From Bubble To Puddle
It’s Friday desk clearing time for this blogger. “When Todd Bjerstedt built luxury homes in Woodbury, he was the eternal optimist. Bjerstedt had pumped thousands of dollars of personal savings into his struggling homebuilding business, only to see it fold in 2006. He looks back on his change of fortune with a sense of humor. ‘We used to have a lot of things including some savings,’ Bjerstedt said, laughing. ‘Everything fundamentally is gone.’”
“Last fall, the Bjerstedts lost the struggle to keep their Hudson, Wis., home out of foreclosure. Bjerstedt oversaw construction of the $700,000 home himself. Now his family leases a townhome in Hudson about one third the size of their old place. Bjerstedt said their lives have changed dramatically. ‘When we wanted something before, it usually just appeared,’ he said. ‘Those days are behind us — maybe forever.’”
“Meanwhile, his family is trying to get used to their scaled back lifestyle. His 15-year-old daughter Olivia says all the tumult in her dad’s career has changed her outlook. ‘Before, I guess I sort of got things handed to me more, but now it’s made me realize that not everything’s just easy going,’ she said.”
“The extravagant, customized house on Baldy Mountain Road outside Sandpoint was built in November 2005 by the stunt charity show ‘Extreme Makeover: Home Edition,’ relying on a massive volunteer effort to help a bachelor who had stepped in to raise his sister’s kids after she passed away. In past interviews, Eric Hebert, the man who was given the home, said he refinanced – first for $250,000, then for $382,500 – thinking he had a secure job working construction, but his employer went out of business. Eventually, he tried to sell the home, but by then – May 2008 – the housing market had gone from bubble to puddle. ”
“He defaulted in January 2009, and apparently left town last June or so. The bank took it back in October. The list price for the home has gone from $529,000 to just over $300,000. ‘I am disappointed,’ said Stan Hatch, a Sandpoint real estate agent and the man who coordinated volunteers and resources for the show back in 2005. He wonders whether the entertainment needs of the show overwhelm its supposedly charitable purpose. ‘That house is not just first class, but way over the top. If you could take that many resources and apply them over three, five, six families that need help.’”
“U.S. Army Capt. Jerry Frimml was granted his request in April of last year and was released from combat operations. His report date at Fort Carson was just two months later in July, so during that time, Frimml put his house up for sale. Now, a year later he said he has seen little to no movement on the house. Hoping he would meet the necessary requirements to receive financial help, Frimml began the application process for HAP, only to be let down as he found out quickly he did not qualify. Officials with HAP said the July 2006 date was originally put into place because that is when the housing market nationwide began to spiral downward.”
“‘Recently we had to drop the asking price, and right now I am paying the mortgage on the house in Texas and I am paying my lease on my house up here at Fort Carson,’ Frimml said.”
“A drive through the streets of Dalton, primarily the east side of town — where many Hispanic immigrants reside— shows an area in decline. ‘For Sale’ signs are plentiful on homes, but not as numerous as ‘For Rent’ signs on large and small apartment buildings and homes. A vacant house sits across Ashworth Avenue from the home of the Hernández family, who says the owner couldn’t afford her mortgage anymore, so she simply left. ‘She used all her income tax (return) last year to save her home, but in the end she couldn’t make the payments,’ said María Hernández.”
“María and her husband bought their house seven years ago, when they were both working 60 hours a week at local carpet factories. Now they only work a couple of days a week and have tried to sell their home for more than a year with no success. Their desperation has reached the point where she’s considering returning to Mexico, even though they’re in the country legally. But Dalton Mayor David Pennington believes those who were going to leave have already left.”
“‘A large number of people who probably left are undocumented, they couldn’t sign up for any benefits or services, so they were the first to leave,’ he said. ‘Those who bought houses here, were born here, are solidly established here, they are not going anywhere.’”
“A recent survey by CoreLogic found Oklahoma has the lowest percentage of people who owe more than their houses are worth. Local lenders said while bankers in other parts of the country wrote loans for more than the houses were worth, local loans have been more realistic. For example, if a house was appraised at $100,000, it would be unwise for a banker to lend the buyer $120,000 on the purchase. ‘Right away you have a problem loan,’ if that were the case, said Gary Chapman, chairman and CEO of the Bank of Cherokee County.”
“Many banks resell the loan to the secondary market. Since those bankers know the papers will change hands, they may not be as careful in ensuring the buyer has the resources to repay the loans, he said. ‘We do not sell our mortgages. We keep our mortgages here,’ he said.”
“Buyers may not qualify for as large a loan as they could have in the days of looser lending policies. ‘A few years ago, the lenders could loan a 55 to 60 percent debt to income ratio, and that’s unheard of now,’ said Linda Pippin of Charter Mortgage Group.”
“William Dudley — president and CEO of the Federal Reserve Bank of New York — returned to his alma mater Friday to give the commencement address at New College of Florida. ‘Although the Federal Reserve has been aggressive about easing monetary policy to support economic activity, the recovery is not likely to be as robust as we would like for several reasons,’ Dudley said.”
“Among those reasons: Households are ‘deleveraging.’ In other words, households are trying to recover from the loss of ‘paper wealth’ associated with the rise and fall of housing values. Those losses might not have been so disruptive but, as Dudley noted, homeowners borrowed money based on housing values — and then spent with abandon. ‘This pushed the consumption share of nominal gross domestic product to a record high of about 70 percent,’ Dudley noted.”
“‘The banking system is still under significant stress — ‘particularly the case for small- and medium-size banks that have significant exposure to commercial real estate loans. This stress means that banks have been slow to ease credit standards as the economy has moved from recession to recovery.’”
“‘Some of the sources that have supported the nascent recovery are temporary.’”
‘For instance, inventories that were liquidated cheaply have been depleted and, perhaps most important, ‘fiscal stimulus from the federal government is subsiding and will soon reverse.’”
“‘Outlooks for U.S. home prices remain very guarded,’ said D’Ann Petersen, a business economist for the Federal Reserve Bank of Dallas. ‘I think this is a genuine concern, given the uncertain environment we are currently operating in.’”
“North Texas pre-owned home sales were up 9 percent in the first four months of 2010 from the same period last year. Most of that gain is attributed to the federal home-buying tax credit, which just ended. ‘The problem is that most of the improvements in the housing sector – sales, values, general activity – are government-induced,’ said Dr. James Gaines, an economist for the Real Estate Center at Texas A&M University. ‘Even the ultra-low mortgage interest rates we have today are government-induced by the Fed. The basic issue is whether demand will sustain at a level sufficient to keep prices up as the government incentives – primarily the tax credit – go away,.’”
“High foreclosure rates in many markets, including North Texas, are also a drag on the housing recovery. ‘At the national level, foreclosures have been slowed by modification efforts,’ Petersen said. ‘Thus, foreclosures going forward could still impact prices.’”
“With 11 consecutive months of growth, San Diego County is leading the nation’s largest metro areas in home-price appreciation. Analysts warned that San Diego’s increase may only reflect a change in market mix, not an increase in value, and that it will likely to slow down and possibly reverse as additional foreclosed homes hit the market.”
“Brad Kemp, director of regional analysis at Beacon Economics, said bank policy rather than market mix may be at work. He argued that banks are keeping distressed homes off the market and thereby prompting overbidding by bargain hunters. That way, prices come closer to outstanding loan balances and banks lose less. ‘We think it’s an artificially unsustainable rise being caused by artificially keeping inventories low,’ Kemp said.”
“A separate report from the California Association of Realtors showed the state’s median home prices were up in April, about 1.5 percent from the month before and 21 percent from a year ago. San Bernardino and Riverside counties prices jumped 17.3 percent from a year before. ‘Real estate is very local. So these aggregate measures can be very misleading,’ said Leslie Appleton-Young, the association’s chief economist.”
“In California, home prices are rising in part due to the scarcity of foreclosed properties on the market despite high demand in areas such as the Inland Empire, Appleton-Young said. ‘The reason the California number went up is because we were selling fewer homes in the inland areas because there was not enough supply,’ she said.”
“Alaska-based banks saw increases of 14 percent to 28 percent in net income during 2009 following the disastrous fourth quarter of 2008, but nobody is breaking out the party hats just yet. Bankers remain cautious about job growth, interest rates, continuing soft loan demand and pending financial reform legislation in Washington, D.C.”
“Working through nonperforming loans and assets acquired through foreclosure were a major challenge of 2009. Other real estate owned, or OREO, has increased at the six Alaska banks from $7.6 million at the end of the third quarter of 2007 to $34 million in 2009. The key to managing OREO, said Northrim CEO and founder Marc Langland, is patience.”
“‘From my knowledge, most banks have good quality bad stuff,’ Langland said. ‘People laugh at that, but it’s the truth. It’s a matter of time. When you have low interest rates like this, you have a good opportunity to go about marketing the products without doing a lot of stupid stuff so you don’t destroy the prices by lowballing.’”
“‘Things have improved somewhat in terms of the response from banks,’ said Seema Agnani, executive director, Chhaya Community Development Corporation, a non-profit organisation based in New York that counsels home buyers and owners to prevent foreclosure. ‘Some are finally giving owners loan modifications that comply with the Home Affordable Modification Programme. On the other hand, many of those who were in the initial stages of foreclosure have lost their homes.’”
“In California, the residential foreclosure market has softened a bit, but the market has shifted to commercial real estate. ‘Due to a large number of vacancies, bank defaults have forced price reductions on both office and apartment buildings. Though the rents are usual in many cases, prices have gone down considerably, even 35 percent in many cases,’ said Jeevan Zutshi, owner, Jeevan Zutshi Real Estate Services and an expert on residential and commercial real estate.”
“He doubts the intentions of commercial lenders like Chase who are not doing anything to alleviate landlords’ suffering. ‘It appears at times that they welcome foreclosures,’ Zutshi said. ‘Perhaps they have asset management capabilities as well now and are anxious to acquire these properties by defaulting on them. It is brutal. So many people are wondering whom Obama’s efforts in this direction have been helping.’”
“The derivative disaster that devastated Wall Street now stalks state and local governments. Over the last decade, their argument goes, state and local officials who lacked expertise in the multi-layered ’synthetic’ financial instruments so dear to New York’s mega-banks have been seduced into them anyway. The result is that states, cities and counties ended up owning collateralized debt obligations and credit default swaps like those that blew up in the faces of major corporations like AIG during the 2008-2009 financial meltdown.”
“A spokesperson for one of the main lobbying groups for derivatives, the Securities Industry and Financial Markets Association, said that while some entities experienced problems with interest swaps, they worked as intended for the majority, lowering rather raising their debt costs.”
‘Richard Eskow of the Campaign for America’s Future, said the industry’s defense that most deals have worked is like saying ‘the vast majority of Zepplins functioned as designed, too, but the Hindenburg put an end to lighter-than-air travel.’”
“Tax credits and historically low mortgage rates have failed to lift home prices so far this year. Prices fell 0.5 percent in March from February, according to the Standard & Poor’s/Case-Shiller 20-city index. That marks six straight months of declines — a sign that the housing market is going in reverse. ‘It looks a little like a double-dip already,’ economist Robert Shiller said in an interview.”
“Blaine County Assessor Valdi Pace told the County Commission that the total estimated value of all property in the county for 2010 has dropped to just under $10.6 billion—an 11 percent decline from 2009 values, which were just under $11.9 billion. Pace said the sharp drop over last year did not surprise her, given the state of the housing market. ‘That’s roughly what I expected,’ she said. ‘The market has finally caught up with us.’”
“There was at least some humor inserted into the discussion of the dismal news when Blaine County Commissioner Angenie McCleary asked Pace to repeat her statement about when the peak of the county’s total assessed value took place, in 2008. Apparently, that coincided with McCleary’s purchase of a home in the Ketchum area. ‘I’m just trying to confirm that I bought my house at exactly the wrong time,’ she said.”
