The Housing Bubble

The Uinta County Herald reports from Wyoming. “After 20 plus years of relatively little housing growth, it’s as if houses are sprouting up out of the reddish dirt around Evanston with the new grass this spring. There are many new developments currently under construction, and plenty of new homes already completed and on the market. Will there be enough growth to fill all of those houses?”

“Ben Bishop of Bishop Homes is a speculative builder. He noted that after the boom in Evanston in the late ‘70s and early ‘80s there were 20 years or so of no growth, because there was a lot of excess and it took time to absorb.”

“‘Housing markets tend to cycle from excess to normal affairs,’ he said.”

“There are several developers right now building houses in town, in similar positions to Bishop. ‘Homebuilders are like a herd, we see the same information,’ he said.”

“Some developers think that there may already be too many new homes, that supply may already be outgrowing demand. Others are very optimistic and have further building phases planned and already under construction.”

“Homebuilder Tony Perez talked to bankers, city engineers, and realtors, and said that they expressed confidence in the population growth and that homes would be needed. Perez joked that ‘everybody wants to be a builder now.’”

“The housing market is in fine shape here in Evanston, says Karen Field of Coldwell Banker. Field said employment opportunities make the difference here in contrast to the parts of the country hard hit.”

“‘Our market is good, and we don’t have an oversupply of houses,’ she said. ‘The economy is good in Wyoming. People have jobs. In the rest of the country there were loans that shouldn’t have been, and then people lost their jobs.’”

The Missoulian from Montana. “Longtime Stimson Lumber Co. employees Sue Tollefson and husband Greg Tollefson discuss the latest twist in the paperwork related to his layoff on Thursday afternoon. ‘It’s frustrating,’ says Greg. ‘You just work with it and try not to let it get to you.’”

“Weaknesses in the housing industry directly affected mills tied into construction, such as the stud mill in Bonner. Prices for lumber have dropped to about $239 per thousand board feet, roughly half of what lumber fetched in 2004 and 2005 when the housing market was robust.”

“‘Industrywide, demand fell off to such a degree that it brought prices down below historical lows and below profitability for many mills,’ said Shawn Church, an editor at Random Lengths Publications.”

“Production supervisor Richard Anthony has been at the Bonner plant for 38 years. ‘I don’t have a clue,’ Anthony said. ‘I don’t know what I’ll do.’”

The Oregonian. “As central Oregon’s long real estate gold rush gives way to a grim new era of falling prices and foreclosures, few companies have crashed to earth harder than Bend-based Desert Sun Development.”

“The upstart operation, led by its intense 29-year-old founder, Tyler Fitzsimons, is under siege from lenders, suppliers and contractors who say they’ve been stiffed for millions of dollars.”

“The unfolding saga reflects how the financial industry operated in central Oregon and elsewhere during the real estate boom. Banks lined up to back newly minted companies. They made huge loans to workers of limited means who couldn’t afford the payments.”

“At Desert Sun, five ex-employees told The Oregonian their incomes were inflated or their signatures forged on loan applications or other financing documents.”

“Now that some of those loans have defaulted, banks are going after some of the employees with foreclosure threats. But in many of the Desert Sun transactions, there is no house to repossess — only land worth a fraction of what is owed.”

“‘I owe $290,000 for a piece of land that is probably worth $70,000,’ said Casey Cross, a former Desert Sun electrician who owns an empty lot in Sisters. ‘I’m one of the lucky ones. It’s just me and my dog. There are good people with families just getting crushed.’”

“At its peak, Desert Sun employed more than 110 people. The company’s success enabled Fitzsimons to buy expensive toys, including a 2006 Ferrari 430 Spider, boasting a base ticket price in excess of $200,000.”

“Desert Sun had no retirement plan, but it did offer the employee homeownership program, which its Web site likened to a 401(k).”

“Fitzsimons said Desert Sun’s problems came about when the banks, rocked by the weakening economy, stopped lending. ‘There’s nothing malicious going on,’ he said. ‘Yes, we’re a victim of the market decline. But so is everybody else.’”

“Employees were ultimately responsible for repaying the loans, which generally ranged between $300,000 and $500,000. But the banks handed the money directly to Desert Sun and employees had little if any involvement in how it was spent.”

“Still, it sounded like a great idea to Krystal Chamberlin, an accounts receivable clerk at the company. Chamberlin worried that her limited income — the single mother earned about $27,000 a year — would disqualify her.”

“Chamberlin was delighted to hear in November 2006 that National City Mortgage had approved a $477,000 construction loan. She agreed to have her house built in the Roaring Springs subdivision of Sisters.”

“Chamberlin owes $284,000 on her property in Sisters, though not even the foundation is complete. On April 25, National City Mortgage notified Chamberlin that because of the lack of construction progress, it was declaring her loan in default. It asked for immediate payment of the $284.159.63 outstanding.”

“Cross borrowed $415,200 from Columbia River Bank for his house in Sisters. Cross has left central Oregon. But he worries that ruined credit could be only the start of his troubles resulting from the Desert Sun fiasco. ‘It’s the worst of the worst,’ Cross said.”

The Columbian from Washington. “So, what’s really going on in the Clark County housing market? The Columbian asked that question and others of 11 of the county’s top-producing Realtors in Vancouver.”

“If you could give three pieces of advice to a Clark County home seller, what would you say? Hali Hobson: ‘Price. Price. Price, and how it presents. It’s a kiss of death to overprice your home … and assessed values (from the Clark County Assessor) are two years behind the market.’”

“What about buyers? What are you telling them? Sharry McNeel: ‘I tell my buyers - and remind my sellers - that except for the years 2004 and 2005, when you bought a home, you’d have to be in it three or four years to break even or make any money. Sellers have forgotten that, and buyers have forgotten that, too, because they went through 2005 when you could buy a house for $300,000 and two months later sell it for $350,000. We’re back to the real world again.’”

“Would it be fair to say there’s a disconnect right now between Clark County buyers and sellers?”

“Don Humphrey: ‘Buyers are suddenly seeing prices so low that they don’t know when to pull the trigger because they don’t know if those prices are going to go even lower next week and next month…A couple of years ago, we were just taking orders. Now we really have to work the deal between that buyer who’s trying to find the very lowest mark he can get to and the seller who doesn’t want to give up any more than he has to.’”

“Terrie Cox: ‘A year and a half or two years ago, we couldn’t write up offers quick enough … and now it’s just flipped the other way. That was a no-brainer, because values can’t continue to keep going up that fast. I think we’re still going to have sales, but the market had to taper off.’”

“In an east Vancouver subdivision, one out of every nine houses has entered foreclosure since the start of the year. The Clark County foreclosure rate has been rapidly climbing since mid-2007. Across the county, 1,049 houses were in foreclosure through April, up fourfold from 2007.”

“Speculators own as many as one in five homes in some newer neighborhoods in the county, and now many are losing those properties.”

“Rising payments got the Murphys, Hazel Dell residents who say they did not understand the details of their adjustable rate mortgage, in trouble.”

“Their home’s value had climbed by more than $40,000 since they purchased it in 2003. They refinanced for $178,000 in 2005, borrowing from equity to pay off other bills. They struggled with the loan’s initial higher payments of $1,080 a month, about $100 more than they had been paying before the refi.”

“Then, on Jan. 1, the loan’s interest rate adjusted upward, bumping their monthly payment to more than $1,500. They couldn’t afford the payment, and they couldn’t come to an agreement with their lender. ‘They didn’t really want to work with us,’ said Mathew Murphy.”

“The bank foreclosed, and has given the couple until later this month to move out of the 1950s-style, three-bedroom ranch where they were raising their 2-year-old daughter, said Jennifer.”

“Many have also found that it is increasingly difficult to sell in Clark County. When Lamont Shaindlin’s commission-only sales income dropped last year, he could no longer afford his $1,600 monthly loan payments.”

“He tried to sell his Orchards-area house to avoid foreclosure, but said his lender, Washington Mutual, seemed indifferent to a short-sale offer of $195,000. Shaindlin owed about $199,000 on the loan.”

“‘The bank could have mitigated their own losses,’ he said.”

“Instead, unable to find a buyer willing to cover his debts, Shaindlin, his wife and two daughters had to vacate their Vancouver home of 11 years.”

“Last week, Lamont Shaindlin drove by the house his family lost. ‘It was still empty and the lawn was overgrown. We’ve found a place in the area, an apartment complex,’ Shaindlin said. ‘It’s not the move you want to make, going from owner to renter.’”

“A Columbian analysis of some of Clark County’s worst-hit neighborhoods found that many foreclosures are tied to real estate speculation and house flipping.”

“One Washougal house investor, who with her husband profited from several sales before the market cooled, was among dozens of investors in the Gables at Hiddenbrook Terrace, a 124-home subdivision in Vancouver. She and her husband bought a new house in that neighborhood for $299,690 in August 2005.”

“They also bought two homes in another new subdivision in Camas in 2006, one for $230,000 and another for $240,000. Now at least two of these investment properties are in the early stages of foreclosure, as is the Washougal house where she lives.”

“For several years, the speculator, who asked that her name be withheld to spare her from embarrassment, was able to purchase houses and sell them at a profit.”

“‘We were successful for a while, then the market got worse and it was hard to find a buyer,’ she said.”

“Of the subdivision’s 124 homes, at least 14 have entered the foreclosure process since late 2007. Another 19 are owned by people who don’t live in the neighborhood, a sign that these owners are likely investors.”

“Including those in foreclosure, 20 percent of these houses are not occupied by their owners and 25 percent have been sold at least once in the three years since they were built. Three property owners seem to have bought two houses each in the neighborhood.”

“‘In 2005 we had a situation that I would characterize as irrational exuberance,’ said Mike Lamb, associate broker in Vancouver.”

“Buyers thought the market would go up forever, and therefore borrowed deeply with the belief that they could sell if necessary, Lamb said. Meanwhile, people caught by high payments are abandoning their loans, Lamb said. ‘When you have no skin in the game, it’s easier to walk away.’”

“The Washougal speculator said she’s not sad about the prospect of losing three houses, including the 5,000-square-foot Columbia River-view home where she now lives. ‘It’s a nice house, but I can live anywhere.’”