The Housing Bubble

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A report from the Bakersfield Californian. “A task force of city staff and City Council members is set to address how to revive the sagging homebuilding industry in Bakersfield. Local developers say they need help, especially in the form of relief from development fees. ‘We have cut our prices to the bone,’ said Matt Towery, president of Bakersfield-based Towery Homes. ‘The profit margins are so small there’s nothing more that we can take. So the only thing that we can address is the fee structure.’”

“Developers need relief now, said Donna Carpenter, interim executive director of the Kern County Homebuilders Association. ‘What’s happening right now is the cost of constructing a new home is more than the appraisals coming in. The numbers aren’t working,’ Carpenter said. ‘The profit margins are so thin, which is why you’re not seeing new homes being built now.’”

The Signal. “October home and condo sales combined were below the 2011 summer numbers, a traditional period when homeowners put their houses on the market. However, using the record low point in January 2008 as a benchmark, Southland Regional Association of Realtors reported home sales are up 77.8 percent, and condo sales are 174.2 percent. Reflective of the still weak market, however, the median price of single-family homes remains lower than a year ago. Home prices were down 6.7 percent from the prior year for a median price of $364,000.”

“The median price of a condominium fell 21.8 percent from a year ago, setting a new low for this cycle. Median condo prices in October were $186,900. ‘Until government does something definitively to help housing, the market will improve only slowly,’ said Jim Link, the association’s CEO. ‘People will sit on the sidelines, which is too bad — because some will miss the best opportunity to buy a home in a generation.’”

The Mountain View Voice. “Washington’s lackluster efforts to represent the interests of America’s poor and middle class inspired the focus of Congresswoman Anna Eshoo’s telephone town hall meeting last week. Eshoo said that stopping the country’s foreclosure crisis was key to an economic recovery. ‘I’ve seen so many people losing their homes who thought they could pay their mortgages,’ said a woman named Adrian from Sunnyvale.”

“‘It is a horrendous and catastrophic situation,’ Eshoo sympathized.”

The Mercury News. “Lake Tahoe area real estate agents, hungry for sales in the aftermath of the housing bubble, are counting on the Bay Area’s booming tech industry to help generate the next crop of million-dollar vacation home buyers. The market for vacation homes costing more than $1 million, though down over the year, turned in a strong third-quarter performance, according to Coldwell Banker. That was partly due to buyers from Silicon Valley, vacation home developers and real estate agents said.”

“Adele Lucas of Chase International said she closed a deal last week for just over $3 million. ‘Right now, I am extremely busy with lakefront sales,’ she said. ‘We’re seeing those affluent buyers coming into the high-end market because they recognize these prices are artificially low and are going to be pumping up in the next few years.’”

The Ventura County Star. “On a recent Sunday afternoon, Realtor Joyce Zangmeister was hosting an open house in central Thousand Oaks. Two other houses just down the street were also on the market, both distressed sales. It’s a scenario not uncommon throughout Ventura County as default notices rise and median home prices drop to the lowest levels in two years.”

“Despite this, Zangmeister says sellers continue to have unrealistic expectations about what their homes are worth. ‘The market will bear what the market will bear,’ she said. ‘So many buyers want to steal the deal and you’ve got to be realistic in your list price. If you’re not, you might be on the market but not in the market.’”

“‘What I am finding at the high end is a really strong indication that prices are going to continue to drop. There are not a lot of people who can qualify for large loans anymore and that’s what’s hurting us,’ said Fred Evans of Re/Max Gold Coast Realtors. ‘Homes in Spanish Hills and hillside areas are almost half the price of what they were in 2007.’”

“Kelly and Megan Goebel popped in to take a look at Zangmeister’s listing. They are in the fortunate position of not having to sell their condo to be able to buy and plan to take their time and make sure they get a good deal. ‘If you can buy, this is absolutely the right time. You can’t lose,’ said Kelly, who’s a contractor.”

The Orange County Register. “Responding to a report that Realtors at an Anaheim conference almost universally blamed lenders for stalling the recovery, California Mortgage Bankers Association spokesman Dustin Hobbs said high unemployment and economic instability – not banks – are to blame. Laguna Niguel mortgage broker Jeff Lazerson, president of Mortgage Grader, said the real culprit is the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac.”

“‘The marching orders they provide to Fannie and Freddie are entirely too restrictive,’ Lazerson said. ‘The banks must abide by these rules as the only loan buyers in town for conventional financing are Fannie and Freddie.’”

“Stephen Gordon, CEO of Orange County-based Opus Bank, said the problem is that most of the banking industry still is hamstrung by the non-performing loans issued during the housing bubble, leaving them without capital and trying to fix their own messes. Because of the ‘legacy’ debt, older banks are internally focused, rather than focused on helping the economy, Gordon added. ‘Banks have significantly cut back,’ he said. ‘They’ve tightened up credit. They’re afraid of their own shadows. They’re afraid of the next bad loan.’”

The North County Times. “Mary Smith’s house in Wildomar has been on the foreclosure auction block more than 21 times in the last two years, she said. Every time, at the last minute, Bank of America, who is servicing her loan, puts it off, while her case is placed ‘under review.’ Again. Smith and her husband at the time bought their new, five-bedroom home in Wildomar for their three kids in 2005 —- just as house prices peaked. They paid Heritage Pacific Homes $431,000, with a $100,000 down payment and a 5 percent, 30-year-fixed mortgage. In 2007, they took out a second loan for $57,000, in the hopes of installing a swimming pool. The combined payments come to $2,408 a month.”

“Smith was a stay-at-home mom for 17 years, which meant the family had no income when her ex-husband, a construction project manager, was laid off in 2008. The couple ended up spending the money from their second loan, and they drained retirement and savings accounts to stay afloat, but by 2009, they were missing mortgage payments.”

“That year, Smith’s husband left her. The divorce took two years, and Smith got full ownership of the house and child support payments. She launched a business as an in-home child care provider. If she loses her home, her business goes with it. Early this year, a Bank of America customer service official told Smith she had no choice, and she’d have to sell or be foreclosed. She opted for a short sale and accepted an offer on her house for $186,000. Now she’s trying to get the deal killed.”

“‘My case was under review, I didn’t have to short sell,’ she said.”

The Chico Enterprise Record. “Homeowners in trouble with their mortgages probably need to adopt a different mindset about the roofs over their heads, according to a certified housing counselor. It might even require submitting to foreclosure. Dan Beveridge, who counsels struggling homeowners about their mortgages for Community Housing Improvement Program, recently spoke to about 30 people at the Southside Oroville Community Center.”

“First, their situation may not be their fault, and it doesn’t mean they’re irresponsible. ‘If you’re struggling, it has less to do with you, as with the timing’ of the mortgage loan, he said.”

“The nuggets of advice were a surprise to many, but provided some insight into the lending industry. As a counselor, he frequently hears homeowners frustrated with what’s happening to them. ‘You are not entitled to fairness,’ said Beveridge, pointing out the borrower agreed to repay the loan.”

“He noted it makes less sense to struggle with an unaffordable house payment that can’t be changed than to accept foreclosure and start anew. He said he doesn’t recommend foreclosure lightly, but as an option to consider thoughtfully. While foreclosure does impact an individual’s financial scores, that negative rating may only last a few years, Beveridge noted, and can give homeowners a chance to regain their financial status.”

“In some cases, foreclosure shouldn’t be avoided, he said. ‘Sometimes foreclosure isn’t the worst thing.’”

US News & World Report. “Despite lingering unemployment and a still sluggish economy, many Americans are finding reasons to be thankful this time of year. In fact, for some, unexpected layoffs, financial setbacks, or simply a desire to spend more time with family have served as a reality check, a wake-up call for consumers to rethink their idea of wealth and prosperity.”

“Shelly Cone of Santa Maria, Calif., and her husband are serial entrepreneurs who once owned a successful real estate business. The housing bust took their business down with it, but Cone has made her peace with that. ‘We’ve learned that money can come and go, but life’s experiences remain with you,’ she says.”

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Readers suggested a topic on investing today. “How about a conversation on what to do with your money? I have a fairly significant amount of cash at a couple of different banks. I have worked hard my entire life and I have been extremely conservative with my money. I am one of those folks who only owns one television and that was given to me by parents back in 2001. When I open my wallet people joke that George Washington has to rub his eyes. I left a bubble in New York city in 2004 only to find the same bubble in Florida!”

“Anyway, I am terrified that my cash is ultimately going to be worthless and all my hard work and frugality will be all for naught. I guess my larger concern is that a major bank will go under and the FDIC wont have enough cash to insure the funds. I have actually given some thought to taking like $100k out and buying a safe and keeping it in my rented townhouse. Is that insanity? I don’t want to buy a house. Half the people in the ‘upscale’ hood that I live in haven’t made a mortgage payment in a year.. Gold? Think there is a bubble there. Stock market? Legalized gambling. I am not even worried about getting a return. I am just talking preservation…if the SHTF….I want to be prepared.”

A reply, “My advice:

1) Forget about your ‘larger concern.’ The FDIC is not going to go under, at least in a way that will wipe out your federally-insured bank accounts, at least up to the amount of the guarantee. In case you have amounts in excess of the guarantee in any one federally-insured account, you will have to open another account to make sure all your savings are protected.

In a worst-case scenario, whose importance is diminishing as the FDIC ‘problem bank list’ shrinks, the Fed/Treasury would provide whatever support was necessary to make good on guarantees. I know this for a couple of reasons:

a) Did you notice how the GSEs supposedly collapsed in Fall 2008? Yet they continue to operate, funding a large share of new mortgage origination’s. They seem to be miraculously immortal, don’t they?

b) I had a CD in an FSLIC-guaranteed Savings & Loan institution in the late 1980s, which went out of business before my CD matured. The ‘failed’ FSLIC somehow made good on not only the principle on my CD, but full interest through the scheduled maturity date, which was paid to me well after the S&L went broke.

c) The Bernanke Fed has shown a willingness to withstand the political flack that came their way as a result of funding bailouts with a balance sheet expansion. There is no reason to not expect them to do this again on a discretionary basis, and a collapse of the FDIC would certainly qualify.

2) Inflation risk is a larger concern, given the appearance of unrepayable debt at so many levels, from households to governments to international obligations. You should consider possible ways to shield your savings against collateral damage which may eventually be inflicted on cash savings by the dilution of the currency base to enable repayment of otherwise-insurmountable debt burdens.”

Another said, “I’d take 10% of my money and blow it on stuff I liked and stuff I wanted to do. Take some great vacations. See places. Buy an nice TV and a really nice couch. Eat like a king. You’ve been frugal your whole life and yes, your money and/or health could disappear in the blink of an eye.”

From Reuters. “The National Association of Realtors reported that ten real estate markets are ‘leading the nation toward a general recovery and stability of the housing sector,’ but myriad problems are going to weigh down the housing market for months to come. The lingering malaise in the economy has triggered a new wave of defaults and foreclosures. After five straight quarterly drops, foreclosures nationwide shot up 14 percent from the second to third quarter this year, according to Realtytrac, in October.”

“It’s estimated that some 3.4 million foreclosed homes will be on the books of banks and mortgage companies by the end of this year.”

“Adam Holm has been looking to sell his three-bedroom Victorian house in San Francisco’s Potrero Hill neighborhood all year, but he needs one thing to happen first: gaming-company Zynga’s initial public offering. His place is within walking distance of Zynga’s headquarters, and he expects prices in the neighborhood to rise significantly in the wake of the IPO. ‘It seems foolish to put it on the market before when there are a thousand people down the street who are about to make a million dollars,’ said Holm.”

“Stephen Rossi wanted to move out of his SOMA condo and was planning to rent it out, thinking he couldn’t sell if for the roughly $760,000 he paid back in 2009. But when a neighbor with an identical unit across the hall got multiple offers on his place and sold it in October for $800,000 to an employee at a cloud-based software company, Rossi had second thoughts. Rossi sold his condo two weeks ago to a bidder who had lost out on his neighbor’s home, also for $800,000, and had backup bids of his own.’

“‘The market was stronger than I thought,’ said Rossi.”

The Deseret News. “Since 2000, five million people living in the suburbs have fallen into poverty, according to the Brookings Institute. The Midwest led the ranks, with poverty increasing in both cities and suburbs. In Illinois’ Cook County the median household income has dropped more than $8,500 since 1999. The foreclosure rate in Hanover Park Township, where Deborah Smith lives, is one of the worst in the county, surpassing even some of Chicago’s most distressed inner-city neighborhoods.”

“Aside from the signs — ‘Bank Owned,’ ‘Price Reduced,’ ‘Short sale’ — the neighborhood looks much the same as it always has, Smith said. A white rambler with a wrap-around porch, a two story with fresh paint and smart, green shutters, a six-bedroom brick house with shade trees and a two car garage — this is foreclosure in Hanover Park. But behind closed doors, things couldn’t be more different. Mixing with neighbors while her two boys participate in Boy Scout activities, she used to chat about vacation plans, sports and the latest toys her kids were begging for.”

“‘Now we exchange information about where the best food banks are located,’ she said.”

“France and Germany agreed on Thursday to stop arguing in public over whether the European Central Bank should do more to rescue the euro zone from a deepening sovereign debt crisis. President Nicolas Sarkozy and Chancellor Angela Merkel also demonstrated their backing for Italian Prime Minister Mario Monti, an unelected technocrat, to surmount Italy’s daunting economic challenges.”

“Finance Minister Jan Kees de Jager said he would prefer that the European Financial Stability Facility, the euro zone bailout fund, should be strengthened. But if the EFSF did not succeed, other measures would have to be considered. ‘In a crisis one should never exclude anything beforehand. In the end, something has to happen,’ he said.”

From 8 News Now. “Thousands of distressed properties go into foreclosure every single month in Nevada. But a non-profit is trying to connect homeowners to resources that could save them before it’s too late. Claudia Castillo and her husband wait their turn in line. The Castillo’s and their four children are in danger of losing their second home in this foreclosure crisis. Housing for Nevada organizers say they are not alone.”

“‘It’s caused a lot of headaches, stress, including depression, because we weren’t expecting to lose the home we actually wanted to save,’ said Claudia Castillo.”

“Evidence of borrowers who took on too much debt to finance housing purchases, and many other non-housing expenses in some cases, can be seen in the number of residential foreclosures. It is estimated there are in excess of 14 million vacant homes in the U.S. right now out of a total of 130 million homes. Almost half of the vacant homes, or 7 million, are not yet on the market.”

“While enabling borrowers to purchase homes is needed to ease the excessive inventory of available homes, doing so on terms that put the borrowers and lending institutions at unnecessary risk will likely lead to additional default challenges as the economy stumbles along. Increased defaults will put severe downward pressure on housing prices which in turn will inevitably lead to additional defaults and foreclosures.”

“When home loans are made on terms that barely enable the borrowers to meet the payments, any material change in their financial situation can lead to payment defaults and likely foreclosures. Positioning borrowers too near the financial precipice ultimately is a disservice to all parties involved in the lending transaction.”

I suggested a topic on holiday dinner talk. “How about housing bubble discussions at the holiday table?”

A reply, “I won’t touch that with a 50 ft. turkey leg. My in-laws are children of a developer, and I am still the crazy, family idiot.”

Another said, “Looking forward to a couple of days with a finance professor — should be great fun!”

One looks at what’s on the table. “How about a culinary themed thread on the top ten recipes for leftover turkey. Gobble-gobble-gobble.”

A reply, “Turkey corn and black bean chili.”

One had this, “First time ever, we bought the smallest turkey we could find, just to avoid left-overs. Next year we’ll decide if we like having, or prefer not having, left over turkey for days.”

A reply, “I’ve never had much luck with very small turkeys. Maybe I cooked them wrong but they were tough compared to the bigger ones. All the turkeys in Brazil are small but they don’t have Thanksgiving either.”

Another leftover tip, “Turkey ’shepherd’s’ pie: (super-easy, tastes great- sometimes better than the original meal). Put a layer of turkey on the bottom of a deep casserole dish, add some gravy. Then add a layer of stuffing, and add some gravy. Cap this completely with mashed potatoes. You can freeze it at this point.”

“Heat in oven at 350 until the top is golden-brown and it’s heated through. (Leftover turkey also goes great with mole sauce and blue corn tortillas.)”

“Here’s a local favorite, Kentucky’s contribution to the open-faced sandwich world. Good if you have both leftover turkey and ham. (Twain once defined ‘eternity’ as ‘two people and a ham’):

The Hot Brown

Put a piece of white toast on an oven-safe plate (but wait- there’s more!)
Put a thin slice of ham on it (country ham is, of course, better)
Put a layer of turkey on next.
Cover it completely with white sauce (traditionally), or a cheddar cheese sauce (any type of cheese soup works well, too, I sometimes just heat milk or cream and shredded cheddar and a few dashes of hot sauce in the microwave and mix it up as it melts)
Put a few tomato slices on top of the sauce-covered sammich.
Sprinkle with parmesan cheese.
Put it under a broiler until it’s Hot, bubbly, and Brown.
Put two strips of crisp cooked bacon crossways on top and serve.”

“Cook it til it’s lightly browned, not completely brown, I should add. And be careful, amigo, the plate is hot!”

And another, “Goose stuffed with black walnuts and brandied figs here. Potato wedges roasted in the goose fat. Pungent greens with pomegranate seeds and my last two tomatoes. Pumpkin pecan pie for dessert. All ingredients home grown. (Yay.)”

‘Leftover carcass goes into the stock pot for flageolets with hot Italian sausage, wilted greens, and confit of the goose leg meat. (Yum.)”

More, “We have a new tradition of ordering a smoked turkey from a local barbecue joint. They run 10-12 lbs, so not too big. While I do miss the cooked-in-the-bird stuffing, the smoked meat is to die for. All the leftovers get eaten without any fussing over casseroles etc.”

Then this, “I’ve got a commercial pressure smoker that I’ll be using on the bird this year. Very fast and delicious! Happy thanksgiving HBB. My favorite holiday.”

And finally, “Given near panic over the twin debt crises in the U.S. and the eurozone, that seems like the metaphorically perfect choice of cooking instrument for this year’s Thanksgiving dinner.”

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The American Statesman reports from Texas. “By sidestepping the national bubble, the Austin housing market served as a stabilizing force for the Central Texas economy. That, experts say, was key to helping the region outperform many other U.S. metro areas during the economic downturn. ‘Housing is a giant job creator,’ said Scott Norman, an Austin mortgage broker and past president of Texas Mortgage Bankers Association. ‘There are a lot of people whose livelihoods depend on a house being bought and sold.’”

“The housing market in the Austin area has bottomed, said D’Ann Petersen, a business economist with the Federal Reserve Bank of Dallas, and it’s well-positioned to improve going forward ‘as long as any unforeseen issues don’t show up.’”

“Manufacturing and construction continue to be significant employers in Central Texas, despite taking a hit from the recession. In terms of jobs, neither sector has returned to pre-recession levels. The local construction industry’s recent peak came in November 2007, when there were 50,700 construction jobs in the Austin area, according to numbers from the Dallas Fed. By early 2010, more than 12,000 of those jobs were gone.”

“That’s hardly unique to Austin; construction almost everywhere suffered with the collapse of the housing bubble. ‘I think as a whole, nationwide, the construction industry got hit harder than any segment of the economy I know,’ said Harry Savio , executive VP of the Home Builders Association of Greater Austin. Savio said area housing starts are down 50 percent from the bubble’s peak in 2006-07 and are still down about 30 percent from a realistic level.”

The Express News. “After several years of setting record highs for foreclosure postings, Bexar County property owners got a bit of relief in 2011. Lenders have moved to foreclose on just more than 15,000 properties this year, about 10.8 percent fewer than last year’s total, according to RexReport. The dip comes thanks in large part to lenders intentionally slowing down the foreclosure process for several months this year. The monthly postings have since started to creep back up.”

“James Gaines, research economist with the Real Estate Center at Texas A&M University, doesn’t think the foreclosure levels — although still historically elevated — will be quite as high going forward. That’s because many of the questionable loans made during the real estate boom already have gone bad, he said. ‘There won’t be a flood of foreclosures,’ Gaines said. ‘I don’t think there’s this huge backlog in San Antonio. I think there is this huge backlog nationally, but, especially in San Antonio, I don’t think it’s a problem.’”

“If it seems like half the people you meet are from California, you might be onto something. Census figures show that more than 363,000 Californians have moved to Texas over the past five years. Texas’ relatively strong economy is getting most of the credit — the state’s unemployment rate of 8.5 percent is substantially less than California’s and below the national average.”

“The impact of the long-term economic downturn the country has experienced is evident in the figures released by the Census — just 11.6 percent of Americans moved between 2010 and 2011, the lowest percentage since the Census Bureau began tracking the information in 1948. ‘It’s much more difficult for someone to put their house on the market and relocate now,’ said Lloyd Potter, director of the Texas State Data Center.”

“In another sign of the times, Alison Fields, chief of the Census Bureau’s migration statistics branch, said so many people who moved wrote on their forms that they were forced out by foreclosure or eviction that the bureau will add those options to official forms beginning next year.”

The Houston Chronicle. “The housing market in Texas is starting to look like it did before the real estate boom - and subsequent bust - according to a report released this month. Home sales in the third quarter were comparable to levels seen in the early 2000s, indicating the market is returning to a ‘more normal sales pace,’ economist Jim Gaines said, commenting on the latest quarterly housing report from the Texas Association of Realtors.”

“A 1,100-acre parcel in Fort Bend County that was purchased near the peak of the real estate market but never developed is back on the block. When Texas Industries sold it about five years ago, it had mapped out a development plan with 3,300 home lots, parks, lakes and commercial space. The purchase price was not disclosed.At the time, large parcels in the area were selling for around $35,000 an acre. The seller is asking $20,800 per acre for the residential tract.”

The Galveston Daily News. “Lenders have posted the 1,000-acre Pointe West property on the island’s western tip for a Dec. 6 foreclosure sale, forcing layoffs of the resort development’s hospitality and sales staff and the closure of clubs, pools, fitness rooms and other amenities. ‘We regret that market conditions and other economic factors have led the lenders to these decisions,” said Jason Leeds, president and chief operating officer of Terramesa Resort Properties, in a letter to owners and employees. ‘We will be contacting owners who have property in the rental program in order to discuss the specifics of the plan to cease operations.’”

“Announced in 2003, Pointe West was among the biggest real estate projects ever proposed in Galveston. Centex had planned a walkable community with single- and multifamily residences from beach to bay. The project includes condominiums and single-family homes. News of foreclosure is in stark contrast to when Pointe West was announced and the island was enjoying a red-hot building boom. In 2005, lots at the development were selling for $200,000. Today, some are selling for less than $5,000.”

“In September, crews finished building a house at Pointe West for Houston resident Doug Pennekamp and family. While Pennekamp, whose home is on the bay side, worries about the care of the amenities, such as the pool, he is optimistic there won’t be a shortage of investors seeking to buy the Pointe West development. The location is good and the concept viable, he said.”

“The Pointe West house is a second home for the Pennekamp family. ‘I’m not too worried about what the future will hold,’ Pennekamp said.”

From Pegasus News. “TMZ is reporting that Terrell Owens took a bath on his Azure condo — a $56,513 loss. Here’s the real story. Owens owns not one but TWO units at The Azure, as I told you way back. He also owns a 2,297 square foot townhome at the East Side Lofts on 1st Street. The smaller Azure unit on McKinnon, is on the market for $279,000, price lowered from $325,000. The price per square foot is just over $300. This is a smaller, one bedroom unit at 881 square feet, and while he may have paid $340,000 for that one, he bought both props in 2008. Yeah, pre-bust.”

“But the condo he is probably most anxious to shed, and the ONE THAT IS SALES PENDING, is the big mama on the 20th floor that he had listed for $2,250,000 that is 3,559 square feet with six garage spaces. This 3 bedroom, 4.5 bath custom residence on the 20th floor comes with all those garages plus two storage spaces. Best of all, the place has not been lived in much. This pad has been reduced to $1,600,000, and at that price, brings the price per square foot at The Azure for this essentially Ferrari property down to $449.56. And that’s if they got asking!”

“If T.O. paid anywhere near $2 million, he is most certainly taking a bath. Not a $56,000 bath, but more like a tsunami – close to a million going bye-bye …”

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