The Housing Bubble

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KKTV reports from Colorado. “Millions of Americans facing foreclosure have turned to the government for help but a congressional report is showing mortgage aid programs aren’t doing much to help stop the housing crisis. For every person who got help, 10 others lost their homes. Here in El Paso County about 54-hundred families foreclosed last year. A Colorado Springs man who only wants to be called David has owned a home in the Village Seven neighborhood for 21 years. He and his wife have been in foreclosure twice in recent years and are nearing it again. ‘It’s a constant fear of not being able to pay the bills,’ David said.”

“For him the trouble began with a pay-cut at work. He’s had trouble getting help, even knowing where to turn. Now more than a year after the government made an effort to ease the mortgage crisis a congressional panel says it’s falling short. ‘We’re just looking for relief,’ David said.”

The Gazette in Colorado. “Woodland Park hasn’t been immune to the effects of the nationwide recession. Like other cities, it has suffered spikes in foreclosures, unemployment and commercial vacancies. Numerous businesses closed. A local bank has found itself struggling.”

“Construction, always a key economic driver, has gone from boom to bust. Housing prices won’t improve and new home construction won’t resume until the glut of foreclosed properties is reduced, said Brad Spivey, chief investment officer and vice president of loans for Park State Bank & Trust in Woodland Park. ‘Until we see a plateau in foreclosure filings, it’s hard to get confident that the housing problem is starting to be resolved,’ Spivey said. ‘We still have a large supply yet to come, which will keep housing prices constrained.’”

“‘We were fat, lazy and happy, thinking that what happened in California, Nevada and Florida wouldn’t happen here,’ he said. ‘But it did.’”

The Aspen Times in Colorado. “Aspen-area real estate prices generally tumbled between 20 and 40 percent during the recession from their peak in 2007, according to a in-depth study released in April by the Aspen Appraisal Group. Aspen real estate has been insulated to some degree from national economic downturns in the past, says the report, but Aspen’s property kept its value. The current recession was so severe that Aspen didn’t escape unscathed.”

“Randy Gold, a principal in Aspen Appraisal Group, has worked in the Aspen and Snowmass Village market for more than 30 years. The number of listings continue to grow, Gold noted. There was roughly a four-year supply at the end of 2009 compared to a three-year supply a year earlier. ”

“The upper end of Aspen’s luxury residential market is in even tougher shape. There were only three sales of houses priced higher than $20 million in 2008 and 2009, according to the report. There are 19 homes in that market segment currently listed for sale, indicating ‘this is likely going to be a slow part of our market for at least the next several years,’ Gold wrote.”

The Associated Press on Arizona. “The new AP Economy Survey asked 44 leading economists whether the recession created a ‘new frugality’ among consumers that will outlive the recession. Two-thirds said yes. many who became penny-pinchers during the recession are in no mood to start shopping again with abandon for clothes, cars and home additions. They’ve discovered the peace of mind that comes with rebuilding savings, shopping more prudently and learning to live with less. Susan Wilson, a freelance PR specialist in Scottsdale, Ariz., says her business is picking up. But her spending isn’t. Wilson still feels burned by the recession, when she lost her home to foreclosure. ‘Shame on me,’ she said. ‘I wasn’t paying enough attention to my financial health. That will never happen again.’”

“Wilson is renting now. She traded in her leased car for a used car she could buy outright. She’s started growing her own vegetables and air-drying her laundry to save money and stay out of debt. She’s looking to buy a home, but not one with an outsize mortgage. ‘I’m looking for pretty much the smallest house I can live in,’ she said.”

The Deseret News in Utah. “Sen. Orrin Hatch told Treasury Secretary Timothy Geithner on Tuesday that he thinks a proposed tax on big banks to pay for bailouts is unfair because some banks that did not cause problems are included, and auto makers who benefitted from bailouts would escape it. That tax-writing committee has been considering an Obama administration proposal to assess a fee of 0.15 percent on the liabilities (other than deposits and certain required capital holdings) of financial institutions that have more than $50 billion in assets.”

“‘Is it fair to apply this tax not only to companies that have repaid TARP (Troubled Asset Relief Program) with interest, but also to companies that did not take TARP money at all?’ Hatch asked.”

“Hatch also questioned why Freddie Mac and Fannie Mae were not included, saying their failures on housing loans helped cause the recession. ‘It would be one hand of government paying the other,’ Geithner said, explaining that the government has put those quasi public bodies into a form of conservatorship that he believes would make the federal government end up paying such a tax if it imposed it on them.”

The Las Vegas Sun in Nevada. “A federal homebuyer tax credit is set to expire June 30, but a Las Vegas real estate brokerage is participating in a program designed to mimic its effect. Coldwell Banker franchises across the county, including Coldwell Banker Premier Realty in Las Vegas, are trying to capitalize on the expiration of the tax credit. The brokerage won’t be putting up the money. Instead home sellers have the option of participating in the program that offers a credit of 3 percent, up to $8,000, of their home’s purchase price. The contracts must be signed by July 31, and there is no deadline for the closing date.”

“Tisha Black Chernine, an attorney with Black & LoBello, told members of the CEO-CFO Group on April 23 that she isn’t too optimistic about federal programs encouraging workouts in preventing more homes from going through foreclosure, and worries more homeowners will opt to default even though they can afford their payments. Black Chernine said 70 percent of local homeowners are underwater — they owe more on their homes than they are worth.”

“Government programs to encourage workouts between the homeowners and lenders have been geared for areas where homes aren’t so far underwater, she said. And because the programs are voluntary, they don’t have any teeth, she added. ‘The programs work for an Iowa market or a Texas market that didn’t have a nuclear bomb go off in terms of valuation like we had,’ Black Chernine said. ‘We are ground zero … What happened in all these programs is they sound great, but they are meant for a cold sore, and we have syphilis,’ she said.”

“Black Chernine said those going through a foreclosure shouldn’t expect they are off the hook for what they owe on the mortgage. The primary lien holder has six months after the foreclosure to file legal action to collect, but secondary lien holders have six years, and a lot of those notes are being sold on the market. Those collection companies are contacting those homeowners seeking payment, she said.”

“For hotel patrons, Sunday morning at the Ritz-Carlton Lake Las Vegas felt like any other. But this Sunday morning was different. At noon, the Ritz-Carlton would close its doors. Lake Las Vegas is in bankruptcy, burdened with $728 million in liabilities. Nicole Caples, of Las Vegas, stayed at the hotel Saturday night. She said she wished the city and hotel had done a better job of advertising Ritz-Carlton to locals, many of whom she said would have jumped at the opportunity for a ’staycation.’ ‘It’s beautiful,’ she said. ‘But [it is] an oasis dead in the desert.’”

The Las Vegas Business Press in Nevada. “For Summit Partners, a startup company funded partly by tapping a home-equity loan, landing a contract with the massive Fontainebleau seemed like a vaccination against the standard growing pains. But the outlook shifted dramatically a year ago, as the $3 billion project started to crack at its financial foundations without warning, leading to a halt in work and a Chapter 11 bankruptcy filing last June.”

“‘We read about it in the paper just like everybody else,’ said John Georges, one of Summit’s three founding partners.”

“By time Fontainebleau was sold in January to New York investor Carl Icahn for $156.6 million, little more than scrap value, Georges had become reconciled to never seeing any of the $71,000 he was owed for computer hardware and software he supplied during construction.”

“What initially looked like a perfect wave suddenly morphed into a perfect storm. A high-value project, about 70 percent complete, with nothing behind it when the banks cut off funding and a new owner who has not revealed when, or if, he will restart construction all coalesced to create the massive losses.”

“Adding to the problems was the speed of Fontainebleau’s demise. ‘It wasn’t something anybody expected to go south,’ said Scott Howard, a principal at Commercial Roofers, which has filed a $4.3 million claim. ‘We had been given assurances that all the financing was in place. Then Fontainebleau just basically exploded.’”

“There were times during the latter stages of construction when Fontainebleau started to drag out payments, but design work went ahead. ‘We didn’t want to be accused of holding up the job,’ principal Fontainebleau executive architect Joel Bergman said. ‘In good faith, we gave them some drawings and the next thing you know it was over.’”

“But in a market that has become ‘very, very, very competitive,’ he’s not sure he would get tougher on future clients. ‘You can be righteous as hell and believe in your heart of hearts that you will never let it happen again,’ he said. ‘You can stand astride your steed with your pearl-handled revolver and promise you will remain strong. But when you have to pay the rent and meet the payroll, who the hell knows what you will do at that point.’”