The Housing Bubble

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The Steamboat Pilot reports from Colorado. “The rate at which homes in Routt County are selling suggests that it could be a year or more before the residential construction industry mounts a meaningful comeback. As of Thursday, said Realtor Doug Labor, there were 2,123 properties of all types listed for sale on the MLS, and of those, 1,282 were residential properties. Of the total number of residential properties, 240 were new product. Although the number of contracts for home purchases has jumped a little this month, the absorption rate in February was just three-tenths of 1 percent. Ford has concluded that the time has come for professionals in the building trades to confront the reality that, ‘I’m going to have to change my business model or do something else.’”

The Greeley Tribune in Colorado. “Greeley was tops in the nation for foreclosures, then it wasn’t. It was the first- and second-fastest growing metropolitan statistical area for the first five years of the millennium. Then it topped U.S. small cities in job growth, then salary growth.”

“These lists are big deals in the economic development game, and they look good all stacked up together — especially when they deliver good news. How accurate can these lists really be? Maybe it depends on your source of information. Realty Trac reports Weld had 431 foreclosure filings in February; the Public Trustee’s office reports 240. Who will you believe?”

“Just last week, U.S. News and World Report reported that Greeley’s Metropolitan Statistical Area, which includes all of Weld County, had the fifth most ‘underwater housing market’ in the nation, according to Zillow. Uh, sorry. The Group Inc., a northern Colorado real estate big hitter, has a little something to say about that.”

“In a release issued this week, The Group stated that based on Federal Housing Finance Agency’s House Price Index, Greeley ranks 114th out of 299 metropolitan areas in terms of year-over-year appreciation. But these lists are only reliable so far as the information they’re reporting. What about the information they don’t report? And both agencies are guilty of spinning the information here.”

“The U.S. News report fails to show that Greeley’s MSA indeed is not really the fifth most underwater in the country. It’s just the fifth of all the cities they chose for their list, one from each state. What The Group fails to report is that over the last five years, according to the federal housing price index The Group uses, Greeley home values dropped the most in Colorado at 10.72 percent — and it was the only metropolitan statistical area statewide where homes overall lost value in that time.”

“Sometimes the truth is ugly, but it’s the truth.”

The Arizona Republic. “Between December 2005 and March 2007, Mario Bernadel and seven accomplices purchased nearly 40 properties in the Phoenix area. Bernadel and his cohorts submitted false mortgage-loan applications, used fake ’straw buyers,’ and directed the proceeds of their illegal scheme into bank accounts they controlled. Bernadel used his share of the money to support a lavish lifestyle, buying luxury vehicles and nights on the town at local nightclubs. Last week, the U.S. Attorney’s Office in Phoenix obtained a 17-year prison term for Bernadel, putting him out of business.”

“According to a study conducted at Arizona State University, the Phoenix area set a new record for foreclosures in 2009. In February 2010, Phoenix suffered foreclosures on 3,300 homes, and foreclosure-related activity represented 65 percent of sales last month.”

“The Obama administration disclosed plans Friday to add two key components to its homeowner-assistance program: mortgage help for borrowers who have lost their jobs and principal-balance reduction for those with unaffordable monthly payments. Aside from adding the recently unemployed, the revised program does not appear to widen what was a narrow eligibility window for the original program, according to the limited information federal officials provided Friday.”

“Tanya Wheeless, Arizona Bankers Association president and CEO, said Friday’s news sparked a feeling of deja vu. ‘This is a new program that’s making a big splash, but it’s not going to help a lot of Americans,’ Wheeless said. That’s partly because of the difficulty to qualify, she said, and because lenders are likely to reject the administration’s financial incentive of 10 cents to 21 cents on the dollar to lower principal balances.”

“BofA customer Harry Baker, 67, of Scottsdale, is deeply underwater on his home of 23 years after a poorly timed decision to refinance to an adjustable-rate loan, also called an ARM, and pay off all his other debts in 2006. Baker said it doesn’t matter to him whether the bank or the government initiates it - he just needs someone to help.”

“‘I got stuck with that ARM because I didn’t sell it, and then I couldn’t sell it,’ he said. ‘I had to go back to work. I’m hoping I can retire again at 70.’”

The Phoenix Business Journal in Arizona. “In 1989, Barron’s, a national financial magazine, predicted the end of a boom era in Phoenix, with the collapse of both the commercial and residential real estate markets. It noted that the bubble of speculative land brokerage was about to burst, and that financial institutions were in distress. It also discussed a decline in population growth and a stagnating economic base far too dependent on construction and housing.”

“In fact, Barron’s pessimistic prognostication did not come to pass. For sure, the economy was sluggish for several years, but Phoenix forged ahead. Still, local economists, real estate brokers and economic developers warn that radical change is warranted during this severe recession. ‘Historically, the state and especially the greater Phoenix area have outperformed the nation in both expansion and recession periods,’ said John Lenio, economist for CB Richard Ellis’ economic incentives group in Phoenix. ‘This time is different. Arizona ranks last among all states for job retention at the present time. Unfortunately, this may be the new norm without some serious efforts to diversity our economic base.’”

“Chris Mackay, economic development director for the city of Chandler, agrees that this cycle is different. ‘We can’t live on construction. We can’t live on population growth. We’re at a crossroads and facing competition from other states,’ he said.”

The Reno Gazette Journal in Nevada. “As spring emerges, the region’s once-deafening construction industry remains muted. Come summer, the prospects for work, commercial or residential, could be downright chilly. ‘Compared to the last five or six years, it’s pretty thin out there,’ said Mike Cate, CEO of Pavers Plus. ‘Everyone’s just hunkered down.’”

“Cate has slashed staff by 60 percent and cut wages of those remaining. And he is not along among area contractors. A nationwide industry analysis found Nevada and its biggest cities to be among the worst for jobs lost. ‘Contractors I know say they’ve never seen it this bad in Reno,’ said Edwin Peaslee, a self-described ‘jack of all trades’ who’s been jobless for a year. ‘I’m scraping by,’ he said. ‘I can probably tighten my belt a bit more like everyone else. I’ve gotten rid of just about everything I own. I’m on food stamps, and I’m not proud of it.’”

“Mike Dillon, executive director of the home-construction sector’s Builders Association of Northern Nevada, said he sees early signs of renewed building, at least at the entry-level price range. ‘We still have the inventory issue with more foreclosures coming,’ he said. ‘Until that inventory is soaked up, we won’t be out of this.’”

“Meanwhile, contractors are learning to adapt to get by. Cate has expanded his attention to solar projects, saying, ‘That might help us along.’ ‘It’s very different now,’ he said. ‘We’re in a perfect storm, it seems. It’s just going to take time to get through.’”

“The government’s bold new plan to stem the foreclosure crisis aims to succeed where previous efforts have fallen flat. Locally, housing industry observers questioned the new plan to help foreclosure-threatened and out-of-work homeowners, but for different reasons. Ken Amundson, president of the Reno/Sparks Association of Realtors, said the plan would likely help homeowners who aren’t as severely upside-down with their mortgages as those in the hardest-hit states, notably Nevada.”

“‘It may help us less, seeing as how we rose in price so much and how far we’ve fallen,’ Amundson said of Reno-Sparks median home prices that have plummeted 50 percent since 2006 and are now at 2002 levels. But he added of Obama’s plan, ‘It could certainly help. It can’t hurt.’”

“‘I’m sure it could help some, but it will at best have a marginal effect,’ said Tom Cargill, economist at the University of Nevada, Reno.”

“Cargill questioned the government’s policy of pumping billions into the housing crisis even before Friday’s announced plan. ‘It’s a terrible waste of taxpayers’ money,’ he said. ‘It uses taxpayers’ money to support bad decisions made by people to buy houses they can’t afford.’”

From ABS CBN News. “Nowadays, signs in front of homes that read ‘Owned By Bank—For Sale’ and ‘Bankruptcy’ are a common view in Las Vegas area. Many homeowners are submerged—owing more than their home is worth. One kababayan who did not want to be identified told Balitang America that he came to the US illegally, but still believed that he could own a piece of the American Dream. It came true when he bought a house in North Las Vegas for his wife and two children, but then he lost it, as a result of the mortgage meltdown.”

“While one man was barely making it, a top realtor has had to learn to live without the excess she used to have. Bernadette Sanedrin once owned 14 houses and 3 high-rise condos. Her family took frequent overseas vacations. In a gamble against the economy, she ended up losing them all. Now all she owns is a $1.2 million house which is now worth $400,000.”

“‘I’ve accepted the fact that they’re gone. I’m still thankful that I learned from that and I know it’s coming back,’ Sanedrin said.”

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