The Housing Bubble

The Rutland Herald reports from Vermont. “According to Jill Alderman, president of the Rutland County Board of Realtors, there is a surplus of homes for sale in the county. For homes up to $200,000, Alderman said there is a nine to 12-month inventory. Homes $200,000 to $300,000, the inventory of homes is 18 months. Homes $300,000 to $500,000, there is a two-year supply. Homes $600,000 and above there is a three to seven year inventory. Foreclosures in Rutland County spiked 38 percent last year. While foreclosures represent a small percentage of all homes on the market, Jim Watson of Coldwell Banker Watson Realty said the impact is significant.”

“‘It’s like a hole in the bottom of a bucket with the bucket being full of value,’ Watson said. ‘It’s slowly lowering the average sale price of everything.’”

The Portland Press Herald from Maine. “This rural York County community has one of the most distressed housing markets in Maine. Outwardly, the indicators are subtle. ‘For Sale’ signs hang in unplowed yards at a few vacant homes. Since October, 85 homes in Waterboro have been sold, listed for sale or put under contract. Twenty-eight of them – or roughly 33 percent – are owned by a bank or are listed for less money than their sellers owe on mortgages.”

“Brenda Hildens 18-year-old raised ranch is listed for $125,000. It’s not a distress sale…But the house has been offered since October, and she suspects she’s being hurt by local market conditions. ‘I’m selling this for way less than what it’s worth,’ she said. ‘But that’s because everyone is foreclosing. And people are going to buy those homes first.’”

The Connecticut Post. “Forget the chocolates: Give your loved ones their home back this Valentine’s Day, when homeowners in financial trouble have a chance to meet with their lenders face to face, and possibly work out changes to their mortgage terms. Homeowners should bring copies of their mortgage documents, as well as documentation of their income, expenses and debts. But people who can still make their payments are out of luck, said Larry Gilmore, a director with the Washington, D.C.-based HOPE NOW, because servicers need a proveable change in circumstances — such as a job loss or increase to an interest rate — before they’ll allow a modification.”

“‘The workshop is not designed for borrowers who are simply looking for a better deal on their loan,’ said Thomas L. Lavelle, a spokesman for the Boston Fed. Some people, said Lavelle,, will find out there is no workable solution. ‘People who at least heard that [at the first event] went away with a sense of closure,’ he said.”

The Block Island Times from Rhode Island. “In 2008 new home construction on Block Island hit one of the lowest points in recent memory with just four single-family home permits issued for the year. It marks a substantial drop from 2007 when 40 permits were issued for new homes.’Most of the builders I talk to, say the primary or main builders, are telling me they’re good for a year in terms of work,’ Building Official Marc Tillson said. ‘That’s not good. They used to be booked for years.’”

“Dick Wildermuth, an owner of modular home-building company Connecticut Valley Homes, said that for the first time in many years his 27-year-old company did not build a single house on the island. ‘On Block Island an awful lot of the construction that happens out there is second homes and I think a lot of that discretionary spending disappeared in the stock market,’ he said.”

The East Bridgewater Star from Massachusetts. “The recession has caused steep spikes in unemployment throughout the region, and many of the job losses can be traced to the real estate downturn. The bulk of the new jobs created in many towns in Southeastern Massachusetts during the early part of the decade were connected to home construction, said Robb Smith, director of policy and planning for the state Executive Office of Labor and Workforce Development.”

“‘With the collapse of the construction industry, we would expect to see more severe unemployment,’ Smith said. ‘The industries that were driving that growth in recent years are the ones that have suffered the earliest and hardest in this recession.’”

The Salem News from Massachusetts. “Every cloud has a silver lining. And when it comes to our wounded economy, you might even be able to take your silver lining to the bank. There are a few hopeful signs and bargains for savvy consumers. These include low mortgage rates, still cheap energy costs, stable car prices, travel bargains, falling personal debt, dropping construction costs and even a retreat in some retail prices.”

“Salem Chamber of Commerce Director Rinus Oosthoek finds it’s a good time for his businesses to build. ‘If you want to do construction,’ he says, ‘everyone’s looking for jobs.’ In Marblehead, for example, bids for a repair job at the Village School recently surprised officials at $5 million below a $16.3 million estimate.”

“Lloyd Hamm, chief administrative officer at Eastern Bank, points out, the dramatic fall in home prices bedeviling some has been a blessing for others. Citing decades of experience, he says, ‘I don’t think housing has ever reached this level of affordability. … It’s a huge positive for young people.’”

The Boston Globe from Massachusetts. “Massachusetts home sellers are working harder to close real estate deals by offering more incentives to attract buyers and dropping prices in greater numbers, according to a report released yesterday by the Massachusetts Association of Realtors.”

“About 63 percent of sellers reduced the asking price on their homes last year, up from 58 percent the year before, according to the 2008 Massachusetts Profile of Home Buyers & Sellers. One-third of sellers offered incentives to sweeten the deal, including assistance with closing costs and home warranty policies. ‘Buyers are asking for a little extra help as they negotiate,’ said Gary Rogers, president of the Massachusetts association.”

“The profile is an annual survey of buyers and sellers conducted by the National Association of Realtors. Falling home prices also are attracting buyers, the report said. About 30 percent of buyers attributed their purchases to improved affordability or availability of homes, a question new to 2008. Only 4 percent said they wished they had waited to buy.”

The Times Union from New York. “The Capital Region’s stalling housing industry has found a new reason for optimism: a tax credit for home purchases included in the $838 billion stimulus package approved Tuesday by the U.S. Senate. ‘We think it will get people off the fence,’ said Philip LaRocque, executive vice president of the New York Builders Association. ‘There are houses waiting to be sold, and there are qualified buyers. But they’re just kicking the tires.’”

“Despite Tuesday’s Senate approval, the housing credit could be stripped from the final version of the bill. If that happens, ‘there’s going to be a lot of air taken out of the balloon,’ LaRocque said. ‘The credibility of the federal government to help us at all is on the line here.’”

The Buffalo News from New York. “Federal officials shut down Guy W. Gane Jr.’s alleged Ponzi scheme in May after he took $5.7 million of his clients’ life savings. The SEC earlier said that Gane had diverted $2.86 million of his investors’ money to himself, his two children…both named as relief defendants — company Vice President Lorenzo Altadonna and others. Gane spent $321,000 on travel and meals, the SEC said, and paid $79,000 to a landscaper.”

“Altadonna, a native of Binghamton…is married to Gane’s niece. Both men drove late-model cars — Altadonna had a BMW and a Lexus and a custom-made motorcycle, while Gane drove a new Cadillac — and liked to spend money, their investors said. The two had a radio program on WHLD called ‘Money Is Funny But It Ain’t No Joke’ and offered financial advice over the air. ”

“The two induced people to invest, their investors said, by guaranteeing 10 percent annual returns. They said they were investing in condominiums in Maine. The investors later learned that there were no condominiums.”

“‘We want justice,’ said Donna Sirianni, a lab technician from Buffalo, who invested $100,000 with Gane’s company through Altadonna. ‘I want him in jail,’ said Donna Sirianni’s husband, Mario, a retired Buffalo housing inspector.”

“One man, a Nabisco retiree, told the group that he had invested his entire life’s savings, $600,000, with Gane.”

The East Hampton Press from New York. “A year ago, recession warnings were on everyone’s lips. In the Hamptons, the talk was not of looming disaster but of how the high end of the real estate market was carrying onward and upward, dragging the median price of East End homes up despite slightly fewer sales, and how the local market, as a whole, seemed to be muddling through the tough times and even showing signs of a possible upswing.”

“Then September happened. By the end of 2008, almost every region of the East End and every sector of the market had seen precipitous drops, in both volume of sales and dollars that changed hands through real estate dealings. And as the real estate season gets swinging for 2009 with the coming holiday weekend, there is little question that the housing market on the East End has finally been knocked off its high horse.”

“‘There’s a standoff right now between sellers who want to believe that their houses are worth what they were at the height of the market, and buyers who don’t want to pay those prices,’ said Jay Flagg, managing broker of Prudential Douglas Elliman’s Southampton office. ‘The buyers right now are bottom fishers, vultures coming in with very lowball offers. They both have to come toward each other somewhat and when they do, we’ll see things start selling again.’”

“‘I think sellers are finally beginning to realize that if they want to sell their house, they need to make a drastic price reduction,’ said Morley Quatroche, owner of the Morley Agency in Southampton.”

“Rick Hoffman, regional VP for the Corcoran Group, said the inventory of houses for sale on the East End is higher than it has ever been and is increasing every month. ‘It used to be location—the adage of what’s the most important thing in real estate—now it’s value,’ Mr. Hoffman said. ‘It’s the psyche of the buyer. They read about the market and they think prices should be way down. It’s the psyche of the buyers in everything now: Bergdorf’s, car dealerships, everything. They want a good deal.’”

“Over long periods of time, 20 years or more, house prices on the East End have increased an average of about 10 percent a year, according to market watchers. From 2003 through 2005, the median prices in East Hampton and Southampton towns grew 17 to 25 percent per year. The prices leveled off in 2006, growing by only 4 to 8 percent, before jumping again in 2007 by about 20 percent.”

“In 2008, the median price dipped 9.5 percent in Southampton Town and 13.5 percent in East Hampton Town. The latest figures show a decrease, but still leave the median in both towns about 40 percent higher than they were in 2003. And that leaves a lot of correcting still to be had.”

“The past year was a bad one for the East End in terms of real estate sales. It had been more than 15 years since there had been a down year in the local real estate market—and 2008 was a very down year. ‘Everything fell apart in 2008,’ says George Simpson, owner of Suffolk Research Inc., which compiles statistics on real estate sales in Suffolk County. ‘We became like the rest of the country.’”

The New York Observer. “When the Center for an Urban Future, an urban policy think tank, released a report last week documenting in great detail the continued misfortunes of the middle class in New York City, many people responded with little more than a faint raising of the eyebrows and a disaffected shrug of the shoulders, as if to say, ‘Tell me something I don’t already know.’”

“Over the years, no big-ticket New York City item has seen such rampant appreciation as home prices, which increased 77 percent from 2002 to 2007. Just imagine if you paid $500,000 for a home in the early ’00s (putting down a $50,000 10 percent down payment, for instance). By 2007, it would have been worth $885,000. But unlike most other things measured in the report, which are expected to hold their value in the short term, housing prices are fated for a short-term splashdown.”

“Sure, real estate brokers are saying it’s a buyers’ market, but that doesn’t mean it isn’t true. With the collapse of the Wall Street economy, property prices are poised to head south by an indeterminate amount and for an indefinite period. The question is whether middle-class New Yorkers will be able to take advantage of the discounted property values. The standard definition of middle class is people making 80 to 120 percent of the middle income in a given area. According to the most recent survey, taken in 2007, the median household income in New York City is $48,631.”

“Joel Kotkin, a research fellow at Chapman University in Orange, Calif., and a co-author of the report, is hoping home prices take a big tumble. ‘I know it will offend some people in the real estate business,’ Mr. Kotkin said, ‘but a 30 percent drop in real estate prices would be a very healthy thing for New York City over time.’”

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A report from the Las Vegas Sun. “Anyone looking to regain the appreciation they lost on their homes during the correction over the last 18 months is going to have to wait awhile, according to Scott Dugan, one of the leading appraisers in Las Vegas. Dugan says the local housing market is about to be hit by another wave of foreclosures — possibly three to four thousand — that could send prices spiraling down even further. Fannie Mae and Freddie Mac have had a moratorium on foreclosures that lifts at the end of January, he says.”

“‘We are going to get hit with another wave of listings that may, in turn, drive down the market further than where it is today,’ Dugan says.”

“One market that investors are no longer pursuing is condominiums, especially the condo-hotel market, Dugan says. ‘That market is gone,’ he says. ‘It used to be a nice market, but not anymore. Financing has dried up.’”

“Units at the MGM Signature, for example, have fallen 60 percent to 70 percent in value for anyone who purchased them in 2006 and 2007, he says. Residential condominiums have fallen 40 percent to 50 percent in value in the last two years and that market is still falling with no end in sight, he adds.”

“Las Vegas research firm SalesTraq reports that of the 15 high-rise projects in the valley, nearly half have less than 60 percent of the units sold. And of those already sold, a growing number are in foreclosure proceedings. The state of the condo market and inability of developers to close out units are expected to lead developers to rent units until the market rebounds.”

“Streamline Towers in downtown Las Vegas, for example, has closed on only 10 percent of its 275 units, according to SalesTraq. One Las Vegas has closed on 15 percent of its units. Condominium sales have slowed because the credit crunch has prevented many buyers from securing financing. Others have simply walked away from their deposits because the opportunity to flip the units is gone as the units have decreased in value.”

“Newport Lofts, a downtown Las Vegas residential condominium project that has closed on 64 percent of its units, has slashed prices in half in some cases with units going for under $200,000, SalesTraq President Larry Murphy said. The reason in part is developers are competing against their own buyers who are selling their units as part of short sales to ward off foreclosure.”

“‘We have homeowners who for the most part bought as an investment and intended to flip them to make a profit,’ Murphy said. ‘The first ones in were those who had success, but we are seeing a substantial amount of foreclosures for (the second wave) buyers who paid higher prices. We are seeing foreclosures in the high-rise market just like the rest of the housing market. It is not immune.’”

“With only 58 percent of the condominium units closed in Las Vegas, passers-by see plenty of unlit rooms at night, Murphy said. That already is a common occurrence because many condominium buyers are purchasing second homes and spend only part of the year here, he said.”

“What stands out in the statistics is that Trump has closed on only 22 percent of its 1,282 units while Palms has closed on 57 percent even though both started closing about the same time, said Steve Bottfeld, executive VP of Marketing Solutions.. As the credit market was drying up, properties with a higher number of closings had better programs in place to retain buyers and help them obtain financing, Bottfeld said.”

“‘The question you have to ask yourself is what went wrong,’ Bottfeld said. ‘I think (Trump is) the poster child for what went wrong in high rises (because of the credit crunch).’”

“Sky Las Vegas and Turnberry Towers…aren’t offering discounts but renting out units and waiting to sell them when the market returns, analysts said. ‘They are holding back because they know it is going to be several years before high rises are going to be built again, and they are not going to give them away because of the current market situation,’ luxury high-rise Realtor Bruce Hiatt said. ‘They know once they are gone, they are gone.’”

The Economist. “For a glimpse of the old, confident Las Vegas, visit its newest hotel. Steve Wynn’s vaguely Chinese-themed Encore, which opened in December, is packed with heavy draperies and well-drilled staff. It has thousands of indoor flowers, flat-screen televisions in the bathrooms and a restaurant where the décor changes every half-hour or so. One of its boutiques sells a bejewelled object adorned with a butterfly for $269. Closer inspection reveals it to be a toothbrush-holder.”

“No doubt it seemed like a good idea two-and-a-half years ago, when work began on the hotel. Today it seems delusional. Such a quick decline (see chart) would be painful anywhere. In a state with a tradition of boosterism it has caused something of an existential crisis. Perhaps the most shocking news to locals is that Clark County’s population, which more than doubled between 1990 and 2007, has declined slightly in the past year.”

“‘We thought the only business cycle was up,’ laments John Restrepo, a Las Vegas consultant.”

March 31, 2006. “Housing prices are flat, high-rise condo projects are canceling sales, and now land values have dropped by almost half in Las Vegas, local research firm Applied Analysis reported. The average price for an acre of vacant land in the valley was $376,200 in the fourth quarter, down 47 percent from the previous quarter and down 28 percent from the same quarter a year ago.”

“Several factors contributed to the decline in land prices, Brian Gordon said Wednesday….’Land prices that shot up by as much as 99 percent during the past 18 months are ‘clearly unsustainable,’ Gordon said.”

March 30, 2006. “The $3 billion Las Ramblas luxury condominium-hotel project backed by actor George Clooney is no longer taking reservations at its sales office on Convention Center Drive. ‘The sales office is not closed,’ Related Las Vegas President Marty Burger said Tuesday. ‘There are lots of rumors. Don’t believe everything you hear. When something is concrete, we’ll call you. I can’t talk about it now. Sorry.’”

“Paula James, vice president of the Curve, said sales have been suspended, but the project has not been canceled. Developers had a 180-day contingency period to reach 75 percent presales required for financing and failed to meet that goal, she said. ‘Most lenders want to see at least 60 percent in presales before signing off on financing. ‘It (presale percentages) kept going up as the media got more negative,’ James said. ‘The number kept going up as other properties continued to not be built. It just made lenders nervous.’”

“Bob Joseph said he liked the looks and location of the Curve, but he didn’t like the contract. The deal, he said, allowed the developer to change the floor plan specifications and required the buyer to pay the escrow fee and seller’s tax. ‘That’s when I started to say it’s not the right deal,’ he said. ‘We were looking at it as a rental. If there’s going to be a glut of condos built in Las Vegas, it’s not going to be a seller’s market.’”

March 28, 2006. “Paul Murad, a condo developer and author of ‘Manhattanizing Las Vegas,’ said the city was not ready for a high-rise project in the suburbs. ‘You can’t blame it on construction, you can’t blame it on architecture,’ he said. ‘We’re finding that people who like the suburbs like the suburban lifestyle and that means a single-family home. A high-rise in a suburban family setting is a bit premature.’”

“It’s much tougher to convince developers about projects in the suburban market, said (developer) Tim Sullivan. ‘My thought is if we had the Curve developed, it would be highly successful,’ he said. ‘But they’ve got to prove it. Right now, there’s a lot more hype than reality.’”

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