The Housing Bubble

A report from the Idaho Statesman. “While developer Bob Hosac is taking bids on Royal Plaza’s condos to stave off a foreclosure sale, Steve Hosac, his brother with a separate development company, is moving ahead with the 130-condo River 8 project. Meanwhile, 15 residential and commercial units in the Royal Plaza will be auctioned May 7 for minimum bids ranging from about $150,000 to $400,000. ‘We’re trying to move forward,’ Bob Hosac said. ‘It’s important to bring some kind of closure to the Royal Plaza.’”

“Most condo projects in Downtown Boise were planned or under construction before the bubble burst in the housing market and the recession hit in December 2007. Several, like Royal Plaza with 26 units, had up to half their units sold before they were finished. But since 2008, developers have had to lower prices and offer upgrades and other incentives to lure buyers. Not being able to drop prices far enough and fast enough because of the financing contributed to Royal Plaza’s problems, real estate experts said.”

“Sales are improving but at a slower rate than developers would like, said Bryant Forrester, owner of Urban Concepts Group at Homeland Realty, which specializes in condominiums. Pricing Downtown ranges from about $200 to $400 per square foot, compared with $300 to $500 in 2007, Forrester said. R. Grey Lofts, 16 units at 8th and Myrtle streets, has new owners and is about to go back on market with new prices, Forrester said. ‘If you can close one a month, that’s a pace that’s enough to keep the project viable,’ Forrester said.”

“According to the Intermountain MLS, 808 homes in Ada and Canyon counties received sales offers last month, a 5.2 percent drop from March 2010. Industry experts were not surprised by last month’s slowing Valleywide sales figures, arguing that March’s numbers were competing against 2010 transactions influenced by a now-expired $8,000 federal tax credit that had first-time homeowners rushing to get homes under contract before the offer expired. ‘Last year’s numbers for March, April and May were inflated because of that tax credit,’ said Jere Webb, an agent with Coldwell Banker.”

The Columbian in Washington. “The number of Clark County homes in foreclosure fell dramatically in March. Some say the sector’s new willingness to help borrowers with home-loan modifications led to the 29.2 percent one-month drop in local foreclosures, as reported by RealtyTrac. Others say banks are slower to foreclose because they don’t want to own still more properties when it is taking longer now to sell off houses in distress, given the smaller pool of qualified buyers.”

“Scott Anthony, a broker in charge of the real estate owned division of Windermere Real Estate Stellar Group in Vancouver, attributed the drop in Clark County’s total foreclosures to occupants who refuse to move out of distressed properties, holding out for the relocation fees offered by many banks. ‘The banks will actually offer them cash to move out,’ as long as the occupants don’t leave damage behind, Anthony said.”

“Anthony, who has sold more than 270 bank-owned foreclosures since 2009, has also seen some troubled homeowners plan out their homes’ foreclosure. He said the strategy occurs more among Clark County homeowners who are hopelessly underwater, which means they owe more on their mortgage balances than the home is worth. About 32 percent of homeowners in the Portland-Vancouver metro area were underwater in 2010, according to Zillow.”

“Others expect county foreclosures to increase in September, when interest rates will bump up on a crop of adjustable-rate mortgages issued during the height of the housing boom, said Terry Wollam, an agent and president of the Clark County Association of Realtors. ‘We are going to continue to see those through September,’ Wollam said. ‘After that, it’s just going to be a matter of working through that inventory.’”

The Yakima Herald in Washington. “Yakima County has seen a drop in home sale prices over the first two months of the year. The average home price for January and February was $142,720, down 12.1 percent from the same period a year ago, according to Headwaters–The Source, a Selah-based firm that tracks Yakima County real estate sales. ‘It is kind of a reminder (that) we’re still not back to normal,’ said Ken Nelson, broker of DK Bain Real Estate Inc. in Sunnyside.”

“An increasing number of foreclosed homes on the market has been the primary driver of dropping sales prices. Concerns amid the national robo signing scandal slowed down the foreclosure process for many of these homes in the past few months, said Glenn Crellin, executive director of the Washington Center for Real Estate Research at Washington State University. But now the homes are making their way to the real estate market, creating price pressure on nonforeclosed homes, Crellin said.”

“‘We’re seeing some of these foreclosures at 60, 70 percent of their value, because (banks) want to dump them,’ said Daniel McLaughlin, owner and broker for The Buyer’s Agent in Yakima. ‘They’re being bought below market value and it’s really affecting other homeowners because that below-market sale is used as a comparable sale.’”

“While a drop in prices is good news for the buyer, it’s tough for sellers. Mike and Gloria Munly listed their parents’ house after the death of Gloria’s father in December. They priced the west Yakima home at $157,500, just under the current assessed value of $158,000. They felt the price was competitive, especially because they repainted the house and replaced the furnace to make the home move-in ready.”

“They expected to sell the house with a full-price offer. What they did not expect was just one offer, $12,500 below their asking price. ‘It was a rude awakening,’ said Mike Munly. But with the house paid off, they decided to keep the listing price as is and let the house sit for several months, if necessary.”

“‘When you see value in the home, you don’t want to hand it over and give it away’, said Gloria Munly.”

The Oregonian. “Leland Jaquay, president of the Fairview Terrace Homeowners Association, says the association has reluctantly sued some members with unpaid association fees. Fairview, like homeowners associations all over the state, is enduring a financial storm brought on by the economic slump and housing bust. Hard-pressed residents are not paying their HOA dues in numbers that professional condo managers say they’ve never seen. The delinquencies are depriving associations of a crucial revenue stream and forcing some to defer maintenance or levy special assessments on the paying neighbors to make up the shortfall.”

“‘Its something that I’m learning: to try and sue someone, to garnishee their wages,’ Jaquay said. ‘It’s sad, very sad. When you see someone losing their home, bringing in the moving men, you ask yourself where are they going. I’m sure it will affect them the rest of their lives.’”

“‘We’ve got some HOAs suffering 5 percent to 40 percent delinquencies’ on their association dues, said Karna Gustafson, a Portland attorney whose firm represents more than 1,000 associations. ‘What ends up happening is all these delinquencies have to be split up among the homeowners who are paying, so it increases their fees. Then they can’t afford it and they go into default. It’s like a domino effect.’”

“It’s not always cash-strapped homeowners who renege on their HOA dues. Residents of the Hunters Ridge development in Sherwood are facing a shortfall of more than $182,000. The Hunters Ridge association claims most of that sum, about $140,500, is owed by a company controlled by J. Patrick Lucas, the real estate developer who built Hunters Ridge. ”

“The impact of unpaid HOA dues goes deep. Fannie Mae and Freddie Mac announced a year ago that it would no longer buy mortgages on the secondary market involving homes in associations suffering HOA delinquencies of 15 percent or more. Absent a willing buyer on the secondary market, many banks are unwilling to lend money to buyers wanting to buy into the developments. The Federal Housing Administration has declined to make new loans for would-be homebuyers in associations with more than 15 percent delinquencies.”

“Homeowners faced with the threat of foreclosure might simply walk away from their homes, and obviously stop paying the HOA dues. When banks repossess a condo or townhome unit, they generally are good about paying new HOA obligations as they come due. But in many cases, the bank or servicer chooses not to proceed with foreclosure for months or even years. The result is what HOA officials call a ‘ghost foreclosure.’ The owner is long gone, the bank refuses to step up and take possession, and the HOA dues go unpaid as the home sits in limbo.”

“‘The pending foreclosures really drive me crazy,’ Jaquay said. ‘The banks delay and delay, and we’re getting nothing for months and months.’”

“Doug Farrell, a resident of the Rockwood Village development in east Portland and former president of its HOA, said a 1,200-square-foot unit at Rockwood sold for $165,000 before the recession. After the housing bust and foreclosure wave, vacant Rockwood units have sold for as little as $35,000. Those were distressed sales, and the actual market value of the Rockwood units may be well more than that. But Farrell, 73, fears that the $55,000 he still owes on his unit may be more than its worth.”

“‘We’re underwater,’ he said. ‘This house was supposed to fund our retirement.’”

The Frederick News Post reports from Maryland. “The number of foreclosures in March in Frederick County may show a decrease, but the figures…’are not reflective of the actual delinquency rate of mortgage customers,’ said Patrick McLister, an attorney with Salisbury and McLister. Mortage companies halted thousands of foreclosures to scrutinize documents that had been authorized with little or no review — a practice that has come to be known as ‘robosigning.’ ‘Mortgage companies have not acted on these delinquencies to start the foreclosure process because they are busy reviewing files which were caught robosigning,’ McLister said.”

“McLister and Carlton Boujai, secretary of the Maryland Association of Realtors, said there will be another wave of foreclosures caused by the moratorium placed on lenders. Bob Sawchuck, an agent with Mackintosh Inc. Realtors, said 202 homes were sold in March in Frederick County, up 30 percent from February, but down 81 percent from March 2010. Sawchuck said the high figure for March 2010 can be attributed to a federal tax credit program in place at the time that gave incentives, especially to first-time buyers.”

“‘Since the Homebuyer Tax Credit was drawing to a close at this time last year, sales were artificially inflated by those who wanted to take advantage of the tax credit,’ Sawchuck said.”

“The double-edged sword of distressed homes creates a field of lower-priced homes for potential buyers, but at the same time means current homeowners are faced with lower prices for their houses or lower appraisals when values are based on foreclosed homes in the same neighborhood. That can be a factor in new home sales, according to Steve Seawright, president of the Frederick County Builders Association. Unless a homeowner can get what they consider a good price, they are unlikely to sell and move up to a new house, Seawright said.”

The Virginia Pilot. “Since 2000, two financial institutions from the Old Dominion – a tiny savings and loan in Danville and a savings bank in Reston – have ended up in the FDIC’s hands. The paucity of failures, however, masks the growing pressure on several of Virginia’s community banks. During the past year, at least eight of the 80 state-chartered banks in Virginia have been ordered by regulators to improve their operations and strengthen their capital.”

“One of the eight, Norfolk-based Commonwealth Bankshares Inc., reported earlier this month that its Bank of the Commonwealth subsidiary needed $27.6 million of additional funds to comply with federally mandated capital ratios. ‘Even if we succeed in raising the capital, we may need to raise additional capital in the future due to additional losses or regulatory mandates,’ Commonwealth said in an April 15 filing with the U.S. Securities and Exchange Commission.”

“Investors have been skittish about buying shares of community banks, partly because of fears that the quality of the banks’ loan portfolios will continue to deteriorate. ‘They want to know why they’re injecting the capital, and they don’t want to throw their money into a black hole,’ said Allan Bach, a bank analyst with the Richmond-based brokerage firm Davenport & Co.”

“Among community banks with shortages of capital, there’s one common denominator: the damage inflicted by heavy losses on their real estate lending. Commonwealth, for instance, reported having $162.6 million of nonperforming assets at yearend. The bulk of that consisted of $126 million of real estate and construction loans and $32 million of property taken back through foreclosure.”

The Free Lance Star in Virginia. “The slumping real estate market has taken a heavy toll on the Celebrate Virginia developments, leading to millions in overdue payments and dwindling reserves to pay the bonds that financed roads and utilities.”

“Project developer the Silver Cos. and its more than 100 investment partners owe about $5 million in back taxes and special assessment payments in Fredericksburg and Stafford County. In addition, reserve funds to pay the project’s bondholders have dropped below half their required levels. The situation, which involves perhaps the area’s most prominent developer and one of its largest projects, shows the extent to which the recession has hit home.”

“Thus far, all bond payments have been made on time, and it would likely be more than two years before the developers would risk losing land in any tax sale. Silver has potential deals that could generate the revenue to get back on track. But if the deals don’t pan out, and the real estate market doesn’t improve, the Celebrate Virginia CDAs could be at risk of missing bond payments, and the delinquent landowners could lose their property unless they raise money by putting up more cash, selling land or some other means.”

The Richmond Times-Dispatch in Virginia. “Signs of economic recovery continue to prove elusive to homebuilders in Chesterfield County, but conditions aren’t as dire as they were two years ago. For the first quarter of this year, county building inspectors issued 143 residential certificates of occupancy. That marks the fourth straight year the first-quarter number has declined and represents a decrease by nearly two-thirds of the number issued in the first quarter of 2007.”

“‘That’s a good indicator of how bad the market is,’ said developer Casey Sowers, whose family’s 1,300-acre mixed-use Roseland project, once planned to have as many as 5,500 homes, has yet to be built. ‘There’s no credit out there for builders,’ he said. ‘This is a speculative business, so no credit means no building.’”

“The market isn’t ready for widespread construction, said William P. Brown, the Dale District representative on the Chesterfield County Planning Commission. ‘I believe we’ve seen the worst,’ he said. ‘But there’s a glut of foreclosures. And until that glut is cleared,’ there won’t be big movement from builders.”

The Cary News in North Carolina. “The developer behind Amberly, the 1,100-acre community in northwest Cary, has handed over the remaining sections of the project to a California firm that works with federal regulators to sell troubled assets. Amberly is just the latest high-profile Triangle real estate development to run into trouble. Several condominium projects in Chapel Hill and Raleigh have had foreclosure proceedings started in recent weeks.”

“Amberly, which was conceived at a time when credit flowed freely to ambitious real estate developments, has been beset by financial problems since the housing bubble burst. About 40 percent of Amberly is undeveloped, and nearly all the land has been caught up in the project’s funding problems. Plans for the project originally called for as many as 5,000 houses.”

The News & Record in North Carolina. “An 18-hole golf course in Rockingham County is on the auction block after its owners defaulted on $2 million in loans. Greensboro National Golf Club, created in 1994 by Eden orthopedic surgeon Titus Plomaritis Jr., went into foreclosure on March 25, according to court documents. The 342-acre golf course and club — valued at $5 million — along with unsold residential lots, are scheduled for auction.”

“Greensboro National resident Rebecca Cipriani said rumors have circulated in the neighborhood about the foreclosure. But she was not worried about its effect on residents since homeowners are not responsible for the course’s maintenance. ‘People are talking about (the foreclosure) but nobody really knows if anyone is going to do anything with it,’ said Cipriani, who serves as register of deeds for Rockingham County. ‘It’s such a beautiful property. I can’t envision that they would do anything with it other than continue it as a golf course.’”

The News & Observer in North Carolina. “The developer of 140 West Franklin says the luxury condominium and retail project now under way in downtown Chapel Hill will succeed because of its location, financing and luck. Ram Realty Services rebid the eight-story project after the recession hit and contractors were hungry for work, chairman Peter Cummings said. That reduced costs from $76 million to 55 million, including the town-financed parking structure.”

“‘We’re lucky,’ Cummings said. ‘If the town approval process was 12 months faster, we might have started building at the wrong time.’”

“Ram has contracts on about half its 140 planned condominiums, Cummings said. It needs a dozen more before it can draw on its loan, he said. Ram has contracts on about half its 140 planned condominiums, Cummings said. It needs a dozen more before it can draw on its loan, he said. The condos in 140 West are now priced from one-bedroom units in the $290,000s to two-story, 3,000 square-foot terrace homes for $1.3 million.”

“The possible foreclosure of the nearby Greenbridge project has raised questions about 140 West Franklin, which along with the redevelopment of University Square, will transform downtown Chapel Hill. Greenbridge has sold only 36 of its 97 units, and Bank of America has begun foreclosure proceedings.”

“Cummings said he’s not worried that Greenbridge’s troubles will lead to a price war if that project lowers prices to sell more units. ‘You don’t want to see a project fail in the middle of town,’ he said, then added: ‘I shouldn’t say fail. You don’t want to see a project in stormy seas. The one thing I’m saying categorically is we have a better location.’”

“They’ve lost $8.65 million of their own money, but the developers of Greenbridge say they have five investors willing to help save the $56 million condominium project from foreclosure. Unable to sell units since liens were put on the property last fall, developer Tim Toben says, they now hope to find a buyer committed to sustainable, energy-efficient housing.”

“‘We recognize, because of this death spiral we’re in, that our equity is lost,’ he said.”

“If the bank had been more flexible, Toben thinks the developers would have been able to continue selling units and keep the property out of foreclosure. ‘I think it’s a really sad story for green building; we are being treated like we are Vegas condo project,’ he said. ‘Five years from now, I have no doubt that this will be a home run,” he said. “We still believe in this thing. Believe it or not, we’d probably do it again.’”

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