A Sea Change In The Way Americans Look At Housing
A report from the Northern Virginia Daily. “Penelope Saville worked three jobs for years to get her finances back in order after a divorce, all in the hopes of owning a home. Finally in 2006, her dream came true, and she purchased a home on Randolph Avenue. But it didn’t take long for the dream to turn into a nightmare. Expensive roof repairs and a decrepit furnace kept her on a treadmill. Refinancing seemed like a good option, and in the short term, it did help. But when the mortgage came due, she was shocked to find out just how much the payments had gone up. The new interest rate was 23 percent. Poor health forced her away from two of her jobs. The third followed soon after. She lost her home in December.”
“‘I wasn’t very smart about some things,’ she said. ‘I only thought my payments were going up a little bit.’”
“Not that long ago, new homes were sprouting like weeds all over the region, and new residents were flocking in to get their piece of the American dream. It’s only been a few years, but it might as well have been in a different lifetime. That was before the housing bubble burst, taking hundreds of millions of dollars in economic activity with it — and leaving a massive number of foreclosures in its wake.”
“The speed at which boom became bust has people on all sides of the equation asking what happened. How did thousands of new home starts per year turn into hundreds of foreclosures and evictions? There’s no simple answer, but builders, Realtors, credit counselors and economists all point to a common starting point — cheap loans and easy credit standards that emerged in the years following 9/11.”
“Virtually anyone was able to qualify for a mortgage, demand for homes skyrocketed and the market rushed to provide the supply. Prices took off. In April 2006, just after the peak of the boom, the average price of a home sold in Strasburg was $278,585. Winchester prices were up to $285,000, while Front Royal homes went for an average of $270,000.”
“For Dale White, of White Construction in Frederick County, it was almost as if someone flipped a switch. ‘One day in October 2005, it just stopped,’ he said.”
“Buyers who were approved and ready to start construction began bailing out of contracts, leaving behind any deposits or other money they’d put on the table — ‘kick-outs’ in building industry parlance. ‘We had no kick-outs for years, then in a three-month period, we had seven,’ White said. In hindsight, the kick-outs were the first sign that easy credit was coming to an end. ‘We had loan approval letters from lending institutions that these people qualified, then all of the sudden these people didn’t qualify anymore,’ he said.”
“Others ran into trouble with refinancing, cashing out growing equity to pay off credit cards, college tuition and other debts. ‘They may have refinanced that house four times,’ said Kay Gentry, a counselor with Clearpoint Credit Counseling Solutions in Staunton. ‘They’ve reached a point now that their house isn’t worth what they owe on it.’”
“Builders suddenly found themselves competing for buyers with homes they’d just built a few years earlier. ‘It’s destroyed our lives, it’s destroyed our families’ lives,’ White said. ‘Pretty much everything that you’ve worked for has, at the best case, been put on hold. The banking industry won’t give builders revolving credit any more. And they probably shouldn’t. But that means clients have to do their own construction loans.’”
“When clients have to arrange their own financing, they are much less likely to wade into the market. ‘People who buy houses like the builder to build them and not pay anything until closing,’ White said. ‘And those days are over.’”
The Frederick News Post in Maryland. “Ken Abrecht, president of the Frederick County Builders Association, said he has heard from other local builders association members that things are picking up, but like other builders, Abrecht said financing can sometimes be an obstacle. ‘I’ve heard from some small builders who aren’t doing anything,’ Abrecht said.”
“At Dan Ryan Homes, Division President Dina Andrews said May was good, but June has been flat so far. Andrews said the $8,000 program has helped, ‘but they (buyers) have to get everything settled by December, when the program runs out. If we can’t get them going quickly on new construction, we can maybe get them into one of our (existing) spec homes.’”
“Dan Ryan’s customers, Andrews said, whether in Frederick or Washington counties, southern Pennsylvania or West Virginia, are going for smaller homes, 2,000 to 2,500 square feet, rather than 3,000 to 4,000 square feet.”
“At Drees Homes, Division President Stuart Terl said he’s getting a lot of prospects, but no contracts. ‘People out there are serious and many want to get in on that $8,000,’ Terl said, but he hasn’t had them take the process to fruition.”
“For remodeler Larry Schaffert, banks continue to be the holdup for potential customers. ‘We are finding people are considering projects on more of a long-range basis, planning for work, but not necessarily wanting the work done now,’ said the owner of Schaffert Construction.”
“With the drop in home prices, banks are lending at lower amounts based on the home’s current market value. ‘It seems (banks) are holding to a strict maximum of 80 percent loan to value and the comparables they are using for values are low due to short sales and foreclosures,’ Schaffert said. ‘Low interest rates do no good if you can’t get a loan for your project.’”
The Associated Press. “Delaware housing officials are expecting another jump in foreclosures this year, but officials are taking steps to help people avoid losing their homes. Gov. Jack Markell announced a plan Wednesday to begin working with lenders and borrowers before homeowners enter the foreclosure process.”
“Officials say the historic average for foreclosures in Delaware is about 2,000 a year, but that number more than doubled to 4,500 foreclosures in 2008. Officials say the state is on pace to record 6,000 in 2009.”
The Cape Gazette in Delaware. “The Delaware Housing Authority has allocated $2 million in federal funding to Sussex County for its Neighborhood Stablization Program, created under the Housing and Economic Recovery Act of 2008. The program’s mission is to stabilize communities that have suffered from foreclosures and abandonment by offering low- and moderate-income buyers the chance to purchase homes left vacant.”
“‘The whole idea behind this initiative is to create sustainable, long-term affordability for qualified homebuyers so they can put down roots in communities that have been greatly affected by the foreclosure crisis,’ said Brandy A. Bennett, Sussex County’s housing coordinator. ‘The goal is to build and strengthen a community by cutting down on vacant, foreclosed homes. That is precisely what ‘stabilization’ suggests.’”
“County officials expect the initial seed money of $2 million to remove as many as 25 to 30 houses from the foreclosed stock and put those homes into the hands of new homeowners.”
“‘Sussex County and Delaware need an economic boost, and this will be a great way to stimulate our local economy,’ said county Administrator David B. Baker. ‘More importantly, we believe this program will offer Sussex Countians a real chance to be a part of their community and to realize the American dream’”
The New York Times “The Beacon in Jersey City seems to have a record for setting records and establishing superlatives. Created from the towering Art Deco buildings of the city’s former medical center, it is — according to officials at the national historic tax-credit program — the largest residential restoration project currently under way in the country. And a couple of years ago, developers said, the Beacon became the first condominium building in Jersey City to sell a unit for more than $2 million.”
“Now, its developer has announced that the Beacon will be the first high-end complex in the Hudson River area to auction units.”
“In what is being billed as a ‘closeout’ auction, 25 one- and two-bedroom units in the first two towers to be restored are to be auctioned on June 27. Original prices ranged from $380,000 to $700,000; suggested starting bids are $150,000 to $250,000.”
“Based on how things are going after the first dozen condos are sold, said the Beacon developer, George Filopoulos of Metrovest Equities, he will decide what to do next: sell some or all of the 13 remaining units at whatever ‘absolute’ price they attain during the course of the auction, or set a minimum acceptable price.”
“‘At first I was a little shocked by that absolute-price idea,’ he said. ‘After all we put into this!’”
The Philadelphia Inquirer. “As one of the lawmakers on Capitol Hill with responsibility for navigating the country out of the housing crisis, Rep. Barney Frank is a force to be reckoned with. So when the Massachusetts Democrat, chairman of the House Financial Services Committee, announces that ‘the notion of homeownership as the goal universally is greatly flawed,’ and that an adequate supply of affordable rental housing might have prevented the subprime-mortgage debacle, it well may signal a sea change in the way Americans look at housing once the economy recovers.”
“Frank will be taking that attitude into summertime deliberations over President Obama’s proposals to reform the financial system - legislation designed to prevent a recurrence of the bubble that has burst all over in the last two years.”
“One of the more important parts of the proposals is ‘to require that no one ever securitize 100 percent of any loan ever again,’ Frank told real estate writers and editors yesterday during a meeting in the committee hearing room. ‘What’s happened in America is that the lending business has been transformed, and that’s at the heart of the real estate crisis,’ he said.”
“Rep. Paul E. Kanjorski (D., Pa.), chairman of the Financial Services subcommittee on capital markets, insurance and government-sponsored enterprises, said it was important ‘to take everything one step at a time.’”
“‘Until we get the real estate market stabilized, we can’t go forward,’ he said. ‘The next six months will be crucial. . . . If you remove the tourniquet, the blood will start flowing even faster than before,’ especially with growing unemployment.”
“Not everyone on Capitol Hill is enamored of Obama’s proposals. Sen. Christopher ‘Kit’ Bond (R., Mo.), a member of the Appropriations Committee, said the growing dependence on what he called the Federal Housing Administration ‘powercade’ could create an even bigger financial crisis.”
“‘The FHA has long been a major problem, with inadequate staff and technology . . . that hasn’t changed since the 1970s,’ Bond said. ‘Still, FHA’s share of mortgages has increased from $59 billion to $180 billion in the last year, and home sales, minus refinancing, have increased from 6 percent to 20 percent of the total.’”
“Bond said he would do everything he could to get the FHA what it needed in return for ‘more skin in the game’ - down payments higher than the current 3.5 percent. ‘More skin in the game seems to have a wonderful, cleansing effect on regulations,’ he said.”
