The Housing Bubble

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The Chronicle Telegram reports from Ohio. “Lorain County Clerk of Courts Ron Nabakowski announced this week that foreclosure filings for the first quarter of 2010 were down 9.7 percent from the same period in 2009. In 2006, foreclosures in Lorain County exploded, increasing 46.5 percent. That, Nabakowski said, was largely the consequence of home refinancing for credit card debt earlier in the decade, as homeowners believed that their property values would just continue to climb. But when the economy got worse and the real estate bubble burst, the suburban areas in eastern Lorain County, such as Avon Lake, Avon and North Ridgeville, started seeing more foreclosures, Nabakowski said.”

“Now, the foreclosures are countywide as homes in the more rural townships are being seen on the foreclosure rolls. In some parts of the country, the foreclosure sales are reviving the house-flippers. Nabakowski said he doesn’t expect a surge in flipping in Lorain County until the economy is more stable. ‘A lot of people got burned when the real estate market went bad,’ he said.”

The Toledo Blade in Ohio. “Those familiar with downtown say there is one overarching problem for both development and preservation: lack of demand. Exhibit A of lackluster demand downtown could be the Bartley Lofts. The project involved redeveloping a 1913 warehouse into a sunlight-filled 52-unit condo complex, complete with higher-end amenities such as a rooftop swimming pool. The building opened five years ago with some units priced as high as $425,000. But with only 75 percent of the units sold - despite a reduced $119,000 to $273,000 price range - the lead developers this month stepped away from the project, transferring management to a homeowners’ association.”

“‘We are going to lose a lot of money here,’ the developer told The Blade.”

The IndyStar in Indiana. “Home prices in the Indianapolis area, which are still reeling from the housing bust that began in 2007, may not fully recover for another three years, a new study says. A big factor in how fast housing values recover is how far above the norm a market’s prices soared during the housing boom years. Jennifer Blandford, managing broker at Carpenter Realtors’ office in Zionsville, said even though local housing sales have picked up this year over last, the study’s estimate of the recovery time seems overly optimistic, especially for higher-priced housing.”

“‘I’d say that would be encouraging if we were back to our peak numbers by 2013,’ she said. ‘There is four years of inventory (of homes for sale) in some neighborhoods,’ including ones in Zionsville, she said.”

From WTHR in Indiana. “The chances of selling a home appear better than last year, but not nearly as good as they were several years ago. Bruce Trent has tried for a year to sell his home and even lowered the price by $30,000. ‘Money is hard to come buy right now. Banks aren’t lending it like they use to,’ he said.”

“The housing industry is a critical part of the American economy. When someone buys a house, they usually buy floor coverings, furnishings, appliances and lawn mowers. A new home comes with a huge to-buy list. ‘The recession got started in the housing market so everyone is looking at the same housing market to determine when the recession is over,’ said Bill Rieber, Butler College of Business.”

The Des Moines Register in Iowa. “The number of Americans without work 27 weeks or longer hit 6.5 million in March, the highest level since 1948, when the U.S. Bureau of Labor began collecting data. It could take Iowa another three years to recover the 64,000 jobs lost in the recession. David Swenson, an economist at Iowa State University, said it took Iowa five years to replace the jobs lost in the 2001 recession.”

“‘What we found in the 1980s is that we exported our unemployed workers,’ said Swenson. The national recession, combined with the farm crisis, resulted in Iowa losing nearly 5 percent of its population as workers moved to faster-recovering states. This time around, though, no state has escaped the recession, which was sparked by foreclosures in the subprime market and evolved into a global credit crisis and recession. ‘There’s just nowhere to go,’ Swenson said. ‘People have homes they can’t move, employers can hire people dirt cheap, and that precludes people from wanting to pick up and move. They’re just stuck.’”

“Heidi Shierholz, an economist at Economic Policy Institute, believes the bust of the national housing bubble is contributing to long-term unemployment. But the lack of new jobs being created is the major driver. ‘We’ve lost 8.2 million jobs in this 27-month downturn,’ Shierholz said. And with ‘a population that continues to grow, we’ve got this massive 11 million-jobs hole in the labor market. … That’s why people are getting stuck in unemployment,’ Shierholz said.”

The Lawrence Journal World in Kansas. “For 27 years, Kevin Fredrickson of Lawrence’s Eagle Trailer Co. has been manufacturing the trailers that keep Midwest contractors rolling. ‘Last year was the toughest I’ve ever seen,l Fredrickson says. ‘It’s one thing to have customers that aren’t buying and another thing to have customers that are near bankruptcy, which is what we saw with contractors.’”

“Fredrickson still shares the prevailing attitude of most local business owners toward economic recovery: he’ll believe it when he sees it. ‘Three years ago I was saying that there’s all the money out there that anyone wants to make,’ he says. ‘Now I would say you don’t want to lose out on any opportunity to bring in a sale.’”

“Frank Salb of Lawrence’s Salb Construction Inc. has also become adept at making adjustments to his business plan with an eye on economic trends. ‘It seems like a lot of people — since they’re not moving — are finishing up part of their basement or remodeling their kitchens and doing other things to upgrade their houses,’ Salb says. ‘Even though (the housing market) isn’t as good in Lawrence as it used to be, we’re still not hurting the way people are in Florida and Las Vegas.’”

The Lansing State Journal in Michigan. “To remove unsightly homes from Lansing’s struggling neighborhoods, demolitions started late last fall and will continue through the start of 2013. Twenty houses already have come down. With the Ingham County Land Bank’s assistance, the city has pinpointed approximately 25 more for demolition. Officials are inspecting properties to find approximately 180 more.”

“‘We’re working in a situation where we probably (have) 20 percent of our housing units vacant,’ said Dorothy Boone, Lansing’s development manager. ‘Our goal is to get rid of some of the worst of those (so) the nuisance is gone.’”

“William Bell lives near at least three plots where federal neighborhood stabilization money has razed homes. He said he’d be fine with the demolitions if a successful redevelopment was guaranteed. ‘If they make it look like a ghost town, then we’re all screwed,’ Bell said.”

The Detroit News in Michigan. “Metro Detroit’s residential real estate market continued to improve in March, but experts are divided about whether it signals a housing rebound or a lull before a foreclosure-induced relapse. Michigan stands a good chance of missing the brunt of the second wave of foreclosures, said Robert Taylor, a Birmingham real estate agent and president of the Michigan Association of Realtors.”

“The pessimistic national forecasts are based on the number of three-year adjustable rate mortgages that are about to see rates ratchet up and increase the amount homeowners will pay, Taylor said. Those mortgages would have been taken out by homeowners in 2007. ‘In Michigan, the market already stunk’ then and not as many people took out adjustable mortgages, ’so we won’t see the big rate increases like other parts of the nation,’ he said.”

The Wisconsin State Journal. “Conservative lending practices and slow growth have helped two small, south-central Wisconsin banks draw the highest marks from two ratings services for their financial strength. Meanwhile, bad loans from past years sank several local financial institutions given the worst rankings.”

“UW-Madison School of Business professor Jim Johannes, director of the Puelicher Center for Banking Education, said overall, Wisconsin banks are in better shape than those in most other states. But, he said, there are ‘three dark clouds hanging over their heads’ as far as the financial future: the commercial real estate market, the government bond market, and interest rates.”

“‘There’s plenty of money available for good loan customers; it’s just harder to figure out who those are,’ Johannes said.”

“Problems encountered by the one-office Badger State Bank — celebrating its 100th anniversary this year — are similar to those of many other banks, many times its size: It tried to grow by getting involved in so-called participation loans, involving developments in other parts of the country, particularly California, Arizona and Florida, areas where property values took some of the biggest hits.”

“In participation loans, investment banks commonly make large loans, for example, for a big, new housing and retail project, and then syndicate them, or sell pieces to smaller banks around the U.S. Badger State Bank was one. The recession took its toll, said Louis Okey, CEO of the small Cassville bank, 100 miles southwest of Madison. ‘A lot of community banks did this,’ Okey said. ‘For our size, we got in too many of them.’”

The Plainfield Sun in Illinois. “Michael Garrigan has seen the price of land plummet as much as 75 percent from a high of $110,000 an acre in the past couple of years. Garrigan, who has been Plainfield’s village planner since 2002, can’t believe how quickly prices skyrocketed, then crashed during his eight-year tenure. From about 2002 through 2005, Plainfield was one of the fastest growing communities in the country. But the housing bubble burst and what some are calling The Great Recession sucked the life out of residential development in Will and Kendall counties, which were among the fastest growing counties in the nation.”

“‘Now developers are having property foreclosed on,’ Garrigan said. ‘That is unfortunately the new norm in this economy.’”

“When the market was hot, Gus Rousonelos, whose family has farmed in Plainfield since 1963, sold farmland for $92,000 an acre. More recently, he bought different land for $14,000 an acre. The 120 acres he purchased had been sold by another farmer to Lakewood Homes for the LaBancz subdivision, which would have been in Will County. ‘We were lucky,’ he said of the timing. ‘It was fortunate for us, not so good for the developers. But they’re big boys.’”

“Mark Schneidewind, manager of the Will County Farm Bureau, sees a similar pattern happening in ‘pockets’ all over the county. Farmland that was selling for an average of $45,000 to $65,000 an acre in some areas is now going for $5,000 to $7,000 a acre, he said.”

“At one time, county officials worried that too much farmland was disappearing to homes. But that worry has withered, Schneidewind said. ‘It’s good to see the farmland staying and not being developed,’ he said. ‘We need to keep our food system going and we’re doing that locally.’”

The <Chicago Sun Times in Illinois. “With a panoramic view of the Jackson Park golf course and Lake Michigan, the Shoreline Condominium was once a swanky address that only the elite could afford. But a place that was once a status symbol for well-to-do African-Americans is a nightmare for some of the people who are living there today.”

“Maricel Rodriguez bought her unit in 2005. She took out a $131,000 mortgage for her 3-bedroom unit, and spent $50,000 remodeling. Rodriguez kept current on her $707 monthly assessments, and last October she was elected vice president of the condo association. But she often clashed with members over decisions, such as paying for a 24-hour security guard.”

“When owners were hit with a special masonry assessment of $7,901 that was to be paid in three monthly installments, Rodriguez was among those who refused to pay. With late and legal fees, Rodriguez now owes $16,084. ‘I am going to get out of here. This is a nightmare,’ she said.”

“The standoff between dissatisfied owners, many of whom bought their units within the last five years, and those who have been at Shoreline for decades, has triggered a vicious cycle. Owners have walked away from their units or stopped paying assessments. Banks have foreclosed.”

“Shirley Brown, who served four years as the condo association president, has lived at Shoreline since 1993. Brown described the group of dissatisfied owners as ‘dissidents’ who are upset about not getting their way. ‘They are playing a game here. Some of them could not afford to move here in the first place. The bank has been trying to close on one of them since November of 2008, and he is showing the others how to beat the system,’ she said. ‘Since 2001, I’ve had to pay $30,000 in special assessments, and I paid it because I love my place. It is my home. I didn’t come into this to make a killing.’”

The Pioneer Press in Minnesota. “Daffodils aren’t the only things sprouting in yards across the Twin Cities these days. More for-sale signs have been popping up, too. Rick Koons spends his days installing, repairing and removing for-sale signs from yards in the region. ‘We are about two months ahead of where we were last year in terms of installs,’ said Koons. ‘Last year, right around June is when the explosion (of new listings) started. This year, it started in March.’”

“The for-sale sign that Koons installed Thursday along Portland Avenue was one of 25 installs for the day — not bad, considering his personal record for new signs in one day is 38. That came back in 2006 when the local housing market was red-hot. It was a different story in 2009, when Koons noted that a lot of the for-sale signs seemed to go up in front of vacant homes. Such homes often have gone through a bank foreclosure.”

“After peaking in June 2006 at $236,850, the median sale price for a home in the Twin Cities hit a recent low of $150,000 during February 2009. The median price this past February was $159,000. Some sellers who’d been keeping homes off the market in hopes of a price rebound apparently decided to stop waiting. ‘Sellers are becoming more realistic about price,’ said Marshall Saunders of Re/Max Results in Eden Prairie. ‘They know their homes are worth a lot less than they once were.’”

The Star Tribune. “Francine Lindala began making the one-hour commute from Princeton to Roseville in the days when gas was cheap. As the cost of fuel steadily rose beyond what Americans had ever seen, she and her husband toyed with the idea of selling. Wondering what their home would fetch, they ordered up an appraisal. The answer shocked them. ‘There were no comparables,’ she said.”

“Houses like hers simply were not selling. So they’re staying — for now. It’s an illustration of what’s happening all over the once-booming Twin Cities fringe. A metro area once considered one of the nation’s most sprawling is now strengthening at its center while its outer rings wither.”

“All these trends would be much more pronounced, say some who live in outlying towns, if by some stroke of magic they could leave: if they were not upside down on their mortgages and forced to write $20,000 checks to escape. ‘We’re stuck there,’ said Jason Hanson, who bought a townhouse in Farmington with his wife in 2005. At the time, moving farther out was a way to get more space for less money. Now with a baby and a dog, the distance from work and everyday amenities has turned into a drag.”

“They want to move to Lakeville or Eagan, closer to a freeway and transit to carry him to his job in Minneapolis. But, Hanson said, ‘a lot of people want to sell and they can’t.’”

“George Karvel, a professor of real estate at the University of St. Thomas, said retiring baby boomers looking to downsize may leave some suburban areas in limbo. ‘They drove a lot of the demand for larger, bigger, suburban homes out in Eden Prairie,’ Karvel said. ‘Those homes are going to come back on the market. The question we all have is, what’s going to happen to their values? Who is going to buy those properties?’”

Minnesota Public Radio. “A north Minneapolis man who faces foreclosure says he’s prepared to fight to remain in his home. Michael Kidd gathered with about a dozen supporters on his front steps on Friday afternoon to speak out against what he said is unfair treatment by his mortgage servicer. ‘Right now, all I’m asking for is a fair deal,’ Kidd said.”

“Supporters said they’ll fight to help Kidd remain in his home by making phone calls to his mortgage servicer and holding protests to call attention to his situation. ‘Today is the start of something very important,’ said Linden Gawboy of the Minnesota Coalition for a People’s Bailout. ‘Today is the day that Michael Kidd is saying no.’”

“Kidd has asked his mortgage servicer, to modify his mortgage to reflect the home’s steep drop in value. He said he then tried to renegotiate his mortgage with Aurora, but the company told him he wasn’t eligible for federal loan modification programs. Instead, he said Aurora offered him a new mortgage for $152,000. Under the terms of that mortgage, Kidd said, the interest rate would start out at 2 percent, but would adjust to 5 percent after five years.”

“‘Realistically, the terms that they’re offering are ridiculous,’ he said. ‘The bank’s lost nothing. I’ve lost my entire life savings.’”

“The fifty-year-old man said he spent his life savings to purchase the four-bedroom home in 2004. At the time, he said he thought it was important to invest in the north Minneapolis community where he grew up. ‘Now, I’m kind of kicking myself in some respects,’ he said, referring to the high number of foreclosures in the low-income neighborhood.”