The Housing Bubble

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The Palm Beach Post reports from Florida. “Residents say they’re disappointed with the lack of progress and upkeep at the 32-acre community on Oakland Park Boulevard. As recently as 2006 it was billed as the city’s largest downtown redevelopment project, with 72 condos, 110 townhomes, 18,000 square feet of retail and office space, and open space for a public commons. To date, about 80 townhomes have been built. But at the housing community clubhouse is closed, the pool has a wide-open gate and no lounge chairs. And on a recent weekday afternoon, no one was staffing the on-site sales office. Last month a bank filed foreclosure proceedings against the builder. A view of an overgrown field is not what Tiffani Brown thought she’d have now — three years after moving into a townhouse in Bella Vista.”

“‘I expected to have shopping plazas with stores,’ said Brown, who paid close to $200,000 for her three-bedroom unit. ‘It’s still deserted.”’

“South Florida poker superstar Michael Mizrachi owes almost $340,000 in federal taxes and is facing foreclosure. He paid $440,000 in 2005 for his Miramar home in the Vizcaya neighborhood. March 2010 court documents show he had an unpaid principal of $367,359. A Hollywood condo he and his brother owned was sold via online auction. They paid $310,000 for the property in 2005, and used it as a rental property. ‘But people weren’t paying their rent, and we were advised that the best thing to do was foreclosure,’ he said. Both properties were assessed this year at less than half of their purchase price. All told, he estimates he lost $600,000 in the housing market.’

“‘Obviously, I’m a better poker player than a businessman, but I’m getting better,’ he said.”

The Orlando Sentinel in Florida. “Orlando now leads Florida and most of the nation for underwater mortgages, according to a report released last week by CoreLogic Inc. Only Las Vegas and Phoenix surpass it. The researchers determined that 55 percent, or 285,004, of the area’s mortgaged homes are worth less than their outstanding mortgage. Industry experts describe the properties as being a ’shadow inventory’ of bank-repossessed properties and mortgages facing foreclosure.”

“Mark and Susan Stone are weighing a decision being echoed across Central Florida: Should we stay in a home worth less than the mortgage — or walk away? ‘That was my dream kitchen. But it’s just a kitchen,’ said Susan Stone, who lives in the home with her husband and two sons, ages 7 and 3. ‘Both kids were there since they were born. It’s all they’ve ever known. … We just want an affordable payment, or they [the bank] can have the house. It will sit vacant for who knows how long.’”

“Mark Stone bought the home 12 years ago for $93,000. Then, about two years later, he took equity out of the appreciating house to open a bar and grill, but the 2004 hurricanes closed the adjacent hotel for six months, and the bar and grill was a casualty. The Stones then took out more equity to launch a vending business, which also failed.”

“They owe about $208,000, and the house is listed for sale at $229,000, which would cover the debt plus real-estate costs. But even with the boat dock and granite counters, the house is unlikely to fetch that price because similar houses in the neighborhood have sold for about $160,000. A corporation would not continue to continue pay top dollar for an asset that had lost half its value, she added. After the lender denied them a mortgage modification in January, they stopped making payments, and she estimated they could soon save $10,000 for a down payment on another house.”

”Basically you have to look at it like a business would,’ said Susan Stone.”

The Ledger in Florida. “Downtown’s chic Lofts on the Park condominiums will auction its last five units May 22 amid an uncertain housing recovery. By the time it was completed in mid-2007, local home sales had already begun their tumble from the boom. The Lofts’ developers managed to sell 11 of 16 units but the others have gone unsold for nearly three years.”

“‘There’s been lack of movement and lack of interest for the last 2 1/2 years, basically,’ said Peter Munson, a Lakeland lawyer who developed the lofts with partners Jerry Herring and Frank Drake. The units that sold fetched roughly $250,000 apiece, Munson said.”

“Herring said the Lofts once had more than 80 reservations from prospective buyers. ‘By the time we completed the construction the bottom had begun to fall out (of the housing market),’ he said during a recent interview. ‘The timing issue with the Lofts just killed us.’”

The Herald Tribune in Florida. “A wave of commercial foreclosures — $154 million during the first quarter alone in Manatee and Sarasota counties — is putting renewed pressure on the region’s struggling banks and threatening to sap governments of at least another $90 million in tax revenues. Some experts think commercial foreclosures this year could total a half-billion dollars, eclipsing the $300 million in troubled loans during 2009.”

“The wave of commercial defaults follows the broad shakeout in the residential market that sent foreclosure rates in Southwest Florida soaring during the last three years. ‘Just like in the residential market, Florida will lead the nation or be in the top three states in terms of commercial defaults,’ said Jack McCabe, a Deerfield Beach-based real estate consultant. ‘By the end of the year we will probably see over $500 million in commercial defaults in Sarasota and Manatee alone and billions in the state of Florida.’”

“Analysts and market watchers say banks and developers hurt themselves by misreading demand for commercial projects. The result was a surplus of office, retail and warehouse and pad-ready commercial lots. ‘Banks made stupid loans,’ said Carl Wise, a Sarasota-based commercial real estate agent. ‘They were out generating fees, growing their banks, and they made mistakes because they did not understand what they were doing.’”

“Statistics show that it also is smaller community banks that are bearing more than their share of the burden from the rash of commercial defaults. Of the 56 defaults representing the $154 million, 25 — or $48 million — originally were made by 13 Southwest Florida community banks — four of which already have failed. ‘Obviously many more banks will go belly up this year,’ said McCabe,. ‘We’re just in the third inning of this. The worst is ahead.’”

McClatchy Newspapers. “It’s become conventional wisdom that big investment and commercial banks caused the crisis and small community banks are paying for the sins of others. That’s not true, however. Georgia leads the nation in bank failures since the crisis began, and all of them have been at small banks, most caused by bad loans to builders.”

“The reasons that 38 small Georgia banks have failed are varied and in dispute. Some are peculiar to the Peach State, but one lesson Georgia offers the nation is that small community banks have made many of the same mistakes their larger brethren did, and thus exacerbated the national crisis.”

“‘Almost all of the failed banks in recent years have been community banks, i.e., with total assets under $10 billion. Over three-quarters of the failures had less than $1 billion in assets. ‘Most of these banks failed for the classic reason: bad lending, compounded in many cases by excessively rapid growth,’ said Bert Ely, a banking consultant who rose to prominence during the savings and loan crisis of the 1980s and ’90s, when more than 700 thrifts failed.”

“What lessons do regulators draw from Georgia’s bank problems? The Atlanta Fed regulates only a small number of Georgia banks, including one large one, SunTrust. Most Georgia bank failures weren’t on its watch, but they clearly remain a concern. W. Brian Bowling, a vice president at the Federal Reserve Bank of Atlanta, is sympathetic to the idea that fragmented banks and builders may have created a distorted view of what was happening in the housing market.”

“‘Smaller banks would not have been doing what they were doing … if there was not what appeared to be such demand for housing,’ he said.”

The Atlanta Journal Constitution in Georgia. “Looking back, Atlanta’s 2009 housing market followed the letter of the law. Murphy’s Law. If it could go wrong, it did. Throughout the metro area, potential buyers found themselves cash-strapped as the economy worsened. ‘For Sale’ signs seemed to become permanent lawn ornaments. Sellers, like Mary Ely in Johns Creek, could only watch as the real estate market receded. ‘I could see the economic downturn coming and I tried to sell, but I didn’t get any offers,’ Ely said. ‘I was stuck.’”

“‘Foreclosures drove prices way down,’ said Eugene James, head of the Atlanta division of the real estate research company Metrostudy. ‘You had people who didn’t have to sell saying, ‘No, I’m not going to accept your lowball price,’ and took their homes off the market.’”

“‘While the price declines here in Atlanta weren’t as severe, the breadth of the problem was worse,’ said Jim Grissett, an adjunct professor at Emory and investment adviser who specializes in real estate. ‘There were definitely winners and losers in this thing. On a broad scale, the losers were people who had to sell for a loss, who bought at the end of the cycle and the people who speculated. The winners were people who waited and saved their money and just entered the market.’”

“Ely, who now has a contract on her Johns Creek home, said selling the home for less than she owes the bank — a short sale — was her only option. ‘I can’t go through a foreclosure,’ she said. ‘I just can’t.’”

The Birmingham News in Alabama. “The U.S. Senate rejected an attempt to rein in taxpayer support of mortgage giants Fannie Mae and Freddie Mac. It was another in a long line of defeats for housing finance changes that two Alabama lawmakers have sought for years. Sen. Richard Shelby and Rep. Spencer Bachus, the top two Republicans on the key financial committees of Congress, argue that the two government-sponsored enterprises — now surviving on $145 billion in taxpayer bailout funds — should be transitioned into private entities. ”

“Congress, no matter which party has been in charge, has not agreed.”

“While Shelby and Bachus have been urging a crackdown on Fannie Mae and Freddie Mac, they also celebrated the rise in homeownership during then-President George W. Bush’s administration, a policy promoted by Fannie and Freddie’s mission to provide lower-cost mortgages. In separate interviews Tuesday, they said they still supported the goal, just without so much taxpayer support.”

“‘We’ve all been guilty of promoting homeownership, which I think is good, but it reaches a point of diminishing returns, as we’ve seen,’ Shelby said. ‘We can’t put people in houses with nothing down and bad credit and a questionable job and hope they’re going to make those loans. That’s crazy.’”

“Bachus said owning a home is not right for everyone, and he wanted to ‘wean (Fannie and Freddie) from the public trough.’ ‘They may lower interest rates by a quarter or a half of a point, but now we find out there is quite a cost for that,’ Bachus said.”

“The Birmingham News analysis of 51,682 single-family homes in Shelby County found that 41,375 of them — 80 percent — dropped in value in the current revaluation. Altogether for the county tax roll, the overall assessed value of single-family homes dropped by almost $171 million. Robin and Vic Paschal have their Norwick Forest house on the market. The Paschals’ two-story, traditional-style brick house declined 12.1 percent in value since last year. They are asking $267,900 for the four-bedroom, 2½-bath house they bought in 2002. Both their children have graduated high school, and the Paschals are ready to downsize. They are trying to sell it themselves.”

“‘We put the house on the market last fall, and the residential prices dropped drastically,’ Paschal said. ‘The real estate fees were going to be in excess of $20,000. Last spring, the house was appraised for $297,000, and now the real estate people are telling us we can ask $230,000 or $240,000 at the most, and then be ready to negotiate.’”

Post off-topic ideas, links and Craigslist finds here. The DC meetup link at the forum is here. Click here for the shadow inventory thread.