‘The problem is excess supply.’”

“He blames most of where the economy is today on too much credit being extended between the years 2002 and 2006. When it comes to credit, he said, ‘Think about the 70s. When it comes to savings, think about the 50s.’”

The National Post on Arizona. “There are some great opportunities for Canadians to buy a place in the sun with homes prices across Arizona plummeting in the past year, says real estate agent Elisa Andreis. ‘Prices are down 30% to 35%, so it’s fantastic for buyers,’ says Ms. Andreis who is working with a handful of Canadians anxious to snap up vacation homes in the mountain community of Sedona.”

“Ms. Andreis has seen prices drop at both ends of the market, but says the deepest discounts are in the luxury side of the housing market. Sedona homes that previously changed hands for more than US$1.2-million are now selling for under US$800,000, she says.”

“When the property market began to slow in 2007, Bill Bohon decided not to sell and instead rented out his three-bedroom Sedona townhome until the market picked up. Fast forward to today, and things have gone from bad to worse. His 2,800-square-foot home, loaded with extras such as granite kitchens and baths, a private elevator and stunning red rock views, is now listed for US$525,000, down more than US$200,000 from its 2006 valuation of US$750,000.”

“‘Our economy here in Sedona is still quite strong, but people who want to move down here from the northern states can’t sell their homes there,’ says Mr. Bohon, a retired executive for the Ford Motor Co.”

The Arizona Daily Sun. “Flagstaff home prices continue to slide a bit — not enough to loosen up the market. According to figures from the Northern Arizona Association of Realtors, there were just 33 sales of single-family homes in the city in December. That’s down 25 percent from the same month a year ago and 46 percent from two years ago.”

“The median price saw a drop in December of 5 percent from a year ago, with single-family homes selling for $335,000.”

“Jim Snook, a Realtor with Dallas Real Estate, said he has seen his share of short sales as well in northern Arizona. Snook said short sales can be complicated by circumstances, such as when the loan has been bundled and sold to groups of investors or when the property has multiple owners. In either example, all parties must agree to the short sale in order to go forward. He said sometimes it is just easier to let a property go to the foreclosure stage than navigating the red tape and paperwork on a short sale deal.”

Deidre Craig, the new president of the Northern Arizona Association of Realtors, agrees that some short sales can be very difficult to complete. The seller might agree to the buyer’s offer, she said, but some banks can drag their feet. ‘I’ve got one that I am waiting for approval from the bank since October,’ she said.”

The Salt Lake Tribune from Utah. “The Utah Department of Financial Institutions on Friday declared Cottonwood Heights-based MagnetBank insolvent and stepped in to seize the three-year old state-chartered financial institution. Its fortunes were tied to the struggling commercial real estate industry.”

“‘We would have much preferred finding someone to purchase MagnetBank,’ said David Barr, spokesman for the FDIC. ‘But over the past weeks we had contacted more than 320 potential bidders and didn’t find anyone who was interested.’”

“The last time the FDIC was unable to find someone to take over a failed bank was in 2004, Barr said.”

“Utah’s economy contracted sharply in the final months of last year as mounting job losses that had been centered in construction finally spilled over to other sectors. For most of the year, most of the jobs lost in Utah were in construction. Beginning in November, economists saw evidence the losses were spreading to other sectors.”

“‘It’s expanded from residential construction to everything up and down the street, and that’s what we are facing as we go into 2009,’ said Wells Fargo bank economist Kelly Matthews.”

The Reno Gazette Journal from Nevada. “The majority of Washoe County residents think that house prices in Northern Nevada are still overpriced despite steep declines in home values last year. More than half of residents surveyed by a Reno Gazette-Journal/Channel 2 News poll thought that home prices in Washoe County are higher than they should be, with 38 percent saying prices are ‘too high’ and 19 percent saying prices are ‘a little high.’”

“In comparison, only 4 percent of respondents said home prices were either ‘a bit low’ or ‘too low.’ Twelve percent said prices are just about right while 21 percent said they were unsure.”

“The notion that house prices in Washoe are too high pervaded the survey despite reports showing area home values plummeting in 2008. A report released this month by Chase International found that median and average home prices dropped in the Reno-Sparks area by 19 percent and 21 percent respectively from 2007.”

“Survey respondents who said prices were too high also said so in relation to median incomes, which they believe is still lagging behind home values. ‘Obviously, prices have come down, but they haven’t gone down far enough because people can’t afford to buy a home because of their income,’ said pollster Del Ali, president of Maryland-based Research 2000, which conducted the survey. ‘It just shows you the dire straits that everyone’s in.’”

The Las Vegas Sun from Nevada. “Astoria Homes, one of Las Vegas’ largest private builders, announced it stopped constructing homes after lenders foreclosed on three of its neighborhoods. Astoria President Tom McCormick said the company didn’t miss any interest payments on its short-term loans, but its lenders in two developments in Aliante and the northwest were no longer interested in extending them — as is common — and foreclosed on the neighborhoods.”

“‘They told us they didn’t want to go forward so, ‘Pay us off, or get us out. We don’t want to build anymore,’ McCormick said. ‘We were selling homes and making payments on the loans. We told them, ‘There is no one to pay you off.’”

“Like Astoria, Concordia Homes has also stopped building homes, and housing analyst Dennis Smith says he wouldn’t be surprised if more builders take that route because of the lack of capital and inability to make a profit. Many builders have been operating that way for several quarters to keep people employed and generate cash flow to pay their expenses, Smith said.”

“‘If you can’t make a profit, then why build?’ Smith said. ‘You have to face reality sooner or later.’”

The Review Journal. “An ailing real estate market could cause property tax revenue to stay flat or even dip in Clark County, a prospect that longtime officials say is unheard of and troubling. Las Vegas City Manager Mark Vincent said he’s not surprised that revenues are anemic.”

“‘I’ve seen as much as a 70 percent drop in land value,’ Vincent said. ‘Without a doubt it’s going to be worse.’”

The Las Vegas Business Press from Nevada. “Cash-strapped landlords are being pressured by banks to generate revenue, whatever the cost, resulting in lower rents and increased concessions, participants at a recent commercial real estate panel held by the Las Vegas chapter of the Society of Office and Industrial Realtors said. ‘There is a totally different degree of affordability,’ said Daniel Doherty, a senior vice president with Colliers International’s Industrial Division. ‘Activity is still a smidge of what it was. We are doing a lot more work for a lot less pay.’”

“Real estate brokers are increasingly working with banks, as opposed to developers, on property disposal and leasing space. Lenders want to recoup their investments as soon as possible. A foreclosed property is a liability on bank balance sheets; it’s something they want to avoid. Lenders, many of which have large mortgage-related losses, are forcing landlords to make speedy transactions.”

“‘Landlords are eager to do leases and realize a revenue income as opposed to nothing,’ said Soozi Jones Walker, a corporate broker with Commercial Executives. ‘Cash is king.’”

A new readers requested some advice from you at the HBB. “Hi Ben, I recently came to know your blog and have become a big fan. I bought my condo in Walnut Creek CA in Apr 2005 by stretching myself. So the situation is that this year I will see an income loss which will be bad for both of us and our 2 year old son, my wife is a stay at home mom.”

“I wanted to apply for a loan modifcation and wanted to ask you for some help. What are the ramifications of the new Obama stimulus plan for housing and since I am under the water big time. Will they do something for us in this plan or I should just go with loan modification?”

“We are cutting down our expenses but can’t do anything with my son’s needs so I would really appreciate your help.”

From Reuters. “Stopping the housing crash is central to fixing the economy, and halting foreclosures would be a big step towards that, according to Ken Rosen from Berkeley, who is notable as being one of the economists who was suitably gloomy last year in Davos. Foreclosures cost 50-60 percent of the value of the mortgage whereas you might be able to keep someone in their house for 30 percent, he said. A house with a modified loan isn’t sold on, which further depresses house prices and errodes bank capital.”

“‘What we need is a moratorium on foreclosure while we get a plan in place. We could have five to eight million more foreclosures in the U.S. if we don’t do something about this. Banks have already written down these mortgages,’ he said.”

“Big problem however is securities and contract law. Since so many of these mortgages are in complex mortgage securities it can be cumbersome or impossible to get everyone to agree to mods. The Fed is already moving to do just that on loans it has on its books from Bear Stearns and AIG and is encouraging other owners to do the same.”

The Las Vegas Sun. “The 4 percent loans are among several housing-related provisions Sen. John Ensign and Republican leaders in the U.S. Senate are developing as alternatives to President Barack Obama’s nearly $900 billion economic recovery plan now before them. ‘How many of you would like a 4 percent mortgage?’ Ensign asked this week in floating the plan. ‘You have to fix housing; otherwise I don’t think the economy is going to recover from this.’”

“Washington’s main response to the mortgage crisis so far has been last year’s landmark housing bill, which created the Hope for Homeowners program. The program was expected to help 400,000 homeowners work with their banks to write down loans to more affordable levels. The program has fallen short. A report to Congress last month said only 300 loans were being reworked.”

“Bert Ely, a banking consultant watching the debate, said ideas for a government-run program to offer low, fixed-rate mortgages surfaced late last year. But interest in it waned once the costs were considered. Republicans were not able to provide a cost estimate Thursday.’

“‘When you start getting into the numbers, you start to realize it would be very difficult to execute and could be quite expensive,’ Ely said. ‘You’re talking about millions and millions of mortgages.’”

The Wisconsin Biz Times. “‘The American people expect action,’ Obama said between meetings with House and Senate Republicans on Tuesday. ‘I don’t expect 100-percent agreement from my Republican colleagues, but I do hope that we can all put politics aside and do the American people’s business right now.’”

“Obama met this morning with several top corporate leaders to discuss the economy. Obama was surrounded this morning by several chief executive officers who are supportive of his economic stimulus plan, including: Steve Appleton, CEO of Micron Technology Inc.; David Barger, CEO of JetBlue Airways Corp.; Greg Brown, co-CEO of Motorola Inc.; John Bryson, CEO of Edison International; David Cote, CEO of Honeywell International Inc.; Debra Lee, CEO of BET Holdings Inc.; Anne Mulcahy, CEO of Xerox Corp.; Sam Palmisano, CEO of International Business Machines Corp. (IBM); Antonio Perez, CEO of Eastman Kodak Co.; Eric Schmidt, CEO of Google Inc.; Michael Splinter, CEO of Applied Materials Inc.; Wendell Weeks, CEO of Corning Inc.; and Ron Williams, CEO of Aetna Inc.”

Your West Valley. “A leading economist told hundreds of West Valley leaders Wednesday that Arizona remains a few years away from digging out of the recession and the reason isn’t solely about money, unemployment and a housing market gone bust. ‘The problem isn’t just financial now, it’s psychological,’ Elliott D. Pollack told those at Glendale Civic Center. ‘Even those who own homes, have steady jobs, have savings, are taking a step back and deciding not to spend any money.’”

“Much of Pollack’s presentation centered on how the economy in Arizona deteriorated in the first place. The culprit, Pollack said, was the real estate industry. ‘From 2001 to 2006, the Valley overbuilt. They did 10 years’ worth of building in six years, moved four years’ worth of employment into those six years, which is why job growth continued to look so good for that time. But now we have tens of thousands of excess homes that we need to absorb,’ he said.”

“Pollack said the problem is the same across the nation. While an average of 1.2 million homes usually sit empty, now there are approximately 2.2 million. ‘If the Obama administration really wanted to help, they’d go out and buy a million homes and burn them to the ground,’ Pollack joked.”

From The Times. “Alicia Smith has been bouncing from state to state trying to find a decent place to live. Evicted from her apartment, she found her way back to Markham with her two sons, age 8 and 10. Smith knew she needed a place for her boys to lay their heads down at night and feel protected.”

“‘I didn’t have any confidence then,’ said Smith, 33. ‘ just kept thinking … what am I going to do … where am I going to go?’”

“On June 30, Smith and her family found a local PADS - Public Action to Deliver Shelter - facility. Smith is reflective of the growing number of homeless. Illinois officials suspect the numbers are expected to grow as long as the economy worsens. Smith reflects a newer trend — families seeking shelter.”

“According to a recent report by Housing Action Illinois, 71 percent of state-funded shelters saw an increase in the number of homeless. ‘There are many people who are experiencing a loss of jobs and those same individuals are having a hard time finding affordable housing,’ said Bob Palmer, policy director for Housing Action Illinois. ‘I know of some service providers who are turning people away.’”

From CNN Money. “Housing might be in worse shape than we think. There is probably even more excess housing inventory gumming up the market than current statistics indicate, thanks to a wave of foreclosures that has yet to hit the market. The problem: Many foreclosed homes and other distressed properties that are now owned by banks have yet to be listed for sale. The volume of this so-called ‘ghost inventory’ could be substantial enough to depress already steeply falling prices when it does go on the market.”

“RealtyTrac looked at listings in four states, California, Maryland, Florida and Wisconsin, and found that they contained only a third of the foreclosures it has in its database. The scope of the problem isn’t clear, but it could be huge considering that RealtyTrac has a total of 1.5 million bank-owned properties on its site.”

“L.J. Jennings, a real estate broker in Oakland, Calif., sees plenty of evidence. ‘There are a number of properties in my area that have actually been taken back by the banks, but have not hit the market yet,’ he said. ‘Once a bank repossesses a property, in some cases, it can take more than six months to hit the market.’”

“He cites a handful of examples offhand, including a single-family home in Richmond seized in early October, a condo in San Ramon taken back the same month and a four-family building in Oakland that was repossessed in July. ‘Either lenders are overwhelmed and can’t get these properties back on sale quickly’ said RealtyTrac spokesman Rick Sharga, ‘or they’re deliberately slowing down.’”

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