When Go-Go Went Bye-Bye
A report from the Times Publications. “At the end of this dusty dirt road, half-built casitas bake in the sun a few miles from the beaches of Puerto Peñasco, Mexico, better known as Rocky Point to the tens of thousands of Arizona tourists who visit here each year. Paint peels from two of the vacant models, surrounded by nothing but sand dunes. A nearby ‘golf course’ – void of any fairways or greens – is identifiable only by a rusty sign in the desert sand. Seven years ago, throngs of Mexican politicians, developers and American investors stood on this same spot celebrating the groundbreaking of the casitas, which were to be part of North Beach – then touted as Rocky Point’s largest master-planned development.”
“There’s been virtually no progress on the projects at North Beach, and investors who put down large cash deposits have yet to see any kind of a refund. Ahwatukee seniors Howard and Madeline Israel sipped margaritas and dreamed of watching sunsets from the patio of what would be their private seaside casita. The Israels and other investors were told models would be completed in a few months and that the condos would be move-in ready by the end of the year.”
“‘They made a big deal of the groundbreaking,’ Howard Israel recalls. ‘They passed out T-shirts and hats. They wined us and dined us.’ ‘We said, ‘Wow. This is great; weren’t we smart,’ says Madeline Israel. ‘Then the lies began.’”
“‘It ain’t going to happen,’ says Howard Israel, who invested tens of thousands from his retirement fund into North Beach projects. ‘There’s no way, no way that this is ever going to work out.’”
“In 2005, shortly before construction was halted on North Beach, software engineer Matt Neimeier took out a $250,000 second mortgage on his Phoenix home to pay cash for a fourth-floor condominium at Playa Azul, which was being built by several independent American developers.”
“For more than three years, the condominium tower, rusty rebar protruding from its unfinished shell, has stood like a mirage among the sand dunes. For Neimeier, since the value on his Phoenix home has now plummeted, he owes much more on the property than it is worth and is struggling to make the payments.”
“‘They say we’re either going to give you your money back or we’re going to complete the project,’ he says. ‘I’m waiting for that court case to finish… but the legal system is so corrupt you can’t get good answers.’”
“‘The housing market downturn in Arizona has had a severe impact on Mexican real estate, experts say. ‘Prices have fallen about 30 percent from what they were a year and a half ago,’ says Bill Barvitski, a Rocky Point real estate agent. ‘Speculators are unloading. There are more sellers than buyers.’”
“Tucson seniors Thomas and Barbara Wilson thought they were making a safe investment in one of the oldest hotels in Rocky Point, Fiesta de Cortez. The agreement permitted buyers to use the condo several weeks per year and said owners would receive $500 each month for five years in exchange for forfeiting some of their time to renters. According to the contract, after five years, the Wilsons would own the condo free and clear.”
“Today, they say their investment is sunk into a worthless condo in a defunct hotel. ‘We can still go down and stay there. Of course there’s no hot water, sometimes no water at all. Maid service is next to zilch,’ Barbara Wilson says. ‘The place, for all intents and purposes, is pretty much closed down.’”
“They say they have not received a rental payment in more than two years and that they never received a bank trust on the property, something promised in the contract. ‘They’re selling you something that they can’t give you,’ says Barbara Wilson. ‘It doesn’t matter what you pay for your property down there. If you don’t have a bank trust, you don’t own it.’”
The Yuma Sun in Arizona. “New figures from the Federal Housing Finance Agency show that the average purchase price of a single-family, site-built house in Yuma County dropped by 7.42 percent last year, compared to a statewide average of almost 20 percent. The Yuma County Assessor’s Office reported…a total of 323 homes sold during the first quarter of this year for an average sales price of $179,851. That’s a price decline of 5.77 percent from the last quarter of 2008 and a drop of 17.38 percent over the last year.”
“Yuma County Assessor Joe Wehrle said the average sales prices today are at about the level they would have been anyway if the real estate ‘bubble’ hadn’t occurred from early 2005 through mid-2007, given the steady 2 to 3 percent increases experienced annually up to that time. ‘When you look at the long haul, we’re looking good,’ said Wehrle. ‘The average house prices now are what we would have been hitting if the bubble hadn’t occurred.’”
The East Valley Tribune from Arizona. “Genworth Financial, a national mortgage insurer, says it completed more than 450 mortgage workouts in Arizona during the 12 months ending March 31. Homeowners have to want to remain in their homes and have the income necessary to cover a mortgage to receive a mortgage workout, said Alan Goldberg, VP of homeowner assistance for Genworth’s U.S. mortgage insurance business.”
“Still, federal initiatives aren’t expected to help many distressed homeowners in Arizona because most are too far upside-down, meaning their loan balances are so much higher than the value of their homes, Underwood said. ‘The government hasn’t made any major changes yet to what they rolled out in March, which means if (homeowners) are above 105 percent loan-to-value on their house … then they’re not going to qualify for those programs,’ he said.”
“Darryn Rozas, an independent mortgage broker in Mesa, said it’s still difficult to get banks to work with distressed homeowners because they’re ’so busy that the right hand doesn’t know what the left hand is doing, to be honest.’”
“‘I would say less than 3 percent of Arizonans are even going to qualify for Obama’s stimulus package because of the restrictions that are on it,’ he said. ‘If you were to refinance your property, you’re only allowed to have 105 percent negative equity. Who in Arizona is 105 percent negative? Everybody here is 140-150 percent negative, if not higher.’”
“Also, it’s difficult to obtain interest rates that make refinancing equal a much lower payment, Rozas said. ‘Yeah, interest rates are at nearly historic lows, but who can quality for them?’ he said. ‘Hardly anybody in Arizona can.’”
The Arizona Republic. “Home builders who three years ago were selling new homes at record prices must now overhaul their entire operations to survive. Downsizing until the market recovers is not enough. Valley builders have to adjust to lower prices, cope with a glut of foreclosures and find buyers eligible for financing.”
“Having cut prices on its new homes by more than 50 percent, Meritage Homes of Scottsdale, is attracting buyers in a punishing market. Three years ago, Meritage Homes was selling dozens of $250,000-$300,000 homes in the Maricopa area southeast of Phoenix. Then came the crash. Meritage executives have spent the past six months overhauling their entire business model. They now are building and selling homes for less than $100,000 in the same Maricopa neighborhood.”
“In 2005, Meritage partnered with Scottsdale-based Hacienda Homes to purchase 640 acres in Maricopa’s Lakes at Rancho El Dorado development. As 2007 arrived, the housing market cooled and Meritage and Hacienda couldn’t sell homes in the Lakes development. Together, the builders had sold fewer than 100 homes among 2,200 lots. Neither could afford to hold on to the land. The land was lost to foreclosure last year.”
“Meritage is the Valley’s only local, publicly traded builder. As a public company, it had more financing options than privately held Hacienda. Meritage raised money from a stock offering and bought the land back for about $20,000 a lot, about one third what it paid in 2006.”
“Meritage is now buying the lots of builders that have gone under. Last month, Meritage bought 80 lots in a gated Chandler community for $35,000 a piece. Those lots last sold for $190,000 a piece.”
“‘Meritage now markets homes on the basis of monthly payment, just like apartment complexes have done for years. By focusing on monthly payment vs. overall home price, Meritage hopes to attract first-time home buyers, especially renters. ‘Most of our buyers in Maricopa are renters,’ said Steve Hilton, CEO of Meritage. ‘The average apartment rent in the Valley is less than $800. We knew in order to sell to renters, we had to get our prices below rents.’”
The Park Record in Utah. “The Utah Housing Coalition last month distributed a report by the National Low-Income Housing Coalition claiming Utah’s average rent for two-bedroom apartments is out of reach for many adults. Assuming a person spends no more than 30 percent of their budget on housing, a worker in Summit County would need to earn over $19 an hour to afford a two-bedroom apartment at fair-market value.”
“Ironically, the affordable housing problem is not due to a shortage in housing. According to Eric Allen, regional director for Metrostudy, Summit County has a 39-month supply of single-family homes and a nine to 14-month supply of town homes and condominiums. The oversupply of home inventory in the area is due to sellers refusing to lower prices, he said in an interview.”
“As was addressed in the Park City Board of Realtors quarterly report, vacant lots are not being bought and sold. According to Metrostudy, the Greater Salt Lake area has a 122-month supply of vacant lots under the current pace of absorption.”
The Salt Lake Tribune in Utah. “Utah’s home values fell 9.3 percent in the year that ended in March. It was the sixth-highest drop among all states. Various economists say Utah’s economy and real estate market may not bottom until early 2010. Salt Lake City Realtor Tony Fantis and others think the segment of the market performing worst is the one for high-end properties. ‘There is a lot of expensive stuff, sitting empty, even though their prices are down 50 percent from a year ago,’ Fantis said.”
The Deseret News in Utah. “When the housing boom eventually spilled westward beyond the Oquirrh Mountains, homebuilders were quick to capitalize on the cheap open land and plentiful water awaiting them on the edge of the desolate Great Salt Lake Desert. Grantsville scratched Utahns’ itch for large lots and larger homes at significant discounts compared to the big city.”
“It was as if sleepy Grantsville had started tweaking meth and everyone — from the developers, to the city fathers, to the real estate agents, to the eager homebuyers, to the guys laying sod and sprinkler pipe — wanted to share in the high. ‘It was a frenzy. I don’t know how else to describe it,’ explains one area contractor who’s a lifelong Grantsville resident.”
“‘There may have been a few too many developments on the books,’ admits city planning commission member Angela Grant recalling Grantsville’s go-go years of 2006 and 2007.”
“Grant, a real estate broker by profession, doesn’t see how the city could have done anything differently. If someone wants to develop their land and it’s within the law for them to do so, Grant said, it’s not the city’s job to stop them.”
“But by 2008, go-go had gone bye-bye and the aftermath remains evident today. Off Durfee Street, in the gated Dolorosa Estancia subdivision, siren calls from enchanting and exotic street names like Montego Court, Xiomara Avenue and Belicia Lane have been drowned out by sounds of the deflating housing bubble.”
“Although a large sign posted at the entrance to this upscale equestrian subdivision indicates 11 luxury lots have been sold and four more have been reserved, only five of the development’s 70 lots, originally advertised for sale between $90,000 and $155,900, appear to built on. One is only partially finished with a ‘For Sale by Owner’ sign in the front. A neighbor volunteers that there hasn’t been any work done on the house for months.”
“Nowhere are there indications of the planned 4.5-acre private park and riding trails once promised by local developer Josh Henwood, who declined an interview opportunity. But in comments to the Tooele Transcript Bulletin in late April, Henwood blamed the project’s stagnation on the economy, telling the paper, ‘Nothing is selling right now.’”
“Much of the city’s upscale inventory was caused by builders trying to maximize profit by building larger homes on larger lots of one-third acre and more, she said. Dolorosa, where Grant currently has listings for sale, is a beautiful project but unfortunately arrived late to the party. Silver Fox is the problem child it is, she said, because would-be investors tried to make an easy buck and got caught in the housing downdraft.”
“Bill, a 79-year-old retiree, who asked that his real name not be used, is living in one of just five homes completed in the Meadows at Ranch Road development. The fifth and final house built in the subdivision was finished several months ago and there’s no indication of future activity despite plans calling for dozens of additional homes to be built.”
“‘We’ve got the home and we’re doing fine. Things will eventually fill in around us,’ says Bill surveying acres of empty building lots to his south.”
The Las Vegas Sun in Nevada. “Housing analysts and Realtors have long speculated about how many foreclosures are lurking in the Las Vegas market. Some analysts have suggested that banks may have as many as 25,000 homes in foreclosure inventory that they have been holding back to prevent prices from dropping too far.”
“Dennis Smith, president of Home Builders Research, says that if you supplement the Multiple Listing Service data with daily anecdotal information that comes from Realtors, it appears the inventory of existing homes has reached the point where major banks will soon start releasing some of their foreclosure properties that they have been holding back.”
“That could mean thousands of homes that banks will want to clear from their books, Smith says. ‘Realtors who specialize in foreclosures and bank-owned properties are certainly gearing up for a flood of listings during the upcoming weeks,’ Smith says.”
“How many homes will be released because of this limited supply is yet to be determined, Smith says. The question is whether there will be enough demand to absorb that inventory. ‘Some of the Realtors I respect believe there are plenty of investors and demand from out-of-town people,’ Smith says. ‘However, I believe it is too early to make that call, and they are basing their opinion on hope. Until we know how many properties are going to be released in the marketplace, it is impossible to forecast how long it will take to absorb them.’”
“Although there are a lot of investors who are active in Las Vegas to take advantage of the low prices, Smith points out that UNLV reports 30,000 vacant homes. Many investors have been able to get a 12 percent return from rentals, Smith says. But because the sales to investors have increased the rental supply, that return has dropped to about 10 percent.”
“‘If the return on their investment continues to soften, we will see many of the investors stop buying homes,’ Smith says.”
