The Housing Bubble

A report from the Charleston Gazette. “For the second time in ten years, McDowell County is the scene of a major bank failure. On Friday evening, federal regulators announced they were taking over Ameribank, Inc. because of a series of bad debts tied to the foreclosure crisis. In 2003, bank officials decided they needed to expand to a high-growth area. It was ‘the thing we need to do for survival,’ said bank vice-chairman Jim Sutton.

“They opened their ninth branch in Palm Beach Gardens, Florida. Ameribank affiliated itself with a mortgage broker called Lending One, which made high-interest loans to speculators who bought up properties, fixed them and sold them for a profit.”

“It worked as long as housing prices went up. But when the housing bubble burst, the loans went bad, and Ameribank found itself in a world of hurt. David Hartman, president of Ameribank, blamed the bank’s troubles on its previous leadership.”

“‘For three or four years, it all worked fine,’ Hartman said. ‘But with the sub-prime market starting to dry up, the end buyers of these homes went away. I’ve never thought that loans made outside a bank’s normal market area is a good idea.’”

The Sun News from South Carolina. “Newly released home mortgage data for 2007 shows how speculators looking for quick and easy cash fueled and then burned Horry County’s real estate industry, but experts say last year’s numbers come nowhere close to reflecting the downturn currently under way in this area’s housing market.”

“The hardest hit areas were along the oceanfront, where a high percentage of loans went to investors looking to resell - or flip - properties as prices rose and the housing bubble grew. Some investors allowed those properties to go into foreclosure rather than making inflated mortgage payments.”

“Many mortgage closings in 2007 were for new homes and condominiums put under contract a year or two earlier, when the market was hot and prices still were rising.”

“‘With new construction, you sell them and then you build them and then you close on them,” said Rachel Broadhurst, who has operated a Myrtle Beach real estate agency for 35 years. ‘They were closing on sales that were made two years ago, so the higher prices [in 2007] didn’t really reflect the market at the time.’”

“It will be another year before federal data shows just how bad 2008 is, but Broadhurst and others say this is among the worst real estate markets they have seen. ‘This year has been murderous,’ Broadhurst said.”

“Nonoccupant loans accounted for 94.7 percent of all 2006 mortgages in the census tract that includes the Myrtle Beach oceanfront from roughly Third Avenue South to Springmaid Beach. Loans to investors accounted for at least 82 percent of all 2006 mortgages in the census tracts that stretch from Eighth Avenue North in Myrtle Beach to the Restaurant Row area.”

“Statistics show home values have dropped between 20 percent and 30 percent since a year ago, and Horry County is on pace to more than triple last year’s number of foreclosures.”

“‘I have never seen values drop this fast in 35 years of banking,’ said Walt Standish, chief executive of Myrtle Beach-based Beach First National Bank.”

The Orlando Sentinel in Florida. “Winter Park developer Steve Walsh was a charmer and deal maker, a businessman who had twice gone bankrupt and twice fought his way back. His suicide June 25 stunned his associates. Even more shocking have been the allegations since then.”

“Before Central Florida’s housing bubble burst and shattered Walsh’s dreams, his company, Broad Street Partners LLC, was working to develop nearly $1 billion worth of projects. He was good at getting people to invest with him.”

“‘Within a radius of about 10 to 12 feet, he was one of the most convincing people I’d ever met,’ said Charlotte, N.C., attorney Charles S. Daly. ‘If he could get within 12 feet of you, he could borrow money.’”

“Walsh and his wife had three homes, and in the summer, he would bounce between two of them: his $1.4 million home in Winter Park and his $2.6 million, 16-acre estate in Highlands, N.C., said close friend Gene Godbold.”

“‘He was a wonderful, wonderful man, a great friend, a great businessman, a man of great faith in God,’ Steve Schrimsher, a Walsh investor, said the day Walsh died. Schrimsher has since hired an auditor and filed suits accusing Walsh and his companies of stealing $20 million to $25 million.”

“In a court filing, Paula Walsh said that if her husband did steal money, she knew nothing about it and shouldn’t have to repay it.”

The St Petersburg Times. “Developers of Element, the still-incomplete 35-story downtown Tampa condominium tower, are considering converting much of the building into apartments until the housing market improves.”

“A shortage of qualified buyers forced the hand of Tampa Development LLC, whose completion of the neighboring SkyPoint condo tower was among the few success stories in the imploding urban condo market. Sales prices for the estimated 395 units range from about $220,000 to nearly $1-million. That’s proved to be too rich in a condo market where foreclosures and bankruptcies are rife.”

“Three prominent condo tower bankruptcies within sight of Element are Trump Tower Tampa, The Place at Channelside and The Towers of Channelside.”

“Christine Burdick, head of the Tampa Downtown Partnership, said the move makes sense: Better a vibrant apartment building than a half-empty condo tower. The partnership has banked on new downtown dwellers to stoke the city’s restaurant and arts scene.”

“‘There are a lot of people not eligible for mortgages and there’s a lot more renters,’ Burdick said.”

“As snapshots go, this ain’t pretty. But neither is it surprising: Hillsborough County had too many homes for sale and too few buyers this spring. Consequently, median home prices sagged.”

“Two factors could have depressed prices in Lutz, said Georg von Greiff of Keller Williams Realty. Some sales that closed in the spring of 2007 were negotiated in late 2006, when prices were still soaring. Compared to those 2006 prices, what homes sell for this year is a big dropoff.”

“Then there are the foreclosures and short sales of homes bought by people who speculated on rising prices and took out mortgages they couldn’t afford. ‘The newer the community … the more pronounced the decline in price,’ said von Greif.”

“East of Dale Mabry Highway and north of Gandy, a 21.7 percent drop in median price may have been influenced, in part, by the scarcity of buyers for new McMansions. ‘Those things shot up like a rocket, and they came down just as fast,’ said Tim Wilmath, the property appraiser’s director of valuation.”

“To avoid defaulting on her nearly $1,500 monthly house payment, Maria Folk sold a family boat, unhooked her cable, even canceled her household phone line. But when the New Port Richey resident has called her mortgage lender pleading for a reduction in her 7.8-percent adjustable mortgage, she gets mostly busy signals and answering machines.”

“‘Countrywide (her lender) is telling us this fairy tale that there are lower rates available,’ Folk says. ‘But they won’t return your phone calls.’”

From Bay News 9. “When Bob and Helen Kantner moved into their home in the Grasslands, they did so with the expectation that they would stay for a while. But now they find themselves unexpectedly trying to sell. The Kantners plan to move into Florida Presbyterian Homes, but they won’t be able to afford the rent there until they get rid of their mortgage.”

“They said they are also willing to take a loss. They bought their home in 2006, at the height of the real estate boom. Now, two years later, they are listing it for less than their purchase price.”

“Local realtors are trying to help by offering some tips to senior sellers to help them better navigate the real estate market. ‘Most of these people haven’t sold a home in a very long time,’ said Jan Bellamy with Remax Experts Realty. ‘So, we try to educate them on how to have their home priced right.’”

The Tampa Tribune. “The Florida attorney general’s office has sued 10 companies and 15 individuals for roles they may have played in a $37 million mortgage fraud scheme that involved 60 homes from Orange County to Pinellas County.”

“Attorney General Bill McCollum said his office has not served all the defendants with the lawsuit and that some might have gone to Trinidad, where some of the stolen money was stashed in accounts.”

“Tampa real estate agent Lori Polin was…was the first agent to help orchestrate the deals, the lawsuit states. At the time, she worked for a ReMax office in Clearwater. She persuaded sellers to increase their asking prices by several thousand dollars and earned about $165,250 in real estate commissions on eight sales, according to the lawsuit.”

“Polin, reached by telephone Thursday in her Tampa office, said, ‘I’ll have to say no comment at this time.’”

From WFLA 540. “McCollum says the ring leaders used straw buyers to inflate prices on dozens of homes in central Florida and obtained loans far in excess of what they are worth… loans they never intended to repay.”

“‘And they got the mortgage. They got the money. They got the cash. And they pocketed the difference,’ said McCollum. ‘In which ultimately, $6 million was siphoned off and sent to overseas banks, some of that in Trinidad. Some made it all the way to Australia.’”

“50 of the 61 houses used in the scam are now in foreclosure. ‘These 50 homes, they’re abandoned. They’re in good neighborhoods. Some of them are rat-infested. Some of them are driving down property values for the neighbors,’ said McCollum.”

The Miami Herald. “As many as 100 investment funds are shopping for South Florida real estate, hoping to buy extremely low during the current crisis. Their main target: condominium towers where developers and their lenders can’t sell enough units to pay off the loans used to build them.”

“‘The bottom fishers, if you will, have been standing around the sidelines,” said Victor Lopez, a former Hyatt development executive now assembling commercial deals. ‘A lot of people out there are saying: ‘This is our time to get in.’”

“Despite all the attention these funds receive in the media and in real-estate circles, only one or two significant bulk condo deals have actually closed, according to several people involved in the market.”

“‘Literally, a day doesn’t go by that I don’t get a call from potential investors,’ said Ramiro Ortiz, president of Coral Gables-based BankUnited Financial. ‘The problem is that the price is 50 cents on the dollar. I’ve got enough clarity to know that’s not what I want to do.’”

“One senior lending executive at a major South Florida bank that he wanted to keep anonymous said his staff so far has refused offers from the so-called vulture funds. But he predicts that resistance won’t last much longer.”

“‘The market conditions don’t seem to be improving. At some point, you’ve got to cut and run,” said the executive, who spoke on the condition that his name not be published. ‘That vulture is starting to look a little bit like it has some lipstick on it.’”

The News Press. “The competition is getting tougher for builders trying to get someone to put up a new house instead of simply buying one. The median price of an existing home sold with the help of a Realtor fell by 52 percent from the all-time high of $322,300 in December 2005 to $154,900 in July 2008, the last month available.”

“It’s hard to compete with today’s bargain-basement prices for existing homes and the numbers show it: Only 87 single-family home permits were issued in Lee County in August, less than 6 percent of the record 1,558 in March 2006.”

“Finding someone who wants to build a house is tough under these conditions, said Tim Rose, president of Arthur Rutenberg Homes in Fort Myers. ‘We’re builders and we want to build,’ he said, ‘but you can’t build a house for $400,000 and sell it for $350,000. You’ll be out of business.’”

“For many builders, that cold equation has meant death. Hovnanian Enterprises, operating as First Home Builders in Lee County, was building a thousand houses a month three years ago but is now essentially out of the homebuilding business. The Fort Myers division of Adams Homes is clearing out its inventory and not building any new homes.”

“National developers Levitt & Sons and Tousa, once major players in Lee County, are in bankruptcy reorganization and not building at the moment.”

“They’re concentrating on efficiency and pricing as never before, said Richard Durling, owner of Fort Myers-based Marvin Development and president of the Lee Building Industry Association.”

“‘Companies are just leaner and more efficient than they were two years ago,’ he said. ‘There’s not as much overhead, not as many employees. I’ve seen some builders actually dropping their prices. I don’t know if that’s a good business decision, but I guess we’ll see who survives.’”

“One factor that’s helping builders is the falling price of lots, which at the height of the boom went for $50,000 in Lehigh Acres and up, but now sell for as little as a tenth of that. ‘There are so many lots,’ said Michael Timmerman, a Naples-based senior associate with Fishkind & Associates, an Orlando-based economic consulting firm. ‘the pricing may come down a little more.’”

“With conditions as they are now, builders should be thankful even for the few houses being built, said John McIlwain, senior resident fellow for housing at the Washington, D.C.-based Urban Land Institute. ‘The question is, why are they building anything, given the inventory that’s out there? They’re trying to keep themselves alive.’”