October 16, 2009

People Were Going Crazy

It’s Friday desk clearing time for this blogger. “There is no shadow inventory; there is no bank conspiracy; there are no houses waiting like vine-ripened tomatoes for the moment to be plucked, says a recent report from ForeclosureRadar. Thousands of adjustable loans will reset in 2010 and 2011, leading another possible wave of foreclosures. In recent months, banks have been moving slowly to foreclose on some delinquent properties, leading to speculation that they may get organized and foreclose on them all at once some time in the future. But ForeclosureRadar’s report argued that Congress and the president will push banks into finding creative ways to prevent foreclosures.”

“‘You can’t have the snake swallow the whole egg,’ said Mark Goldman, an instructor at San Diego State University. ‘If the banks foreclose all at once, there will be oversupply.’”

“People who watch housing prices have predicted for months that another deluge of foreclosed homes would soon hit the market – once again crushing Sacramento-area property values. But the flood of bank repos hasn’t materialized. Market watchers also see banks slowly dribbling out their supply of repossessed homes. ‘From all appearances, it does look like they’re managing it better,’ said Charlene Singley, president of the Sacramento Association of Realtors.”

“Fewer repo listings this year brought another phenomenon not seen since the boom: bidding wars. The phenomenon so frustrated state employee Lauri Lathrop that she finally bought a new house in Elk Grove in September. ‘I was putting in offers $15,000 above the asking price, and I was getting outbid,’ she said Thursday. ‘I saw this new house and nobody could outbid me. It was like it was mine,’ she said.”

“Marc Zandi, chief economist of MoodysEconomy.com, is the latest to push for an extension of the $8,000 tax credit. Zandi wants to see the credit extended to next June to all buyers except the very wealthy. Zandi’s concerned that rising unemployment and foreclosures still represent major drags on the market.”

“Congress should set aside a specific amount of money for the tax credit, and then tell home buyers to literally come and get it on a ‘first-come, first-serve basis.’ While that may be needed in some markets that are just flat on their backs, I wonder what kind of impact that would have in traditionally high-priced areas like Boston.”

“The selection of middle market, starter homes has never been great around here. Anyone who has tried looking for a home in the Boston area in the $300,000 range and below in the past eight or nine years will tell you that.”

“In Massachusetts, the unemployment rate continues to rise, now reaching the highest level since 1976. The payroll employment figures we were seeing in late spring and early summer showing job losses had bottom out are probably in error and we have probably been losing jobs all throughout the summer.”

“Alan Clayton Matthews, an economist at Northeastern University: ‘Now it appear MA has not turned the corner we are still in a decline still in a recession and indeed we are probably doing worst than the rest of the nation. In this recession virtually every state is doing poorly so there is no where to go to find a job, and many households are tied here because of the housing market so instead of people migrating to find new work you see unemployment continuing to rise here.”

“In Idaho and the nation we simply built too many houses, and there are few incentives for any more purchases. The most recent NAR report on housing prices for the Boise-Nampa Metropolitan Statistical Area show current prices 22 percent below 2007 levels. This compares with a national average drop of 20 percent. The housing market is in these woes for the simple reason that supply exceeds demand. Like any market, the laws of supply and demand apply to houses. The demand side of the housing market is particularly dependent on income levels.”

“Many other determinants of demand — the total amount consumers want to buy at any price level — must be considered. Two important factors beyond the price of a good are income levels and expectations. Both current income levels and expectations for future growth are way down.”

“In effort to spur residential housing demand, two U.S. senators announced this week new legislation that would extended the $8,000 federal tax credit for first-time home buyers passed earlier this year along with other economic stimulus plans. The new legislation would also raise the income limit to qualify from the current $150,000 for a married couple to $300,000. It’s hard to think of many households earning $300,000 a year that don’t already own a home.”

“But regardless, high unemployment and an economy in recession mean demand for homes just isn’t there. Tax incentives for first-time buyers do little to affect the income factor of demand. The housing market needs an economic recovery.”

“Josh Thomas is losing a good job. The 25-year-old Naples father of one, whose wife works full time at Schweitzer Resort, is among 93 people who will be out of work when Welco Lumber Co. closes by the end of the year. ‘It’s gonna be hard because there ain’t much in Bonners anymore and I don’t want to move. I’ve lived here my whole life,’ Thomas said. ‘I’ll probably have to go somewhere out of town (for work).’”

“‘There’s already been so many blows in the forest products industry,’ said Kathryn Tacke, regional economist for the Idaho Department of Labor in Coeur d’Alene. ‘Things don’t look very good. It’s very unlikely we’ll probably see U.S. housing starts increasing. They will remain low.’”

“Utah’s economy has lost 51,500 jobs — 4.1 percent of the state’s employment base of about 1. 2 million — in the year that ended in September, the state said Thursday ‘This recession we’re in was caused by a housing bubble, and these things take a long time to work themselves out,’ said Utah Department of Workforce Services economist Lecia Langston.”

“Nevada’s unemployment rate reached 13 percent in August, up from 7 percent a year earlier and the highest since record keeping began in 1976, according to the state employment department. It hit a low of 4.2 percent during 2006, when the median price for a single-family home in the Las Vegas area peaked at $315,000.”

“The state’s most populated region, the Las Vegas area, needs 126,000 new jobs to bring unemployment down by half and reduce residential vacancy rates, according to Jeremy Aguero, principal analyst at Applied Analysis. The median price of a single-family home in Las Vegas dropped 29 percent to $138,000 in September from a year earlier, according to the Greater Las Vegas Association of Realtors. At the same time, sales of those homes rose almost 21 percent from a year earlier, partly because of federal tax-credits for first- time buyers, the group said.”

‘”‘Rising sales are one sign that we’ll approach some type of bottom over the next year,’ said Aguero. ‘Even so, the solution to our problem is going to be in creating jobs. This recovery will be measured in years, not months.’”

“Dee Montano, a substitute teacher, said her family was pushed to the brink of foreclosure in September after her husband lost his job as a construction superintendent and the couple missed four months of payments on a $320,000 mortgage. ‘Honestly, I don’t see the economy making a quick rebound anytime soon,’ she said. ‘Everybody is holding their breath, waiting for the worst to happen.’”

“Bruce Dahlin lost his $50,000-a-year job as a graphic designer in January. He says he has four months to find full-time work before losing his four-bedroom Las Vegas house to foreclosure. ‘It’s been rough,’ Dahlin said. ‘I’m living day by day. If I don’t get hired full-time, that’s it.’”

“Minnesota is not out of the foreclosure woods yet. Pre-foreclosure notices — often a precursor to a lender repossessing a home — have been on the rise in the state this year.”

“‘Short sales are selling so infrequently that everyone is losing a very real opportunity to save houses from foreclosure,’ said Aaron Dickinson, a real estate agent in Plymouth. ‘If these things could be handled in a more efficient manner, it would do everyone a lot of good. 2009 was the year of the foreclosure. In order to stabilize housing, 2010 must become the year of the short sale.’”

“Fewer buyers will be able to afford the typical Sydney family home thanks to the recent price spurt, according to the head of the real estate researcher Residex, John Edwards. Funding the typical $599,000 house now requires 42.2 per cent of the typical $87,700 gross household income, but a rise of 1 per cent in interest rates will put the requirement at 46.3 per cent.”

“The interest rate increase that followed this week’s Reserve Bank decision to raise rates by 0.25 of a percentage point might slow the market slightly, Mr Edwards said. ”While it is not very popular, it is necessary that our markets are kept within constraints, so that a market bubble and a double-dip recession are avoided. Housing affordability in Sydney has become much more difficult.”’

“Resale prices at less than the last sale price continue to be recorded across Sydney, including a $1.8 million Newport house that had sold two years earlier at $2.1 million. In Mount Druitt a four-bedroom house sold for $389,000 in 2006 fetched $297,000 at its auction last weekend a price drop of 24 per cent. An apartment in York Street, Sydney, that sold in 2002 for $500,000 has been sold for $470,000, a 6 per cent price fall.”

“An economist at Australian Property Monitors, Matthew Bell, does not expect property price falls to be broad-based. ‘I see the Sydney market having a slight pull back in demand, but investors filling that hole to a large extent and prices continuing broadly upwards.”’

“A Naples homeowner who inflated her income to buy her house. A Naples man who hid a criminal conviction in his application to become a mortgage broker. And a group of Lee County men who repeatedly bribed a bank employee with $100 bills. Those were the allegations outlined in indictments handed out against 10 people, who were among 14 indicted late Wednesday as part of a federal investigation.”

“The charges listed in Wednesday’s indictments ranged from frauds and swindles, to mail fraud, mortgage or credit application fraud, and wire fraud. The 14 indicted include: Wayne F. Rice…a licensed mortgage broker who worked in Naples in 2006 after, authorities allege, submitted a bogus mortgage broker application hiding a conviction. He also is charged with providing false information on a loan application.”

“Mauricio Higa, Alfredo Cassis and Said Cassis…are accused of repeatedly bribing SunTrust bank employee Carlos Perez with $100 bills to add names of mortgage applicants to bank accounts in a case. They also are accused of providing false information about down payments, income, addresses, and bogus payroll documents to mislead the bank.”

“Debra Landberg of Naples, who is accused of filling out a mortgage application and claiming to have $353,209.09 in her bank account, which had only $13.57, and in another, saying she had $177,655.58 when she really had $957.18.”

“Brett Brown, president of the Naples Area Board of Realtors, said there were deals that certainly set off red flags during the housing boom in 2004 and 2005. He said he’s become aware of California companies making unrealistic guarantees of rental income and convincing buyers to pay more than homes were worth in a scheme to collect kickbacks at closing. ‘Those are the deals you walk away from,’ he said.”

“Some of the agents who got involved in fraud had licenses but were not Realtors, who agree to follow a code of ethics, Brown pointed out. He said the fraud is troubling to those who follow and abide by the rules. Documents are scrutinized to look at homeowners’ promises, salaries, and other information. ‘You find not only do they not have the money today, they never had it,’ he added.”

“March 2007 was a lucky month and $880,000 a lucky number for Jorge Valls and Luisa Jimenez.Valls sold a Versailles home for an $880,000 profit within hours of buying it. Jimenez made $882,000 on a Versailles home sale within a day of purchase. Buyers Pablo Aponte-Torres and Ericson Perez, though, got more than they bargained for.”

“According to federal charges unsealed this week, the two lied on mortgage documents to secure generous home loans in the tony State Road 7 community, leaving lender Washington Mutual Bank high and dry when they defaulted.”

“Both are among a group of eight men and women, including a mortgage broker and title agent, facing up to 30 years in prison and $1 million in fines for their role in a Versailles home-flipping scheme. At the heart of indictments brought by the U.S. Attorney for the Southern District of Florida is a so-called ’straw buyer’ strategy. Homes targeted by the group went into foreclosure within a year.”

“Charged are mortgage broker Rony Alberto Aguilar-Hecker and Reinaldo Perez-Sanchez, co-managers of Premiere Mortgage Funding Inc. in Miami; title agent Idalmis Arias and buyers Fabio Salazar, Roger Omar Nunez-Murillo, Juan Carlos Lopez, Aponte-Torres and Perez. For instance, Perez said he had monthly earnings of $49,000 from Celltown Inc., though he did not work there. Salazar said he was an international accountant with monthly earnings of $46,000; the indictment says he did not have the job or the money. Nunez-Murillo said on loan documents that he is a radiologist with income of $60,000 a month; the indictment alleges he is not a physician.”

“Within one day - sometimes just hours - another recruited buyer would snap up the house for hundreds of thousands of dollars above the first sales price. Some of the flips happened so fast that the home was being sold to a second buyer before the first buyer had ownership.”

“In February 2005, Randy Gerlick of Parkland, Florida, put a 20 percent deposit on a $700,000 condo at the Las Olas Beach Club in Fort Lauderdale. Two years later, he sold the unit for $1.1 million, receiving a check for $315,000 after paying fees. He never set foot in the condo.”

“Then he heard about the Trump International Hotel & Tower Fort Lauderdale, a luxury 298-unit development on the beach. Gerlick put down a 20 percent deposit, or $122,000, for a unit. As a token of the deal, he got a silver Tiffany & Co. key chain engraved with the Trump International logo and his unit number, 1009. ‘Trump seemed like a natural next step,’ Gerlick said in a telephone interview. ‘It was like, how can you lose with his name on it?’”

“On May 13, the Trump International’s developer…sent Gerlick a letter giving him until May 29 to obtain financing or lose his deposit. The letter said the hotel portion of the property wouldn’t open if less than 50 percent of condo buyers completed their purchases. It also noted that the Trump affiliation was in jeopardy under an agreement that allowed the New York developer to withdraw his name from the project. Gerlick’s lawyer filed a breach-of-contract lawsuit seeking deposit refunds from seven defendants.”

“On Sept. 30, the U.S. 11th Circuit Court of Appeals ruled in favor of a developer, reversing a lower court ruling that awarded a deposit refund under the Interstate Land Sales Act. ‘All bubbles eventually burst, as this one did,’ the three-judge panel said in its opinion. ‘The bigger the bubble, the bigger the pop. The bigger the pop, the bigger the losses. And the bigger the losses, the more likely litigation will ensue.’”

“Robert Cooper, an attorney in Aventura, said he represented clients who sued to buy condos, which they claimed had been sold out from under them — after they signed a contract — to people who offered a higher price. ‘This was not a normal real estate market,’ Cooper said. ‘People were going crazy.’”

“Luxury developers with grand plans swarmed the Florida Keys during the real estate boom, paying big bucks to gobble up campgrounds, trailer parks, marinas, mom-and-pop motels - even renowned Holiday Isle and its World Famous Tiki Bar. Many Keys’ residents became alarmed that their ‘Mayberry-by-the-Sea’ was heading toward extinction. Then came the real estate and credit crash. From Key Largo to Key West, at least 18 pricey projects screeched to a halt in 2007 and 2008.”

“‘It doesn’t feel like the rich people are taking over any more,’ said Shawn Wilson, a Realtor at Prudential Keyside Properties. ‘Everybody’s broke.’”

“It left scars, too. Properties that housed residents and tourists are now bulldozed and empty, marked by chain link fences and ‘keep out’ signs. In the last seven years, developers have collectively borrowed nearly $1 billion for at least 18 upscale Keys’ projects that ran into severe financial problems, according to public records and information provided by the developers.”

“‘The rat bastards bought up our property and took our affordable housing,’ said backcountry fishing guide Capt. Dennis Robinson.”

“In Marathon, Virginia-based developer L.M. Sandler & Son evicted 90 mobile homeowners at Gulfstream Trailer Park and invited high-end buyers to parties to see their planned Marlin Bay Yacht Club with $1.6 million to $4 million townhomes, private marina, clubhouse, pool and observation tower. As part of the deal, they agreed to build some affordable housing. The first 13 of 84 townhomes were built, but only two sold. Construction was halted in May 2008 and nobody knows when - or if - it will resume.”

“‘They were greedy,’ said Muffett Barth, who lives with her dog Lucky and refused to sell her quaint bayfront home even though developers included her property in the initial footprint of the project.”

“‘You can’t bust into the Keys, saying, ‘I’m a big shot and everyone has got to move,’ she said.”




Bits Bucket For October 16, 2009

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