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?’”
