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.”
