The Housing Bubble

The Grand Junction Sentinel reports from Colorado. “Things will get better, that’s the mantra in the Grand Valley real estate industry these days. ‘It’s just going to take a little time,’ said Bob Reece of Advanced Title Technology in Grand Junction. ‘The crystal ball question is: How much time?’”

“One thing that seems not to have occurred is an influx of buyers from California hoping to escape the Golden State’s well-documented financial woes, said Erika Doyle, chairwoman-elect of the Grand Junction Area Realtors Association. ‘We’d love for them to come to Colorado,’ Doyle said, ‘the West Slope in particular.’”

“California buyers who sold homes in the early 1980s and invested their cash in new Colorado homes played a significant role in the Grand Valley’s economic recovery. ‘But that’s just not happening here today,’ said Dennis Edson, chairman of Unifirst Mortgage in Grand Junction.”

“While the Grand Valley might now be a buyer’s market, ‘It’ll be a short-term buyer’s market,’ said Eric Perry of Epic Homes. Whereas he has had as many as five homes under construction at once in the recent past, he said he’s down to one or two these days. ‘I’m kind of optimistic that the national economy has turned,’ Perry said. ‘People kind of overreacted.’”

The Arizona Republic. “The financial woes of Bethany Group, one of the Valley’s largest apartment investors, have left several large complexes with overflowing trash bins, threats of utility shutoffs and employees who haven’t been paid for weeks. Property managers in Phoenix, Chandler and Glendale said lenders have started taking over operations of 13 Bethany Group-owned complexes across the Valley.”

“‘We haven’t been paid for weeks. Everyone in the (Irvine, Calif.) corporate office was fired Friday afternoon; we’re just waiting for the bank to come and take over,’ said Robin Enderton, manager for a 376-unit complex in Chandler.”

“Thomas Bade, a commercial real estate agent who negotiated one of the sales to Bethany Group two years ago and is familiar with the others, said the deals made up one of the largest portfolios in state history at a time when real estate prices - and apartment rents - were at their peak. In 2007, Bethany Group acquired 12 properties for $428 million, paying about $82,500 for each apartment unit. They’re worth much less in today’s market, he said.”

“Falling realty values, competition from single-family home rentals and higher vacancies in complexes that catered to illegal immigrants likely contributed to Bethany Group’s problems, Bade said.”

“Timeshare resort operator ILX Inc., stung by plunging timeshare sales and a surge in buyers’ loan delinquencies, filed for Chapter 11 bankruptcy reorganization Monday. The small Phoenix-based company, best known for its Los Abrigados Resort in Sedona, also blamed a recent ‘unanticipated reduction’ in its financing due to instability in the financial markets.”

“Timeshare operators, like hotels, airlines and other travel businesses, are hurting because consumers have less disposable income in this weak economy. That means less money to spend on a timeshare or, in the case of those who already own a week or two at a timeshare resort, to pay off their loan.”

The Deseret News from Utah. “With Utah’s unemployment rate creeping toward 5 percent, the Utah Department of Workforce Services will watch the number of new unemployment claims filed throughout March, as the month will be the bellwether for the rest of 2009. If the claim numbers ease off in the next month or so, the economy will likely recover during the third and fourth quarters of 2009, as economists originally forecasted for Utah.”

“But if claim numbers remain high beyond March, economists will have to revisit the expected depth and duration of the recession, DWS announced Monday.”

“The hardest-hit industry in Utah has been construction, with 14,000 jobs lost between January 2008 and January 2009. The rise in unemployment in construction began in September 2007 with the downturn in residential building. ‘There really isn’t any more to lose in residential,’ said Utah Department of Workforce Services chief economist Mark Knold. ‘It’s kind of bottomed out. It’s the non-residential that we’re worried about.’”

The Salt Lake Tribune from Utah. “Utah’s economy appears to be teetering on the edge, on one side a path leading upward toward recovery from the worldwide recession, on the other a way to a longer, deeper downturn. New claims for unemployment insurance shot up to historic levels in January, with almost 21,000 Utahns seeking benefits, according to a report released Monday. That compares with 8,188 claims filed in January 2008.”

‘Mark Knold, senior economist for the Department of Workforce Services, called that a ’stunning leap.’”

“One other area of concern in the Utah employment picture is commercial construction, which in 2007 and 2008 reached historic heights for the value of approved building permits. But increasing job losses will be seen as projects under way are completed and new ones are put on hold because they don’t make economic sense in times of tight financing, Knold said.”

In Business Las Vegas from Nevada. “Some Las Vegas residential land has no underlying value, and it’s only going to get worse, one land expert says. The slowdown in home construction that saw builders close on 284 homes in January and fewer than 10,000 in 2008 is depressing the market to the point some residential land in essence already has no value once improvements are excluded, says Craig Cherney, director of a private equity land acquisition group that buys raw land and entitles it.”

“Cherney says he’s seeing finished residential lots sell for $25,000, which is a 20 percent to 30 percent discount to the underlying land improvement costs. What that means is that finished lots are trading at a discount that gives it a value of zero, he adds. The underlying land values on many of the nonprime locations for residential land has virtually no value in today’s distressed market, Cherney says.”

“‘Until the valley works off the immense overhand of foreclosures of resale properties, I see no reason why residential land demand would improve or otherwise increase in value,’ Cherney says.”

“In addition, the large public homebuilders only add to the problem with their new-home inventory, which must be discounted and priced to levels that can compete with foreclosures, says Cherney, who calls it the perfect storm.

“‘If you’re not in the marketplace every day, it may be tempting to believe that this is only a temporary problem,’ Cherney says. ‘To the contrary, the land market is far from finished with respect to wringing out the excessive speculation and greed that put us into this situation to begin with.’”

“Cherney says he wouldn’t be surprised by another 50 percent decline from the current market values. Declines of that magnitude are already happening in Phoenix. ‘The last I checked the median sales prices of homes in both Phoenix and Las Vegas were very similar in the mid-$150,000 price range. If houses are more or less selling for the same amount in both markets, why should Vegas finished lots be priced at twice or more of the values trading in Phoenix?’ Cherney says. ‘The answer: They shouldn’t be.’”

The Las Vegas Business Press from Nevada. “A deepening recession and financial-market collapse have led to property foreclosures and distressed sales that drove down vacant valley land values 74 percent in the fourth quarter, Applied Analysis, a Las Vegas-based business advisory firm, reports. Southern Nevada land values averaged $391,877 an acre at the end of 2008 compared with $1.5 million an acre a year earlier — a figure that includes higher-priced Strip transactions. It equals a sales price of $9 per square foot in the fourth quarter, or $25.61 per square foot less than 12 months earlier.”

“‘Although the correction now underway was not unexpected, it has left many investors, developers and lenders in a tenuous position,’ Applied Analysis principal Jeremy Aguero said. ‘There are few signs market conditions will improve significantly during 2009, and we expect an increasing number of vacant land sales to come from distressed and bank-owned transactions.’”

The Las Vegas Sun from Nevada. “The disco days are dead, that much is certain. No more brokers driving Mercedes, no more crane skyline, no more developments popping up around the desert like toast from a toaster.”

“Construction and real estate, Southern Nevada’s second most important industry, have crashed, and there likely will be little building here for several years. Now economists and urban planning experts are beginning to consider how the crash will reshape in innumerable ways Southern Nevada’s physical landscape and the way we live — some frightening, but also some hopeful.”

“Start with the bad: All those half-empty neighborhoods on the edge of town become exurban ghettoes. These neighborhoods share the worst aspects of suburban life, specifically long commutes, big gasoline bills and the absence of urban amenities, while not offering some of the traditional benefits of suburbs such as big yards — the houses in many of the neighborhoods are packed closer together.”

“‘This is the stuff that’s going to be in real trouble down the road,’ said Alan Mallach, a nonresident senior fellow at the Brookings Institution and an urban planning expert.”

“Although these houses and town homes have become affordable compared with their astronomic highs of a few years ago, the type of people who might buy them fear unemployment and might not be able to get a mortgage. These structures, which were built cheaply and quickly, will become inexpensive rental housing, a process that seems to have already begun. Next up, landlords begin accepting low-income Section 8 vouchers, Mallach said.”

“First-time homebuyers in particular are well-positioned in the current market, as median home prices have declined 48 percent and continue to fall. The reality, however, is that with 10 percent of Las Vegas area homes in foreclosure, we are quickly becoming a city of renters.”

“But that’s not such a bad thing, according to the social theorist Richard Florida, who notes in a recent Atlantic piece that in the 1950s and 1960s Americans were twice as likely to move as they were last year. The obsession with homeownership, spurred on by government policy, has made us too rooted, Florida argues.”

“Nimble renters — that’s us, Las Vegas — can avoid long periods of unemployment because they can pick up and move. There is a downside, of course: Renters tend to be less invested in their neighborhoods.”

“As urban areas continue to grow, exurban developments offer untenable commutes and gasoline bills. These new developments soon won’t be new and will have to undergo expensive maintenance of sewers, roads and other utilities and infrastructure. In other words, Las Vegas got lucky. The crash has ended the sprawl, and just in time.”

“Rory Reid, chairman of the Clark County Commission, said policymakers realized the sprawl pattern was foolhardy some time ago and had begun to encourage mixed-use, urban development, only to see the recession kill a number of promising projects. ‘I think if there’s a silver lining in the economic travail it’s that we can be thoughtful about how to plan for the future,’ Reid said.”

“As is now abundantly clear, our one-dimensional economy leaves us vulnerable to tourism recessions. The city had come to rely on construction and development as its second most important industry. But that’s finished, at least for some time.”

“‘We need to replace that economy,’ said Keith Schwer, a UNLV economist who has examined the real estate market here in detail.”

“But there’s a hopeful upside, as noted by Senate Majority Leader Steven Horsford, the Las Vegas Democrat: Without the constant banging of hammer on nail, Southern Nevada can use the silence to think about what it wants to be. ‘Because of the downturn, the foreclosures, yes it’s a crisis, but it’s created an opportunity for us to rethink what our city is and what it can be for everyone.’”