The Housing Bubble

CBS 4 Denver reports from Colorado. “The latest housing data doesn’t hold a lot of good news around the country. Only six metro areas recorded price gains. Denver was one of those. But you’ll still want to look into the data a little further. ‘Problem with that is, it’s like an average of putting one foot in a bucket of ice water and one foot in a bucket of boiling hot water. On average you’re fine but at the extremes it can be very painful,’ said Mike Rinner, executive VP of the Genesis Group, a market research and analysis firm specializing in the new housing industry.”

“That’s because many of the people at the very low end have been hit hard by the nation’s unemployment plague. That’s where foreclosures have hit hard. At the high end, there’s an surplus of homes and many homeowners in that price range are holding and hoping. ‘Your home that you’re selling has to be priced very right if you’re buying you have a lot of choices. It’s when you get over that $350,000 that we see six months supply and up,’ said Rinner.”

“With houses priced at more than $750,000 the supply of detached housing in the Denver market is at 33 months. Break that out to homes priced over a million and the supply is even longer — meaning it would take three years to sell off the homes that are for sale right now. The housing slump is now taking on a long term slouch — and like your mother told you, that kind of posture can stick with you if you don’t straighten up soon.”

The Colorado Springs Gazette. “A few years after several national builders bolted the Pikes Peak region because of financial woes or the nation’s economic downturn, a handful of homebuilders who are new to the area, or who until now have held a relatively low profile, have grabbed significant shares of the single-family market. ‘Just like anything else, the more people (builders) that are in, the greater competition there is,’ says Saint Aubyn Homes owner and president Jared Saint Aubyn. ‘It forces everybody else to just sharpen up their game. The buyer really, in this market, can pick exactly what they want.’”

“When the downturn hit a few years ago, Challenger Homes President Brian Bahr said a smaller company such as his didn’t have lots of land and debt on its books because of its size, and probably wouldn’t have survived if it did. Now it’s in a position to purchase home sites at a lower cost and offer competitive home prices as a result. ‘A smaller company that’s more stable … can take advantage of the opportunities that present themselves, go in and buy the land that has now dropped in value by 50 percent, put houses on there that are at a compelling value, and thereby pick up market share,’ Bahr said.”

The Arizona Republic. “Nearly two years after its initial developer went bankrupt, the sparsely populated Stratland Estates neighborhood is finding new life. Earlier this month, Pulte Homes, which purchased 107 lots in Stratland Estates in October, began selling new homes in the long-beleaguered subdivision. Prices start in the low $200,000s.”

“When Stratland Estates LLC went bankrupt in July 2008, it left behind dozens of vacant lots and unoccupied houses. It wasn’t long before tumbleweeds became the primary residents of the nearly-empty neighborhood, and homeowners became frustrated with the lack of resources to clean them up.”

“Pulte’s aggressive strategy in Gilbert mirrors the opportunistic actions of some other homebuilders, which have competed to buy hundreds of vacant lots in neighborhoods hit hard by the real-estate bubble burst. The companies are purchasing bank-owned, ready-to-build lots in subdivisions where the previous developer went bankrupt, as was the case with Stratland.”

“Developers can buy the finished lots for a fraction of what they sold for a few years ago, and the cost-per-square-foot to build a house has plunged, said Robert Stapley, sales and marketing manager for Highland Homes.”

“Los Arcos Crossing, the failed shopping center on McDowell Road whose latest developer vowed to turn it into Scottsdale’s ‘center of life,’ is headed to foreclosure and a possible sale by the end of the year. PDG America acquired most of Los Arcos Crossing in 2007 with plans to develop it as Scottsdale CentroVida, a $150 million mix of townhouses, apartments, restaurants and neighborhood shops.”

“Mortgages Ltd. financed the deal. ‘As much trouble as Mortgages Ltd. got into, the properties aren’t the problem,’ said Mark Winkleman, chief operating officer of ML Manager, he Peoria-based firm formed by investors as a successor to Mortgages Ltd. ‘It’s just that the loans were above what they’re worth.’”

The Mohave Daily News in Arizona. “Seventy-seven homes were sold in Bullhead City in April, according to the Western Arizona Realtor Data Exchange. April 2009 saw just 60 homes sold, which marks April as the 18th month in a row of year-over-year local sales increases. Even as the inventory decreased ‘more houses came on the market in April than we’ve seen in several months,’ said Evan Fuchs, the broker with Bullhead/Laughlin Realty. ‘We know we have foreclosures coming for a while,’ which drives down price, Fuchs said.”

“While sales have seen a steady increase, prices continue to decline, said Bob Lewis of P.R.O. Realty in Bullhead City. In the first two quarters of 2009, the average sale price in Bullhead City was around $162,000. The first two quarters of 2010 have seen a 27.64 decrease in that average sale price to $117,230. ‘Values are slowing down in dropping, but they’re still dropping,’ he said.”

“It costs the bank around $6,000 to turn a foreclosed property around for sale, Lewis said. Tack onto that the 5 percent to 6 percent sales commission and the bank needs to sell that house for more than what it is worth just to see a return on the outstanding loan amount. ‘Banks are staring to realize they’re not going to get the money out of those loans,’ he said. ‘It didn’t sink in six months ago, but it’s starting to sink in now.’”

The Salt Lake Tribune in Utah. “Among the hardest hit along the Wasatch Front, the communities of the south Salt Lake Valley have suffered through two distinct waves of foreclosures. The first, before mid-2008, appears to have hammered those areas that had grown the fastest, leading to pronounced clusters of foreclosures centering on the newer subdivisions. bers during that time. What happened in these communities? In many new subdivisions, ‘people were reaching as far as they could qualify,’ said Curt Dowdle, executive officer of the Salt Lake Home Builders Association.”

“But a second wave of foreclosure is gripping the South Valley, along with the rest of the county and elsewhere in Utah, flowing from unemployment , recession and falling home prices. It hasn’t been unusual in the South Valley to see homes that sold at the height of the market for $600,000 or more to go begging for buyers at $400,000 today.”

“Cammy Wilcox knew the housing market was bound to crash. The Pleasant Grove home she bought in 1995 for $80,000 inflated in value to about $240,000 when she sold it 10 years later. ‘I knew there was no way the economy could continue [like that],’ she said.”

“So she and her husband moved to an apartment in Farmington, closer to his job, and saved money while looking for a new home. In November 2008, they finally settled on a two-story, brown stucco house in west Layton — for a price $60,000 cheaper than when they had first walked through the house earlier in the year. The home, foreclosed on in July 2008, is one of the more than 270 foreclosed homes sold in Davis County between July 2008 and March of this year.”

“High-growth areas across Utah are facing clusters of foreclosures, said Ryan Carver, the housing counseling director for AAA Fair Credit Foundation, a nonprofit credit-counseling organization. ‘You’re seeing people jump on the bandwagon for new construction,’ he said, because such homes are often larger and the same price or cheaper than older houses, and can be custom-built.”

“Those factors, Carver said, combined with people being approved for loans larger than they could afford, the promise of rising home values and chance to refinance their loan in the future, helped drive many of the foreclosures now occurring. ‘They’re thinking, ‘Let’s hold out for a year or two,’ Carver said of homeowners who bought more home than they could afford with the hope it would rise in value and become an investment.”

“While many lenders only look at credit scores and how much people earn before deducting taxes, Carver counsels people to not spend more than 30 percent of their net income on housing expenses. ‘The problem is, you always overqualify for that,’ he said.”

“Refinancing can be out of reach for many people, but Mindy Moser said she and her husband were able to do just that on the mortgage for their home in North Salt Lake’s Foxboro subdivision. Others, though, weren’t able to make their loans adjust to fit their financial situations: The house next door to Moser is vacant and listed as foreclosed. She doesn’t know how much of the turnover in her neighborhood has been caused by foreclosures, she said, but ‘there have been a lot of people move in, then out.’”

KLAS TV in Nevada. “More people are filing for bankruptcy in the state of Nevada. The number jumped nearly 14-percent from last year at the same time. Attorneys say the number one reason people are filing starts with the housing crisis.”

“Bankruptcy was the last thing Edward Callaci thought he would do, but he’s now in the process of filing for Chapter 13. ‘If this is an alternative, I have to take it. I just want to have the house. I’m nervous I’m going to be in the street,’ he said.”

“Callaci took a second mortgage on his home, combined with two unsecured loans and credit card debt, he’s $180,000 in the hole. ‘It’s the credit cards and the equity line that’s interest only. It’s a chunk of my income,’ he said. ‘If I can relieve the debt, paying the primary mortgage will be no problem.’”

In Business Las Vegas in Nevada. “Linda Rheinberger is the president of the Nevada Association of Realtors, the self-described largest trade organization in the state. Rheinberger serves on the board of directors of the National Association of Realtors. Q: Given what happened in the industry, does it make it hard to enjoy it?”

“A: It has been very, very difficult. And honestly, had I known what I was about to embark on when I purchased the business, I don’t believe I would have. However, in retrospect, most of the bad things are in my rearview mirror. And since the beginning of this year, every month is better and better as far as profits are concerned and the direction the firm is going.”

“Q: How did you survive all this? I had to make some tough choices. I had to cut my salary. I had to cut personnel. That is one of the reasons I moved my business — it’s a lessee’s market at the moment, and I moved and lowered my overhead in rent by 50 percent.”

“Q: What about the federal tax credit that has expired? A: We know we are not going to get that tax credit expanded right away. We had one shot at it and had a second shot with the expansion. And now we know there are other areas that they need to support.”

“Q: What do you think of the state’s loan-modification program enabling homeowners to sit down with banks before a home is foreclosed upon? A: It is making a difference…It is also providing hope. Hope is a big problem right now. There are people who feel because of the valuations in our area, they are asking why should they continue paying on a home that may never see the light of day. They feel that even though they can afford the mortgage or promised to pay the mortgage, what’s the difference? Why should they be the schmuck, if you will, paying this house at something valued up here when their neighbor bought the house down here. There is a lack of hope.”

“As for myself, I got involved in an option (adjustable-rate mortgage) in a house I am living in as an investment property. My responsible husband and me put 40 percent down and that 40 percent equity is gone. My husband is questioning why can’t we get a modification because we are part of the 7 percent where we are not Fannie Mae or Freddie Mac conforming. They won’t give us a modification, even on the interest rate. It is all I can do to keep my husband from pushing me in that direction, but I am the type of person who will get third job if necessary to continue with my promises. That’s how I am. We have six mortgages that are completely on time.”

The Reno News & Review in Nevada. “Debt is a four-letter word. Sometimes it is uttered with awe or reverence, but currently it prompts epithets like a four-letter Anglo-Saxon term unfit for print. This being print, we’ll use a substitute term. How about … foil? For example, debt can facilitate or foil your plans.”

“Debt is like a dog that normally won’t bite you viciously unless, say, you bite it big time first. That scenario is known as the bottom line definition of news—man bites dog. Currently, the debt dog can nip anyone because so many sank their teeth into it. Debt, public and private, chases us all like a rabid dog.”

“The debt dog we helped unleash appears bent on nipping the Nevada, national and worldwide economic recoveries right in the bud. Foreclosures, with which Nevadans are all too familiar, are mini-models of the current comeuppance. Just check the old days of mortgages, more recent history, and finally the effects of our current back-to-the-future period.”

“Lending ran rampant and houses (assets) were just one aspect. It extended to autos, frills, vacations (liabilities). Awhile back, folks used houses like ATM machines with interest rates attached. The housing/lending crash now is ending over-leverage or such debt-induced splurging; it is forcing austerity, default, bankruptcy. Bankers act tight-fisted again. Governments re-regulate, after a fashion. We de-leverage.”

“Archimedes, a Greek math wizard and engineer who honed our thoughts on leverage in physics, once said: ‘Give me a place to stand on, and I will move the Earth.’ It works in physics and finance but only until you lose your place to stand. Problems hit the world economy because so many individuals, financiers and governments had no leg to stand on, let alone place to stand.”