The Housing Bubble

The Seattle PI reports from Washington. “Karen Waters thought she got a good deal last March when she paid $425,000 for a new house in the SouthRidge at Silver Creek development near Puyallup. After all, the price was about $100,000 less than buyers had paid builder Centex Homes for similar houses on the block the previous fall. By February, however, neighboring homes were selling for about $350,000.”

“‘I totally wished I would have waited,’ Waters said.”

“The local market has slowed and builders are taking dramatic steps to clear out housing inventory in suburban areas. ‘The reality is, our real estate market is in the tank,’ said Don Dutton, managing broker of Windermere Real Estate’s Puyallup Office.”

“Vincent Healy, owner of Clearpoint Appraisal in Seattle, said he started to notice trouble signs, such as longer market times and some price drops, in summer 2006. ‘That really began on the periphery of the market, the further you get from Seattle and Bellevue,’ he said. ‘By this (past) summer, to a large degree, I think we saw the crest of value.’”

“‘That (easy) financing has gone away concurrently with a lot of supply going on the market,’ Healy said.”

“Elaine Nordgaard bought her SouthRidge house for $350,000 last month, benefiting from a weekend Centex promotion. ‘The one I bought was listed for $510,000 back in September of ‘06,’ she said. ‘They actually sold it twice (before), but the buyers couldn’t complete their financing for some reason.’”

“Now she lives next to Waters and Marschell Lockwood, who paid $464,000 for her house in January 2007. ‘It’s frustrating because when we moved in they had dropped the prices,’ Lockwood said. ‘We thought we got a deal, but now there’s people coming in paying almost $100,000 less.’”

“Not far from SouthRidge, in Bonney Lake, Quadrant is offering $45,000 bonuses in a development whose prices start at $261,000. Deals like these are also in many other Seattle-area communities, including Bothell, Marysville, Lake Stevens and Stanwood.”

“‘It’s astounding the incentives that the builders are offering,’ Dutton said. ‘They have no choice. They’ve got to get these homes sold.’”

“But incentives and steep discounts make it hard for those trying to sell existing homes, Dutton said. Philip Eder of Puyallup said he hasn’t drawn much interest in his house since putting it on the market in September.”

“Eder mortgaged his house to fund construction of the retirement home he’s building. He had planned to pay for the new home with the sale of his current one, but said he instead might be forced to rent the old one out.”

“‘The market’s just saturated with houses,’ he said. ‘I blame these cracker-box housing projects.’”

The News Tribune from Washington. “The ultra-luxe Tacoma condo scene looks like this: multiple master bedrooms, dens, wine rooms, balconies bigger than your first apartment and ceilings that stretch 10 feet tall and beyond. Interested? Today, you have options in Tacoma’s $1 million condo club.”

“A handful of such properties are priced at $999,000 and up in the city’s core, where the condo market continues to find its footing amid now-sluggish prices and sales, a soured stock market and tightened lending standards.”

“But what about ultra-high-end condos in a city not typically associated with such luxury? And where the housing market’s impact has turned some condominium projects to apartments and slowed construction on others?”

“Developer Bruce Steel plans to finish construction in July of Stadium 302, a five-unit building. Four condos remain at $1.15 million to $1.25 million, though Steel says he’ll likely buy one himself. ‘There’s lots of people out there with lots of money. Whether they can be persuaded to buy something in spite of this economy is something we’ll find out,’ he said.”

“Downtown Tacoma projects in the $1 million-plus category compete with nearby locations, such as Gig Harbor and Gravelly Lake, said J.J. McCament, a city consultant who was instrumental in getting condominium developers interested in downtown. ‘I think that that market niche is not very deep, but I think it’s there,’ said McCament.”

“Construction on downtown Tacoma’s first condos started eight years ago. An analysis conducted last year said that since 2004 nearly 400 had sold. Today, more than 350 are for sale downtown, according to condo consultant Raelene Rogers.”

“Tacoma’s core still requires a buyer willing to be an urban pioneer, McCament said.”

“‘The more condos there are downtown and the more that are in that mid- and upper-mid price range, that makes the million-dollar condo not such a far stretch,’ she said.”

“Though downtown Tacoma’s lack of retail and activities, such as a multiplex theater, can make it a tough sell to luxury clients, The Ansonia partner John Gibson. said some buyers will demand penthouse living.”

“The Roberson (is) less than a block from City Hall. Such a condo will go to the smart investor who understands the value of buying in an urban setting that’s being transformed, said developer Blaine Johnson. He was confident enough in the unit’s appeal to raise the price from $899,000 to $999,000.”

“‘We’ve adjusted a number upward to fit what we think is eventually the market value,’ he said, standing in the kitchen of the 2,200-square-foot condo. ‘This will be worth $1.5 million. Will it be three years, four years? I don’t know. It’s inevitable.’”

The Herald from Washington. “Drive through newer residential areas in Marysville and witness what happens when buyers stop buying houses and developers keep developing. Empty lots line roads and the edges of cul-de-sacs. Many have sidewalks, utilities and roads, but no houses.”

“The supply of buildable lots and new homes ready to be sold in Snohomish County has ballooned to nearly a three-year supply, according to New Home Trends, a real estate research and consulting firm.”

“That means headaches for developers who bought land at sky-high prices a few years ago and now can’t sell it. It means builders are applying the brakes on new-home construction and off-loading what they’ve already built.”

“The building pace has slowed down at Alpine Ridge, a development in Marysville with 36 homes planned. During the height of the housing boom, the builder of this subdivision built homes ‘as fast as we could humanly go,’ said Clint Schlotfeldt, a real estate agent specializing in marketing new-construction developments.”

“He remembers a 52-acre subdivision selling out in six weeks. Now, the builder he represents has scaled down production to meet ‘a normal market,’ and about three homes sell here a month.”

“Developers who purchased all the lots they could grab a few years ago are in trouble right now, said Mike Pattison, government affairs manager for the Master Builders Association. Some are weathering it by sitting on the land, and others are having fire sales, he said.”

“The developers in a pickle got caught up in bidding wars that artificially forced the price of buildable land up a few years ago, said John Wahl, who works with builders and developers at Pacific Northwest Title.”

“It takes one to two years to develop a piece of land, so many are now sitting on finished lots, not able to sell to builders. He said the price of lots dropped 25 percent in Everett and southward, and more than 30 percent north of Everett.”

“‘It’s been tough,’ said Scott Morris, president of Legacy Homes Northwest, a builder based in Lake Stevens. ‘We’ve had to lay off quite a few people.’”

“Morris said he believes this is a return to a normal market, not a downturn, and he expects the market to pick up in the next several months. The national media may be playing a doom-and-gloom song, but the local housing market looks good for the foreseeable future, Morris said.”

“In the meantime, his company is cautiously moving forward on several developments. ‘The trend looks like the market is coming back,’ he said. ‘Everyone slowed production to almost nothing. We’re going to create a shortage if we’re not careful.’”

The Register Guard from Oregon. “The foreclosure situation in Lane County, as in many other parts of the country, continues to climb. Lane County had 143 foreclosures in February, up 63 percent from February 2007, according to RealtyTrac. There were 125 foreclosures in Lane County in January.”

“The entire state of Oregon had 1,584 foreclosures in February, up 118 percent from February 2007, Realty­Trac data showed.”

“Tim Duy, an economist and author of the University of Oregon’s Index of Economic Indicators, said he thinks overvaluation in the local housing market has contributed to rising foreclosures.”

“‘This wasn’t the craziest market in terms of exotic mortgage financing, but at the peak of the bubble (12 to 18 months ago) people were paying more for homes than they could afford,’ he said.”

“‘That was partly due to weaker underwriting conditions and partly due to expectations that home prices would keep rising, and that would allow the purchaser to basically borrow against that house in the future to sustain their payments,’ Duy said.”

“Home appreciation is flattening out and lending requirements have tightened up. ‘So I think there are a lot of marginal buyers who are in tight circumstances,’ he said.”

The News Review from Oregon. “According to RealtyTrac, foreclosures increased by 51 percent in Douglas County from 2006 to 2007. Locally, (auction) ‘crier’ Dave Leander figures foreclosure rates have increased four-fold since the beginning of 2008.”

“But realistically, the retired real-estate agent is seeing fewer investors — an ironic twist — playing the foreclosure game. ‘(With) so many of these properties, there’s more owed against them than they’re actually worth,’ Leander said.”

“More often than not, no one shows up for auction.”

“‘I think a lot of it has to do with market values being down, and a lot of these people are sitting on their hands,’ said Leander, who auctions homes for Credit Services of Oregon in Roseburg.”

“With foreclosures piling up, Leander expects to auction more homes listed with opening bids set higher than their actual worth. ‘I don’t think it’s hit real hard yet,’ Leander said. ‘I think it’s just getting to us.’”

The Idaho Statesman. “Commercial construction, the lifeline that has kept Boise-area building activity afloat during an almost two-year slump in housing, is showing signs of slowing.”

“Nowhere is the weakness more evident than in Downtown Boise, which last year was awash with plans for combining affordable and high-end condominiums with office and retail development. Today, Downtown developers are facing an economy apparently in recession.”

“The proposed Boise Place, which was to have replaced the ill-fated Boise Tower, is in Bankruptcy Court. Developer Gary Rogers says he still intends to build a residential, retail and office building there, but it will be much smaller than the 31-story hotel/condo project he announced in 2006.”

“Meanwhile, developer Gary Christensen’s $2.5 million revitalization of the Gem Noble Building is also in bankruptcy court, and construction has stopped. Christensen planned ground-floor shops and second-floor condos.”

“Developer David Southers has yet to turn the first spade of ground for The Metropolitan, a block-long condo and retail project on Downtown’s west edge that Southers announced in 2005. ‘A lot of these projects have stopped in their tracks,’ said Jenifer Gilliland of the Boise Office of Planning and Development Services.”

“Developer Bob Hosac’s upscale Royal Plaza condo project is nearing completion. His brother, Steve Hosac, is completing the Cityside Lofts. Bill Clark has started building The Jefferson condo project.”

“The Hosacs, Kimball and Clark acknowledge, however, that their projects are going up at a time when the slump in residential housing has bled into the Downtown condo market. ‘The market is flat right now,’ said Clark, whose 23 reservations have shrunk to 16.”

“Bob Hosac said that until recently he had not sold a unit at the Royal Plaza since July. Getting the project financed today would be difficult, he adds. ‘I had to have 30 percent of my units presold (to get a loan),’ he said. ‘Now you probably have to have 50 percent or more.’”

“Standing in the shadow of a half-finished building at Tamarack Resort’s Village Plaza, Jean-Pierre Boespflug shows no sign he’s ready to give up on the resort that has consumed a great deal of his fortune.”

“Tamarack is at a crossroads as real as that of the luxury ski and golf resort, where construction has slowed to a crawl.”

“His company, which holds a majority stake in Tamarack, is now in bankruptcy. He is searching for more money to continue construction and pay what he owes on a $250 million loan from Credit Suisse Bank.”

“Just a year ago, there was no stopping Tamarack. For three years, every real estate offering sold out. In 2006, Tamarack landed the $250 million loan from Credit Suisse to start its next big phase of construction on the village - a plaza of shops, restaurants, clubs and upscale condominiums.”

“‘We’re in the midst of arguably the worst credit crunch in a generation,’ said Alan Shealy, a financial manager and Boise City Council member. ‘The markets have essentially shut down.’”

“Shealy, who worked on Wall Street for more than a decade, was an early critic of Tamarack. In a 2001 commentary in the Idaho Statesman, he called the proposal ‘a pig in a poke that has a high probability of spectacular failure.’”

“Seven years later, his rhetoric has softened. But Shealy said he stands by his earlier concerns. He attributes much of Tamarack’s success to timing. ‘They were able to ride the crests of a real estate boom the likes of what we haven’t seen before,’ he said.”

“Shealy is quick to add that he doesn’t want Tamarack to fail. But he dismisses Boespflug’s claims that the bankruptcy will have no impact. ‘If people think bankruptcy is not a big deal, they don’t understand the context of what is going on in the credit markets,’ he said. ‘We’re in a slow-motion train wreck, and there is no way to determine how this will end.’”

The Billings Gazette from Montana. “Construction on the four-story Big Horn Resort Water Park on the West End of Billings is drawing skilled construction workers from other Montana cities and other states as building in those areas slows.”

“Job superintendent Bill Brandon with Brandon-Legg Construction in Butte said construction in Billings is healthier than other parts of Montana, and the laborers tell the tale.”

“‘We’re seeing it in our crews. Part of our concrete crew is from Bozeman. Part of drywall crew is from Oregon. And some carpenters and electricians have called in from Bozeman looking for work,’ Brandon said.”

“When he needed a carpenter subcontractor, Brandon hired John Kemmick of Kemmick Construction in Billings. The two had worked together in Butte two decades ago. Ninety percent of his work has come from building houses, the builder said, but that work all but stopped this year, so he gladly hired on.”

“But there was one problem: Nonunion skilled carpenters were hard to find in the Billings area, he said. So on a lark, he called Larry Cullen, a friend and former business partner in Stillwater, Minn., northeast of the Twin Cities.”

“‘In a minute, no, make that 30 seconds, he said, ‘Yeah. I can come out and help,’ he said. Then Cullen called back and asked if his brother, Ed, and their friend Bob Anderson could hire on, too.”

“Bob Bloom, business agent for the Carpenter’s Local 1172, was begging for workers last fall. But not any more. ‘I’ve got plenty of people. I’ve got so many applications here, I don’t think I can employ them in the next two years,’ said Bloom.”

“The water slide project has attracted 30 subcontractors, including workers from Helena who will start painting the drywall Monday.”

“‘It’s slowed down so much in Helena that one contractor I know is sitting on two four-plexes and two houses with his last buy-sell signed last April,’ Brandon said. ‘So, he’s coming over to paint for me.’”