March 31, 2009

A Sense Of Denial For The Value Of Their Home

A report from the Associated Press. “Sales of vacation and investment homes slid 22 percent last year, a sign that tough economic conditions and tight lending requirements shut out buyers, the National Association of Realtors reported yesterday. Deeply discounted foreclosures and homebuilders’ efforts to unload inventory led median sales prices of vacation homes and investment properties to drop 23 percent and 28 percent, respectively. ‘As in the market for primary residences, it appears that many sales of deeply discounted distressed homes are pulling down the median price in the second-home market,’ said Lawrence Yun, the Realtors group’s chief economist.”

“Lee Falgoust bought a three-bedroom home in Ocean City, N.J., last September for $412,000 - about $150,000 less than it sold for in 2005. He plans on spending about two weeks there this year, and is renting it out for as much as $1,950 per week during the summer season. ‘It was a pretty safe investment,’ said Falgoust. ‘The rental income is helping me be able to afford it.’”

The New York Times. “There are cranes in motion at several large residential sites in New Jersey, despite something close to paralysis in the housing and mortgage markets. But at the Esperanza of Asbury Park, work was halted with the construction just above ground level, while at the failed Centuria project in Fort Lee, the land is up for sale again. And it appears that steel hasn’t even been ordered yet for other towers and complexes around northern New Jersey that were originally proposed to be opening by 2010.”

“Roseland’s Monaco Towers was originally planned as condos, but switched to rentals after the market soured last year. In addition, new rules issued by Fannie Mae make it likely that few banks would be willing to issue mortgages to buyers of units in new condominiums. But rentals are different, said developer David Barry, the president of the Applied Companies in Hoboken. ‘Rental buildings are the strongest space in all of real estate right now,’ he said.”

“‘It is true that rents are softening a bit, even in Hudson County,’ he added, ‘but for the most part, they have been holding up fairly well. Everyone thinks the world is literally coming to an end. We try to remain conscious of the cycle and are poised to take advantage when the next one begins.’”

The Times Tribune from Pennsylvania. “The residential real estate market could get worse before it gets better. That is the prediction by Austin Jaffe, consulting economist for the Pennsylvania Association of Realtors. ‘I think we are far from through in the collapse of the housing market,’ he said.”

“‘I think there’s growing pent-up demand from buyers. They’re out there, they’re just waiting,’ said Joyce Cornell, owner of Coldwell Banker Town and County Properties, which has offices in Clarks Summit and Moscow, and a customer base that stretches across Lackawanna, Susquehanna, Wayne and Monroe counties. ‘We experienced a much more robust market than usual in 2005, and 2006 and into 2007. We’re now returning to a more stable or more normal market for Northeastern Pennsylvania. In years past, like 2005 and 2006, we had great markets, but it was nothing like the overheated markets in California and Florida.’”

“‘We are seeing a greater number of foreclosures,’ she said. ‘But our foreclosures, the majority of them were investor properties.’”

The Meadville Tribune from Pennsylvania. “Another 200 manufacturing jobs disappeared in Crawford County in February, pushing the local unemployment rate to 9 percent — its highest point in 17 years. ‘It’s as bad as I can remember for a long time,’ said Sandy Rossi, the executive in charge of the United Way. ‘We’re getting more people calling about where to go to get help with utilities, mortgage and rent.’”

“Before the economy soured, Rossi said the office got about four calls a week. ‘Now we’re getting four a day,’ she said.”

The Chattanooga Times Free Press from Tennessee. “Unemployment in metropolitan Chattanooga rose to the highest monthly level in nearly 25 years last month. The Tennessee Department of Labor and Workforce Development reported Thursday that Chattanooga’s jobless rate rose to 8.7 percent in February — the highest rate since July 1984.”

“‘Our economy is in as much trouble as it has been in a long time,’ Gov. Phil Bredesen said Thursday. In Tennessee, unemployment was highest in Perry County in Middle Tennessee at 24.1 percent and in Lauderdale County in West Tennessee at 17.9 percent. ‘Those rates are Depression-era levels of unemployment,’ Gov. Bredesen said. ‘I’m really going to try to focus now on what to do with the dozen or so counties that have just fallen off the wagon.’”

“Metro Dalton, the self-described carpet capital of the world, continued to have the highest unemployment rate last month among Georgia’s 13 metropolitan areas. Employment in the Dalton area has dropped by 5,702 jobs over the past year, driving up the jobless rate to the highest levels since the early 1980s, state records show. ‘Until housing and construction comes back, Dalton is going to suffer,’ Dalton Mayor David Pennington said.”

WSMV Nashville from Tennessee. “Imagine if you wanted to get a divorce, but couldn’t because it costs too much. That’s exactly what’s happening, according to Brentwood divorce attorney Jonathon Stein. ‘I have one client who got laid off, so he’s decided not to pursue his divorce,’ Stein said.”

“‘Other clients have shared property, and, with housing values down, they’ve decided to stay together and wait, hoping that the housing market will come around,’ he said. ‘They’re forced to stay together, not because they want to reconcile or out of love, but out of this need to stay together financially.’”

The Memphis Business Journal in Tennessee. “Residential real estate appraisers already struggling to find competitive sales to determine fair market values will soon be required to attest to market conditions and abide by a new code of conduct meant to weed out any hint of collusion between lenders and appraisers. May 1 will mark the implementation of the Home Valuation Code of Conduct, which will basically put a firewall between the lender and the appraiser and not allow lenders to request or use specific appraisers.”

“Both new requirements have their roots in criticism the appraisal industry has taken over the catastrophic downturn in the residential real estate market in the last year and the billions in losses by government lenders like Freddie Mac, Fannie Mae and the Federal Housing Administration. The most immediate step to try and remedy that is the 1004 MC form.”

“Appraiser Don Ralph, owner/operator of Ralph Real Estate Appraisal, says the 1004 MC is misnamed and should be called a ‘market trends report’ since it covers a 12-month period. He thinks the changes are overkill for a problem that responsible and ethical appraisers recognize. Many appraisers have resisted indicating declining conditions. ‘They were afraid to ruffle the feathers of brokers,’ Ralph says. ‘Now it’s not a big taboo.’”

“Still, he thinks Fannie Mae’s approach with the 1004 MC is too much. ‘It’s like killing a gnat with a bazooka,’ he says.”

“For each period, appraisers are asked to report not just median prices, but the number of properties on the market, absorption rates and days properties have spent on the market. Appraisers also must determine if a property’s value is increasing, decreasing or stable. ‘In some cases declining is good,’ says real estate appraiser Allen McCool. ‘If inventory is going down, that’s good. If median price is going down, that’s bad.’”

The Virginian Pilot. “With interest rates sliding to historic lows, mortgage applications have surged in recent weeks as homeowners try to take advantage of rates that could save them hundreds of dollars a month in payments. Many local homeowners, however, are finding they don’t qualify for new loans as home values have fallen and loan standards have gotten more strict, local mortgage brokers and loan officers said.”

“‘The problem right now with the guidelines so conservative, a lot of people would like to refinance but just can’t,’ said Ken Dolan, VP for Bank of America Mortgage in Virginia Beach.”

“Dolan estimated that half the people who call wanting to refinance won’t qualify. And some of those who apply will be turned down. The biggest problem, he said, is falling home values in the region. ‘Consumers being underwater is a big problem,’ he said. ‘It’s almost like they’re in a sense of denial for the value of their home.’”

“A statewide organization that provides classes and counseling for homeowners is eliminating foreclosure prevention from its services, a spokeswoman said Monday. Community Housing Partners, which has an office in Virginia Beach, has offered counseling to troubled home-owners as a wave of foreclosures hit the state and Hampton Roads.”

“‘Foreclosure counseling could take up a lot of time,’ spokeswoman Melissa Byrd said. ‘… But rather than giving part of our energies to several areas, we decided to focus on one area.’”

“The group had offered a range of foreclosure prevention services, including helping homeowners negotiate loan modifications. Now it will no longer be part of the Hope Now alliance of housing counselors approved by the Department of Housing and Urban Development. ‘It may seem coincidental with what’s going on in foreclosures,’ Byrd said. ‘It has more to do with re-creating our business model. We want to teach people how to avoid getting yourself into a foreclosure situation altogether.’”

The Baltimore Sun from Maryland. “Maryland’s jobless rate rose to a nearly 17-year high of 6.7 percent last month, reflecting continuing economic woes in a deepening recession, the Labor Department said Friday. While Maryland has fared better than many states, its unemployment has steadily risen as turmoil in the housing, construction and financial markets has widened.”

“James Anderson has been out of work since November, when he was laid off after 17 years as a driver for DHL Express. Anderson said he has been living on unemployment benefits and a small severance, with the last check to arrive this week. The 37-year-old Baltimore resident has been to four interviews, but most employers want him as a part-time employee, he said.”

“‘I’ve got savings, but I can’t live off it,’ he said. ‘If you don’t replenish it, you’ll sink. I worked hard to get my house and my car. I don’t want to lose those things.’”

The Daily Times from Maryland. “On the edge of Scarboro Creek, overlooking the Chincoteague Bay, Creekside at Public Landing would have been a nice place to call home. The 37-lot subdivision planned by Realtor Todd Burbage would have been nestled into 232.2 acres of wetlands, fields and forest. But while the plans have gained county approval, nothing will ever be built.”

“Several years ago, developers were approaching local governments with grand plans for new communities or expansions to existing ones. Now the same people are waiting out the slump, using the time to upgrade infrastructure or find new uses for the land that is otherwise sitting empty.”

“Snow Hill officials know the situation all too well. In 2004, Snow Hill annexed 1,200 acres for the Summerfield development that was set to begin sales of the 2,000 residential and commercial lots in late 2005. Phase one of the project, which would have built 300 homes on the south side of town, was reviewed by county planners in December of 2006, and has reserved water rights. But construction has yet to begin for either the 300 homes or the town’s new wastewater treatment plant that developer Mark Odachowski committed to build at his expense.”

“Meanwhile, at Grand View Farms, the community’s main thoroughfare — Grandview Drive — winds around 168 acres on the south side of Public Landing Road, almost across the street from the Creekside property. It was supposed to link the development’s planned 62 lots and is complete with stop signs and cutouts for driveways.”

“But days, weeks, months can go by without a car traveling the road. The subdivision was recorded by the county in March 2006 and the owner, Nichols Development Corp., was given permission to start building. However, three years later, the land is overgrown and no houses have been constructed.”

“Local developer Troy Purnell — who owns Purnell Crossing and Decatur Farms in Berlin — said that the last thing Worcester County needs is more new homes. ‘I think we are at the point where we need to clear out some of the inventory we already have,’ said Purnell, who is also a Berlin town councilman. ‘There are an awful lot of properties on the market already.’”

“In the late 1990s and early 2000s Purnell said there was a building boom on the Shore fueled by loose credit and people seeking second homes or a place to retire. By the end of the summer of 2005, Purnell noticed his properties weren’t selling as well. ‘There were not as many phone calls, not as many buyers, not as many contracts being written,’ he said. ‘By the beginning of 2006, it got noticeable that there was something going on.’”

“At River Run on Beauchamp Road, all of these conditions have stalled the growth of the community. In January, the development’s owner Lewis Meltzer told the Worcester County Planning Commission that the community has not had a real estate sale in a year and a half.”

“‘People aren’t even driving around looking at real estate anymore,’ said Hunt Crosby, the community’s marketing director.”

“‘The down side of it for us that it’s tough out there,’ he said. ‘The great thing for the customer is that there are some great deals right now.’”

“Gregg Holland, president of Coastal Association of Realtors agreed. ‘This is a great time to buy a home, second home or condominium and purchase them at 2004 prices, in some instances,’ he said.”

The Charlotte Observer in North Carolina. “Charlotte real estate lawyer Victoria Sprouse, accused of participating in a multimillion-dollar mortgage fraud scheme, took the stand in her own defense Monday, weeping as she denied committing any crimes. ‘There was no reason for me to do this,’ Sprouse told jurors. ‘This has ruined my life.’”

“In tears, she recounted how her arrest in the federal case also has crushed her business. She told jurors she used to conduct 3,000 mortgage closings a year. Now she does three to five a month. ‘I’ve been financially ruined,’ she said.”

“The 38-year-old real estate lawyer is charged with bank fraud, mail fraud and money laundering. If convicted on all the charges, she could spend more than 25 years in prison. Prosecutors have said Sprouse contributed to a wave of foreclosures in the Charlotte area, and that such frauds have played a significant role in the banking meltdown that has crippled the U.S. economy.”

“Sprouse told jurors that she depended on her paralegals to prepare documents properly but acknowledged that she hadn’t closely supervised them. She said she spent much of her time in closings. ‘I couldn’t keep up with everything,’ she said. ‘I was working too much. I was signing a lot of documents, and I wasn’t paying any attention to what I was signing.’”

Bits Bucket For March 31, 2009

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March 30, 2009

It’s All About The Moment In California

The Desert Sun reports from California. “There’s no dispute, it’s been a buyer’s market in real estate. Buyers with good credit, decent income and the stamina to withstand a rigorous loan approval process — some taking as long as 90 days to clear escrow — are standing pat and getting some of the best real estate deals the Coachella Valley has seen in decades. The median price of sold homes hovering at $180,000. The typical mortgage payment falling to $976, a price less than many first-time buyers pay in rent. The typical mortgage payment has not been below $1,000 since May 1999, according to MDA DataQuick.”

“There have been accounts of new, never-occupied homes with upgrades that are selling for 60 percent less than the original sticker price. And Kelly Collier, a senior escrow officer with Fidelity National Title Co., Indian Wells, said she’s heard some amazing auction stories that include the sale of new, 1,800-square-foot homes near the Salton Sea for $47,000 in cash. ‘The REO sales have been huge,’ said Collier. ‘It’s location, location. But it’s also the ability for someone with lower income to get into their dream home.’”

“While the sales of new construction lagged 52 percent over last year, the median price of the new homes sold dropped 15 percent from one year ago to $281,000. That’s about $100,000 higher than the overall median sales price. ‘The people who are coming into the market are speculators, investors and others who — until now — feel they’ve been frozen out of the market,’ said Sam Schenkl, executive officer of the Palm Springs Regional Association of Realtors.”

“‘It’s only going to be a matter of time before demand evens out and catches up with the supply,’ said Patrick Veling, president of Brea-based Real Data Strategies. ‘Then we’ll see people who missed the bottom of the market, as interest rates climb.’”

The Press Democrat. “Owning a home was out of reach for Casi Christiansen and Aaron Jewett a year ago when the typical Sonoma County house sold for $100,000 more than they could afford. Today the couple has settled into a southwest Santa Rosa home they purchased out of foreclosure from Wells Fargo Bank without breaking their budget.”

“Casi Christiansen, 27, and Aaron Jewett, 26, once feared being shut out of home ownership in the region where they grew up and wanted to raise a family. ‘I figured I was going to be a renter for life,’ Jewett said.”

“After looking at several homes, one looked promising. But seven other buyers had already made offers on the home, which had been on the market just two days. The couple had their first taste of the frenzy for homes around $300,000. ‘You have to prep buyers to be realistic and know what to expect. They’re going to need to move quickly. But there will be more coming up,’ said Toni D’Angelo, their real estate agent.”

“After looking over two dozen more homes, the couple jumped on one that came back on the market at a reduced price. The day it was listed they offered the full asking price: $285,000. But the bank only accepted the offer after completing its own check of the couple’s finances. In the end, the couple had a newer, three-bedroom home needing minimal work at a good price. The previous owner who lost it to foreclosure paid $515,000 three years ago.”

“Such a steep price decline helps make the couple’s mortgage manageable. There are fewer dinners out and weekend ski trips are a luxury now, but the couple isn’t stretching financially. ‘It’s definitely tighter now. But it’s ours,’ Jewett said.”

“Strong sales are needed to reduce the accumulation of foreclosed homes before county home prices bottom out and the housing market can stabilize. That appears to be happening at the lowest-price ranges, said Leslie Appleton-Young, chief economist for the California Association of Realtors. But the housing market in Sonoma County is expected to remain unsettled into next year, she said.”

“‘The severity of the downturn is greater than we imagined,’ Appleton-Young said. ‘It changes the tenor of the market. First-time buyers and investors are on it. They’re recognizing what great bargains there are.’”

The Orange County Register. “Corey Fast waited nearly three years for a chance to buy a condominium inside the Stadium Lofts in Anaheim’s Platinum Triangle. Fast, 30, and his girlfriend Michelle Ewing, 31, of Dana Point, were among more than 75 people who camped out Friday night for ‘The Event’ – a marketing blitz to sell 60 of the 120 condos remaining inside the 390-unit Stadium Lofts complex.”

“A two-bedroom unit that once listed for $514,500 they got for $362,000. ‘I started looking at these three years ago and the prices were just out of my reach,’ Fast said. ‘We almost bought last year. … I’m glad we waited.’”

“Anthony Pulsifer, 27, and his fiancée Shannon Roberts, 25, both of Orange, drew No. 47 Friday. They decided not to stay the night. When they came back this morning about an hour before the doors opened, they were still No. 47. ‘There was a lot of hype and we were disappointed to draw that number,’ said Pulsifer, a sales associate with Xerox and an MBA student at Cal State Fullerton. ‘But we figure we’ll give it a shot and, if not, then it wasn’t meant to be. We figure the good news is if this developer is offering great prices like this, then other developers are soon to follow.’”

“As of noon, the line of campers had been through the sales office and 37 of the 60 units were sold.”

The Sacramento Bee. “As home to the newest University of California campus, Merced hoped to leave behind the high unemployment, rural poverty and other miseries that have plagued the Central Valley for decades. Instead, the recession has hit here as hard as anywhere. Unemployment is at 19.9 percent, the worst in 22 years.”

“UC mania inflated the housing bubble here. Home builders rushed to fill the five-mile gap between central Merced and the campus northeast of town. Speculators poured in. Merced was the state’s hottest market in 2005, and ninth-hottest in the nation, for price appreciation. Median prices more than doubled in three years to a peak of $382,000 in late 2005, right after the first UC students arrived, according to MDA DataQuick.”

“The median now: $105,500. ‘In 30 years, I’d never seen anything like it,’ said Mayor Ellie Wooten, a real estate agent. ‘Common sense tells you that if you have a little house and suddenly it’s worth $350,000, something’s fishy in Denmark.’”

“The story is similar throughout the valley. The housing boom and the brief taste of prosperity it brought are history. Valley retailing has been devastated…Out by the municipal airport, Merced’s industrial belt has been hit, too. ‘It’s all tied to the collapse of the real estate market,’ said Frank Quintero, city development manager. ‘People were taking out home equity loans, buying boats, buying things … that’s what was keeping some of our manufacturers (going strong).’”

“Quebecor, a Canadian-owned printing plant and one of Merced’s largest employers, cut staff last year. ‘A lot of people like myself are still pretty much in shock,’ said Oscar Guillen, 55, who lost his job at Quebecor in July. ‘Because of the university … I thought things wouldn’t be that bad.’”

The Modesto Bee. “Superheated construction activity helped drive cities in San Joaquin, Stanislaus and Merced counties to expand their boundaries 45 percent in the past 18 years, according to a Bee review of annexation data. The 22 cities’ populations grew 53 percent, on average, in the same time frame. Progress shifted to shame when the flurry ground to a halt and the three counties suddenly found themselves at the epicenter of the nation’s mortgage default crisis.”

“Assuming leaders are making the link, have they learned any lessons from the building boom and bust? ‘They were all wanting to let it rip,’ said Max Neiman, senior fellow at the Public Policy Institute of California. ‘Understandably so. The opportunity was there (and officials said), ‘Let’s let the housing market go gangbusters.’”

“But demand for housing dollars, not effective planning, drove the valley’s rapid growth over the past couple of decades, several experts say. Now we have acres of single-family homes replacing farmland on cities’ fringes — many neighborhoods pocked by bank-owned homes with ill-kept yards.”

“‘It’s hard to separate out how much of that is due to poor planning or to the general economic decline,’ Neiman said. ‘Those places that have the most dramatic impact were probably overbuilt. That’s the bad planning part. But a number of things were converging. The cliche is ‘the perfect storm.’”

“Some decent growth plans were set aside during the latest building frenzy, noted John Wilbanks, president of Oakdale-based RRM Design Group, suggesting a flaw in even the best-laid plans. ‘They adopt general plans but the first guy who comes in simply files for an amendment and gets (leaders’) support to change the plan based on the market,’ he said. ‘It’s all about the moment.’”

The Daily Bulletin. “Look around you. See any empty office buildings with multiple ‘for lease’ signs posted? They’re going to stay empty for some time. Just like housing, the office market is overbuilt, especially ‘Class A’ space.”

“These days, landlords of classy steel-and-glass offices in the Ontario-Rancho Cucamonga area are struggling to attract tenants. Even after the housing boom went bust in late 2006, dozens of office-space projects in the pipeline had to be completed.”

“Preliminary first-quarter 2009 data shows that 33 percent of all Class A office space in the Inland Empire is vacant, according to Thomas Galvin, research associate at the Ontario office of Colliers International brokerage-research firm. That’s up from about 26 percent in fourth-quarter 2008.”

“Class B office space will probably show a 20 percent vacancy rate for this year’s first quarter, preliminary numbers show, Galvin said. ‘The vacancy rate is still going up,’ he said. ‘As far as a peak, I don’t think we’ve reached that yet’.”

“‘Having empty commercial buildings is not necessarily in anyone’s interest, but it’s not a disaster for anyone but the speculator behind the building,’ added Eric Nilsson…economics professor and director of the Center for Labor Studies at Cal State San Bernardino.”

The San Diego Reader. “All across the United States, and around the world, convention centers are vastly overbuilt. Supply exceeds demand. So municipalities that own the centers resort to price-slashing. A…herd mentality has almost run the global economy into the ground. In recent years, economists and executives genuflected at the altar of a number of myths: that housing prices would always rise and people would always pay their mortgages; that gambling on derivatives distributed risk, rather than increased risk, ad nauseam.”

“Heywood Sanders, who has an idea of how many new centers may be built and old centers expanded by 2014, says, ‘Can [San Diego] build an expanded convention center if they can find the dollars to pay for it? Sure. Does it make any sense? Are they going to get any persistent increase in new business? The answer is very clear: no. The bar for dealing with reality in San Diego has never been set very high.’”

The San Gabriel Valley Tribune. “Realtor James Joseph remembers the good old days. That’s when his team of agents would walk into their Whittier office excited about getting a new listing. The phones rang, a lot. Commissions were huge. They were in line with the bloated price of homes, which often sold within a few days - or hours - after being listed.”

“Unfortunately for the U.S. economy, with the help of easy-money banks those buyers all too easily fudged their way into the American dream. ‘They knew they would sell right away, regardless of price,’ said Joseph, referring to the excitement of his agents.”

“That was only about a year and half ago. Oh, how things have changed. Scores of for sale signs - or worse, foreclosure signs - now stand in weed-ridden front yards in the San Gabriel Valley. Realtors are leaving the business, and the housing industry that supported them - the contractors, the lenders, the builders - have gone down with them. Even Joseph, a veteran of the business, had to lay off staff.”

“Commissions paid to real estate agents and brokers totaled $46.6 billion in 2008, a $12 billion dropoff from 2007, according to ForSaleByOwner. The savvy agents survive. But other aren’t so lucky, Joseph said. Joseph has survived three boom-and-bust cycles since he got into the business in the late 1970s. ‘No question, the sunshine soldiers are gone,’ he said.”

“Economists point to banks as the key to unlocking the economy’s woes. When they loosed up credit, not only housing, but other sectors such as small business will be reborn. But that rebirth will occur under a watchful eye. ‘My guess is you’re just going to go back to the way we were … back to the `80s and `90s,’ said Babette E. Heimbuch, CEO of California Federal Bank. ‘You come in, and you need to have a down payment. You need to have good credit. It will go back to the days before Wall Street started buying (loans) up and selling them.’”

The Merced Sun Star. “When John Barker, 40, was arrested in March for burglary and mortgage fraud in San Joaquin County he called Lonnie Todd at Gangster Bail Bonds. But the Modesto-based bail bondsman, who does about 30 percent of his business in Merced, wouldn’t issue Barker’s $200,000 bond. The co-signer, Barker’s brother, had property for the collateral but there was a catch. Barker’s brother owed $900,000 on a piece of property worth only $700,000.”

“This has increasingly become common in the past year, said Todd. The precipitous drop in home values in the Valley ‘has affected people’s ability to get out of jail.’”

“Todd said the lack of collateral has meant about half of all the people who call him for bail higher than $50,000 can’t get collateral. That is because so many homeowners who would have used their property as collateral to get relatives out of jail are underwater.”

“‘They owe more on their property than it is worth,’ said Tony Suggs, a board member of the California Bail Agent Association. ‘No one has that equity anymore. Most bail agents, when their bonds are pretty large — let’s say $20,000, $50,000 or $100,000 — require collateral and the best collateral is a deed of trust, or property. Property can’t move.’”

Bits Bucket For March 30, 2009

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

March 29, 2009

This Lack Of Money Floating Around

A report from the Idaho Statesman. “Legal advertisements announcing foreclosure auctions fill page after page of the Idaho Statesman and other newspapers. And advertisers hawk sure-fire methods to make money at the auctions. But very few auctions actually take place in the Treasure Valley. Most that do usually result in repossession of the home by the lender - not a purchase by a savvy investor or a lucky home-buyer. Branch manager Jared Larsen…of Alliance Title Co. in Caldwell said he often reads his legal notices to an empty room. Of the 342 trustee’s deeds (documents used to transfer ownership from a trustee, usually a title company) recorded in Ada County so far this year, only 23 have been transferred to third-party purchasers, according to Bobbi Oldfield, trust officer at Alliance Title. A third party is anyone other than the lender or homeowner.”

“In Canyon County, only eight of 282 trustee’s deeds have transferred to third parties this year. When no third party submits a winning bid, the deed is transferred from the trustee to the lender. Some foreclosures have been postponed by large national lenders because relief programs are coming out that may help borrowers stay in their homes by modifying or refinancing existing loans. ‘They’re hedging their bets as they try to find ways to avoid giving the properties away,’ said Jeremy Bordner, VP of residential lending at Idaho First Bank in Boise.”

“Daniel Starke got a reprieve when his mortgage servicer postponed the foreclosure auction of his neatly kept three-bedroom home in Northwest Boise last week. Now he has a few more weeks to try to find a buyer and arrange a short sale. The Iraq War veteran lost his job as a heating and air-conditioning repairman. He fell behind on his house payments last year. Starke said he has cashed out his retirement plan and looked into loan-modification programs offered by the federal government, but without a job he doesn’t qualify.”

“He expects he’ll re-enlist. ‘All I have to do is put my butt on the line, save my money and I’ll come back with a clean slate,’ he said.”

The Bend Bulletin from Oregon. “Only 268 building permits were issued in Bend in 2008, down roughly 60 percent from 2007 when 676 were issued and down 80 percent from 2006, when 1,348 were issued, according to the Bend-based Bratton Appraisal Group’s monthly Bratton Report. 2009 also has gotten off to a slow start.”

“It’s not stopping the Central Oregon Builders Association from proceeding with its annual Tour of Homes in July. The show is providing hope for local builders, including Mike and Cindy O’Neil, who own and operate SolAire Homebuilders in Bend. This summer, it’s all the more important, according to O’Neil. She believes people will be paying more attention than in years past, as pent-up demand and low prices will motivate would-be homebuyers to jump back into the market.”

“‘Last year, I was optimistic we were heading toward the end of the downturn in terms of pricing pressure, but I was wrong,’ O’Neil said. ‘Now, I definitely think we are scraping the bottom because it’s all anyone talks about. When all you see is how bad this is, I’m pretty sure we’re at the bottom. Short of a national disaster, I can’t see any other shoe to drop. The bank part is unwinding, the pricing problems with overinflated prices for homes and land in Central Or-egon has unwound substantially, so I’m pretty optimistic.’”

“O’Neil said the couple almost built a spec home for the 2006 Tour of Homes but chose not to. If they had, O’Neil guesses they would likely still be holding it. ‘We’re still standing now because we didn’t build it, so we’re proud to still be standing but feel bad for the builders that got blindsided by the market,’ O’Neil said.”

The Oregonian. “Since converting from condos to rentals last fall, as the housing market collapsed, Cyan PDX has aggressively reached out to young professionals. But this is a tough time to fill an apartment building. At first, unraveling home sales appeared to be good news for rentals. But as the recession deepens and unemployment rates climb, so do vacancy rates as more renters double-up or move in with family.”

“Cyan had lots of company when it abandoned plans to sell its 354 units as condos. Between 2008 and 2010, central Portland is gaining an unprecedented 3,100 luxury apartments, according to a new report by analyst Greg LeBlanc. Nearly 1,300 luxury rentals will open in the next five months, according to the LeBlanc report. Many are throwing in perks, from free rent and parking to a get-out-of-your-lease clause for tenants who lose jobs.”

“‘The problem with the market right now is, it’s getting more crowded,’ LeBlanc says. ‘They have no choice but to be aggressive.’”

“At peak construction pace in recent years, Lane County home builders finished about 1,500 houses per year and that sustained as many as 6,000 jobs while it lasted — more than the University of Oregon and more than PeaceHealth employ, said Elliot Eisenberg, the Washington, D.C.-based senior economist with the National Association of Home Builders.”

“‘When you build 1,500 homes, you are the largest employer in town, bigger than health care,’ he recently told a gathering sponsored by the Home Builders Association of Lane County. Now the annual house production has plunged to about 400, and the loss of employment locally has been devastating, he said. ‘It’s a two-thirds decline. You’re losing tons of jobs.’”

“‘Construction — both residential and commercial — has really carried our state’s economy for many years. When we collapsed, the state’s economy collapsed,’ said John Chandler, executive director of the Oregon Home Builders Association.”

“Eisenberg said he has witnessed the effect in Eugene. ‘I walk downtown and this restaurant is closed, and that restaurant closed and that restaurant closed. I bet half the restaurant closures are due to this lack of money floating around,’ he said.”

The News Tribune from Washington. “As a rookie broker at a mom-and-pop mortgage company in Federal Way, Rob Collins had a killer month writing loans in the frothy, frenzied 2005 housing market. He made $37,000. So he took $5,000 in cash and his fiancée, Heidi, to Bellevue Square. ‘I told her, ‘We’re not leaving here until we spend it all,’ Rob recalled this week.”

“Over the following 18 plentiful months, Rob bought a used BMW M3 high-performance sports car, upgraded to a better mortgage company, bought a Hilltop house in Tacoma with Heidi, then married her. Last June, Rob, 29, lost his job writing mortgages for U.S. Bank because he couldn’t write enough approved loans to reach the $1 million minimum his bosses set for him. He sold the M3 immediately and hasn’t owned a car since. He and Heidi, 26, have fallen four months behind paying Countrywide, which owns the loan on their home. Countrywide calls every day asking for its money.”

“By chance, on a trip to Starbucks in Federal Way last month, I found Collins sweeping the floor before his turn taking orders at the drive-through window. He rides the bus to and from work. ‘Starbucks is a great place to work,’ Rob said. ‘I make $8.65 an hour. But I’m up for a raise here shortly.’”

“Heidi…just took a third job. Rob calls the job ’swimsuit model.’ The wisp of a woman walks the edge of the boxing ring at the Tulalip Casino Resort in Marysville between rounds holding up a placard with the number of the next round. How are you doing with all this? I asked her. ‘Not well,’ Heidi said. She choked up. She doesn’t like to talk about it much. The mental and emotional strain, at times, becomes unbearable.”

“‘We are doing everything we can to save this house,’ Rob said. ‘That’s our focus. We want to keep our home.’”

“Rob…wants to share the story because he has become an evangelist of sorts preaching against deceptive practices of some in his former industry…Rob takes out a notepad and draws me a picture that shows how lending companies provide kickbacks to mortgage brokers who write loans at higher interest rates for less-than-ideal borrowers. ‘The more rebate the broker could obtain is directly related to the higher (interest) rates he charges the customer,’ Rob said. ‘And the amount grows exponentially.’”

“When they bought the house in April 2006, they opted for an exotic loan. Countrywide didn’t ask how much the Collinses made. Why not a simple 30-year, fixed-rate mortgage? They would have qualified. Rob alone made $76,000 that year. But the exotic mortgage saved them $54 a month.”

“The problem? Their home has a market value today at closer to $150,000 than the $260,000 they paid for it or the $320,000 at its peak value. They can’t refinance. ‘It was a high-risk loan. I know it was, because I was a loan officer,’ Rob said. ‘It was widely accepted at the time. In retrospect, the types of loans such as Heidi and I got are directly responsible, in part, for the widespread depreciation we’ve seen in home values.’”

The Seattle Times in Washington. “Federal agents say they have dismantled the largest mortgage-fraud conspiracy in state history by indicting seven people on charges they bilked banks and other financial institutions out of $48 million, pocketing more than $9 million to fund lavish lifestyles that included matching Lamborghini sports cars.’

“In one instance, according to U.S. Attorney Jeff Sullivan, a house cleaner who made no more than $20,000 a year qualified for a $1.2 million loan for a house in Medina because her application said she made $45,000 a month — which was news to her when asked by federal agents, according to court documents.”

“In one instance, David Sobol purchased a home in Newcastle in August 2007 for $669,950. A month later, Sobol ‘flipped’ the property, selling it to Camie Byron, 32, a Federal Way mortgage broker, for $1 million. Using falsified loan applications that misrepresented her income and assets, Byron obtained two loans on the property totaling about $900,000.”

“Byron then ‘flipped’ the property again to another straw buyer in November 2007 for a purchase price of $1.4 million. According to the application, the buyer claimed earnings of more than $324,000 in 2005 and $385,000 in 2006. In fact, the buyer reported income to the IRS of $13,245 in 2005 and $16,600 in 2006.’

“The indictment also seeks forfeiture of items purchased with money allegedly obtained through the fraud, including two 2004 Lamborghini Gallardo sports cars registered to Kobzar and Vladislav Baydovskiy, who also stands to lose a pair of BMWs, a 31-foot Bayliner and more than $2.4 million in cash.”

The News Tribune in Washington. “U.S. Attorney Jeffrey Sullivan said 50 federal agents armed with search warrants raided the offices of the businesses, hoping to collect documents and information that might give them a better understanding of the alleged fraud. The agents rushed to make the arrests, Sullivan said, because they realized the activity was ongoing and they worried the defendants might flee or transfer assets following a federal racketeering suit brought by ING against Nationwide and Emerald City earlier this month.”

“‘Some of this could be prevented by banks doing a little more due diligence,’ Sullivan said. ‘Nobody was doing that.’”

The Olympian from Washington. “Some South Sound residents are taking a serious look at buying a home for the first time, enticed by a potential $8,000 tax credit. As soon as Olympia residents Michael Carey and his wife, Stephanie, learned about the program, they made a ’spur-of-the-moment’ decision to start shopping for a house, he said. ‘We definitely plan to buy this year,’ he said.”

“An additional factor helping first-time buyers is the changing landscape of the Thurston County housing market, real estate agent Blake Knoblauch said. A recent check of the Northwest MLS showed 39 properties for sale for less than $200,000 in the county. Two years ago, that market did not exist, Knoblauch said. ‘We’re talking decent houses.’”

The Columbian in Washington. “Wanted: Buyers to ante up for Clark County’s vacant subdivisions at rock-bottom prices. Wait a minute, hold your bets. With home building near all-time lows, why would anyone wager on all those empty land tracts, even the ones with sidewalks, driveways, street lamps and sewer pipes?”

“Because it’s a good hunch that Clark County’s resilient housing market will bounce back, said Roger Qualman, Vancouver-based executive VP of NAI Norris Beggs & Simpson commercial brokerage firm. ‘We always recover with a huge spike,’ Qualman said.”

“Qualman expects it will take two years or more for demand to return for the nearly 4,425 vacant lots in 247 unfinished subdivisions around Clark County. He attributed that anticipated demand to the county’s strong population growth. ‘An investor can hold onto (residential land) for a few years, and he should be able to sell it for a very good return,’ up to 25 percent or 30 percent more, Qualman said.”

“In most cases, sellers of the subdivisions are banks that have just begun to take back millions of dollars worth of undeveloped properties. The banks just want to unload the developments…which is why the failed properties will be marketed at bargain-basement prices, Qualman said. He hopes to find investors for tracts with housing lots that once sold for between $150,000 and $250,000 each. Now, the lots are being offered at around $50,000 each. Subdivision buyers will need to pay cash because few banks are lending for real estate investments.”

“‘They are getting down to near replacement costs,’ about equal to the cost of the improvements made to the site, Qualman said.”

“Subdivisions that are divided up and ready will fetch the best profit when the market for new homes returns, Qualman said. But most builders won’t start new construction until they see signs that a glut of existing homes for sale is shrinking. Many of those homes are on the market as bank repossessions and short sales in Clark County, which recorded the highest foreclosure rate among Washington’s 39 counties in February. A total of 388 houses entered some stage of foreclosure here last month, up 49.8 percent from the 259 filed during the same month in 2008.”

“Local home builders see the low-priced subdivisions as painful reminders of their industry’s losses, although they are good investments. Over time, the installation prices for underground water systems, paved roads and street lamps will only go higher, said Morall Olson, a local home builder and president of the Building Industry Association of Clark County. ‘The cost of plastic pipe and concrete haven’t gone any cheaper. They’re virtually getting the land for free,’ Olson said.”

Bits Bucket For March 29, 2009

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March 28, 2009

Following The Herd In Florida

The Sun Sentinel reports from Florida. “In Fort Lauderdale, Miles and Laura Brannan are raffling their six-bedroom waterfront estate in Coral Ridge Country Club. The plan is to draw the winning name after 300,000 tickets are sold, at $10 apiece. Part of the proceeds will benefit St. Simeon Church in Miami, which is conducting the raffle. The couple bought the home for $2.35 million in 2005. ‘My income’s been cut in half,’ Miles Brannan, a real estate investor, said Friday. ‘We need to sell the house. It’s a means to an end.’”

The Palm Beach Post. “Jimmy Diamond says he was flying high back in 2005. He and his wife had good jobs. They had just purchased a two-story, $600,000 home in an upscale Boynton Beach neighborhood. The Diamonds, who had lined up a buyer for their home, discovered that the development they live in, Cobblestone Creek, has houses with tainted Chinese drywall.”

“‘We had to tell the buyer,’ Diamond said. ‘They backed out the next day. We have no plan. All I know is I’m screwed because I can’t sell my house.’”

“Thursday night, a group of about 150 Boynton Beach homeowners gathered outside the Cobblestone Creek community’s clubhouse to hear a presentation from a group of lawyers. ‘We put our life savings in this house,’ said Tonya Radi, a resident in Cobblestone Creek who moved in about eight months ago. ‘This is the house we thought we’d live in for the next 20 years. What if it’s not healthy? I’m pregnant right now. Or what if people move out, what will that do to my (homeowners association) fees?’”

The News Press. “The expensive tile on the walkways outside the abandoned Paradise Preserve sales center is littered with leaves and balled-up newspapers. So, too, is Lee County littered with the victims of yesterday’s ambitious construction projects that now sit silently.”

“The big foreclosures that are coming fast and furious these days are leaving in their wake a host of people who lost money or quality of life as the developers’ visions were scuttled by an unforgiving market after the housing boom collapsed three years ago. Among those who lost out is Barbara Foster, who’s lived for seven years next to Paradise Preserve — a residential development that will be auctioned off on the Lee County Courthouse steps on April 14 for more than $91 million in debt.”

“‘You can see for yourself, it’s not pretty,’ said Foster, whose home now fronts not on the lush Lochmoor Country Club golf course but the overgrown scrub wasteland that replaced it when Paradise Cove’s developers bought the property but failed to develop it as planned in 2005. ‘This was one of the beautiful courses in North Fort Myers,’ she said. ‘It was a shame what they did.’”

The East Orlando Sun. “Ron Randolph first got wind of Stoneybrook’s financial troubles last fall when he was the only one of 2,600 non-boardmember residents in attendance at an HOA budget workshop. It was there that he heard of an impending shortfall in revenue due to the rapidly increasing number of foreclosures in his community. As a real estate agent, Randolph already was well aware of the housing plague that is sweeping across East Orlando, and the entire country.”

“‘The forecast is that by the middle of March, [the HOA board] would run out of money. Some people were extremely upset, but running an HOA is almost a no-win situation,’ he said.”

“Although these vacant properties are still bank-owned, the HOA is investigating if it can rent the homes to tenants and use the money to pay the lender. ‘This is kind of an experiment,’ said Hobie Fisher, former HOA president.. ‘We’re not trying to take over people’s houses, but we’ve got to protect the rest of the people in the community.’”

The Orlando Sentinel. “The image is surreal, oddly compelling and a spot-on barometer of how badly Florida’s construction industry is struggling: more than 2,000 green, molded plastic portable toilets lined up like boxy soldiers on a storage lot in south Orlando. That they are standing here and not on a job site — providing relief and revenue — is enough to elicit a scrap of dark humor from John Sharp Jr., whose company owns the porta-potties.”

“‘Right now,’ says Sharp, vice president of Comfort House Inc., ‘business is stinky. We were having builders just walk off [their job sites]. That gave us an idea of how crazy things were getting.’”

“The company moved here from Winter Park in 2001 to give itself more room. Sharp said that at the height of the building boom — 2004 to 2005 — it grew its operation by 100 percent in 11 months. Back then, units were in such demand, the company would call contractors asking when they would be done with a job so it could retrieve a toilet and move it to a new site. No more. ‘It’s like a ghost town out there,’ Sharp said. ‘Just tumbleweeds blowing around.’”

The Miami Herald. “Here at the epicenter of the nation’s housing crisis, an ebullient Marc Joseph bounces off a pontoon boat onto a dock behind a lovely waterfront home — it was recently vacated when its former inhabitants couldn’t pay the mortgage. ”The tiki hut comes with the house, guys!’ the slim 41-year-old real estate agent says as a dozen or so potential buyers disembark from two boats and start poking around the 2,600-square-foot house. It’s being offered by a bank for $574,000.”

“Considering this particular home — situated on a wide canal leading to the Gulf of Mexico — sold for $776,000 in 2005, it’s going to be steal for someone.”

“Pedro and Karin Weber are Germans who recently moved to Florida from Venezuela and hope to set up some sort of retail business so they can stay. They did their homework and deliberately chose to relocate to Cape Coral. They hopped onto the boat hoping to find a place in the $350,000 range. ‘It’s tough at the moment in the whole world, so why not go to the States?’ says Karin Weber, a 53-year-old blonde wearing a pink Hard Rock Cafe T-shirt and big Dior sunglasses.”

”’We’re not rich. We have money [put] back for buying a house,’ she says. ‘So maybe we can buy a house for $300,000 what’s worth $500,000 or $600,000. Maybe we can make a good deal.’”

“Jay Martin came to Cape Coral do a little speculating of his own. He got on the boat looking for good buys for the international clients of his San Diego-based investment house. ‘This is going to be kind of our Ground Zero,’ Martin says. ‘The inventory levels are starting to level out, so it’s pretty much go-time.”’

The Daily Business Review. “When the remaining 93 condos at Heron Pond in Pembroke Pines finally sell — almost certainly to a single buyer — should the investor also get a break on taxes? Yes, say investors, brokers and developers. They note the units will probably be rented out and that tax assessments will reduce cash flow and income if they are calculated as if the condos were individually owned.”

“No, according to county tax assessors, who say bulk buyers shouldn’t get tax breaks not available to individual buyers who paid a market rate for their units. ‘Why should an individual buyer be penalized if they bought one unit but a bulk-sale buyer be rewarded with a lower tax assessment?’ asked Joe Zdanowicz, residential property director in the Broward County property appraiser’s office.”

“Tax consultant Christopher Bates of Christopher Bates Inc. won a 20 percent tax reduction in late 2007 for the buyer of 123 units in the Villas of Emerald Dunes in Palm Beach Gardens by documenting developer-paid incentives and perks for county tax assessors. The buyer paid $18.2 million, or about $147,000 per unit, according to Palm Beach County public records. The county’s original tax assessment was $26.64 million, or almost $217,000 per unit.”

“Bates pointed out concessions and incentives are paid by the developer but not recorded, said Pam Lamb, manager of the condo department for the Palm Beach County property appraiser’s office. ‘So the developers are paying more on these units than we know,’ she said. ‘We’re finding they may give away free association fees for three years, or free garages and carports. That was the basis of his evidence.’”

From Reuters. “In the financial world’s version of night of the living dead, Corus Bankshares Inc. zombie-walks near the front of the pack. According to the bank’s 2008 results, Corus has over $400 million in foreclosed property, most of which occurred in the fourth quarter of last year. An additional $1.5 billion of loans, or some 36% of its loan portfolio, is non-accrual, with little chance of performing again.”

“So, while Corus continues to operate, only the terminally optimistic believe it can survive. ‘The consent order is a death order,’ says a workout specialist with detailed knowledge of Corus. ‘It’s a precursor to the inevitable.’”

“Corus built its $4 billion loan book on the back of condominium construction. Not only did management bet the bank on this most speculative and cyclical of activities, it focused on condo projects primarily in southern Florida, as well as in Arizona, Nevada and southern California. According to Brad Hunter, director for housing market research firm Metrostudy, the inventory in South Florida of finished and vacant or under-construction condos totals 28,464, of which Miami-Dade County has 22,652.”

“They’re not exactly flying off the shelves. Lucas Lechuga, a Miami realtor, says of four newly completed projects, none have topped 5%. The most ambitious is the 1,640-unit Icon Brickell, part of a $1 billion residential, hotel and retail complex. Its closing rate stands at 0.84%. ‘This is indicative of what’s going on,’ he says. ‘Nobody’s able to close. It pretty much has to be cash buyers.’”

“Joseph Altschul, a Fort Lauderdale attorney, represents purchasers of preconstruction condo units trying to get their 20% deposit back. A looming issue, Altschul says, is ongoing maintenance, which Florida law limits to six months for developers. He cites Tao Sawgrass, a 396-unit project, in which exactly five units have closed.”

“Holding a $126 million construction loan and a $20 million mezzanine note, the lender foreclosed on the Sunrise, Fla., development and took over in November, promising to market the condos itself. The lender: Corus.”

“The once-booming real estate market that made Jorge Perez a billionaire is crumbling around Miami’s ‘condo king’ in what may be the biggest U.S. condo glut. The chief executive of the privately held Related Group is South Florida’s most prolific developer, a driving force behind a string of high-rises and mixed-use developments from Miami to West Palm Beach who championed the frenetic construction well after the market peaked in late 2005.”

“Today, Perez is trying to ride out a huge inventory buildup and falloff in property values across Florida. ‘I think he just kind of went overboard,’ said Lucas Lechuga, a Miami realtor.”

“Two other Perez condo projects, including one just across the street from Icon Brickell, were already struggling with poor sales before the newer development opened. Only 18 of Icon’s pricey condo units had closed as of March 12, according to Peter Zalewski, whose Florida-based firm represents investors. The first closing on residential units in the complex, where condos have gone for an average of $760,317 or $566 per square foot, occurred on Dec. 5.”

“That glacial sales pace could spell disaster for Perez, who faces what some experts say is the biggest supply and demand imbalance in a condo market anywhere in the United States. ‘Not only is this market unprofitable, but at the same time it’s money losing,’ Zalewski said.”

The News Herald. “The real estate market crash that has ravaged the national economy also has pummeled banks in Northwest Florida. Just one of the six community banks headquartered in Panama City turned a profit, a News Herald analysis found. The losses, according to bank officials, are largely…all tied to the real estate downturn.”

“‘This is unprecedented,” said C. Daniel DeLawder, chairman of Park National Corporation, an Ohio-based bank holding company that bought locally chartered Vision Bank of Panama City in 2007. Vision Bank, with more than $900 million in assets, posted a net loss of $81 million in 2008.”

“‘We have never seen a market adjustment like we’ve seen in the past year-and-a-half,’ said DeLawder. ‘We can be critical of ourselves, but we really didn’t anticipate Armageddon.’”

“Bay County’s real estate market was blazing in 2004 and 2005, particularly on the Beach. The average price for Beach-area property increased more than 200 percent between 2002 and 2006, from $107,874 in 2002 to $333,999 in 2006, county property records show.”

“Experts say that with so much money to be made, many banks loosened their purse strings. ‘While they were aware of the potential risks of the housing bubble, (banks) pretty much ignored it,’ said Jeffrey Clark, a professor of finance at Florida State University. ‘They saw potentially strong returns from construction, commercial and residential real estate lending. They pursued, maybe overly aggressively, lending in this area.’”

“In an e-mail, Bay County Property Appraiser Dan Sowell listed several reasons for the real estate boom, including: an increase in the number of baby boomers reaching retirement; the discovery of underdeveloped sections of the Panhandle; low interest rates; and liberal lending practices. The bust, Sowell wrote, occurred because of ‘the inability of the beneficiaries of liberal lending policies to pay their notes’ and ‘the general downturn in the economy.’”

“‘There was tremendous liquidity everywhere, and this was part of the fuel for the housing bubble,’ said Philip van Doorn, senior banking analyst for the financial Web site Subprime lending wasn’t the only practice contributing to the boom. Van Doorn said local banks aren’t entirely blameless for their struggles. ‘Banks didn’t want to get left behind. Everybody lowered their underwriting standards, no matter who they are,’ he said. ‘As bankers that’s who we are; we follow the herd.’”

“‘In the short run, it has been a miserable financial decision,’ Park Chairman DeLawder said of the Vision purchase.”

Bits Bucket For March 28, 2009

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March 27, 2009

Where The Hell Is The Cavalry On This One?

It’s Friday desk clearing time for this blogger. “From Key West to Tallahassee, Brevard County to Belleview, local governments struggling to reinvigorate the stagnant housing market are finding themselves in the middle of a heated debate regarding impact fees. Developers are pushing municipalities to relax or eliminate impact fees. The Marion County Builders Industry Association recently released an economic impact study conducted by the National Association of Home Builders Housing Policy Department that shows the home building industry in Ocala not only pays for itself, its economic impact results in new income and jobs for Floridians and additional revenue for local governments, eliminating the need for impact fees.”

“‘These results show that home building is more than paying its own way and should put to rest the notion that existing home owners are subsidizing new home construction here in the Ocala area,’ said Dr. Elliot Eisenberg, NAHB senior economist who conducted the study. ‘This is an excellent result and tells me that local residents should be thanking the building industry.’”

“Seventeen years after Hurricane Andrew leveled much of southern Miami-Dade County, a different kind of storm is devastating households here: foreclosures. In certain ZIP codes in places like Homestead and Florida City, around 25 percent of the homes are in one stage of foreclosure or another. Countless others were built by developers and sit vacant in ghostly subdivisions, with not a buyer in sight.”

“In the days after Andrew, then-Dade County Emergency Management Director Kate Hale famously said on national TV: ‘Where the hell is the cavalry on this one?’”

“Maria Kriegh’s two daughters signed up about 20 neighbors for Girl Scout cookies in late February, but when they returned to deliver the boxes two weeks later, the mother of four was shocked to find that a few of the homes were empty, bare living rooms glimpsed through window panes. The Kriegh family lives in ZIP code 89131 — ground zero for the nation’s foreclosure crisis.”

“As a business owner who depends on residential construction, Neal Williams has taken one hit after another in the past two years, dropping from 81 to 23 employees and withholding his own salary some months. ‘We’re on the verge of losing everything,’ he says.”

“Local home builders and real estate companies are pulling out all the stops — offering perks…in hopes of selling off new and existing homes and condominiums. ‘Incentives are being offered to move houses, especially after a disastrous late fall and winter that slowed down the housing market,’ said Jeff Burd of Tall Timber, a Ross-based construction market research firm.”

“Incentives helped Heartland Homes sell 50 houses in February, said Marty Gillespie, president. ‘We are not reducing prices, but, through our incentives, are providing buyers with increased value,’ he said.”

“‘Even with these incentives, local home builders are not holding fire sales, nor giving away their homes,’ said Jim Eichenlaub, acting executive director of the Builders Association of Metropolitan Pittsburgh.”

“First cars. Now condos. Thornton Place, a big, new project near Northgate with cinemas and a creek, is offering prospective condo buyers a layoff-protection plan in hopes of spurring sales in this sour market. Buy a condo, the developers say, and if you lose your job within a year they’ll make your mortgage payments for up to six months.”

“Thornton Place’s 109 condos have been on the market since last summer. None has sold, and now the complex is nearly finished. ‘We were looking at what would get people off the fence,’ said Jeff Cook, president of one of the companies building Thornton Place. ‘We think there’s a pretty big pent-up demand for housing.”‘

“The number of unmarried homeowners grew during the real-estate boom, especially in markets that saw double-digit price appreciation. When home values were rising and the economy was strong, a partnership deal seemed like a slam-dunk. But not all relationships last as long as a 30-year mortgage, and for co-owners who need to split up, the real-estate crash presents a challenge. If you or your partner now want out of the home, here are your best options: Sell the home.”

“Second, if you don’t sell, one person has to buy out the other’s share of the equity. In addition, you have to persuade the bank to remove the co-owner’s name from the title—not an easy proposition in today’s economy.”

“Here in North Texas, realtors say they have some good news. While new home sales are still sluggish, people are buying in more stable areas. And they’re willing to spend more for a stable investment. ‘As far as sales volume, it’s down,’ said Kenneth Jones, with the Greater Fort Worth Association of Realtors. ‘As far as dollar volume, it’s up, so that tells me home values are on the increase.’”

“Terri West says she’s seeing prospective buyers, but most are not looking for the kind of house she’s selling. ‘I find more are looking for a lower price range than this house,’ she said. ‘And banks are lending less, so it does diminish the clientele just a little bit.’”

“The preliminary first fiscal quarter report, based on early findings for only January and February, indicates that completed foreclosures in Colorado are down by half compared to the first quarter of last year. But said Kathi Williams, director of the Division of Housing, said Colorado still has a long way to go before it is in the clear. She pointed out that there are still 91,000 outstanding subprime loans across the state, which are set to adjust — some of them for the second time — within the next two years.”

“‘It is still too early to know exactly what the recession may mean for foreclosure totals,’ said Williams. ‘If those folks have not done some type of work-out with their lender, then they’ll probably get back into the (foreclosure) process.’”

“The current financial crisis is all-inclusive; our path to prosperity or even simple financial stability seemingly obliterated. Howard Zynkian, 89, filed for Chapter 13 bankruptcy more than a year ago to help him save his home. Zynkian, who lives in El Cajon, Calif., refinanced his home five years ago and didn’t understand that he was getting into a risky, alternative mortgage. After his monthly mortgage payment had jumped from $1,500 to $2,700, he was facing foreclosure.”

“The retired dentist had used up all of his retirement savings to pay his rising mortgage bills. He cares for his daughter, who has severe back problems, and together they receive about $2,900 a month in Social Security. This week, after much effort, he was able to get a loan modification from his lender. Now he will pay $1,269 a month on a 3% loan rate. After five years it will go up to 4% and then six years later, it will move to 5% for the rest of the term.”

“‘I can just barely manage it,’ he says.”

“Last year, Amy and Mike Dew, from Sanford, N.C., both were laid off from jobs. It took Mike about nine months to find a new job. Amy, who lost her job in November, just started working again this month. Recently the Dews, who have two teenage daughters, filed for bankruptcy. They gave up one car and their home. ‘”We literally went from almost a $100,000 salary to probably $50,000 for the two of us,’ Amy says.”

“Dubbing the looming crisis ‘Sub-Prime Lite,’ Professor Steve Keen told The Sunday Telegraph Australia was making the same mistakes as the US. Professor Keen said in trying to avoid an economic crisis caused by too much borrowing, Australia was in effect encouraging the poorest in the community to take on even more debt. ‘Yet these low-paid first homebuyers are the people who are most vulnerable to the economic downturn,’ he said.”

“The top end of capital cities housing market has been suffering for some time as mass redundancies within the financial sector have forced homeowners to sell. Meanwhile, the first-home buyer end of the market has been booming. But economists fear this flurry of activity at the lower end has inflated prices to unsustainable levels. In Sydney, the average property already costs nine times the average household income, while the UK and US reached a peak of only seven times average income before their markets crashed.”

“According to Professor Keen, the First Home Owner Grant has cost the government about $200 million, but has inflated property prices by close to $3 billion. ‘This is all illusionary wealth that could disappear very quickly,’ he said.”

“Gerard Minack, chief economist at Morgan Stanley, said property prices were likely to fall by 20 per cent in some cities, while the value of houses on coastal strips such as the NSW mid-north coast and the Gold Coast could halve. ‘People paid Hamptons prices for properties up there but it is not the Hamptons,’ he said.”

“‘Traditionally what has hurt people has not been rising interest rates but rising unemployment. The additional $2.8 billion or so has come from increased mortgage debt taken on by those most vulnerable to a serious economic downturn at a time when we can see very clearly that the global recession is coming our way,’ Minack said. ‘I don’t care what rate you’re paying, if you have a mortgage five times your income and you lose your job, you’re toast.’”

“While Realtors and builders acknowledge that many people are avoiding big purchases because of the uncertain job market and economy, they contend that there are a number of financially secure buyers who are holding back for the wrong reasons. There are people out there who believe the bottom will soon fall out of local housing market. So instead of taking advantage of low interest rates, tax rebates and affordable home prices, they are holding back, opting to rent in some cases.”

“‘They are waiting for all these great bargains they think they are going to get,’ said Dixie Robertson, executive officer for the Northwest Louisiana Homebuilders Association. ‘They do not want to buy a house for $400,000, when they think it will sell for $200,000 in a year.’”

“Brad Goslee, co-owner and chief operating officer of Coldwell Banker/J. Wesley Dowling & Associates, said now is as good a time as any to buy a home. ‘It’s not a good decision to rent in hopes that housing prices will go down in our market. With 4 to 5 percent interest rates, very affordable home prices and a potential for demand growth … now is the best time to move.’”

“David Rosenberg, the chief North American economist at Merrill Lynch & Co. in New York, refused to trust his computer models, sensing that the end of the credit and housing-market booms would cause a deeper rout than most analysts thought. ‘We came off a prolonged period of prosperity that was fueled by excessive leverage and an asset bubble of historical proportions,’ Rosenberg said in an interview. ‘Either you believed that this was sustainable or you didn’t. I came to the conclusion that this was going to end very badly.’”

“It won’t help anyone recoup the money lost in the housing bubble or the market crash or the recession, but there’s a certain satisfaction in knowing where to put the blame. Niall Ferguson, a Harvard and Oxford historian: ‘Nothing would be easier than to blame everything on the bankers. I blame them for much of what has gone wrong, but I blame the politician more. It’s just too easy to heap opprobrium on Wall Street. And if you noticed, that’s exactly what the politicians do. Could it be that they’re trying to divert our attention away from Washington’s own responsibility for the debacle?’”

“‘I invite you to consider the roles played by four institutions in bringing about this financial crisis, and I want you to reflect on the location of those institutions. The first is the Federal Reserve Board. Its role has been to allow a housing bubble to inflate, and burst.’”

“‘The second is the Securities and Exchange Commission, which under Christopher Cox allowed the leverage in the banking system to spiral out of control. My third prime suspect is the Congress that wholly failed to supervise Fannie Mae and Freddie Mac, which on the eve of their destruction were leveraged 65 to 1. And that brings me to the White House. ‘We want everybody in America to own their own home,’ declared President George W. Bush, in October of 2002. Everybody in America!”

“But it’s the role of government to strike a balance between market forces and stability, and we should blame Washington more than Wall Street for this crisis. In my view Washington sold itself to Wall Street.”

“Bankers are nearly always actuated by greed, and so are many ordinary people too.”

“Homeowners are seeing their home values plummet and their negative equity increase in unprecedented fashion. Owing significantly more than their homes can sell for, options narrow and they are left to ponder the one remaining: ‘Do we stop paying our monthly mortgage and prepare to walk away form our investment, our house … our home?’”

“It’s a sobering question for those who come to ask it. The answer, even when assured, is not one arrived at quickly. Much deliberation is warranted. Alternatives must be sought. The choice to walk away is not just a little humiliating.”

“I know … I made that choice last summer. For many who have lost their jobs, whose payments have escalated while their incomes have declined, who are going through a divorce, or for whatever reason can’t keep up with their monthly obligations, their answer, while not easy, is simple. They simply have no other choice. I feel fortunate to count myself among them.”

“Critics will chide: ‘Morality should not be transitory!’ ‘They are ‘debt slaves’ of their own making!’ In many cases, these are unfair indictments. The policy decisions of our government, and of our banking institutions, have contributed mightily to their plight, and they know it.”

“Our government is enticing these banking institutions to work with underwater homeowners. Will they do so meaningfully? Will this effort stop the slide in home values and stem the mounting tide of foreclosures? So far, the government’s effort in this regard has not worked … and actually has made things worse.”

“In 1802, Thomas Jefferson said ,’I believe that banking institutions are more dangerous than standing armies.’ Continued failure will prove Thomas Jefferson had it right.”

Bits Bucket For March 27, 2009

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March 26, 2009

There Is Still A Problem In California

The Santo Cruz Sentinel reports from California. “Wary house-hunters see opportunities now that home prices have dropped dramatically. Buyers will find lots of choices in Watsonville and the San Lorenzo Valley at close to the February’s median selling price of $380,000, but not many in Santa Cruz. Dianne Pereira helped a buyer acquire a bank-owned house in the Seabright area for $380,000. Pereira tracks the foreclosure numbers in the Santa Cruz Record, which reported 52 default notices — more than usual — issued to borrowers in the past week. ‘There are a lot of properties in default,’ she said. ‘Previously it was more in Watsonville, now it’s more mainstream.’”

“Gloria Behman sees a silver lining in falling prices. Her client, a single mother with two children, bought a bank-owned house in Live Oak for $380,000. ‘She was able to buy a house with a fabulous yard for her kids,’ Behman said.”

“On the other hand, it needed fresh paint and new carpet. The house was on the market last June for $449,000; the bank’s asking price was $395,900.Behman’s advice: ‘Don’t pay more than you need to pay — if this property doesn’t work, there will be another.’

“Analyst Schahrzad Berkland of the California Housing Forecast is…cautious, calling the price drop in Watsonville ‘probably a plateau’ instead of hitting bottom. ‘I still see a big bubble,’ she said. ‘A house that a policeman could buy in 1998 is now affordable only to an engineer. So there is still a problem.’”

The Manteca Bulletin. “Dana Fernandez is going from renting a room to owning her own place. The 25-year-old had to watch every dime for awhile and made macaroni and cheese plus Top Ramen a staple but she was able to do something that was completely impossible in the hot Northern San Joaquin Valley housing market of just a few years ago – she was able to buy her own home without help from anyone while working part-time for just under $10 an hour.”

“Her home is a one-bedroom, one-bathroom condo with 700 square feet in Modesto. Fernandez said she had always made owning her own home and property a goal. Fernandez said she realized that the current market was a “chance of a lifetime.”

It helped, of course, that she was able to see the day-to-day real estate activity in Manteca where she works part-time for her real estate agent Linda Aksland and is in the process of becoming a full-time agent. ‘I realized I could afford it if I watched my money,’ she added.”

“Fernandez said she didn’t let what seems to be non-stop 24-hour cable news cycle of economic gloom-and doom scare her. ‘Life is a risk.’ Fernandez said, noting that even in good economic times things could go wrong. ‘If something does happen the worst that I could end up doing is going back to renting.’”

The Washington Post. “The sun is shining less brightly these days in sunny Southern California. The recession hit here earlier and harder than the rest of the country — the statewide unemployment rate topped 10 percent last month — and chances are it will linger here longer. The severe downturn reflects the region’s central role in the Bubble Economy.”

“‘People here used to feel that because of the weather and the lifestyle, we were immune,’ said Robbin Itkin, a lawyer with a suddenly booming corporate workout and bankruptcy practice at the Los Angeles office of Steptoe & Johnson. ‘They don’t think that now. There is a somberness I’ve not seen before.’”

“The shakeout in commercial real estate, which is now in full swing in suburban Orange and Riverside counties, has made its way to the tonier areas of the city. There are numerous ‘For Rent’ signs on Melrose Avenue in West Hollywood and along Montana Avenue in Santa Monica. Lack of financing has stalled the $3 billion, Frank Gehry-designed hotel and residential project on Grand Avenue downtown and a $400 million luxury condo tower in Century City.”

“‘It’s clear to me that we will have a lot of reinventing to do here over the next few years,’ Jim Thomas, a prominent local developer, told me.”

The Mercury News. “California is in for a lengthy downturn, with the jobless rate hitting nearly 12 percent this year and next. The state’s recession will be ‘deeper and longer than we previously thought,’ economists with UCLA’s Anderson Forecast predicted.”

“One key to revival is the sector that started the economic tailspin: housing. Though housing markets ‘have yet to bottom out,’ by this fall, California’s housing industry will be building fewer houses than its growing population requires and ‘will be eating into its housing stock.’ ‘All of the excess that was the housing bubble is now burned off,’ said Jerry Nickelsburg, a UCLA economist, ’so when the rest of the economy is ready to turn around, the housing market will be ready to turn around.’”

The Recordnet. “‘As the recession deepens, the diverse engines of California’s economy find themselves running on fumes,’ he wrote. Growth won’t start in California until the beginning of next year, he said, but the economy will be growing at a more normal pace by the end of 2010. ‘If there is any good news in the picture, it is that the correction in the housing market is almost complete, and the downturn in the retail sector is nearing the end of its run,’ Nickelsburg said.”

The Desert Sun. “Home sales jumped about 70 percent in the Coachella Valley in February over the same period a year ago. to fall drastically — indicates the market is repairing itself, said Greg Berkemer, executive director of the California Desert Association of Realtors.”

“The median price of homes sold was $156,000, down 53.4 percent from $334,900 in February 2008, according to the California Association of Realtors. The median price of an existing, single-family detached home in California in February was $247,590, compared to $253,330 the previous month and $418,260 in February of last year, according to CAR. ‘The California median price has declined by a larger margin than the nationwide price,’ Leslie Appleton-Young, CAR’s chief economist, said in a statement.”

The Bakersfield Californian. “From February 2008 to February 2009, 8,552 properties, mainly single-family homes in the metro Bakersfield area, foreclosed, county records show. Marilou Ward, a Realtor with Remax Golden Empire, has dealt with occupants who have accused her of trying to rip them off. Some renters are surprised to see her because they don’t know the home is in foreclosure. ‘If someone comes to their home, a Realtor trying to negotiate cash for keys, it’s in their best interest to do that immediately. Not to ignore us, blow us off,’ Ward said. ‘The clock’s ticking with the banks and, as the amount of time increases, the dollar amount of the offer will decrease.’”

“To receive money from the bank, occupants must hand over keys and garage door openers. They must leave the place in ‘broom-swept condition,’ Ward said. Personal property and debris have to be removed from the interior and yard. All fixtures — toilets, countertops, ceiling fans — must remain. Landscaping, too. ‘I’ve had people dig up all the trees and plants. They figure they paid for it,’ she said.”

From Bloomberg. “David Rapaport, a professor at the University of California San Diego Medical School, is paying an upfront fee of $3,500 to refinance his mortgage at 5.13 percent. A year ago, his rate was 6.25 percent and there were no fees. ”

“‘I’m happy just to be able to get a refi and reduce my monthly payment,’ said Rapaport, who owns a two-bedroom townhouse in San Diego, where home prices have dropped 32 percent since June 2006. He is saving $264 a month with the new loan meaning it will take about a year to recoup the fees he paid.”

The Los Altos Town Crier. “A handful of new condominiums came on the market for $121,000 and less this month in Los Altos – a rare, and coveted, opportunity offered by the city’s affordable housing program. The condos include five one-bedroom, 790-square-foot units, priced at $106,000, and three two-bedroom, 1,200-square-foot units for $121,000.”

“The BMR units in the $54 million, 2.2-acre development have the same floor plans and finishes as the market-rate units, which are priced at approximately $650,000 for a two-bedroom condo and more than $800,000 for a townhouse. Silverstone President John McMorrow said that buyer incentives and price reductions have helped move properties – 20 of Peninsula Real’s 78 units have sold since they went on the market in September, and owners can move in beginning April 15.”

“Sue Russell, the affordable-housing co-chairwoman for the Los Altos chapter of the League of Women Voters, described the units’ availability as an exciting affordable housing opportunity. ‘This is the largest since Chester Circle, and that was back in the late ’90s. This is a big influx,’ she said.”

The Bay Area Newsgroup. “The Vallejo home from which “D.C. Madam” Deborah Jeane Palfrey ran her infamous escort service likely will sell for nearly a half-million dollars less than its original 2007 asking price. A federal judge recently approved the sale of Palfrey’s two-bedroom Capitol Street historic home, with the money to be put into escrow, since Palfrey’s assets remain frozen as they move through probate. Palfrey hanged herself at age 52.”

“Records show Palfrey’s two-story, 1865 Greco-Italinate-style home was listed in May 2007 for $748,500. Its last listing was $290,940. ‘She originally wanted $1 million for it in 2006, but that was way, way too much,’ local Realtor Corrine Oakes said.”

“Though the home was beautifully restored, even winning a city award for best restored house in 2006, other, larger historic homes were selling for significantly less than what Palfrey wanted, Oakes said. She said she told Palfrey at the time that a price of about $550,000 was more reasonable. ‘She wasn’t very pleased with that,’ Oakes said.”

The Orange County Register. “In July 2005, while predicting a 15% gain in Orange County home prices, real estate prognosticator Gary Watts put about $77,000 down and bought a $765,000 rental home in Rancho Santa Margarita. At first, he was pleased with the deal. A year later, the home’s value had jumped at least 8% to around $825,000 or more.”

“Today, however, Watts has defaulted on the home’s loan. ‘I can make the payments. That’s not the issue. It’s a business decision,’ Watts said. ‘I tried to work with the lender. The lender didn’t help. They said, go ahead, do a short sale. It’s strictly business.’”

Bits Bucket For March 26, 2009

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