The Housing Bubble

The Denver Post reports from Colorado. “Owners with units for sale in the towering Beauvallon building at East 10th Avenue and Lincoln Street are struggling to sell their units because a lawsuit against the developer is dissuading potential buyers and hanging up financing for anyone still interested. Of the 26 properties listed for sale in the 210-unit Beauvallon, 12 are either in foreclosure or listed for less than the seller owes on the mortgage.”

“HOA dues for the penthouse units are more than $1,300 a month, and fees for an 800-square-foot unit are nearly $400 a month. ‘People can’t afford the mortgage and the HOA,’ said Emmett Carr, an agent who has a listing in the building.”

“Many of the units are priced way too high, said Sharon Shepherd, an agent who also has a listing in the building.”

“‘A lot of the sellers have first and seconds (mortgages) on their loans,’ she said. ‘When they refinanced, their property was appraised for more than it should have been in order to get the second. I’ve gotten some calls from investors, but the numbers aren’t working for them because the sellers can’t go low enough.’”

The Arizona Daily Star. “Think you know what your house is worth? You might want to take a deep breath and think again. The rising number of foreclosures is reducing property values in a possibly unprecedented way. Not only are foreclosed properties flooding the market, but they are also becoming the only standard of comparison for other homes sold in some areas.”

“Foreclosed properties usually are not included in appraisals because they are considered under ‘duress’ and not reflective of fair market value, said Bruce Smith, of Equity Valuation Services. However, ‘when those become predominant in the neighborhood, then they become the market,’ Smith said.”

“Casa Grande real estate broker Bill Bridwell said about 90 percent of sales he has handled recently have been bank-owned homes.”

“Fred Brodsky, director of the Brodsky School of Real Estate, said the number of foreclosures in the market is unusual, even for a downturn. ‘I’ve been through three cycles, but I’ve never it seen it this bad,’ he said.”

“In comparison, other houses on the market often seem overpriced, agents said. ‘A lot of stuff out there isn’t going to sell,’ said agent George Cardieri.”

“The high number of foreclosure sales is necessary “to clean up the mortgage lending excesses of the past few years” said Marshall Vest, director of the Economic and Business Research Center at the University of Arizona’s Eller College of Management.”

“‘All these properties are going to need to be marked down and find new owners before this correction process is complete,’ Vest said.”

“In April, the median price dropped about 13 percent from the previous year to $195,000, according to statistics from the Tucson Association of Realtors MLS. Although prices are starting to come down, buyers said many existing homes still seem overpriced, especially for some older homes and fixer-uppers.”

“Misty Shaw, who is building (a) home in Lakeside Ridge, said she was surprised by some of the problems she saw in resale homes. One, she was told, had wiring problems and would blow a fuse if the washing machine and dishwasher were run at the same time.”

“Another house, owned by a California investor, Shaw considered overpriced. She put in a bid for about $25,000 less than the asking price, and ‘they didn’t even counter,’ she said. ‘Their house is still up for sale.’”

The Arizona Republic. “When home builders gather these days to talk about the state of their industry, all conversations eventually circle back to the one inescapable question: Who among them will survive?”

“Meritage Homes executives Steve Hilton and Larry Seay say that because their company is backed by public shareholders, generating consistent revenue and making itself right with today’s market realities, it is ideally positioned to endure the current slump.”

“Despite the complexities of corporate finance, Meritage’s future success hinges on something very simple: its continued ability to build - and sell - homes. CEO Seay, said Meritage is on pace to sell 5,500 to 6,000 homes this year, a significant decrease from the 10,487 homes it sold in 2006.”

“Another short-term problem for Meritage is clearing its inventory of all the land it bought at 2005 prices, for which the company will lose money on every sale.”

“Meritage analyst Eric Brown said pressure from Wall Street to grow earnings each quarter placed added strain on publicly owned home builders, prompting them to expand operations too quickly into unfamiliar territory.”

“‘It’s always, ‘What have you done for me lately?’ Brown said.”

“Seay said the company’s detour into land speculation was fueled by that pressure, as well as by opportunity and ambition.”

“‘We’ve always said we were a home builder and not a land speculator,’ he said. ‘We probably got a little bit off our basics because we were being a little greedy.’”

The Review Journal from Nevada. “The appointed bankruptcy trustee for Mira Villa condominiums has filed two motions necessary to get the project finished and sold, an attorney for one of the major creditors said.”

“One motion is for a $46 million bond to complete first-phase construction, market the project and pay interest on loans, said Jerry Gordon of the law firm, representing Nevada State Bank. The second motion is to allow the sale of condo units as they’re completed to pay off the existing debtor-in-possession loan and to authorize the sale of units to existing buyers and new buyers, Gordon said.”

“‘It’s really sad that the bankruptcy court is allowing this and hired a trustee who doesn’t have any concern about contractor debt,’ said Mike Lee, president of a general engineering contractor. ‘Their only concern is to finish the project. The contractors are the real losers in this deal.’”

“Alan Schrimpf, chief operating officer of Southern Vegas Valley Contracting, figures his firm is out $190,000 for concrete work. ‘We’re done. All the subs get nothing,’ he said.”

The Las Vegas Business Press from Nevada. “Some suggest the Las Vegas housing market hit bottom in the first quarter of 2008. Others contend the bottom might not be reached until the end of this year or early 2009, and any recovery won’t occur until new jobs are created by resorts opening on the Strip in 2009 and 2010.”

“Tim Sullivan, president of Sullivan Group Real Estate Advisors, said the market must pay for its sins before it improves. ‘Don’t discount foreclosures and their impact on the market. They will be with us prominently through the fall,’ Sullivan said.”

“Terry Jones, vice president of AmTrust Bank, says the housing market is close to its bottom if not there already. He said some existing homes are selling for less than $90 a square foot, and it’s hard to imagine builders going much lower with prices.”

“Builders have been relying less on incentives and more on pricing. In May, the amount of incentives fell to $18,782, down from a high of $27,436 in October, according to the Sullivan Group.

New-home prices are falling faster than existing-home prices since Jan. 1, giving buyers some options, said Ken Perlman, vice president of Sullivan Group. Traditionally, there is a 15 percent to 18 percent spread between new and existing homes but it’s now closer to 12 percent.”

“‘It is certainly something to watch,’ Perlman said.”

“New homes priced under $250,000 accounted for 42 percent of the sales during the first quarter. Seventeen percent of new-home sales were under $200,000, Perlman said.”

The Nevada Appeal. “Short sales were rare in Carson City a few years ago, but 2008 is on track to have the fewest number of home sales in 20 years and the most number of foreclosures in seven years.”

“The average price of a home sold is also so far this year lower that the past three years, which, from 2000 to 2005, had risen by nearly $175,000.”

“According to the MLS, 41 such homes in Carson City and Carson Valley being marketed as short sales.”

“Real estate agents were discouraged from bringing up the option of short sales a few years ago, said Alan Saunders of Realty Executives Nevada’s Choice in Carson City, and lenders were unlikely to approve them because they could foreclose on the house and recoup the costs through a sale.”

“Short sales are much more common now, however, he said, and many agents are taking classes on the topic to keep up with the market and customer demand.”

“‘So many of my clients come in and say, ‘What am I going to do?’ Saunders said.”

“Short sales are for owners already in ‘bad shape,’ said Red Dalen of ERA Pioneer Properties in Carson City, but the short sale at least ‘leaves them with some dignity.’”

The Deseret News from Utah. “For the past few years, the summertime heat of Utah’s Dixie has been matched by the area’s scorching hot real estate market. Home prices increased over a five-year span by an astounding 73 percent, making the St. George metropolitan statistical area among the top appreciating housing markets in the nation.”

“Plenty of folks, from all ends of the real estate spectrum, were making a lot of money. But late last summer, that trend came to a screeching halt.”

“‘I think it was the 12th of August. Foreclosure rates came in for subprime loans at 11 percent, and immediately the market dropped,’ said Melody Knowlton, a local mortgage loan officer. ‘Everything was shut down, except for conventional loans. There was no notice at all on subprime loans. They were just gone.’”

“Many St. George-area homeowners with subprime loans have either defaulted or are poised to lose their investments. Many of those people find it a difficult subject to discuss. A police officer agonized over breaking the coming news of an imminent foreclosure on his home to his wife and in-laws.”

“His plight, he said, made him ‘feel like a big loser.’”

“Knowlton said her customers are suffering in today’s market, and there’s very little she can do to help many of them. ‘Before, I could qualify nine out of 10 applicants. Now, I can qualify one out of 10,’ she said. ‘You have to have a big down payment and really good credit to qualify for a loan now.’”

“Knowlton said she tried to help Jaime and Tishanne Stout refinance a beautiful home they had built in Washington city but found it was an impossible task. ‘Their home isn’t worth as much as they owe on it now,’ she said, adding the house appraised for more than $370,000 a year ago and now can’t be listed anywhere near that price.”

“‘It’s my dream home,’ said Tishanne Stout. ‘We built another house, and I guess we should have stayed in that one instead of selling it and building this one.’”

“The Stouts are like many other couples who work in the construction trade here, building a home and selling it to cash in a nice profit before building another house that is even bigger and better than the last one.”

“There are a lot of houses like the Stouts’ home with a ‘For Sale’ sign planted out front, but there are even more listed with no one living in them. Only six of the homes in the Stouts’ neighborhood are occupied, which can lead to a sort of eerie feeling for those who do live there.”

“Entire subdivisions throughout the county are dotted with signs that beckon buyers, but there are few takers.”

“Developer Garret Bangerter of Bangerter Homes said the current southern Utah market is flooded with undeveloped lots and new home inventory, which is also helping to drive down prices in the area. Much of that decrease is due to the reduction in land prices, Bangerter added.”

“‘When everything went crazy a couple of years ago, everybody got into a frenzy and thought they were going to get rich developing lots,’ he said. ‘Everybody jumped in and bought land, and now the Metrostudy group is telling us there is going to be an eight-year supply of lots available.’”

“Bangerter said just three years ago, lots to build homes on were scarce, and the demand was extremely high. Now that situation has reversed itself. He attributed the change to the aggressiveness of seasoned developers and speculators trying to make big money in the hot real estate market.”

“‘Everybody thought there would be no end to the demand, and now we have an oversupply,’ Bangerter said. ‘Prices have definitely been coming down as developers realize there is an oversupply.’”