On The Wrong Side Of A Real Estate Boom
The Summit Daily News reports from Colorado. “Winter stormed into Aspen in a major way in December, smashing at least one record for total snowfall accumulation at a local ski mountain. Aspen was quiet, at least compared to what March is usually like. Advance bookings for last week were 53 percent, compared to 78 percent of capacity for the same week last year. The real estate margins might be sagging even more. Along Highway 82, which cuts through the town’s middle, a resident of a small house that dates to the mining era said her house a year ago was worth $3 million. Today, it’s worth maybe half that, she said. The same house, if located in Denver, looks to be worth about $200,000.”
“At the Aspen Institute’s Energy Forum, a volunteer mentioned that he had been forced to spend a day at his condominium, getting it ready for a showing. He hoped to sell it, he said, and cut his losses. His mortgage payment was nearly $7,000 a month.”
“He had gotten out of the housing market once before, he said. That was in 2006, and he had been spooked by the rapidly escalating prices. But then prices had kept on rising, so he jumped back in. A lot of people then were sure that the rules didn’t apply to Aspen.”
The Steamboat Pilot in Colorado. “Trailhead Lodge is a $71 million condominium project that broke ground in summer 2007. The five-story building comprises 184,000 square feet. A July 2007 sales event saw 62 of 86 condominiums go under hard contracts with an aggregate value of $56 million. The developers expect the sales to begin closing soon.”
“The development intends to use the next two years to pursue city permits on the balance of the project, which tentatively includes another large condominium building and townhomes.”
“‘Three years from now, the development plans for all of the parcels should be complete,’ Pearson said. Optimistically, those projects could be built in another 2 1/2 years, Pearson said. If the Steamboat real estate market still is in the doldrums beyond that point, it will ‘be a bad sign for Steamboat,’ he added.”
The Park Record in Utah. “Condo owners owed money by Deer Valley Lodging are not happy. Among numerous complaints…sent directly to The Park Record, the most common has been that it was illegal for Premier Resorts, the parent company of Deer Valley Lodging, to withhold payments.”
“Sanford Kassel, a California attorney and owner of multiple Park City condos, said in his state it would be considered criminal. ‘We all know it’s tough times, but it’s wrong for Deer Valley Lodging to tap or otherwise use money that is not theirs, but due owners,’ he said in an interview on Thursday.”
The Daily Herald in Utah. “There were tears and sniffles among the family of prominent local Realtor Ron K. Clarke in the crowded courtroom of U.S. District Judge Ted Stewart as he handed down a sentence on Thursday to Clarke, a key figure in an illegal property flipping scheme that resulted in inflated property tax valuations and multiple foreclosures in the upscale Riverbottoms area in Provo. For his part in the scheme that resulted in more than $5 million in losses, Clarke was sentenced to 41 months in federal prison with no parole.”
“In Thursday’s sentencing, Clarke and Bradley Grant Kitchen, David R. Bolick, Steven Wells Cloward and Jeffery David Garrett were described by Stewart as ‘men of stature and status, success and privilege, that chose to follow their most greedy instincts to lie, cheat and steal.’”
“Stewart, in issuing their sentences, said the defendants are ‘part of a larger corruption in our society that has led to the current economic problems that confront this nation and the world.’”
“Clarke admitted to falsifying property sale values, in some cases by more than $1 million per transaction over the actual sale price on the Wasatch Front MLS, in order to create false comparables in the Riverbottoms area to help him sell neighboring homes at higher prices. Through the fraudulent use of straw buyers, inflated appraisals and ‘flip’ sales, each defendant deceived lenders into funding two consecutive purchases on the same property, sometimes only a day or two apart, prosecutors said.”
“‘I crossed the line. I blame myself and humbly ask for forgiveness for what I’ve done. I deeply wounded my family, destroyed my career, devastated my reputation. For the rest of my life, I will live with that,’ Clarke said.”
The Salt Lake Tribune from Utah. “Everything about the tidy rambler in this desirable west-side Davis County neighborhood makes it a candidate for a quick sale. Everything, that is, except the price. At $299,999, it appears to be priced at least $30,000 too high, considering that a new-home builder will set you up with a similar home brand new for around $270,000. (In fact, one is waiting.)”
“It’s a situation that’s playing out all along the Wasatch Front. It can be difficult for anyone who has not been on the wrong side of a real estate boom to understand why their home isn’t selling at what they consider a ‘fair’ price (I’ve been there). But it doesn’t matter what you paid for a home, what it appraised for two years ago, how much you spent on home improvement, how much you owe on your mortgage or what you think your property is worth. All that matters is, what are buyers willing to pay.”
“Ryan Kirkham, president of the Salt Lake Board of Realtors, said some sellers will contact a Realtor and say, ‘I need to sell my home, what is the market value?’ Then there are the folks who say, ‘I need to sell my home, and here’s what I need to get for it.’”
“The latter, he says, often end up with homes that wither on the market. ‘You have to realize a home is worth only what the market will bear,’ he said. ‘Some people understand that, and they get their homes sold, and some don’t.’”
“In most cases, sellers who need to sell cut their asking prices, maybe multiple times. In many areas of the Wasatch Front, builders are following suit. Still, some sellers wait, hoping for a miracle. You can’t blame them. Most of us have watched helplessly as the values of our stock and retirement portfolios have declined. Watching your home equity slip away is almost the final insult.”
“In Farmington, when I visited the homebuilder’s office for the second time and the sales lady explained that prices for new homes had just been cut again, the price made that existing home going for $299,000 an even worse deal than before. Would I be interested in a new pricing sheet, she asked?”
The Arizona Republic. “In March, home sales soared to levels not seen since 2005, foreclosures fell for the first time in a year and prices showed signs of leveling off in some areas. Several Valley cities, including Phoenix, Avondale, Glendale, Peoria, Surprise and Goodyear, posted record sales in March, even beating monthly sales figures from the housing boom of 2005-06.”
“There were 3,377 foreclosures in metro Phoenix during March, almost 2,000 less than in February. At the same time, foreclosure cancellations nearly doubled to 3,168 last month. Preforeclosures hit a new high of 10,689 in March.”
“The average sales price per square foot of a Valley foreclosure home has held steady at $66 for the past three weeks. The Valley’s overall average price per square foot fell in March to $83 from $89 in February.”
“About two-thirds of all Valley home sales are foreclosure properties being resold. ‘There aren’t that many foreclosure homes on the market now,’ said Mike Orr, a real-estate agent..who is in the process of buying a foreclosure home in Queen Creek for $94,000. ‘Many of those deals will soon be gone. April will be the turning point for the housing marke. People are beginning to perceive we are at the bottom, and there’s no reason to wait to buy anymore.’”
“Economists have a pretty good idea what got us into this mess. They are not quite as sure what will pull us out. So far, they are not too cheery about the immediate prospects for recovery for Arizona’s real-estate-driven economy. In Arizona, a recovery appears farther away, largely because of the huge inventory of homes on the market. More than 60,000 are listed on the Arizona Regional MLS. And that isn’t counting thousands more than could hit the market when they are foreclosed on or when investors holding on to properties decide they want to sell. And with a shrinking number of jobs, it is not likely to attract the thousands of newcomers it needs to buy up the homes soon.”
“The stimulus bill was expected to save or create about 70,000 jobs in the state. Since the recession began in December 2007, the state already has lost 192,700 jobs, about two-thirds of those in the past six months.”
“Byron Schlomach, an economist with the Goldwater Institute, wants the federal government to back off and let market forces work. ‘If you’re going down, what you need to do is hit bottom and go from there,’ he said. ‘The problem is that the government has been continually creating an environment where we really don’t know when we are going to hit the bottom. . . . Until we get to a point where market forces are free to sort themselves out, the government really prolongs that uncertainty more than anything else.’”
“Pinnacle West Capital Corp.’s real-estate subsidiary, SunCor Development Co., will attempt to sell $400 million in housing developments and golf courses - most of them in Arizona - to reduce debt and focus on commercial building, the company announced.”
“‘Effectively, we will no longer be a home builder,’ said spokesman Alan Bunnell.”
The East Valley Tribune in Arizona. “The controversial Las Vegas developer who is master-planning the State Land Department’s most prized property in the East Valley filed for bankruptcy protection for 32 of his companies this week. Jim Rhodes filed a bankruptcy petition for the corporations under Chapter 11, which allows the companies to continue operating while they are financially restructured.”
“Rhodes was a largely unknown figure in Arizona when he showed up with little notice to a December 2006 state land auction for the property known as Lost Dutchman Heights. He bought the 1,011 acres south of Baseline Road, and with it the right to master-plan the balance of the property, for $58.6 million.”
“However, what was not known by state officials at the time of the sale was that Rhodes had admitted to making illegal campaign contributions to powerful politicians in Nevada, and that he had been repeatedly and successfully sued there over allegations of fraud, theft and self-dealing by investment partners and others who he had done business with.”
“‘Like many of our other recent purchasers, he has been granted extensions on payments,’ said Jamie Hogue, deputy director of the State Land Department, when asked if Rhodes has been making his payments on time. ‘Depending on what happens, if payments aren’t made in the future that land could come back to the state.’”
The Review Journal in Nevada. “Rhodes, who does business as Rhodes Design and Development, has sold only 27 home sales in Clark County so far this year as of Sunday, down from 86 home sales in the first quarter of last year, according to Home Builders Research.”
“Rhodes said his company’s Chapter 11 bankruptcy was caused by the recession. ‘The economic crisis affecting Las Vegas, along with the inability to secure alternative and cost-effective financing, has hurt homebuilders harder than any other industry, particularly independent companies such as ours,’ Rhodes said in a statement.”
The Las Vegas Sun in Nevada. “Sales of homes priced at $1 million or higher is at a standstill. Home Builders Research reported that in February only one new home priced more than $1 million closed escrow. That is pushing the new-home median price to a monthly low of $219,900, a decrease of $63,100 or 22 percent from February 2008, Home Builders President Dennis Smith said.”
“‘That speaks kind of loud,’ said Richard Plaster, founder of custom-home builder Signature Homes. ‘It says there is no market.’”
“Only nine new-home closings were more than $500,000, Smith said. A decrease in condominium sales contributed to that decline since only 15 high-rise units closed in February, Smith said. In February 375 new homes sold, an increase of 100 from January, but the February number was still down 58 percent from 2008, Smith said. For the first two months of 2009, Smith said the 659 transactions were 1,114 fewer or a 63 percent drop from January and February 2008. That includes 14 apartment conversions.”
“Smith put the median price at $145,000, a one-month decline of $10,000 or 6.5 percent. That’s a year-over-year decrease of $90,000 or 38.3 percent. Smith said new listings posted by Realtors show prices will continue to decline. The listing price fell 8 percent in February compared with January and is down year-over-year by 41 percent.”
“The inventory remains flat even though the number of existing-home closings has been strong, Smith said. New listings are keeping pace: 4,954 new single-family homes and 1,204 condominiums and town houses were listed in February. Among the listings, 39 percent are bank-owned properties. Eighty percent of the existing-home sales are bank owned, Smith said. Short sales account for more than 30 percent of the listings, but only 9 percent of the sales through Realtors, he said.”
“Las Vegas is in the midst of a housing meltdown. Nevada’s foreclosure rate has led the nation for most of a year. Defaults and repossessions are on the rise. And home values are 30 percent off their high marks. Enter Jeremy Aguero, a principal of the consulting firm Applied Analysis and the region’s most prominent economic forecaster.”
“In the weeks after Aguero’s presentation, however, a series of unfortunate events blew through Las Vegas like a desert sandstorm. Growth on the Strip screeched to a halt and turned backward: visitor volume fell, gaming and sales revenue declined, unemployment rose and the housing crisis deepened.”
“Aguero was not alone in missing the crash. Others in Nevada’s relatively small ranks of economic analysts saw conditions as much sunnier than they were, including leading UNLV economist Keith Schwer and gaming industry analysts. Their opinions reassured businesses considering expansion and Nevadans considering major purchases. Go ahead. No need to hunker down.”
“So just how did economic forecasters miss so badly — and continue to miss even as late as last spring?”
“Aside from gaming industry experts, Nevada has relatively few economic analysts. The two most prominent are Aguero, who has a degree from UNLV but is not an economist, and Schwer, an economist who runs UNLV’s Center for Business and Economic Research, publishing a monthly economic analysis as well as issuing an economic forecast twice a year. Aguero is the best known. He’s done work for a blue-chip roster of clients, including the Nevada Development Authority and the Southern Nevada Homebuilders Association.”
“In late 2007, Aguero did a study for the Southern Nevada Homebuilders Association detailing the softening of the local economy, and the housing market specifically. But Aguero predicted a soft landing. ‘Based on historical business cycle trends, the timing of major resort project openings and a review of current conditions, we expect that the residential market will see evidence of a gradual recovery by late 2008.’”
“He continued: ‘Moreover, we believe that there is a very real potential that a housing shortage, and more specifically, a workforce housing shortage, will emerge by late 2009 or 2010.’”
“In interviews with the Las Vegas Sun for this story, Aguero defended his firm’s work and said the Sun is unfairly cherry-picking only those findings that turned out to be untrue. He also noted that almost no one predicted the swift and sharp downturn.”
“He said the recession was unforeseeable. ‘Do we believe that when we did the (housing) report and modeled out employment, growth and expectations, that a housing shortage would come earlier rather than later? Yes,’ Aguero said. ‘Did we foresee the type of global financial catastrophe in the last quarter of 2008? Surely, we did not.’”
“Florida, whose economy also relies on growth, rode the real-estate boom until the bust as well. The behavior was driven in large part by the state’s history of adding 1,000-plus people a day for the past 30 years, with only a few exceptions, said Gary Mormino, a historian at the University of South Florida who has written a social history of the state.”
“Outside of an occasional newspaper article on a housing scam artist, Floridians didn’t hear much bad news, he said. ‘The doomsayers were not audible,’ Mormino said.”
