The Housing Bubble

A report from the Oregonian. “Southeast Francesca Lane cuts up and around a hillside to reveal the boom-time promise of Happy Valley circa 2006. Young families rolled in to snap up $600,000, stone-fronted homes with Mount Hood views. Francesca Lane circa 2008 isn’t dreamy any longer. One of every five homes or lots on the street has fallen into foreclosure since the neighborhood sprang up three years ago. The king of Happy Valley homebuilders, Roger Pollock and his Buena Vista Custom Homes, faces a foreclosure lawsuit on two Francesca Lane lots. Dick and Aloma Anderson, a retired couple from Clark County, gambled that they could flip a Francesca Lane home for a quick profit. Now, their retirement won’t be quite as golden.”

“The couple had never bought an investment property. But by 2006, flipping houses had become so common nationwide that TV networks celebrated it with reality shows. Aloma was certain they could buy a home, resell it for a hefty profit and pad their retirement. Aloma says the salesman told them the home would be worth as much as $1 million by the time it was finished in the summer. They closed the deal in August 2006 on the four-bedroom, 5,000-square-foot home for $633,865. It was a steal, they figured, at $125 a square foot.”

“Within weeks, Aloma put the house on Craigslist for $799,000. She planned to sell it herself and made the 35-minute drive most Saturdays to host open houses. She’d stay for seven hours and usually saw no one. She lowered the price to $749,000. Even after a year, she still had no offer. The Andersons refinanced their Hazel Dell home twice to raise cash for the Happy Valley mortgage. In late 2007, they raided their IRA.”

“Pollock expected things would get much worse, and he cut his losses. He announced an auction in December 2007 to sell 230 homes, including some on Francesca Lane, at bargain prices. ‘When he did that to us, it killed us,’ Aloma says.”

“She mailed her last payment in January, and the lender declared the mortgage in default three months later. Staring at a loan far higher than the home’s value, the Andersons faced losing the home to the bank. A real estate broker found the Andersons a bargain hunter. The lender approved the sale for $515,000. That’s $123,000 less than it had loaned the Andersons 20 months earlier. ”

“The Andersons never spent a night in the Happy Valley money pit. But the mortgage, fees and taxes cost them close to $100,000. ”I saw dollar signs,’ she says.”

“The couple would like to sell their Hazel Dell home to move closer to family in the Midwest. But the Clark County market is about as bad as Happy Valley’s. Their builder, Pacific Lifestyle Homes, is now bankrupt. The home was appraised for $465,000 last year. Now, she’d take $379,000. After all this mess, the Andersons had to tell their children they can’t help out with money any longer. ‘That’s a hard thing to tell them,’ Aloma says. ‘We don’t have it anymore.’”

From KTVZ in Oregon. “A national study claims the Bend area still has the most ‘extremely overvalued’ housing market in the country - 43 percent overvalued, as a matter of fact. ‘I guess I have a little problem with this whole overvalued interpretation,’ said Cal Gabert, residential manager for Bratton Appraisal Services in Bend. ‘I’ve heard we’re overvalued before, but we’re still somewhat of a resort community. We have a lot to offer that isn’t available in other places.’”

“‘Bend still is right now a good value,’ Gabert said Friday. Still, Gabert said, ‘If you move to Bend, you’d better have employment figured out. A lot of retired people move here,’ and to Gabert’s way of thinking, Bend homes are becoming more of a value all the time.”

The Bend Bulletin from Oregon. “Central Oregon’s building permits, seasonally adjusted, reached at least a 10-year low in the second quarter with 27 building permits filed each month from April through June. At the peak of the housing boom in the third quarter of 2005, an average of more than 400 permits were issued each month, according to the Central Oregon Business Index.”

“Smaller contractors that operate on word of mouth for new business are getting hit harder when it’s time to bid against larger construction firms, sometimes from outside the region, said Dave Jasper, a project manager for Havniear Construction, which has operated in Central Oregon since 1978.”

“‘Everything that becomes available goes out in the open market for bidding,’ Jasper said. ‘A lot of guys are frothing at the mouth looking for stuff to do.’”

The Seattle PI from Washington. “Seattle’s economy is basically healthy, but its real estate market is in decline, with no prospects for a quick recovery, said a panel of experts at a breakfast meeting Friday. ‘When we look at Seattle’s commercial real estate outlook — duh, it’s deteriorating,’ leadoff speaker David Legeay, a KeyBank senior vice president, told 500 real estate professionals and investors.”

“‘I think you can expect to see a continuing, steepening decline in opportunities here in Seattle over the coming months. You’re going to take your lumps just like everyone else has,’ the Cleveland resident said.”

“Matthew Gardner, a principal with Gardner/Johnson LLC, predicted ‘a tsunami of new apartments coming online in 2009 in Seattle’ — about 6,600 units, with 8,000 more in 2010. ‘Do we need it all? Ultimately, yes. Do we need it all in 2009? Oh, no, definitely not,’ Gardner said. ‘It’s going to be rough here next year’ for apartment owners, though tenants will have a wide choice.”

“As for condominiums, would-be buyers are holding off because they think the units are too expensive or they can’t get financing, he said. ‘Housing affordability is still a big, big issue,’ he said.”

The Olympian from Washington. “The Thurston County housing market returned to a familiar pattern last month as home sales, median prices and inventory levels all fell from November 2007 to November 2008, according to Northwest Multiple Listing Service data. Home sales fell again in November because prospective buyers got scared off by another wave of poor national economic news, said Bill Hutchinson, president of the Thurston County Realtors Association.”

“‘It has really caused people to think again,’ he said.”

“Broker Jeff Crandell said he thinks many buyers are watching for when the market hits bottom before making a purchase, a practice he likened to ‘trying to walk in the fog.’”

“The typical buyer today is someone who doesn’t first have to sell a house in order to buy one, such as a first-time buyer, a repeat buyer returning to the housing market or an investor, Hutchinson said. Right now the market is strongest for homes selling under $250,000 and weaker between $300,000 and $500,000, Hutchinson said.”

“But Crandell added, ‘If you’re in the market for a luxury home, they are really dealing on those homes.’”

The Canada Newswire. “According to the latest housing report released today by RBC Economics, British Columbia’s housing affordability conditions have started to improve in that last two quarters but home ownership costs are still the most inflated of all provinces.”

“‘The situation is unraveling fast in British Columbia,’ said Robert Hogue, senior economist, RBC. ‘After extremely tight conditions built up during the boom and drove home prices sky high, the province’s housing markets are now entering a correction phase that will see prices reverse recent gains, with greater affordability being restored.’”

“In Vancouver, homeownership costs remain the highest in the country. Despite price declines since the first quarter of 2008, home prices are roughly double the national average for most housing types, with standard condos the lone exception at only 70 per cent above average. With the median family income estimated to exceed the Canadian norm by only eight per cent, and qualifying incomes roughly at more than $150,000 for a standard two-storey and $135,000 for a detached bungalow, the vast majority of Vancouver families are effectively shut out of those market segments.”

“The condo segment remains the only option for many, as homeownership costs are not as steep, the RBC report said.”

BC Local News in Canada. “Home prices in Metro Vancouver headed in the same direction as the stock markets in November: down. Real estate prices lurched down another four to five per cent last month, according to the Real Estate Board of Greater Vancouver.”

“The benchmark prices of a single detached house is now down 13.6 per cent since May to $666,500. In the Fraser Valley, real estate is off six to seven per cent since May. ‘The local real estate market is not immune to the current economic challenges globally,’ said Dave Watt, president of the Greater Vancouver board.”

“The more expensive suburbs in the region is where prices have plunged most. Condos in West Vancouver and White Rock are now both down 20 per cent from a year ago, while the median house in White Rock is off 25 per cent. Detached houses and attached duplexes or townhouses on Vancouver’s west side are down about 19 per cent from the same time in 2007. Condos and houses in North Vancouver are also down 12 to 14 per cent.”

“People willing to buy are scarce. Sales were down 70 per cent in Metro Vancouver from a year earlier and Fraser Valley Real Estate Board sales were down 62 per cent.”

“Watt said more disciplined mortgage lending here has kept Canadian housing prices much more stable than in the U.S. ‘Times of turmoil, from which we always emerge, offer excellent opportunities to buy quality real estate,’ he said.”

From Canwest News. “RBC’s third-quarter housing report was issued amid news from Canada Mortgage and Housing Corp. that housing construction starts took a larger-than-expected dive in November to seven-year low of 172,000 units, and a warning of continued weakness through the next year.”

“Regionally, the cost of carrying a detached bungalow ranged from a high of 69.7 per cent of income in British Columbia to a low of 35.4 per cent in Atlantic Canada. Among a selection of major cities, the range was from a high of 74.8 per cent in Vancouver to a low of 40.4 per cent in Montreal with Toronto at 53.3 per cent, Calgary 47.3 per cent, and Ottawa 43.3 per cent.”

“While the economic downturn has lowered prices it also threatens to undercut incomes, the report notes.”

“‘At the end of 2007 the red-hot Alberta housing market began to slide, followed by British Columbia in early 2008, and now Saskatchewan and Ontario have joined the weakening trend,’ it said, adding that most of the market corrections taking place in British Columbia, Alberta and Saskatchewan can be traced to very poor affordability conditions.”

The Canadian Press. “The falling loonie hasn’t stopped Canadians from shopping for bargain real estate in the United States as housing prices continue to drop, particularly in sun destinations such as Florida and Arizona. Recent statistics show nearly one-quarter of all international home buyers in the U.S. are Canadians, which is more than double a year ago, and twice as much as the next-largest foreign owner, the United Kingdom.”

“While the price is right, experts warn potential buyers to consider the extra costs associated with such an investment, from taxes to travel. Meantime, U.S. housing prices keep falling to levels not seen since early 2004.”

“Analysts say the market has yet to hit bottom as foreclosures and unemployment in the U.S. grows, causing demand and prices to keep dropping. ‘There is still massive amounts of inventory,’ says Scotiabank economist Adrienne Warren.”

“Brian Ellis, president of Florida Home Finders of Canada, says the investment interest hasn’t wavered too much recently, despite the dollar’s drop from parity to about 80 cents US in recent months. That’s because of the bargains, Ellis says. ‘Homes that were years ago selling for $600,000 or $700,000 are now selling for $200,000 or $250,000,’ says Ellis.”

The Daily News Miner from Alaska. “Emily Sousa said the landscape for renters seems to have changed in Fairbanks. When she and a roommate looked for a two-bedroom apartment in 2006, there was nothing there. ‘We ended up 20 miles out of town in a place with little insulation’ for two months during the search, said Sousa, then an undergraduate at the University of Alaska Fairbanks.”

“Sousa is about to start work on a master’s degree. Once again, she and a friend are looking for a two-bedroom place and have found themselves in a seemingly completely different rental market. ‘There’s a lot of two-bedroom places out there,’ she said Thursday. ‘They’re not necessarily a lot of what I’m looking for, but they’re there.’”

“The figures back up Sousa’s impression: The number of vacant apartments in the Fairbanks area is more than 30 percent greater last fall’s figures, according to reports from property management firms. Twelve percent of the units at Midtown Apartments are vacant, according to Stephen Enochs of Senek Property Management. The company also has more than a dozen cabins unfilled, an ‘unusually high’ number for this time of year.”

“‘I am not sure what is going on, but there are definitely a number of properties on the market and they are not moving,’ he wrote Thursday in an e-mail to the Daily News-Miner.”

“Phyllis Enoch, a manager for Northern Homes, said a few of the vacancies she’s seen were due to prospective home-sellers who got tired of watching housing prices fall and decided to enter the landlord business instead. ‘It opens up the single-family home market, as far as (rentals) available out there,’ Enoch said.”

The Anchorage Daily News from Alaska. “We’re beginning to see some worrying signs that the recession gripping the rest of the country eventually could bite us here. Among the indicators: rising unemployment, mounting home foreclosures and high credit-card debt.”

“Beyond this, brows are beginning to furrow over the precipitous decline in oil prices. Oil revenue pays for most of the cost of state government and is a vital fuel for the entire Alaska economy. On Friday, Alaska crude oil closed at $35.61, a far cry from the peak of $144 in early July.”

“And here’s something else: Investment troubles on faraway Wall Street have done a number on the state’s main savings account, the Alaska Permanent Fund, which now has a market value of less than $28 billion, having lost about $9 billion over the past four months.”

“Unemployment in Alaska took a startling jump in October, up to 7.4 percent from 6.7 percent the prior month. The jump is the largest Dan Robinson, an economist with the Alaska Department of Labor, can ever remember seeing, and it’s the first time since February 2005 that the state’s unemployment rate has cracked 7 percent.”

“After the exhilarating surge through most of this decade, the average sales value of single-family houses in Anchorage has hit a plateau at about $328,000. Richard Ullstrom, an Anchorage foreclosure attorney, said his law firm handles many of the state’s foreclosures, with the typical client being a financial institution such as a bank or mortgage lender looking to recoup its money.”

“Ullstrom said his firm is handling more foreclosures, but still not even half the number seen in Alaska’s late-1980s real estate crash. Why are foreclosures on the rise? Ullstrom attributes much of it not to a recession but to overexuberant real estate investors bailing on bad bets.”

“‘Some people got sold on the idea of investing in real estate back when things were going well,’ he said. ‘What we’re seeing now is, some little real estate empires are crumbling.’”