The Housing Bubble

The Miami Herald reports from Florida. “South Florida’s foreclosure crisis is creating unique hardships for renters in some apartment buildings. Unlike tenants of condos and houses, apartment dwellers rely on landlords to collect garbage, keep up the premises and make repairs. So when a landlord enters foreclosure, those services often stop, leaving residents without vital utilities and sometimes in unsafe conditions. They may be forced to move. Low-income renters sometimes have nowhere to go.”

“During the real estate boom speculators with little experience began snapping up apartments. Some investors wanted to flip but missed the peak and couldn’t sell, said Alan Ojeda, a developer of large-scale rental complexes and towers in Miami. Others built their business plans around converting rentals into condominiums. Failed condo conversions make up ‘the vast majority,’ of apartments going into foreclosure, said Still Hunter, a VP of investment in the Fort Lauderdale office of a real-estate services firm.”

”’The problem is widespread,’ Hunter said, adding in some cases rental income is not enough to cover loan payments or even property maintenance.”

“Residents in those buildings find ways to cope. Resident Shanika Rollins said she has to boil water to bathe. ‘It’s like a hurricane, but the lights are on,’ Rollins said.”

The Sun Sentinel. “Nancy Phillips was left with two West Palm Beach condominiums when her mother passed away in early November. The pain of losing her was tough enough, said Phillips, who lives in Poughkeepsie, N.Y. But the real estate decisions she faces now are wrenching as well. ‘I don’t know what to do, to be honest,’ she said.”

“Phillips inherited two units at Century Village Condominiums, including one purchased last year. It has a $40,000 mortgage and $15,000 in upgrades. Still, ‘our agent said we should put it on the market for $35,000, but not to expect to get it,’ Phillips said.”

“It will cost her about $9,000 a year to keep both units and fees could go up. A lot of condo communities are increasing fees to make up for cash-strapped owners who don’t pay and revenue lost to members in foreclosure. ‘And my mother also had a homestead exemption for her property taxes. I won’t have that,’ she said.”

“Karen Alexander, a probate attorney based in Palm Beach County, said about two months ago a client had to show up to the closing with a bank check for the buyer worth more than $10,000. ‘She wasn’t even sad,’ Alexander said. ‘She was happy not to have to pay for it anymore and to cut her losses.’”

The Ledger. “Polk County had a total 122 single-family home permits last month, falling nearly 52 percent on the year, according to area city and county building departments. The county has notched 2,100 permits through November, hovering near annual sums not seen here since the mid-1990s.”

“‘We’re still doing better than many parts of Florida. That’s the only ray of light I have to hang my hat on,’ said Scott Coulombe, director of the Polk County Builders Association.”

“Nationwide, November housing starts fell 47 percent on the year, the Commerce Department announced Tuesday. ‘What we’re looking at are dramatic declines to the lowest levels in home production that have been seen since the government started keeping track in 1959,’ said David Crowe, chief economist for the National Association of Home Builders, in a prepared statement.”

The St Petersburg Times. “Parkview Homes’ predicament is clear from the numbers: Its lenders are clamoring for repayment of more than $30-million in delinquent loans, but as of October the family-owned builder had sold only about 37 homes this year. In a pattern typical of many area builders, the housing slump blindsided Parkview after it invested in land in the formerly hot suburbs north of Tampa.”

“Times were good as recently as 2006. Sales that year peaked at 240. But just a year later they had tumbled to 67. This year has been even worse. Ross Puzzitiello, the son of the family who runs the Tampa operation, didn’t return calls from the St. Petersburg Times. His relatives run another branch of the company in Ohio.”

“A bunch of locally active builders, including Nohl Crest Homes and Smith Family Homes, have either gone out of business or filed for bankruptcy this year.”

The News Press. “As the housing market continues to slide, it’s going to be tougher to keep money coming in, Hovnanian Enterprises CEO Ara Hovnanian said in a conference call Wednesday. Hovnanian, which was Lee County’s biggest home builder until the market here crashed, reported a loss of $450.5 million Tuesday. The Red Bank, N.J.-based builder bought the assets of First Home Builders, a Fort Myers-based home-building company, in August 2005 just before the market collapsed. At its peak, First Home was putting up about 1,000 houses a month. Now the company is largely inactive as a builder in Lee County.”

“”Given the continued deterioration in the housing market, generating cash flow is going to be more challenging,’ Hovnanian said. The company won’t sell land if it can’t get a reasonable price, he said. ‘We will mothball the community. We’ll save that land until at such time as the market improves.’”

“In the long run, he said, ‘Home building is a cyclical industry that overbuilds for a period of time and then must underbuild.’”

“The now-defunct Huron River Area Credit Union collapsed because it ignored signs in 2005 that Lee County’s housing market was about to fall apart. The National Credit Union Administration came to that conclusion in a recent report.”

“The Ann Arbor, Mich.-based credit union had 39,000 members and $348 million in assets. But much of those assets were in construction loans made to home buyers in Lehigh Acres and Cape Coral. Most of those houses were being built by Hovnanian Enterprises.”

“Another credit union, Colorado Springs, Colo.-based Norlarco, also was taken over in 2006 by the credit union administration, largely because of bad debt problems in Lee County similar to Huron River’s. The county’s residential real estate market took a sharp downward turn after the median price of existing homes sold with the help of a Realtor reached its all-time high of $322,300 in December 2005. In October 2008, the last month available, the price had fallen by 56 percent to $141,400.”

“Huron River wasn’t alone in not seeing that crash coming, said Michael Timmerman, a Naples-based senior associate with Fishkind & Associates. ‘I think there’s a lot of people who didn’t see it coming,’ he said. ‘If you had never been through any kind of economic cycle, or if you didn’t know lending, you never saw this situation happening. There were a lot of warning signs, so if you were careful and watched what was going on, it got to where things didn’t smell good.’”

“Will this all happen again? ‘They’ll learn their lesson until things get great again,’ Timmerman said. ‘Then they’ll forget the lesson.’”

“Stephen Price is a Fort Myers banker who abhors the idea of taking a property for nonpayment of a mortgage. But now, he’s finding half of his foreclosures involve borrowers who could have paid but ‘just didn’t want to.’”

“Then there’s Don Gillions, who stopped making payments on his Cape Coral house and moved out only after trying twice to make a deal with the mortgage holder, writing in a letter ‘we want to pay everything that is owed.’ He calls the out-of-area lender, who he said ignored him, ’stupid and greedy.’”

“Both are dealing with issues of integrity. And the issue of ‘walking away’ from a mortgage is one of the most visible of our hard times. ‘A considerable contributor to the recession is the integrity issue,’ said Price, CEO of Florida Community Banks. ‘People who walked off from their mortgages.’”

“He cited as examples the real estate speculators who bought property at high prices, figuring a ‘greater fool’ would come along and pay even more. Price believes the 50 percent of his delinquent borrowers who walk away are those with whom he tried to work out a solution. They decline, he said, because ‘there is no stigma attached to it anymore.’ ‘When I started, people’s word was worth something,’ he said. ‘You’ve got to be very careful making a character loan today.’”

“Gillions, 53, and now living in a rented home with his family in Fort Myers, said the greed of his lender resulted in a ‘courthouse steps’ sale of the house for $150,000. He paid $368,000 for the house in 2006. Gillions is self-employed and the recession hit his storage business, so he decided he needed to get rid of the house in September 2007. He tried to deal with the lender before being late on a single payment. Last summer, he tried again. His payments, taxes and utilities totaled $4,400 a month.”

“‘Are we supposed to spend $50,000 a year on housing expenses, year after year, on a $368,000 loan on a place that was worth $150,000?’ he asked rhetorically.”

“Gillions said he has saved $50,000 since moving out.”

The North Fort Myers Neighborhood. “The Cape Coral-Fort Myers metro area claimed the highest rate of foreclosure activity during November, according to a report released this week from Realty Trac. Gary Tasman, executive director of the Cushman & Wakefield commercial real estate firm, said he thinks Gov. Charlie Crist’s plan to issue a voluntary moratorium on foreclosures Dec. 1 led banks to fast-track foreclosures in November, artificially inflating the state’s numbers.”

“While the moratorium will last 45 days and Tasman maintains foreclosure activity will be down the next three months, home prices may decline as a result of a plan by Lee County Clerk of Court Charlie Green to push more foreclosures through the system.”

“Green maintains the plan to fast-track foreclosures won’t deflate home values. ‘No, they’re going to hit the market anyway so why prolong it and drag out the situation?’ Green said.”