April 30, 2009

Overzealous And Overextended In California

The LA Daily News reports form California. “In March, sales of previously owned single-family houses jumped 64 percent statewide, while the median price fell 39 percent to $253,050, the California Association of Realtors said. The median price was 2.2 percent higher than February’s $247,590 median - the first monthly price increase since August 2007, the association said. Sales in Los Angeles County increased 66 percent. The median of $295,100 was 32 percent below the comparable figure in March 2008 and 4 percent below February’s median of $308,540. Foreclosures, job losses and the recession are still problems and could muddle the price picture for months to come. ‘It’s nice to finally see at least a couple months where home prices appear to be stabilizing. The question is, is that really the sign of hitting bottom,’ said Robert Kleinhenz, the Realtors’ association’s deputy chief economist.”

“There are also signs it could be reversed. ‘Let’s face it. If our observations about (mortgage) defaults and foreclosures down the road are pretty close to correct we still have a lot of foreclosures to (go) through the pipeline,’ he said.”

The LA Times. “Immigrants have been hit harder than native-born Americans by the recession, with larger increases in joblessness among both educated and uneducated workers, according to a study released today. Steven Camarota, the study’s coauthor, said many of the immigrant job losses came in low-skill occupations hit hard by the recession. In construction, for instance, the immigrant jobless rate climbed to 20% in the first quarter of 2009 from 4.7% 18 months earlier. Sergio Rascon of the Laborers’ International Union of North America Local 300, said the recession’s fallout is the worst he’s ever seen. He said more than 1,000 workers are currently listed on the union’s out-of-work list; at the height of the housing boom a few years ago, he said, there were none.”

“Humara Ahmed, a 42-year-old Pakistan native who lives in Palos Verdes, was a millionaire with a college degree, a monthly income as high as $25,000, a six-bedroom home, investment property and her own home-loan and restaurant businesses a few years ago. But as the recession deepened, she lost everything last year. Months of feverish job hunts — applying for up to 12 jobs a day — produced nothing.”

“She trained to become a taxi driver, which didn’t pan out. Now she is training to become a food service manager at $10 an hour. ‘I couldn’t eat or sleep, and cried every day,’ she said. ‘I lost confidence in myself.’”

The Mountain News. “Just three years after opening amid the enthusiasm of a burgeoning market, Windermere Fine Properties closed its Blue Jay real estate office today, citing downturns in the economy and weakened home sales as the reasons. ‘We have invested a great amount of funds into making this office work, but due to economic conditions and (the) real estate market, we have made the decision to close the physical office,’ Windermere’s President, Kelli Ross, said in a press release.”

“Lake Arrowhead-area realties continue to share a drastically shrinking pie, recent sales statistics show. From a nine-year peak in 2004 of 799 homes sold in Arrowhead Woods, sales have steadily plummeted each year, to 679 in 2005, 391 in 2006, 322 in 2007 and 258 in 2008.”

“Lynne B. Wilson, owner of Lynne Wilson and Associates Realty, said she is striving to keep upbeat about mountain property despite ‘the most hideous market we’ve experienced in years.’ Wilson stressed the need for committees of real estate professionals to band together ‘to make sure we’re known. People down the hill don’t know how unique our area is.’”

“Jeff Perlis, owner of Prime Properties in Blue Jay said, ‘I think that adapting to current market conditions is important. There are people making money on foreclosures and short sales. It’s a different market.’”

“Perlis said ‘aggressively pricing properties you’re listing for people so they’re more in line with the current market’ is also key, adding that ‘a lot of agents are overpricing properties, and they can’t compete with REOs (foreclosures). The people who own Windermere are very talented real estate people,’ Perlis said. ‘They came into a flourishing market a few years back and maybe got overzealous and overextended themselves, and the market changed.’”

“A couple whose lavish 15-room home was featured on the 2007 Lake Arrowhead Home Tour is facing up to 30 years in prison after pleading guilty to bank fraud in a scheme in which they reportedly preyed on trusting members of their church, The Mountain News has learned. According to stories published earlier this month in the Ventura County Star and the Thousand Oaks Acorn, the Tuckers, who operated Tucker Mortgage offices in Thousand Oaks and San Diego, fled California when their scheme began unraveling last year.”

“The couple, who reportedly also sold real estate in the San Diego area, was accused of operating a ‘mill,’ a real-estate financing scheme in which they brokered real-estate loans by banks or other lenders, using fraudulent documents. The victims were primarily friends the couple had made at Mormon churches in the communities where they maintained homes, sources said.”

“The personal toll on the Tuckers’ victims is described dramatically in the comments section that follows the Ventura County Star’s article concerning the guilty pleas. ‘This is just the tip of the iceberg,’ a blogger wrote. ‘They’re a West Coast version of Bernard Madoff, and we were one of their many victims…I don’t know if we’ll ever recover from the damage they’ve done to our credit and our life’s savings.’”

The Bakersfield Californian. “Barcelona II LLC, Bakersfield developer Terry Moreland’s 40-acre Wasco residential development, has filed for Chapter 11 bankruptcy protection. Documents filed in bankruptcy court last week indicate that the company has debts of $10 to $50 million and assets of $1 to $10 million.”

“Moreland said Tuesday that the partially built project is ‘coming along fine,’ and that the bankruptcy will not affect his other development projects. ‘It speaks for itself,’ he said of the filing. ‘”It’s a workout.’”

The Novato Advance. “Tax season is over, and the filings of many small businesses throughout Novato and Marin County show how entrepreneurs are adapting to deal with a stagnant economy, tight credit, and new state rules on taxes and fees. Several local certified public accountants reported revenues for their small business clients were down. Aldo Gigliotti of Novato, who is president of the Society of California Accountants, said retail and contracting businesses were notable victims of the recession.”

“‘Certainly main-street businesses, restaurants and retail, and services businesses were down,’ he said. ‘It was a tough year for contractors all across the board, whether they were general contractors, or roofers or electricians…anyone heavily dependent on the housing market.’”

“That thought was echoed by Jerry Ghirardo, CPA, of Novato’s Ghirardo CPA. ‘A lot of businesses are struggling, especially businesses (involved with) real estate,’ he said.”

The Press Democrat. “Sonoma County builders are hoping a small increase in sales may signal the area’s battered construction sector has finally hit bottom. Developers are only selling about four homes a month and construction is expected to remain near record lows this year because houses are still selling for less than they cost to build, according to industry reports and builders.”

“Builders must vie for buyers with a resale market dominated by foreclosures and deeply discounted prices. To compete, builders in the handful of active subdivisions have cut prices 30 percent or more over the past three years. Rivendale Homes has stopped cutting prices in its Santa Rosa projects and recently raised the price in its Woodbridge subdivision by $5,000, said Chris Peterson, co-owner of the company. Despite the increase in demand, Rivendale won’t accelerate its construction schedule and undercut prices.”

“‘You have to build at a slower pace. Hopefully we will be able to capture some price increases,’ Peterson said. ‘Otherwise we may just stop. We need prices to come up before you can build a house and make a profit.’”

“Exchange Bank’s earnings woes continued in the first quarter, when the Santa Rosa bank reported a $10.3 million loss after putting aside more money to cover problem loans. Posting its fifth loss in the past six quarters, Sonoma County’s largest community bank continued to grapple with losses concentrated in construction and development loans.”

“The string of losses is rooted in residential building, where developers have struggled to stay in business and pay off loans in the face of poor sales and falling home prices. About 90 percent of the bank’s problem loans are in construction and development, officials said. The troubles became apparent at the end of 2007. Those problems were pegged to housing developments in the Sacramento region.”

“The bank was forced to set aside more money for loan losses than expected during the first quarter, said Fred Ptucha, a Santa Rosa financial adviser who tracks community banks. ‘They thought and I thought too that they put so much into loan loss reserves in the fourth quarter that they didn’t have to put much more in, but they did,’ Ptucha said. ‘It just shows the deterioration of value in properties, including their foreclosed pieces of property.’”

The Vallejo Herald. “A special program to help first-time homebuyers purchase foreclosed homes has been expanded to include Solano County, the California Housing Finance Agency has announced. First-time homebuyers are eligible for a low fixed-rate loan — 5.5 percent earlier this week — with no down payment through the Community Stabilization Home Loan Program.”

“The program encourages the sale of foreclosed homes in areas with some of the state’s highest foreclosure rates. The number of people this will help is limited to the number of qualified homes available, said Mitchell Chernock of Benicia’s Sky Valley Financial. ‘The interest rate is good and no down payment is really good,’ he said.”

The Record Searchlight. “For Shane and Janell Parker, evidence that Shasta County’s housing market would never be affordable to them came two years ago - a rainbow-colored fixer-upper in Shasta Lake. The 1,400-square-footer was listed for about $200,000. ‘It was three different colors - the front was blue, one side was green, and they had just the painted another side gray. I guess they were undecided on what color to paint the house,’ chuckled Shane Parker.”

“Parker, 26, recalls being demoralized, thinking if this is what $200,000 buys, then forget it. ‘You were putting a $200,000 price tag on something that was just junk,’ Parker said. ‘We were told you had to work your way into a dream house.’”

“Of course, the market has changed dramatically. The median sales price for a home in Shasta County in March sunk to $177,000, nearly $22,000 below where it stood in February. Factor in record low interest and Shasta’s real estate market is falling back to folks like the Parkers, who bought their dream home in March. The approximately 2-year-old, 1,900-square-foot move-in-ready house in the Cerro Vista neighborhood has a landscaped front and backyard, a walk-in master closet, a master bathroom with a jacuzzi tub and tiled shower, and a fireplace.”

‘Parker, a salesman at Crown Motors, quips that they got a good deal - they paid $250,000 - because the home’s off Radio Lane, near juvenile hall in south Redding. Maybe, but it’s also a house that sold for $359,950 two years ago before it was foreclosed on.”

“The bank originally listed the house for $286,000 and later dropped the price to $264,000 before the Parkers scooped it up. ‘What’s really great for a lot of my buyers is they’re starting new families and they have bought a house they will be able to stay in for a long time,’ said Kori Cadorin of Real Estate 1 in Redding, who helped the Parkers find their new house.”

From Bloomberg. “Ron Grassi says he thought he had retired five years ago after a 35-year career as a trial lawyer. Now Grassi has set up a war room in his Tahoe City, California, home to single-handedly take on Standard & Poor’s, Moody’s Investors Service and Fitch Ratings. He’s sued the three credit rating firms for negligence, fraud and deceit.”

“Grassi says the companies’ faulty debt analyses have been at the core of the global financial meltdown and the firms should be held accountable. Exhibit One is his own investment. He and his wife, Sally, held $40,000 in Lehman Brothers Holdings Inc. bonds because all three credit raters gave them at least an A rating — meaning they were a safe investment — right until Sept. 15, the day Lehman filed for bankruptcy.”

“‘They’re supposed to spot time bombs,’ Grassi says. ‘The bombs exploded before the credit companies acted.’”

“They helped banks create $3.2 trillion of subprime mortgage securities. Typically, the firms awarded triple-A ratings to 75 percent of those debt packages. ‘Ratings agencies just abjectly failed in serving the interests of investors,’ SEC Commissioner Kathleen Casey says.”

“The rating companies reaped a bonanza in fees earlier this decade as they worked with financial firms to manufacture collateralized debt obligations. S&P, Moody’s and Fitch won as much as three times more in fees for grading structured securities than they charged for rating ordinary bonds. Financial firms around the world have reported about $1.3 trillion in writedowns and losses in the past two years.”

“Alex Pollock was president of the Federal Home Loan Bank in Chicago from 1991 to 2004. The bank was rated triple-A by both Moody’s and S&P. He says he recalls an annual ritual as he visited with representatives of each company. ‘They’d say, ‘Here’s what it’s going to cost,’ he says. ‘I’d say, ‘That’s outrageous.’ They’d repeat, ‘This is what it’s going to cost.’ Finally, I’d say, ‘OK.’ With no ratings, you can’t sell your debt.’”

“Congress has held hearings on credit raters routinely this decade, first in 2002 after Enron and then again each year through 2008. In 2006, Congress passed the Credit Rating Agency Reform Act, which gave the SEC limited authority to regulate raters’ business practices. The SEC adopted rules under the law in December 2008 banning rating firms from grading debt structures they designed themselves. The law forbids the SEC from ordering the firms to change their analytical methods.”

“Only Congress has the power to overhaul the rating system. So far, nobody has introduced legislation that would do that.”

“Grassi, the retired California lawyer…filed his lawsuit against the rating companies on Jan. 26 in state superior court in Placer County. Grassi says in his complaint that the raters were negligent for failing to downgrade Lehman Brothers debt as the bank’s finances were deteriorating. The day Lehman filed for bankruptcy, S&P rated the investment bank’s debt as A. Moody’s rated Lehman A2 that day. Fitch gave Lehman a grade of A+. ‘We’d like to have a jury hear this,’ Grassi says. ‘This wouldn’t be six economists, just six normal people. That would scare the rating agencies to death.’”

Bits Bucket For April 30, 2009

Post off-topic ideas, links and Craigslist finds here. Please visit the HBB Forum. And see the The American Visionaries series from Schwarzfilm.

April 29, 2009

Guess What? Now It’s Tomorrow

The New York Times reports on Arizona. “Phoenix has achieved the unwelcome distinction of becoming the first major American city where home prices have fallen in half since the market peaked in the middle of the decade, according to data released Tuesday. ‘Even during the Depression, I’m not sure prices fell this quickly,’ said Karl Guntermann, a professor of real estate at Arizona State University.”

“Greg Swann, a Phoenix real estate agent, took a moment to marvel at the news. ‘What happened here will some day be a new chapter in ‘‘Extraordinary Popular Delusions and the Madness of Crowds,’ the classic survey of investing mania, he said. ‘We were living during the boom like there was no tomorrow. And guess what? Now it’s tomorrow.’”

From CNN. “It’s a buyers market again for condominium shoppers after years of artificially high prices and speculation. ‘”We want to move the products as fast as we can,” said Summer Dunham, marketing manager for Starpointe Communities, which develops luxury condominiums in Scottsdale, Arizona. ‘It was very slow in 2008. Everyone had difficulty selling.’”

“So in February, the determined company auctioned off 20 four-story condominiums overlooking a golf course, private park and three swimming pools against a mountain backdrop. The upscale properties were priced as high as $1.6 million before the market sank. And bargain hunters were jazzed to pay, on average, $600,000 for a unit at the auction.”

“‘Developers will bend over backwards to sell these units,’ said Brad Hunter, chief economist at Metrostudy. ‘There is no limit on the number of ways they will work with someone to sell at this point.’”

The Arizona Republic. “One of the Phoenix area’s largest commercial developers is showing signs of financial stress that local experts say is a symptom of widespread economic problems facing the industry this year. A group of lenders led by Bank of America has filed a complaint in Maricopa County Superior Court claiming that Opus West Corp., based in Phoenix, owes the banks more than $160 million in unpaid construction loans, interest and legal fees.”

“It is an operating company of Opus Corp., based in Minneapolis, and developer of projects such as Tempe Gateway in downtown Tempe and the Scottsdale Waterfront Residences high-rise condominiums. A developer that borrowed the maximum loan amount at peak real-estate prices generally owes 80 percent of what the project cost when the market was still hot. Not only have property values declined, but lenders have pulled back on the portion of a property’s value they are willing to lend. It’s more like 60 percent now, said Mesa real-estate investor Michael A. Pollack.”

“Therefore, any company hoping to refinance a construction loan would have to come up with enough cash to cover the property’s lost value plus 20 percent of what the bank had originally loaned. ‘There’s no question, there are projects out there that are highly overleveraged,’ he said.”

“The same government agency known for certifying the quality of hamburger and steak is becoming a prime force in the Arizona housing market. The U.S. Department of Agriculture has guaranteed mortgage loans for many years, much like the Federal Housing Administration and Department of Veterans Affairs, but this year the value of Arizona loans guaranteed by the USDA is on pace to quadruple compared with 2008.”

“Buckeye newcomer Geanna Gute was approved for a USDA loan recently and said she had never imagined owning a home would be so affordable. Gute…who had been a longtime renter in the Valley…purchased a pristine 1,860-square-foot bank-owned home, built in 2005, for $75,000. It had been appraised at $200,000 in October, she added. Gute said her monthly payment is $650, and the only thing she had to pay for up front was a re-shoot of some inspection-related photos.”

“‘I had to pay $60 - that’s all I paid,’ she said.”

The East Valley Tribune in Arizona. “Buying a home in Mesa’s 85206 ZIP code has John Karreci beaming like the cat who swallowed the canary. He and his wife are purchasing a 2,700-square-foot, six-bedroom home. ‘They accepted our offer for $175,000 on a house that four years ago was sold for $450,000,’ Karreci said. ‘They were asking for a little over $200,000 … so that was a smoking deal if you ask me.’”

Inside Tucson Business in Arizona. “With foreclosures driving down home prices, KB Home is facing the competition head-on with a line of new homes it’s calling the Open Series. The home at Sonoran Ranch on the southwest side is priced at $89,999…an effort to compete with foreclosures, and offer affordability.”

“John Strobeck, whose firm Bright Future Business Consultants tracks Tucson data for the home building industry, said two years ago he never would have believed a new home would be for sale for less than $90,000. Besides KB Home, DR Horton and Pulte Homes are offering new homes starting at $99,990. ‘Last month, the median foreclosure sale was in the $130,000 range,’ Strobeck said. ‘So we absolutely have to come down below $150,000. Two years ago we had no homes sell for under $150,000. Last month 14 percent of the homes sold for under $150,000. We are trending downward and I am for that.’”

From Reuters. “The downturn has downsized both Meritage Homes Corp and the U.S. housing industry in more ways than one, a Meritage executive told Reuters. The Scottsdale, Arizona-based homebuilder is implementing a plan to build cheaper houses that can compete in foreclosure hotbeds such as Arizona and California by shrinking the square footage, stripping out some amenities and simplifying the architecture.”

“The builder has already begun buying ready-to-build, deeply discounted lots where it can locate its cheaper product in Denver, Colorado; Phoenix; Orlando, Florida and in California’s East Bay and Inland Empire. Meritage is driving sales by demonstrating that it can be cheaper to buy than to rent, said Chief Financial Officer Larry Seay. ‘It’s almost like a price tag on a car,’ Seay said. ‘There’s a permanent overall market withdrawal from offering those lavish homes. The McMansion is on the outs.’”

The Miami Herald. “Lenders this week stopped funding construction of the Fontainebleau Las Vegas, endangering the biggest real estate project in the Soffer family’s portfolio. Launched at the same time Jeffrey Soffer purchased the Fontainebleau Miami Beach, the Vegas property was slated to launch a global string of Fontainebleau casinos.”

“But a depressed real estate market foiled plans to finance much of the effort by condo-hotel sales, and a sharp decine in Vegas tourism led analysts to warn the property wouldn’t be able to make debt payments once it opened. Soffer accuses the banks of reneging on a deal to fund the Vegas Fontainebleau through completion.”

”’We need them to live up to their promises so that we can complete a landmark project that will revitalize tourist visitation to Las Vegas,’ Soffer said.”

The Casino City Times in Nevada. “MGM Mirage CEO Jim Murren said last month he harbors no ill will toward people who think the company will fail. ‘I have no illusions that this is going to be easy,’ he said during a conference call with analysts last month. ‘We will take every question, we’ll take every criticism, and we’ll own it all.’”

“In December 2007 Murren’s predecessor, Terry Lanni, became the first casino executive to publicly acknowledge that the banking crisis, seemingly confined to Wall Street, would hurt consumer spending. His prediction of a ‘difficult’ 2008 came at a time when the spreading housing crisis was registering in Las Vegas, but the effect it would have on gaming wasn’t.”

“In fact, a key segment was already pulling back. Tourists who could least afford the luxury boom were visiting less frequently, in part because of the housing slump but also because they had been priced out of Las Vegas, where budget rooms were going for more than $150 a night. The humbling circumstances have led to humble statements by industry leaders, including one of its most flamboyant figures.”

“Steve Wynn bragged of his company’s relative financial stability heading into last year’s economic meltdown, but also warned of trouble ahead. He told investors in the fourth quarter of 2007: ‘It would be unsophisticated to think that Las Vegas is somehow a magical island unto itself, immune or isolated from the effects of the cities and the communities that serve it with its visitors.’ He has grown cautious in his commentary, telling investors in a February conference call: ‘I think that trying to give you guys rosy pictures and all that kind of jazz on these conference calls is a real disservice. I think what we ought to do is discuss what has been and be candid about what we think may be.’”

The Review Journal in Nevada. “Real estate agents with Liberty Realty in Las Vegas were left with unsigned commission checks that couldn’t be cashed when the office shut down last week, one of the agents said. In an April 22 memo to nearly 800 agents, Liberty Realty CEO Richard Bell said the agency is being acquired by Century 21 Aadvantage Gold.”

“The Liberty agent, who requested anonymity, said police were called to Liberty’s office Friday on Durango Drive to ‘calm the situation down’ and escort Bell from the building. ‘There’s a lot of upset brokers,’ the agent said. ‘I’m carrying around a $3,600 check that’s no good. They took the money out of escrow and arbitrarily passed it out to other agents.’”

The Salt Lake Tribune from Utah. “The median selling price of existing homes in Salt Lake County is now down to $240,000, off 6 percent from the height of the overheated market two years ago before home sales began plunging. Steve and Sarah Brown put their home in Holladay on the market and are looking for a great deal, perhaps a property that has been foreclosed or a house sitting vacant. The Browns have debated moving for some time. Why move now?”

“‘There are so many deals and incentives right now, buyers are saying, ‘I can’t afford not to buy,’ Kirkham said. ‘My feeling is that we’ve probably already bottomed out. I’ve sold real estate for 16 years, and my sense is we’re moving in a positive upward direction now.’”

“Home builders say a state grant program designed to entice Utahns to buy new homes is working, with people flocking to take advantage of the $6,000 incentive and creating a demand that they hope will get the construction industry moving again. To date, the Home Run Program has awarded more than 530 grants to homebuyers, about $3.2 million in all. But not all of the grants are going to prospective homeowners who are scraping together money to buy a house.”

“In fact, there is no limit on the price of homes that qualify for the program. As a result, a handful of the 312 taxpayer-funded grants awarded in the first month have gone to help buy homes worth more than $500,000, with one home purchased for more than $700,000.”

“‘Is that the best use of public funds?’ asks Steve Graham, director of the Utah Community Reinvestment Coalition. ‘Obviously the Legislature and the governor felt it was. I focus on affordable housing, so certainly we would have loved to see that kind of funding go to low- and moderate-income homes.’”

“But, Graham said, the program was aimed at recharging the construction industry, not helping people afford a home. ‘That is a little difficult to swallow. I think people, their eyebrows should rise a little bit,’ said Graham of those unusual cases where the grant was given to high-priced homes.”

“Sen. Wayne Neiderhauser, R-Sandy, who was on the committee that formulated the program, said there was discussion of putting a $400,000 cap on the value of the home prices. That was ultimately abandoned in favor of income limitations of $75,000 per person or $150,000 per household. But homeowners who have equity in their existing home could sell and get the grant if they want to upgrade.”

“‘We knew there might be a couple of the outliers,’ said Niederhauser, ‘but we weren’t that concerned as long as the bulk of the homes were in range of the target we had.’”

“Curt Dowdle, executive officer with the Salt Lake Homebuilders Association, of the Homebuilders group, said that, in hindsight, some price restrictions probably would have been helpful. ‘I think [the Legislature's] intent was to apply it to people who really needed the help,’ he said. ‘I think there are some cases where this grant didn’t really go to people who needed it. But you’ve still stimulated a transaction. It’s been the single greatest stimulus that the local homebuilders have had.’”

The Deseret News from Utah. “A few weeks ago, I told you about Laura and her husband, who were hit hard when the local housing bubble burst. Laura wrote that her husband spent eight years as a real estate investor and was doing well. Then the economy turned sour, and they were stuck with eight houses they couldn’t sell. She was wondering whether there was any way they could avoid bankruptcy and foreclosure.”

“I have been surprised at the number of reader responses to Laura’s situation — and the emotion behind them. One reader, Denise, wrote that she and her husband moved to Utah three years ago. They want to buy a house, and they have great credit scores and plenty of money for a down payment. However, they still haven’t found the right home.”

“What’s the problem? Denise says she blames both homeowners and banks. She says she and her husband have bought and sold houses in all parts of the country and recently sold a home in this down market. ‘We are not unacquainted with the dynamics of this market or selling homes in general,’ Denise wrote. ‘The key, my homeowner friend, is to sell for what the market will bear, which most of you are not doing. You want too much for your house. You want a retirement nest egg in one fell swoop. You want a return on investment of 50, 100, sometimes even 200 percent. Whatever happened to a nice 8 percent return, or just breaking even?’”

“‘In just a few years this nation has deluded itself into thinking that homes are a fast track to wealth, that everyone everywhere makes MONEY on their house. … You want premium pay for a tired, rundown, outdated house. … Whatever the circumstances are, the simple truth of the matter is, it will only sell for what someone else is willing to pay for it.’”

“Denise feels banks are an even bigger part of the problem. She wrote that she and her husband have been lied to and put on hold by banks during their search for a home. ‘Everywhere you hear about short sales and foreclosure properties and what a great deal you can get. We have yet to even come close to such a deal. The same answer applies: greed, pure unadulterated greed,’ she wrote.”

“Another reader, Fred, suggested in an e-mail that Laura and her husband need basic training on how real estate markets work. ‘The mentality that people think you can borrow money to buy real estate and then expect that real estate, purchased with borrowed money, to generate enough income to both pay for the mortgage and to support their lifestyle is absurd,’ Fred wrote.”

“Real estate values are closely tied to average incomes, Fred went on, and a home should cost about three times a person’s annual income. But in the explosive market of a couple of years ago, average home prices were five or six times the state’s average household income. ‘Get a clue: That’s a sure sign of an unsustainable bubble,’ Fred wrote. ‘No one can afford to buy a home unless they already have a falsely inflated home they can trade up from. We knew home prices (would) eventually have to drop to realistic levels before we (could) move forward in this economy. …’”

“‘We need to take accountability for our choices, or in the case of this couple, for our gambles. They were speculating, not investing. There is a huge difference. They need to learn the difference and act accordingly. Gambling is a fool’s game.’”

The Colorado Independent. “In a windowless room at the Westin Hotel in downtown Denver, leading business journalists and editors explained how the media ‘blew it’ in covering the economic meltdown. They admitted, on one hand, to falling under the sway of free-market ideology and celebrating risk-taking financial leaders and, on the other, to missing the complex story of the rupturing system by only reporting it in parts and to almost no effect for the past decade.”

“University of Michigan business professor Greg Miller said that the finance beat had simply grown too complex and compartmentalized for journalists to cover well in the traditional way. ‘No one banker could walk me through securitization in 2006,’ he said. ‘They’re all specialists.’ He said bankers rely on other specialists to take up the slack. ‘They don’t know even know each other’s names,’ he said.”

“Veteran TV journalist Allan Dodds Frank…said that complex economic stories were virtually impossible to sell to his editors. ‘Fannie and Freddie were not covered on TV because there’s no visual,’ he said.”

“He said journalists couldn’t figure out what ‘Wall Street was doing’ and that high-rolling CEOs and fund managers were never compelled to answer tough questions. ‘We soft-balled them because we wanted them to come on [our shows] … we let them hide the ball on us.’”

“Coveted interviews with CEO celebrities had moved investigative pieces off of edit calendars. ‘The glamorization of business news [led us] to adopt a posture of reverence [toward our subjects] … We knew it was nonsense,’ he said.”

“The laxity of federal finance regulators went unreported in The New York Times and in other publications, admitted New York Times Business Editor Larry Ingrassia. ‘The [finance industry] lobbyists had more impact on the regulators than we did,’ he said, pointing indirectly to the expanded influence the financial sector came to wield in Washington over the past three decades.”

“‘We drank the Kool-Aid,’ said Jane Bryant Quinn, personal finance columnist for Bloomberg and Newsweek. ‘We believed that free markets were the best kind [of markets].’ She said it had become ‘unfashionable’ over the last three decades to write about regulation, so they didn’t. ‘We could say things were risky … but we never said ‘Where’s the Fed?’”

Bits Bucket For April 29, 2009

Post off-topic ideas, links and Craigslist finds here. Please visit the HBB Forum. And see the The American Visionaries series from Schwarzfilm.

April 28, 2009

Contagions Of Excitement

The Seattle Post Intelligencer reports from Washington. “Yale Economist Robert Shiller…who characterized the tech and housing run-ups as bubbles before they popped…delivered the keynote address at Seattle Pacific University’s annual Downtown Business Breakfast. Markets really react to psychology, and that’s why we get bubbles, Shiller argued. ‘They are social epidemics. They are contagions of excitement.’ That happened with the real estate market in recent years, he said. ‘We got really excited about housing as an investment, and we wanted to buy two of them, or maybe three.’”

“Shiller supported moves to bail out large companies, saying: ‘The bailouts are there to prevent some big event that would really destroy confidence.’ More should be done, he said. ‘I think it’s troublesome the number of foreclosures that we’ve allowed already to happen.’”

“Prosecutors have filed solicitation to commit arson charges against a Woodinville contractor who was allegedly caught on tape offering to pay his tenant $10,000 to burn down a house in foreclosure. Michael Anthony Poole, prosecutors say, had asked renters at his Woodinville home to burn down the residence several times before one of the tenants contacted authorities.”

“According to police transcripts taken from the recording, Poole said he was ‘dying’ financially and unable to keep up with payments for the business and his real estate holdings. In addition to paying him for the arson, Poole told his tenant he would be hired to rebuild the house after it burned down. ‘I know we’ve got about $270,000 to rebuild,’ Poole allegedly told the man. ‘And that,’ he added, ‘would not only save the house, but it would, um, create a job, too.’”

The Seattle Times from Washington. “One out of every 13 homes has entered foreclosure since 2006 in the Lakeland neighborhoods of Verona, Verona North and Verona South, most in the past year. More and more, Rich Faires’ job as property manager for the Lakeland Homeowners Association is to make foreclosed houses in this planned community of 2,800 homes look lived in. Four years ago, dozens of families competed to buy the two-story frame houses in Lakeland’s new Verona subdivision. The empty homes represent a sad ending to an era when many borrowers got a house without a down payment or even proof of a job.”

“‘It all speaks to a time when … all you needed was a heartbeat to get a loan,’ Faires said.”

“In King, Pierce and Snohomish counties, nearly 6,300 homes received a foreclosure notice in the last three months — a threefold increase from just two years ago. One-third of Washington homeowners who financed with adjustable-rate mortgages are still paying low, introductory rates. Those teaser rates, some as low as 1 percent, will jump in the coming year. In most other states, those low initial rates have already expired, according to the Washington Budget & Policy Center.”

“‘When they reset, it’s not going to be pretty,’ said Glenn Crellin, director of the Center for Real Estate Research at Washington State University.”

“In the Verona neighborhood…the first houses sold in 2004 for about $400,000. By the time the last houses were built in 2006, the same models were selling for more than $600,000. Yet properties in the area seemed a bargain compared with Seattle. In 2005, Marina and Andrey Samoylenko…purchased a $575,000 five-bedroom home on Montevista, with a no-money-down mortgage from Countrywide Home Loans. The mortgage payments were about $3,000 a month, the couple said. Andrey worked for Countrywide as a loan officer and the couple said they could afford the mortgage.”

“In 2006, they refinanced with his employer and dropped their monthly payment to about $1,500. Under the financing terms, the couple was paying a small fraction of the interest owed. The unpaid portion was added to their principal balance. Andrey, increasingly unhappy at Countrywide, left for two new jobs — one at a security firm, the other at a local supermarket. Marina worked with him. Last year, both the security firm and the grocery store cut the Samoylenkos’ hours.”

“By January of this year, their monthly payment had jumped and they said they owed $640,000 on a home now worth about $400,000. A real-estate agent negotiated a ’short sale.’ Despite paying tens of thousands of dollars toward their mortgage over the past four years, the couple will walk away with nothing. The Samoylenkos, who shared their story reluctantly, said many of their neighbors could tell the same tale. ‘Step by step, for 10 years, our dream was getting closer,’ said Marina. ‘Now, it’s like someone is taking our dream away.’”

“Michelle Henry and her husband were part of the early wave of homebuyers in Verona. She remembers being directed to Countrywide and getting their new house with two no-documentation loans and nothing more than a $500 earnest-money check. The builder covered the closing costs. ‘I was really surprised we were able to get a mortgage when we already had two other houses,’ Henry said. ‘Clearly we should not have qualified.’”

“Luckily she and her husband sold their two other homes shortly after they moved into the new one and refinanced. But she didn’t understand how young families could afford to buy: ‘You see people in their mid-20s buying half-million dollar homes and you wonder, ‘How in the world did they get the money to do that?’”

“Janet Rogers thought she was doing everything right. When her income as a real-estate agent plummeted last year and she fell behind on mortgage payments, she contacted her lender to try to avert foreclosure of the Kent home she’d lived in for 15 years. In mid-January, she said, the lender told her it had canceled the foreclosure and worked out a loan modification. Then in February, a stranger knocked at her door and said he had just bought her house at a bank auction.”

“‘Before last year, I’d never missed a payment,’ Rogers said. Now she and her daughter have moved into her sister’s two-bedroom condominium. ‘It’s humiliating.’”

The Idaho Business Review. “Mike Pennington comes across as an optimist, but not a blind one. Not overly hopeful and assuredly not too cynical, he takes caution when speaking about the trends he sees in his work as new homes sales manager for John L. Scott Real Estate in Meridian. ‘There are so many elements at work I don’t think anybody can accurately guess,’ he said last week ‘I think we’ll spend the rest of the year cleaning up this foreclosure/short sale thing,’ he said.”

“But even with foreclosures at levels that were unheard of a few years ago, he thinks home prices are bottoming out. ‘I think that’s probably generally true,’ he said. ‘I think this thing has been squeezed down so tight for the last three years that I don’t think there’s a lot of room to go, unless there’s a total economic collapse – and I don’t think that’s going to happen. I think we’re at the bottom.’”

“On April 10, there were 614 resales pending in Ada County, up 122 units from the previous month. Pending resale numbers haven’t been that high in 18 months. Charlie Nate, president of (a) foreclosure-tracking company, said he doesn’t expect any improvement in the Treasure Valley housing market until the record number of foreclosures is whittled down substantially, which he thinks will probably start to happen in late 2009 or early 2010.”

“Until then he thinks foreclosures will continue at a plateau of between 600 and 800 a month, a wild contrast to the about 100 a month that was normal for 2007.”

“‘Once we see those foreclosures stop hitting the market, we stop seeing an influx of new houses, then the bottom is close and we’ll see that turnaround,’ he said. ‘If you see 800 a month coming on the market, that puts a screeching halt to new build jobs.’”

The Statesman Journal from Oregon. “All we have to do is to get Washington to listen to the best idea I’ve heard to end the decline of housing prices and, thereby, restore our confidence in the most important asset most Americans ever own. The idea comes from economist A. Gary Shilling and real estate developer Richard S. Lefrak.”

“Their suggestion: Don’t think about artificially low mortgage interest rates and other stop-gaps. Instead, eliminate the oversupply of houses. Too many were built during our speculative bubble. And, by the way, don’t spend a dime of taxpayer money doing it.”

“How can this be done? Simple: Open our borders to immigrants who can buy a home in the United States. Let one million immigrants per year do this for two years and the entire oversupply of homes and condos will be absorbed. Supply will no longer dwarf demand. Prices will stabilize. The most important asset owned by the vast majority of Americans will, once again, be a source of pride and security.”

“Scott Burns suggests in his April 19 column that one solution to the housing glut is to allow 2 million immigrants to enter the U.S. and each buy a house…Many homes are being lost because the jobs are gone. Where will these immigrant millions work? Who will not have a job because they took it?”

“I’m all for legal, controlled immigration so our economy and services are not strained. However, to paraphrase another, ‘If illegal immigration was good for the economy, California would be the most prosperous state in the union.’”

“I would add, Oregon wouldn’t be far behind.”

The Oregonian. “At first glance, the federal government’s all-out attempt to jolt the housing industry back to life appears to be working in Oregon, particularly for first-time homebuyers taking advantage of falling home prices. Just don’t hold your breath. Government lures probably won’t be enough to turn around the cold market. Early 2009 declines in sales prices showed there’s still room to fall, especially as unemployment spikes and other gloomy economic news hammers consumer confidence.”

“‘One of the characteristics of the 2009 market is I don’t think anyone really knows what’s ahead of us in the next seven to eight months,’ says Kathy MacNaughton, a broker…who focuses on property 20 minutes from downtown Portland. ‘The big question buyers have out there is: Will it drop lower?’”

“First-time buyers Jonathan Eng and Lindsay Benson…who couldn’t find much in their price range a couple of years ago, have found plenty on the market these days to fit what they were looking for in the $200,000 to $220,000 price range. They recently closed on a $259,900 English Cottage in North Portland. The price was more than they originally wanted to spend but exactly what they wanted after eight months of shopping.”

“And, because of a motivated seller, they were able to negotiate the price down by $25,000 and got perks including closing costs, a new sewer line and a new furnace. To boot, the couple qualify for the federal government’s $8,000 tax credit. ‘We just luckily timed it right,’ says Eng, a 29-year old personal trainer. ‘There was definitely a lot of options out there. Things got better and better the longer we waited.’”

“With the U.S. Treasury Department’s ‘Making Home Affordable’ program, even more help for existing homeowners could be on the way. Some critics say the program doesn’t give banks big enough incentives to take on the cost of bailing out struggling homeowners. Senior loan officer Steve Emory with Pacific Residential Mortgage in Lake Oswego says the programs still put the majority of the costs on banks’ shoulders.”

“‘It’s not going to help hardly anybody,’ Emory says. ‘This program is designed to save 9 million people. I don’t think so. The lender still takes the first big hit.’”

“Rachel Freed, a real estate agent with a focus on close-in Portland neighborhoods, says at the dizzying heights of the housing market, a home would have 15 offers and prices were inflated by $30,000 or more. ‘Neither I nor my colleagues enjoyed those times or wanted it to last,’ Freed says. ‘Sellers were upset, buyers were freaked out.’”

“Gerry Mildner, director of the Center for Real Estate at Portland State University, says buying speculatively is what got the industry into trouble in the first place. He offers this advice: ‘Pick the house that suits your needs to live in seven to 10 years. Don’t worry about appreciation, it’ll go up naturally. The lesson that we learned over the past two years is it’s not always up.’”

American Visionaries Part Five

The last installment from Schwarzfilm.

The entire set.

Bits Bucket For April 28, 2009

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

April 27, 2009

Punch-Drunk On Real Estate In California

The Mercury News reports from California. “A new report pinpoints late 2006 as the time when the California mortgage market was most out of control — with some mortgage lenders acting so recklessly that two-thirds of the loans made during that time ended up in default. More than 9 percent of California mortgages originated from August to November 2006 have resulted in lenders filing default notices, according to DataQuick. By comparison, the default rate for all the loans made in 2005 is 4.9 percent, the company said, and for 2004, it was less than 1 percent.”

“DataQuick’s John Karevoll called mid- to late 2006 a ‘pocket of nastiness’ in the state’s lending industry, during which many lenders were making loans that had multiple risks — for example, no-money-down loans that also required no verification of the borrower’s income. As a result, too many borrowers could not afford their loans and have defaulted or been foreclosed upon. ‘This whole process, at least for a while there, just broke down,’ Karevoll said. ‘There was nobody out there minding the store.’”

“Said Dustin Hobbs of the California Mortgage Bankers Association, an industry trade group: ‘It’s no coincidence that these companies are out of business’ based on the lending standards exhibited by their default rates. But, he said, ‘There certainly is blame on both sides. Even borrowers who got loans they couldn’t afford, they have to take some responsibility as well. There’s more than enough blame to go around when default rates are that high.’”

“The median price of Silicon Valley homes has been cut nearly in half since peaking at $805,000 in summer 2007. But that doesn’t mean every home has lost that much value. In fact, a Mercury News analysis shows, home prices in some Santa Clara County neighborhoods least affected by the foreclosure crisis have fallen less than 20 percent. In neighborhoods where foreclosures are commonplace, prices have dropped 50 percent or more from their apex. And the foreclosure problem is not over.”

“The number of notices of default sent in Santa Clara County rose 95 percent in the first quarter of 2009 from the previous quarter, to 4,090 filings, following a period in which legislative changes and voluntary moratoriums had slowed the march to foreclosure. It’s unclear whether rising mortgage defaults will result in enough foreclosures in California’s more affluent areas to further depress prices in those places, said DataQuick’s Andrew LePage.”

“‘The numbers (of foreclosures) are still really small in the higher-cost coastal areas,’ including Santa Clara County, he said, compared with inland counties, ‘but it’s got to be watched, because at some point it could be a much more significant part of the inventory.’”

The Tribune. “More San Luis Obispo County homeowners are struggling to keep up with their mortgage payments. A total of 538 default notices were filed in the first three months of the year. That’s a nearly 40 percent increase from the first quarter of 2008 when 385 default notices were recorded, according to MDA DataQuick.”

“Foreclosure activity in San Luis Obispo County has been on the rise steadily in recent years, spiking last year with 784 trustee’s deeds recorded, versus 267 the previous year. Foreclosures accounted for 36 percent of resale activity in the county last quarter, up from 22 percent the same period a year ago.”

“Foreclosure resales accounted for more than 58 percent of all resale activity in California last quarter, a 33 percent jump from 2008.”

From KSBY. “Last year was a tough one for Santa Barbara County, now economists are weighing in on 2009. The UC Santa Barbara Economic Forecast Project…report shows that median home prices dropped 54 percent in 2008 but home sales increased by 20 percent. Retail sales fell by four percent, and commercial construction dropped by more than 12 percent.”

“‘If you can’t find people to rent your space, especially retail, why build it and why put the money out?’ said developer John Will. Will is already feeling the pinch with a project in Orcutt. ‘We’ve had three retailers pull out of it because they don’t want to take a chance in this economy either,’ Will said.

“Business is booming in a new shopping center in Santa Maria, but Will is quick to point out it is the product of better times. ‘Projects you see currently under construction right now were started in 2005 and 2006,’ said Will. ‘We only have one project we’re going to do after this one, then we’re going to sit tight for a couple years.’”

The San Francisco Business Journal. “In recent years, Pleasanton Rentals President Sherri Creighton and other small business owners have relied on the SBA’s 504 loan program to buy the commercial property in which their businesses operate. These business owners saw buying property as a means to capture the rent or lease payments the business was sending to a landlord and essentially make those payments to an entity controlled by the business owner. The plan was to build equity in the commercial property that might eventually provide retirement income for the owner.”

“But those carefully laid plans have gone awry. Now stretching to make the monthly mortgage has taken a personal toll on Creighton as well as a financial one. ‘Sleep has not been my friend lately,’ she said, likening her current troubles to those her father’s rental business in Texas suffered during the economic collapse of that state in the 1980s as oil prices plunged.”

“‘Everyday we get calls from troubled borrowers asking what we can do to help them,’ said Barbara Morrison, president of San Francisco-based TMC Development, which helps small businesses secure SBA financing to buy commercial real estate. ‘They’ve been hit by this perfect storm of an economic downturn.’”

“Like those servicing residential mortgages, Morrison says these commercial loans have been securitized and sold to investors, so there’s little they can do in the way of loan modifications. ‘Commercial mortgage foreclosures for owner-occupied buildings isn’t on anyone’s radar screen, but it’s more devastating for the community,’ Morrison said. ‘The community loses the business, employees lose their jobs and down the road become residential mortgage statistics.’”

The Press Democrat. “One gauge of the slumping economy is the growing number of courtesy calls self-storage site managers make to remind tenants to pay the rent. Leading the list are construction workers, sales representatives, restaurant owners and other self-employed workers struggling to keep their businesses alive. ‘They’re not ignoring their bills. They’re responsible. The bottom just fell out. It’s a sign of the times,’ said Brian Lane, site manager for Stor-N-Loc in Santa Rosa.”

“Helping fill the void are refugees from the sinking housing market — homeowners who lost houses to foreclosure. ‘There’s quite a few families. They just pile their stuff in here,’ said Les Kiracofe, site manager for Santa Rosa Avenue Self Storage.”

The North County Times. “Lenders appear to be inserting language into short sale contracts that allow them to sue for any ‘deficiency,’ or the amount lost by a bank by selling a home for less than the mortgage —- opening the door to collection agencies and court judgments that can run into the hundreds of thousands of dollars for some North County homeowners.”

“What’s more, the nation’s premier credit scoring firm says that short sales and foreclosures are equally damaging to credit scores. Yet short sales have surged in popularity, as homeowners struggling with falling values and rising unemployment seek a way out.”

“It’s not clear how many short sales in fact fail to protect former homeowners from subsequent collection efforts. But local real estate attorneys and other professionals say such vulnerability may be widespread. The North County Times obtained a short sale contract issued by Countrywide Financial Corp., which together with parent company Bank of America services roughly 20 percent of the mortgages in the nation.”

“The contract warned the homeowner, who owned a house in El Cajon, that Countrywide ‘may pursue a deficiency judgment for the difference in the payment received and the total balance due … ‘”

“Keeping up with mortgage payments —- and thus keeping the house —- is getting harder for thousands of families in San Diego and Riverside counties, where unemployment rates shot into record territory in March. Meanwhile, home values have plummeted more than 40 percent since 2006, leaving roughly one-third of San Diego County mortgage holders ‘under water,’ according to First American CoreLogic, a data firm.”

“The figure is higher in Southwest Riverside County; three of every four mortgage holders in Lake Elsinore is under water, for example.”

“It’s possible those lenders won’t sue the borrowers at first because ‘that’s why they’re in a short sale anyways, they don’t have the money,’ said Susan Anderson, manager of the Coldwell Banker real estate brokerage in Vista. So banks ‘are saying, ‘Down the line, if you have the money, we’ll go after it.’”

“Lenders might include a clause in a short sale contract that releases the lien but creates the possibility for a lawsuit to collect debts at a later date, said John Brady, a San Diego attorney. Effectively, lenders will try to transform a purchase-money loan into one in which the bank can sue to collect, Brady said.”

“‘They’re being sneaky,’ he said. ‘They’re trying to keep the door open to be able to collect on any deficiency.’”

The Union Tribune. “It’s Tim Kelley’s job to promote Imperial County as the future, as a hub for business, as the renewable-energy capital of the world. An optimist, Kelley said the area’s high unemployment rate has an upside. ‘I’m not saying it’s a good thing,’ he said. ‘But it does mean you have a work force.’”

“During a three-hour tour, Kelley noted promising commercial sites, three times pointing to curbs and gutters as selling points. He called everyone’s attention to a new Super Wal-Mart on one side of the street, while a former economic staple, Del Norte Chevrolet, sat shuttered on the other side. During a stop at a vacant 48-lot parcel, developer Dan Holbrook greeted one of the two-dozen passengers, asking, ‘Are we punch-drunk on real estate yet?’”

“Imperial County had 1,000 developable lots eight years ago when the country last rebounded from recession, Kelley said. Now it’s ready with 60,000. Kelley acknowledged his road ahead is rough. ‘You can’t really say, ‘When you’re in Imperial County, drop by my office,’ he said. ‘It’s not a destination site.’”

The Press Enterprise. “Fortune finally is smiling on renters who, for years, could not afford to buy a house as they watched home prices escalate ever further beyond their reach. In November 2006, the median price of homes in Riverside and San Bernardino counties peaked at $405,500. Since then it has plunged more than 57 percent to $173,000 in March, weighed down by foreclosures that represent more than two-thirds of sales, states research firm MD DataQuick.”

“‘Prices and mortgage interest rates now are so low that the monthly house payment is approaching the average rent in the Inland Empire,’ said Delores Conway, director of USC’s Casden Real Estate Economic Forecast.”

“That means many more renters can grab for the ring of home ownership as long as they can qualify under more-demanding lending standards. In a weakening economy, another key consideration is that they have jobs that they feel confident of keeping.”

“Last weekend, Simoun Davis and his fiancée, Felmarie Cipriano moved into the first house they could call their own. The single-story, four-bedroom house they bought for $115,000 on a cul de sac in Moreno Valley is just big enough for their two daughters and Cipriano’s mother to each have a bedroom. Their 3-year-old son will bunk with his parents.”

“‘We can’t imagine finally getting a house because three years ago we were just dreaming,’ said Cipriano. Her happiness was a little dampened, she said, by knowing that the previous owners had been foreclosed on. ‘I felt so sad for the people who lost their house and now we bought it,’ she said.”

“If it wasn’t for her boyfriend’s financial discipline, she said, they also might have bought a house that was too expensive for them in 2003. She said the only way they could afford a house then was if her brother joined them, but he declined.”

“When they started house hunting again in January…they decided to move inland where real estate prices are lower than on the coast. They face a long commute to their jobs, up to an hour-and-a-half each way, depending on traffic. Davis said although the couple was financially qualified to buy a $250,000 house, they decided to pay less to avoid financial stress and have time to relax and play with their children.”

“Their monthly house payment of $900, including taxes and insurance, is less than half their previous $2,200 monthly rent. And in a few years they hope to have built up equity and buy a better house, possibly back in Orange County. Cipriano said when they tell friends who have been through foreclosure that they are buying a house, ‘They say we are lucky.’”

The Inland Valley Daily Bulletin. “Economists and real-estate agents are counting on homeowner affordability to stabilize California’s housing market mess, but Bruce Norris couldn’t disagree more. Owner of The Norris Group, a Riverside-based real-estate investor and financial broker for other real-estate investors, Norris says it’s not what a home shopper ‘can afford to pay’ that’s key in turning this market around - it’s what they’re ‘willing to pay.’”

“He’s bucking the popular belief that a 5 percent or 10 percent price drop on Inland Empire home values will usher in the market’s bottom. Think 20 percent or maybe more, he said. ‘It’s because of the 1004 MC form,’ Norris said. ‘It’s very dangerous.’”

“This ‘market conditions addendum’ for appraisers to use - enforced April 1 by the mostly government-owned mortgage investors Fannie Mae and Freddie Mac and loan insurer Federal Housing Administration - might thrust the economy’s fragile mortgage system from its depressed state to something much worse, Norris argues.”

“The new addendum says a house must be appraised at the neighborhood’s median home value instead of market value, as long as the home is located in a downward market and as long as the mortgage is a Fannie Mae, Freddie Mac or an FHA-backed loan. Median home values in certain neighborhoods are taking a beating these days because their prices are skewed by dozens of foreclosures - which means nonforeclosed homes are slated to get hit by a double-whammy price-depreciation phenomenon.”

“Norris has already seen values stated on local home appraisals drop 20 percent in the past 3 1/2 weeks. ‘If this plays out, things will get much worse,’ Norris said. ‘We’re going to devalue the loan portfolios of almost every lender in the state of California. This could crash the system - it really could.’”

“Norris thinks a speedy free fall in home values wouldn’t draw buyers - it would erode the last bit of confidence remaining in the already-battered home shopper psychology. Money currently sitting on the sidelines could camp there for years because of fear. Not only that, but the foreclosure pipeline is so backed up that banks could collectively end up losing billions more if they sold their foreclosures at even worse penny-on-the-dollar prices based on median home appraisals rather than market-value appraisals.”

“With plenty of historical numbers on his side, Norris said he made presentations to homebuilders and real-estate professionals in early 2006 and predicted the housing market crash. Few believed him…The first sign to watch out for at a market’s peak is when affordability reaches historical lows. ‘It’s an indication you’ve reached the peak and about to head the other way,’ Norris said.”

“The other is migration. When California residents start jumping ship and moving to nearby states, just like they did in 2006, it’s a red flag, he said.”

The Democrat Herald. “When I worked as a real estate inspector in California in the early years of this decade, I was continually amazed at cost of houses, which never stopped rising. ‘Where are all the rich people who are buying these houses coming from?’ I asked a realtor as I completed an inspection of an older, not-particularly special, three-bedroom house she was selling for a cool million dollars. ‘These buyers must be taking on a $7,000-8,000 per month mortgage payment.’”

“She explained that most people buy a million dollar house by selling a $750,000 house, thus taking on a $250,000 mortgage (roughly a $2,500 monthly payment). They bought their $750,000 house when they sold their $600,000 house, taking on a $150,000 mortgage. And so the transactions went until the lowest-priced houses — which at that time in California cost around $200,000 — were purchased by first-time home buyers.”

“For people to ‘move up’ into ever more-expensive houses (touted as better investments because their price kept rising ) others had to keep coming in at the bottom of the market, buy the cheapest houses, then sell them and buy at the next level up. ‘But many people who don’t own a house can’t even afford a $200,000 house,’ I said.”

“‘Oh, they can with the right type of financing,’ the realtor answered, putting the million-dollar offer for the house I’d just inspected into her $500 leather portfolio. ‘No money down, adjustable rate mortgage . . . creative financing is easy for low-income people to get. Can you have that inspection report for me tomorrow?’”

“‘Sure,’ I said, feeling embarrassed about my foolish concerns for the housing market and people’s growing debt. Realtors and bankers obviously understood finances much better than I ever would.”

“Fast forward to the Obama economic team’s desperate attempts to return today’s economy to its mid-2007 condition, before the housing bubble broke. One of their principal concerns is to get credit flowing again so people can resume their pattern of consuming by borrowing — going ever further into debt.”

“Perhaps Obama’s economists think pushing consumer debt is the quickest way to restore the economy and avoid the pain of a complete collapse. Perhaps they are malevolent agents of Wall Street, helping the bankers use homeowner debt as speculative tender while the homeowners’ equity and net worth dissolves. More likely they’re misguided: they think that the economy as-it-was is the only way it can be.”

“Do we really want to go back to an economic system that can only grow by driving us ever-deeper into debt, setting up another — possibly worse — collapse? Or do we want to build a sustainable economy.”

“It’s said that if the people lead, their leaders will follow. In our current situation, the best way for people to lead is to refuse to go further into debt and to gradually increase the equity in their homes — and their outright ownership of cars and other goods. We can use a growing equity-to-debt ratio to stabilize our lives and, eventually, anchor the economy.”

Bits Bucket For April 27, 2009

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

April 26, 2009

The Real Estate Market Led Us Into This

The Hartford Courant reports from Connecticut. “George and Susan Hitchcock thought they were doing the responsible thing. They could no longer afford the mortgage on their ranch house in Farmington so they put it up for sale, knowing they owed more than the house was worth. When they finally got an offer in December, they hoped their lender, Countrywide Financial, would accept it even though it was less than the mortgage. After all, there had been so much publicity about lenders working with homeowners.”

“For three months, the couple tried to get an answer from Countrywide, to no avail. Finally, in early March, the buyer lost patience and walked away. Countrywide auctioned off their house on April 4. As the volume has grown, the average time to just get an answer has doubled in the past year alone, to two months — and in many cases, it is much longer, according to a recent survey of 2,000 real estate agents nationwide.”

“Frustration among real estate agents, sellers and potential buyers is growing. ‘Bad enough we have a slow market, this is pushing down values,” said Art Rose, a real estate agent in East Hartford who represented the Hitchcocks.”

“In Connecticut, 14 percent of all houses and condominiums with mortgages on them were ‘underwater’ as of the end of 2008 according to The Warren Group. That was 95,640 residential properties in all, a number that’s probably still rising. Short sales were rare during the boom years in housing because property values kept rising, sometimes at double-digit rates annually. When the housing bubble burst and prices slid.”

“The Hitchcocks — whose mortgage was standard, not subprime — would seem to have been strong short-sale candidates. In 2007, George Hitchcock was diagnosed with a lung disease and had to give up his job as a maintenance worker. Their home has been in the family since 1961 when George Hitchcock, then 11, and his parents moved in.”

“But their mortgage debt — dating to the Hitchcocks’ buying out George’s siblings after they married in 1993 — had been compounded by a second mortgage to pay off a car loan and some other bills. ‘I feel like they could have cared less,’ said Susan Hitchcock.”

From The Day in Connecticut. “By last October, one of every 20 mortgages in the city was in foreclosure, the third-highest rate in Connecticut behind those of Bridgeport and New Haven, according to the state Department of Economic and Community Development. An estimated 21 percent of the nearly 3,800 mortgage loans in New London were classified as subprime, and payments on nearly 8.5 percent of the mortgages were more than a month overdue, suggesting additional foreclosures would occur.”

“The recent spate of foreclosures in the city is the most anyone can remember, and comes on the heels of a scandal involving Jose Guzman of Waterford, a former loan officer who last September pleaded guilty in federal court to fraud charges. Guzman admitted to falsifying information in obtaining mortgage loans for more than 200 borrowers in New London County between August 2004 and June 2007. Guzman is scheduled to be sentenced July 22, while his co-conspirator, Brian Guimond, of Norwich, is scheduled to be sentenced Thursday.”

“In February, the last month for which data were available, the median sales price of homes in New London was $136,450, down from $179,900 in February 2008 and $275,000 in February 2007, according to The Warren Group. Eight homes sold in February, compared to 13 the previous February and 37 in February 2007.”

“Having won $867,850 in federal stimulus funds set aside for ‘neighborhood stabilization,’ New London’s Office of Development and Planning will train its sights on a downtown district. The city will kick in $250,000, and other sources of funding will up the budget for the effort to about $2 million. That’s enough, wrote Cara Pianka, the city’s community development coordinator, in applying for the stimulus money, to purchase and rehabilitate a dozen units.”

“Among the candidates for improvement are a three-family structure at 77 Garfield Ave. City tax records show the South Ledyard Street house sold for $55,000 in 1995 and for $220,000 in January 2007. Sutton Funding LLC of Raleigh, N.C., foreclosed on it in January of this year. The Garfield Avenue dwelling sold for $87,000 in 2003 and, in a Jose Guzman-brokered transaction, for $295,000 in 2005. In October, U.S. Bank, of San Diego, Calif., took possession of it for $193,445.”

“Nothing less than the fate of the economy rests on such efforts, some say. ‘It’s the real estate market that feeds the economy,’ said John Bolduc, executive VP of the Eastern Connecticut Association of Realtors. ‘The real estate market — the whole subprime mess — led us into this and the real estate market will lead us out.’”

South Coast Today in Massachusetts. “The Massachusetts Association of Realtors has named Congressman Barney Frank, chairman of the House Financial Services Committee, its first ‘Distinguished Champion of Housing Opportunities.’”

“Frank received the proclamation for his tireless work and support for legislation and regulations to ensure a robust and sustainable housing market.’Chairman Frank has long been a leading voice in Congress on the importance of housing opportunities — both homeownership and affordable rental housing — for residents of Massachusetts and the entire country for years,’ said MAR president Gary Rogers, a broker at RE/MAX First Realty in Waltham.”

The Boston Globe in Massachusetts. “Boston’s luxury real estate market is finally feeling the pain of the housing downturn. Until recently, sales of luxury condominiums were holding steady. But now the luxury market is faring worse than the rest of the Boston condo market. The median selling price of luxury condos plunged 19 percent to $560,000, while sales skidded nearly 42 percent in the first quarter of this year when compared with the same period in 2008, according to the Listing Information Network. Sales in the city’s overall condo market fell about 33 percent, and the median sales price, or midpoint price, dropped almost 14 percent to $410,000.”

“‘This has been one of the most dramatic declines that we’ve seen within one quarter,’ said LINK president Debra Taylor Blair. ‘A lot of those buyers tend to be hedge fund managers, people directly tied to Wall Street. People maybe who were expecting a bonus that didn’t happen.’”

“‘The numbers on the high end came to a screeching stop after the financial crisis hit,’ said Kevin Ahearn, president of a residential brokerage and marketing company that specializes in Boston luxury real estate.”

The Philadelphia Inquirer in Pennsylvania. “Existing-home sales in the eight-county Philadelphia region continued to slide in March, declining 25 percent from the same month in 2008. Median prices fell 7.5 percent year-over-year, according to Prudential Fox & Roach’s HomExpert Market Report. In Philadelphia, prices of single-family homes fell 8.4 percent in the first quarter from the same period in 2008, said Kevin Gillen, an economist with the Wharton School and Econsult.”

“Since the boom ended two years ago, he said, city home prices, excluding condos, have fallen a cumulative 18 percent, moving Philadelphia closer to the average drop of 30 percent in the 10 largest U.S. cities tracked by S&P Case-Shiller.”

“‘Two competing forces are driving existing-home sales,’ said Patrick Newport of IHS Global Insight Inc., of Lexington, Mass. ‘Distressed sales - foreclosures and short sales - in a handful of states, including California, Arizona, and Nevada, are driving sales up. Driving housing sales down is weak demand across most states.’”

The Baltimore Sun in Maryland. “K Bank in Owings Mills has been placed under heightened federal supervision as it becomes the latest regional bank to suffer from bad loans caused by the collapse of the real estate market. The Federal Deposit Insurance Corp. issued a ‘cease and desist’ order against the bank, requiring it to stop issuing construction and development loans and raise more capital, among other guidelines.”

“David H. Wells Jr., CEO of K Bank, said …the bank was caught off guard by the declining real estate market. He added that the bank voluntarily stopped issuing construction and development loans before the order was issued. Wells also said the bank wasn’t in danger of closing.”

“‘A core part of our business for the past 48 years has been lending to local developers, and that hasn’t gone so well lately,’ Wells said.”

“Regulators shut down Suburban Federal Savings Bank of Crofton in late January, Maryland’s first bank failure in 17 years, after it failed to make changes ordered by the federal government. The Office of Thrift Supervision also issued ‘cease and desist’ orders to Eastern Savings Bank of Hunt Valley and Baltimore’s Bradford Bank in late February. At least a half-dozen banks in the area are operating under heightened scrutiny.”

“Wells said the bank began seeing problems with the real estate market in 2007, when it curtailed construction lending significantly. It stopped those loans altogether in 2008. As people stopped buying houses and values plummeted, many developers couldn’t afford to pay their loans. Wells said the bank was hit particularly hard in Prince George’s County, where real estate values dropped significantly.”

“‘We saw it getting worse,’ Wells said. ‘We didn’t see it getting this bad. We’re in a very, very different economy.’”

The Washington Post. “Condo owners share more than roofs and lobbies these days. They also share one another’s financial burdens. New mortgage industry policies are forcing lenders to look more closely at the makeup of entire complexes before extending loans to prospective buyers or to people who want to refinance. The increased scrutiny is making it tougher to buy — and hence sell — condos, which are widely considered the housing market’s shakiest segment because they are popular with speculators and financially vulnerable entry-level buyers. The policies are also exacting higher fees and larger down payments from condo buyers while limiting where they can live.”

“A lot of foreclosure-related losses have come from condo lending, pushing prices lower and wrecking condo association budgets. Some areas have had particularly dramatic drops in sales volume. The number of condos sold in Fairfax, Montgomery, Anne Arundel and Frederick counties last year was half what it was in 2006, according to a Washington Post analysis. In Prince George’s County, it was off by two-thirds.”

“Tom Murphy, a Long & Foster agent in Georgetown, understands the motivation behind the rules. ‘The lenders don’t want to put up money anymore if the building is not going to fly,’ he said.”

“But the rules risk disrupting sales, especially in parts of the District that tend to attract diplomats and others who are often temporarily transferred for their jobs, Murphy said. ‘Here, people are in motion,’ he said. ‘While they’re gone, they count as investors if they’re renting out their places. That throws everything off for people who are trying to buy in those buildings.’”

“Benjamin Chiang nearly lost the chance to refinance his condominium when his lender discovered that many other people in the building were behind on their condo dues. ‘It made me a little peeved that my loan depended on the credentials and behavior of my neighbors,’ said Chiang, who bought his Arlington home eight years ago.”

The News & Observer from North Carolina. “Nuestro Banco, the first bank chartered in the state that focuses on the Hispanic community, is being pressured by regulators to overhaul its operations. A cease-and-desist order issued by state and federal regulators, made public Friday, requires the Garner bank to halt ‘unsafe and unsound banking practices and violations.’ Nuestro Banco…opened its first and only branch in Garner in fall 2007.”

“Among other things, the cease-and-desist order calls upon Nuestro Banco to stop: ‘Operating with management whose policies and practices are detrimental to the bank and jeopardize the safety of its deposits.’ ‘Operating with hazardous loan underwriting and administration practices.’”

“Tony Plath, a professor of finance at UNC-Charlotte…said it is ‘very rare’ for a bank as young as Nuestro Banco to receive a cease-and-desist order because regulators pay extra attention to fledgling banks.”

“In addition, he said, ‘It is hard to screw up the bank when you don’t have the balance sheet underneath you yet.’ Loans, for example, don’t usually go bad right away.”

Bits Bucket For April 26, 2009

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

April 25, 2009

The Bubble Mentality In Florida

Florida posters discussed what part of the state would be the best place to see the housing bubble. “Miami or Ft. Myers? Largest inverntory and steepest declines.”

A reply, “Palm Beach (island) isn’t really a condo haven. West Palm Beach is where the condos got out of control, they probably have 10X units for the ‘real’ demand for the product. Even worse are some of the condos that were built OUT of downtown! There’s less then no demand for those units; they will never sell (tear them down, or convert to section 8). WPB is good (and if we all met up there, we could go see my favorite buildings, the million dollar condos in the mall parking lot, and the condos that require a bulletproof vest to enter).”

An observation from New York. “The only reason I’m interested in Palm Beach is co-workers keep buying condos there… Although some have invested in Miami, and some in other parts of Florida.”

“Personally, I’d never buy a condo in Florida. A house, yes (a cheap one). A condo, no.”

The Sun Sentinel. “Sales of existing homes rose 47 percent in Broward County in March, to 680 from 463 a year ago, the Florida Association of Realtors said Thursday. The median price plunged 30 percent, to $219,500 from $311,400 last year. In Palm Beach County, sales rose 20 percent, to 685 from 572 a year ago. The median price plunged 29 percent, to $228,100 from $320,200 last year.”

“Broward County has 28,898 homes, townhouses and condos for sale, down 19 percent from the end of November, according to a Bal Harbour-based real estate consulting firm. Palm Beach County has 26,808 properties, a 10 percent dip.”

“Lewis Lopater recently bought on a three-bedroom house in Palm Beach Gardens. He paid $174,000 for a home that was listed last summer for $229,900. Lopater and his wife, Dawn, have a monthly mortgage payment of about $1,400, only $200 more than they paid in rent.”

“‘It’s well worth it to have a fenced-in back yard and a piece of the pie, so to speak,’ said Lopater, 48, a father of two and a food service employee at Boca Raton Community Hospital. ‘I really lucked out.’”

The Palm Beach Post. “Myles Minns, head of Continental Properties, was reluctant to say the market finally has turned. ‘We had a great March, but we’re down 20 percent from March to April,’ Minns said. ‘If I could have three really good months in a row, I could say, ‘Yeah, we’re there.’ We’re still not there.’”

“Minns worries that lenders, who paused foreclosure proceedings late last year, are poised to flood the market with foreclosed homes. ‘We’re going to see hundreds if not a few thousand foreclosures hitting the market instantaneously in May,’ Minns said.”

“‘You’re seeing increased volume, but it’s coming at the expense of price,’ said Mike Larson of Weiss Research in Jupiter. As chaotic as the housing correction is, it is proceeding logically from the irrational prices of three years ago, he said.”

“‘The message there is that markets work,’ Larson said. ‘The reality is that falling home prices are what’s going to get us out of this, as painful as that is for people who are upside down on their loans.’”

The News Chief. “Sales of existing homes in Polk County were up again in March, making it six months out of the past seven that gains have been shown in year-to-year comparisons, according to the Florida Association of Realtors. ‘These sales (in Polk County) are a lot of first-time home buyers and a lot of FHA (Federal Housing Administration) loans that had gone away for a while, as in not popular, but now they are,’ said Sarah Armstrong of ERA Merline Parker Realty of Winter Haven. ‘It is because it is less money down - only 3.5 percent down on an FHA loan than on a conventional bank loan. They are not as strict as they used to be.’”

“Tony Fridovich, the owner-broker of Remax Paramount Properties in Winter Haven, tracks home sales and reports the statistics to the federal government every month. He said that short sales - sales in which the agreed-upon price for real estate is less than balance owed to a bank or mortgage company - and foreclosures are forcing everyone who is not a foreclosure situation to drop their home prices to compete.”

“‘In the next couple of months, we are going to see an increase in the foreclosures, and some of the lenders we represent say that that is coming,’ Fridovich said. ‘They have held off and held off due to the administration (of President Barack Obama), but the floodgates are going to open.’”

The Orlando Sentinel. “The Orlando area experienced one of the sharpest declines in single-family home prices during March for metro areas across the state. Four-county Metro Orlando’s median price for single-family existing-home sales dropped by about a third — from $222,600 in March 2008 to $151,600 last month. Only four other Florida metro areas had more dramatic declines: Fort Pierce-Port St. Lucie, 58 percent; Miami and Punta Gorda, each 39 percent; and Sarasota-Bradenton, 37 percent.”

“Orlando’s median condominium price dropped more than the median in any Florida metro area, plummeting 57 percent from $130,800 a year ago to $55,700 in March, according to the statewide Realtors group. The number of condo units sold locally also was down, to 104 compared with 364 a year ago.”

“University of Central Florida economics professor Sean Snaith said he didn’t expect values to snap back quickly because many homeowners will try to sell once the prices begin to revive. ‘You need to see these price declines start to level off before you could see a return of that market,’ Snaith said. ‘Right now, we’re clearing some of the casualties from the battlefield. . . . That’s why we’re seeing some of these pretty gaudy prices.’”

The Herald Tribune. “The number of single-family homes for sale in Manatee, Sarasota and Charlotte counties has fallen to levels not seen since December 2005 — the month that arguably signaled the end of the housing boom. Some economists have their own doubts about whether the housing market has hit bottom.”

“‘I don’t think this is the time to start stomping around going, ‘Ding-dong, the wicked witch is dead,’ and the foreclosure problem is over,’ said Sean Snaith, director of the University of Central Florida’s Institute for Economic Competitiveness. ‘Until I see prices level out, I’m not going to look at inventory levels to say we’re on the other side of the crisis.’”

“Jack McCabe, a Deerfield Beach-based consultant who was one of the first market watchers to warn of an impending housing bust…attributes the fall in inventory to: Auctions, short sales and foreclosure sales that have attracted first-time home buyers taking advantage of the government’s $8,000 home-buying tax incentive. ‘The problem is, with the amount of foreclosures coming onto the market, prices will stay at the bottom,’ said McCabe.”

“The economy, tight credit and homeowners struggling to pay their bills drove delinquent taxes in Manatee and Sarasota counties to a record $102 million, as the payment deadline came and went earlier this month. Similar increases in delinquent taxes are being reported across Florida. In Sarasota County, the biggest nonpayers were developers.”

“Working out a deal with the bank is the biggest problem facing many developers, said Lee Wetherington, whose development company’s land is now in the hands of a trustee liquidating assets to pay bills. ‘They may be holding back paying taxes right now,’ Wetherington said of the building industry. ‘I’m guessing their thinking is ‘Why pay the taxes if they’re still negotiating with the banks?’”

From TC Palm. “Organizers for Friday and Saturday’s job fair to recruit workers for Florida Power & Light Co.’s Solar Plant in this rural community expected to receive 3,000 applications over two days. They had no idea that number would be eclipsed before lunch Friday morning. At one point, cars were backed up from the park west to State Road 710 in Indiantown, a distance of two miles, and for several miles east on Citrus Boulevard, deputies said.”

“‘I’ve had people already from North Carolina, New York, Alabama and Maine through here,’ said Florian Mandiche, Workforce Solutions veterans’ representative of Martin County.”

“Tom Bourgault, a Rhode Island carpenter with 40 years experience, said he was visiting Florida to care for his ailing father. ‘I could go back to Rhode Island,’ Bourgault said. ‘But there’s no work there.’”

“Mike Twiddy of Stuart was upbeat and on hand to offer a variety of skills. A veteran who has a Class A commercial driver’s license, heavy equipment experience and a background in aircraft maintenance, Twiddy said he is working temporary jobs ‘and doing about anything you can to survive.’ ‘I’ve got a lot of experience,’ Twiddy said. ‘But right now it doesn’t seem to do a lot of good. We’re all walking wounded.’”

The Gainesville Sun. “After leaving a job fair that featured far fewer employers than in recent years, University of Florida student Ashley Kohler bluntly summed up the frustration of soon-to-be graduates. ‘I want to put it on a T-shirt: It sucks to graduate right now,’ she said.”

“Florida’s unemployment rate is approaching 10 percent and the situation is nearly as dismal elsewhere. ‘This is not your standard recession,’ said Wayne Wallace, director of UF’s Career Resource Center. ‘It has seemingly crossed across all sectors of employment and geographic regions of the U.S.’”

The St Petersburg Times. “A prominent Atlanta developer headed for bankruptcy court this week, casting uncertainty over two high-end Pinellas condo projects. Water’s Edge, a $100 million high-rise in downtown Clearwater, sits nearly empty. Only 10 of 153 units have sold, a hefty drag on Clearwater’s downtown market.”

“By January 2008, Opus had contracts and down payments for 109 of the 153 units. Then disaster: A legal glitch voided all contracts. With the condo market slumping, buyers took their deposits and walked. Since Water’s Edge opened in September, only 10 condos have sold; the average unit costs $750,000.”

“Opus intends to leave the condo market. ‘It’ll be like every other property the bank takes over,’ said Clearwater developer Guy Bonneville. ‘They’ll auction it off, sell it for what they can get, and get it off their books.’”

“If that happens, it could shake up Clearwater’s condo market. A neighboring high-rise, Station Square, is also largely empty and is putting units up for rent.In St. Petersburg, Opus South has sold all but 19 of 400 Beach Drive’s 93 units. The most recent sale was last month, when a 3,306-square-foot condo went for $1.2 million. In June, a same-sized unit sold for $1.345 million.”

“A development boom is brewing under the radar of Floridians distracted by deteriorating real estate values and record foreclosures. The state is processing an unprecedented number of proposals for new homes and commercial development. If approved, these projects could pump more than 600,000 rooftops onto a market suffering from a surplus of product and slowdown in population growth.”

“Mike McDaniel, a planner at the state’s Department of Community Affairs for 22 years, finds the surge stunning. ‘Instinctively, most people would think there would be a slowdown,’ he said. ‘And it may be true at the other end, where the developers apply for the permit (to build). But there’s been no letup here. It’s a gold rush.’”

“McDaniel said landowners, eager to turn dirt into money, are behind the push for a record number of new planned communities. Regardless of whether these megaprojects become reality, the owners stand to win. ‘They want to get the land use change, strike it rich, then move off to where there are not a lot of people,’ he said.”

“But where will that leave Florida? McDaniel points to a satellite map of Flagler and St. Johns counties that shows plans for four projects totaling more than 20,000 homes and 7-million square feet of nonresidential space. ‘My jaw dropped when I saw this,’ he said. ‘Can there possibly be this much need? And is this area really suitable for this intensity of development?’”

“The planners at DCA see themselves as gatekeepers of the state’s growth management laws. Now there’s a sense inside the department that the sentries are being stormed at the gate. Florida’s legislators, eager to jump-start the economy, have proposed everything from eliminating the oversight agency to carving out exemptions for bigger and bigger sections of the state.”

“Another factor behind the deluge of requests for land use changes? Developers’ fear that the Florida Hometown Democracy amendment will pass in 2010. It would give local residents, not just municipal or county officials, the right to vote on land use changes in their neighborhoods. ‘We hear from large landowners all the time that they just want to get their property entitled before Hometown Democracy goes into effect,’ McDaniel said. ‘They say, ‘We might not do anything with this land for 50 years, but we want these entitlements now!’”

“In Gainesville, veteran economist David Denslow said he never considered the possibility that, in light of the current downturn, a glut of new projects would be under review at the DCA. When the department recently pulled together data on all major developments pending and approved since 2007, the totals were staggering: projects covering 410,126 acres, with a potential for 630,965 new homes and 479.5 million square feet of nonresidential space.”

“‘This really catches me by surprise,’ said Denslow, who is with the University of Florida’s Bureau of Economic and Business Research. ‘I’ll have to revise my thinking.’”

“Denslow fears that the behind-the-scenes gold rush will doom Florida to relive its past. His assessment: When migration to Florida picks up again, newcomers will find affordable housing aplenty. Existing Florida homeowners, on the other hand, can kiss goodbye any dreams of cashing out big on their homes.”

“‘In the 1980s, Florida had a huge increase in population but house prices, adjusted for inflation, didn’t rise at all because the state and counties had been very friendly to development,’ Denslow said. ‘Now nobody in their right mind, even an amateur flipper, could look and say that (housing) prices are going to double in the next 10 years. Prices just won’t go up all that much when you’ve got that number of projects in the pipeline.’”

“McDaniel said that if Pasco stopped approving new housing today, the county could accommodate new residents through 2035 — and still have more than 90,000 empty homes. But McDaniel has learned that open spaces in Florida, whether they’re in cattle or crops, are often treated as little more than a placeholder.”

“‘Many people seem to believe that agriculture is temporary; that someday the land will be developed for housing,’ he said, saying that kind of thinking led to the quick-flip behavior fueling the last real estate boom. ‘A lot of that is the bubble mentality.’”

The Northwest Florida Daily News. “Steve Riggs has decided to stop development of Heritage Plantation, a 1,000-acre, upscale residential and golf development 10 miles north of Crestview. Estimating his loss at $6.5 million, Riggs has turned the entire project over to BB&T, the bank that is his creditor. ‘It’s not my first failure and it probably won’t be my last,’ Riggs said. ‘I had budgeted for slow, but not for dead in the water on real estate sales.’”

“Plans called for as many as 780 upscale homes in a gated community, with a ‘buffer’ of at least 25 feet from the lot lines. Homes ranged from 1,727 square feet starting at $359,000 to 3,851 square feet starting at $693,400. But of the 297 sites in the first two phases, only 57 have been sold and four have been built.”

“‘I would have been OK with 20 to 25 lots a year,’ Riggs said. ‘But I think we sold one in all of 2008. Someone is going to make a lot of money on this project. ‘I had hoped it was going to be me, but apparently it’s going to be the next guy.’”