There Are No Fairy Tales Now
The Helena Independent Record reports from Montana. “New home construction has plunged in Lewis and Clark County, according to figures compiled by the Montana Building Industry Association. In the city of Helena and the closely surrounding area, the average sale price fell 3.7 percent in 2008, to $217,245 from $225,551 the previous year. But most of that drop can be accounted for in the upper end of the market, officials say. ‘It’s been the over-the-top trophy homes that have taken the hit,’ said Steve Netschert, president of the Helena Association of Realtors.”
The Billings Gazette from Montana. “Unlike the national recessions dating to 1991 that largely missed Montana, this one won’t let us escape the ugly meltdown. ‘We thought the national recession was going to miss Montana and this would be the third time in a row it missed,’ said Paul Polzin, former director of the Bureau of Business and Economic Research at the University of Montana.”
“By July, the bureau revised its Montana forecast downward. By September, Polzin said, things had deteriorated so badly that ‘the world is now starting to fall apart.’”
“The Kalispell area might be the hardest hit because of mill closings and the drop in home construction. Construction is the key industry showing significant and widespread declines, especially in Gallatin and Flathead counties. ‘Flathead construction has gone bust entirely,’ he said.”
The Bend Bulletin from Oregon. “A development that was conceived during the height of Bend’s housing boom but failed during its bust has gone back to the bank. The Shire, a 15-lot, village-themed concept in the southeastern part of the city, was marked by its Old World housing styles and fantasy setting styled after J.R.R. Tolkien’s ‘Lord of the Rings’ series.”
“Umpqua Bank, which held a public auction for the property Dec. 29 that received no bids, foreclosed Jan. 16, according to Deschutes County property records. The bank originally loaned $3.4 million in December 2004. Umpqua has listed the 6-acre property — which includes 14 vacant lots and one partially completed house — for $1.3 million, said Brian Meece, the bank’s listing agent.”
“‘We obviously made the loan based on knowledge that we had at that time,’ said Lani Hayward, Umpqua’s executive vice president of creative strategies, based in Portland. ‘Umpqua is pretty good at doing its due diligence on those kind of deals. This was a new development starting at a time that was unfortunate.’”
“One home sold in the development, for $650,000. A partially completed home, the only other home built on the subdivision, was listed for $899,000 in July 2008. The Shire’s lone homeowner, Greg Steckler, would like to see the bank sell the project to a developer who would retain the project’s original vision, he said.”
“‘We don’t know what’s going to happen,’ Steckler said. ‘There are a lot of people interested in The Shire, but with the economy, everyone is pulling in their horns and the bank wants to get their money.’”
From Bloomberg. “The U.S. housing market lost $3.3 trillion in value last year and almost one in six owners with mortgages owed more than their homes were worth as the economy went into recession, Zillow said. About $6.1 trillion of value has been lost since the housing market peaked in the second quarter of 2006 and last year’s decline was almost triple the $1.3 trillion lost in 2007.”
“Seattle and Portland, Oregon, values tumbled 12.1 percent and 11.7 percent, respectively, the first time those cities dropped more than the nation, Zillow said. ‘A witch’s brew of economic insecurity, foreclosures and tightened lending standards are helping to keep hard-hit markets down and to widen the scope of markets showing declines. It’s like a runaway train gaining momentum,’Stan Humphries, Zillow’s vice president of data and analytics, said in an interview.”
“The number of homeowners with negative equity, or those who owed more on their homes than the property was worth, rose to 17.6 percent from 14.3 percent in the third quarter, Zillow said. ‘Negative equity will trigger new foreclosures, and that will add to inventory and depress prices,’ Humphries said.”
The Bellingham Herald from Washington. “Home prices in Whatcom County continued to fall in 2008. Zillow said home prices in the fourth quarter 2008 were down 4.9 percent year over year in the Bellingham metro area (Whatcom County). Percentage of Whatcom County homes sold for a loss in 2008: 12.8. Negative equity: 10.4 percent of all homeowners in Whatcom County were in negative equity at the end of 2008.”
“Whatcom County lost $1.5 billion in home values in the fourth quarter of 2008 compared to the previous quarter. The highest point for the Zillow median price value was in the third quarter of 2006; since that time the value of Whatcom County homes has dropped 10 percent.”
The Seattle Times from Washington. ” Zillow found that 29 percent of homes in the Seattle-Tacoma-Bellevue area sold at a loss during the final three months of 2008. And a Seattle Times analysis of property data from the King County assessor’s office shows that early summer of 2005 was the tipping point. Most homes bought since mid-2005 and sold during the last three months of 2008 fetched lower prices than their owners paid in communities ranging from Mercer Island to Kent to Federal Way.”
“Sellers hardest hit were those who bought in the first three months of 2007. If they sold their homes in the fourth quarter of 2008, they typically lost more than $100,000. The data also show more than 20 percent of all Seattle homeowners are ‘underwater,’ particularly those who bought during the real-estate market’s peak in 2007. More than half of all area homes bought that year have negative equity, the report showed.”
“More than 10 percent of all transactions during 2008 were short sales. All this spells the likelihood of more economic hardships to come, said Glenn Crellin, director of the Washington Center for Real Estate Research at Washington State University.”
“Underwater homeowners often lack enough equity to qualify for record-low mortgage rates that could save them hundreds of dollars in payments each month. Those who want or need to sell their homes must offer steep discounts or freebies to woo buyers in a slow market and also convince the bank that they’re in straits dire enough to approve a short sale, Crellin said.”
“‘That’s going to slow the process down and makes it even harder to buy the house,’ Crellin said.”
The News Tribune. “Construction on the eight-story Midtown Lofts condominium project in downtown Tacoma has halted after construction financing expired. The 50-unit building is about 65 percent complete, Tom O’Connor said Tuesday. He’s the managing partner of the company developing the project.”
“Frontier Bank is considering whether to extend the term of the construction loan, O’Connor said. But new appraisals of the project have erected obstacles in the building’s path, he said. Those new appraisals came in at less than half the amount already committed to the building, he said. The bank now estimates that under the current depressed market conditions, selling out the building will take about four years, said O’Connor, who didn’t say how much the loan was for or how much more he needed.”
“The 50 condos were to sell for prices between the mid-$200,000s to $800,000s for a three-bedroom penthouse. The developers have considered converting the building to apartments, but the building, made of concrete and steel, may be overbuilt for that use, O’Connor said.”
“Condo projects around Tacoma have stalled as the housing market declines and loans become harder to find. A four-tower project and a hotel with residential units on the Foss Waterway have been postponed. So have residential projects near the Stadium District.”
The Olympian from Washington. “The nine-story building that stands between Capitol Lake and Budd Inlet in downtown Olympia has a new name and a new look, and the owners spent about three hours Friday trying to land new tenants. Jim Potter, who has owned the building since 2005 with two ownership groups, said Friday’s event was a chance to introduce the building to about 100 people. Potter paid $11.9 million for the building in 2005, Thurston County Assessor data show.”
“So far, nearly $1 million has been spent on renovations, including gutting every floor. The building dates to 1965 and has been vacant for about two years. At one time, Potter’s group considered residential condominiums for the building, but that changed when the real estate market collapsed, he said.”
“‘We believe it’s the finest real estate in Olympia,’ he said, adding that it has views of two waterfronts and Mount Rainier. ‘It’s something special.’”
The Columbian from Washington. “When the Bank of Clark County failed two weeks ago, its sudden collapse hurt hundreds of local developers, investors and depositors. At least six developers who were midway through Bank of Clark County-funded construction projects have found that they can no longer draw down credit. ‘The (FDIC) is going to leave me with unfinished homes that cannot be refinanced, rented or sold,’ one developer told The Columbian.”
“These developers are just the first borrowers to feel the tsunami effect of the Bank of Clark County’s failure, said Jeanne Firstenburg, chief operating officer at Vancouver-based First Independent Bank. ‘Some loans need to be renewed a little ways out,’ she said. ‘Now when those Bank of Clark County loans mature, they will be called.’”
“First Independent, founded in 1910 and family-owned, has 20 branches in Clark County — more than any other bank. Much of First Independent’s growth over the past decade has been fueled by construction and land development loans, which at their June 2006 peak made up 56 percent of all the loans on First Indy’s balance sheet.”
“As the economy has cooled, many borrowers have fallen behind or looked for new payment plans — which in First Independent’s case could have hurt financial measures that federal regulators closely watch. But because its Firstenburg family owners are deep-pocketed, the bank’s holding company was able to buy more than $50 million of First Indy’s loans in late 2008…Combined with a decision to take a $5.2 million paper loss, in order to reserve against further losses, these moves have put First Independent on solid footing.”
“‘There are no fairy tales in banking right now,’ Firstenburg, the chief operating officer, said. ‘You’ve got to be honest about your situation, recognize your challenges early, and make decisions about how you’re going to respond. We are all becoming better bankers because of what we’re going through now.’”
The Seattle PI. “Defendants in the federal class-action suit against Washington Mutual have filed their responses to the plaintiffs’ allegations about the practices that led to the thrift’s downfall, and while they are separate, they appear to share a common argument: Failure to anticipate just how bad the housing-finance downturn would be is not the same as fraud.”
“The defendants — former Chief Executive Kerry Killinger, other top executives, the outside directors of WaMu, accounting firm Deloitte & Touche and Wall Street firms that issued securities for the company — argue the suit should be dismissed for multiple reasons.”
“On the charges about subprime lending, top WaMu executives say, ‘The law does not discourage banks from lending to home buyers who do not qualify for traditional loans. Indeed, WaMu’s regulator encouraged the practice, as it opened the possibility of home ownership to a wider segment of the population and permitted WaMu to earn higher returns for investors in exchange for taking on increased risk.’”
“‘Plaintiffs cannot craft a claim out of the fact that Mr. Killinger, along with the rest of the country, failed to predict the severity of the housing crash and the impact it would have on WaMu.’”
