The Housing Bubble

A report from the Arizona Daily Star. “This housing downturn is so vast that even the high-end custom market is getting battered and bruised. For proof, look no further than the SAHBA Parade of Homes. In a sign of the times, only two of the homes have sold, and at least four of the builders are in talks with the bank. But builder Steve Canatsey said that if he could do the Parade of Homes again, he would. His 4,000-square-foot territorial home has yet to sell, although he said he is in negotiations with a potential buyer, and the listed price has dropped from nearly $2 million to $1.5 million as the market has declined. ‘Quite honestly, I have never seen what I call the wealth market be on the sidelines like it is in this time,’ he said. ‘In the years past, the people who have had substantial means don’t alter to any great extent their purchasing. Today, they do. Everyone is taking a wait-and-see attitude.’”

“It was during the peak of the market in 2006 that organizers began planning the parade. Timing is everything, and the conventional wisdom is if the Parade of Homes had happened in, say, 2006, these homes would have sold faster than you could say ‘before the bubble burst.’”

“Joseph Smith Jr. of Golden Star Properties, (is) a custom home builder who considered taking part in the Parade of Homes but ultimately didn’t. Smith said early discussions were more modest, with some builders talking about putting up $600,000 homes. But as plans became more extravagant, he backed out because he couldn’t make the numbers work.”

“Certainly bad timing played a role in the Parade of Homes’ struggles, but Smith said in the go-go market of 2006, people forgot that with every venture comes risk. ‘The prevailing mentality was that there was no way to lose,’ he said. ‘I think the general take-away is, living within your means as an individual and also as a company. Because really they were rolling the dice, and they were expecting a huge return off these custom homes.’”

“‘Some time in 2011 you will see a slow uptick in the number of permits,’ says Ed Taczanowsky, president of the Southern Arizona Home Builders Association. “It won’t be anything like we had in the past. I think everyone has learned their lesson about the housing bubble. People are going to be buying homes as homes, not as investments.’”

“During the housing run, the emphasis was on bigger and bigger homes, notes custom builder Paul Hubble. The mentality was ‘the bigger the better, and the more amenities the better,’ he says. ‘You wanted to have everything in it, and square footage wasn’t a problem because people had money and the stock market was doing well. I don’t think you are going to see that as much anymore.’”

“More than 96,000 properties in Arizona, mostly homes, are either scheduled for auction or are now bank-owned, according to RealtyTrac. The majority of those properties, about 75,000, are in Maricopa County.”

“Many in the local building industry say foreclosures will continue to undercut new home construction and drive down prices for traditional resales. Case in point: Much of the foreclosure inventory across the state cited by RealtyTrac hasn’t yet come on the market. ‘That is the elephant in the living room,’ said John L. Strobeck, who tracks Southern Arizona real estate and housing data. ‘We are just going to live with this foreclosure market. We will be down in the 130s (for a median home price) before this is over.’”

“With five-year adjustable-rate mortgages expected to re-set in 2010, Strobeck said he expects even more foreclosures to come on the market and for new construction not to pick up until possibly 2011. ‘We are really at the beginning of the foreclosure mess,’ he said.”

“Those new homes that are being sold are specifically designed to compete with the foreclosure market. For example, KB Home recently kicked off a new line of homes called the Open Series. These homes are energy-efficient, allow buyers to design their own floor plans and come with 10-year warranties. But the line’s pricing, starting at $99,000, is aimed directly at the foreclosure market.”

The East Valley Tribune. “Arizona is behind only Michigan in the percentage of job losses during this recession, based on figures from the U.S. Bureau of Labor Statistics, said Lee McPheters, director of the JPMorgan Chase Economic Outlook Center at ASU. This is largely because of declines in businesses closely related to growth and home building, he said.”

“‘Going into the recession, Arizona was one of the leading job-growth states,’ he said. ‘So we had further to fall. … Arizona is a high flier that went the other way.’”

The Verde News from Arizona. “A lot of ground has been covered to prepare for the new Cottonwood fiscal budget (July 2009 through June 2010), but the Council got a taste of what the city is facing in the new year and it will make for difficult and possibly unsavory work. Cottonwood Finance Director Rudy Rodriguez told the council, ‘It will be a very tight year.’”

“That may have been an understatement. Almost all forms of revenue are down, especially the city sales tax collections. Cottonwood sales taxes, which make up 60 percent of city revenues, have declined by almost 9-cents on the dollar. State revenue sharing is down 12 percent. Because they are collected two years earlier, state income tax is on target this year, but will plunge 13 percent next year. The vehicle license tax is down nearly 7 percent. Auto sales are down to the level reached before the year 2000. One dealership has moved from Cottonwood to Camp Verde. Sales have plummeted from $5 million to half of that amount.”

“A 1-percent construction sales tax, mostly dedicated to road building, has also slowed consistent with the sluggish housing industry. Rodriguez wanted to call his latest budget planning session, ‘There’s no money, Go Home.’”

From KRNV TV in Nevada. “A new report says leading indicators show housing woes in Washoe County are far from over. The report by RealtyTrac says the Reno-area last month jumped to eighth place in foreclosures among 200 metropolitan areas. Southern Nevada’s Clark County topped the national list.”

“The number of Washoe County homes in foreclosures jumped to 557 in February, up from 71 a year earlier. Additionally, the report says the number of default notices rose to 711, nearly double the 363 reported during the same period last year. The recent ranking is just another dubious distinction for Nevadans, who are getting used to leading negative trends nationwide, while consistently ranking lowest on the positive lists. And one local economist says there’s a good reason for that.”

“‘Nevada had a bigger boom– or bubble, as we call it– so when it burst, we fell farther,’ said Thomas Cargill, Ph.D., who teaches economics at UNR. ‘There was more imprudent lending, more misrepresentation of the ability to pay, and a lack of concern by lenders who didn’t check [on buyers' credit].’”

The Reno Gazette Journal from Nevada. “Before the housing bubble’s collapse, short sales were the housing equivalent of mystery meat. People might have heard about them but didn’t quite know what to make of them. Fast forward to the present, and short sales have since entered the mainstream lingo.”

“Just a year ago, short sales remained an unattractive option for lenders even as they started to vigorously focus on foreclosures as a way to get distressed properties off their books. But like spurned lovers on the rebound, short sales are getting a second look from banks. A prime culprit is the skyrocketing default rate, which has jumped nationwide from less than 1 percent just two years ago to 7 percent, said Dennis Green, general manager of (a) foreclosure listing site.”

“‘In a normal year, a short sale was a fairly rare occurrence,’ Green said. ‘Obviously, what we’re looking at now are extraordinary times. I don’t think lenders really understood the severity of the problem and the sheer volume of distressed properties that would be coming into the marketplace.’”

“Based on Northern Nevada MLS data, short sales accounted for 1,253 of the 4,082 listings in the Reno-Sparks market as of March 10, said Mitch Argon, broker-owner of CalNeva Realty. At about 31 percent of the market, the number of short sales trump bank-owned foreclosures, which make up 21 percent of local inventory.”

“The increase in short sale volume in the last couple of years has been ‘tremendous,’ local Realtor Stacey Berger said. ‘I first recall seeing a few short sale listings in late 2006 and early 2007,’ Berger said. ‘Back then, most agents didn’t even know what they were because they were so new to this area. Now, the market is flooded with them, especially in lower price ranges and newer developments. In some areas, a buyer has no choice but to pursue a short sale or (a bank-owned foreclosure).’”

“Horror stories of transactions taking months and months and months are not unusual, according to people familiar with short sales. And in a market where home prices can drop within a month, taking too much time is bad news. ‘A buyer might look back and say, ‘Well, the market dropped another 10 percent so I don’t think the house is now worth my original offer,’ Green said. ‘Or maybe the buyer just gets sick tired of waiting and chooses another property instead.’”

The Las Vegas Sun from Nevada. “Las Vegas home sales edged up slightly in February, but nothing seems to stop falling prices, which have dropped 50 percent from their peak. The Greater Las Vegas Association of Realtors reported this week that the median home price fell 2.7 percent in February to $155,603. That’s down from $160,000 in January and 37 percent from February 2008.”

“The $155,603 price marks a 50.6 percent decline from the market’s peak in June 2006 when the median price was $315,000, according to the Realtors’ group. The organization tracks only single-family homes sales on the MLS.”

“In the condo and town house market, the 442 sales were 0.5 percent higher than in January and 166 percent greater than February 2008, the Realtors reported. But prices of condos sold on the MLS continued to decline. The median price was $75,000, a 6.3 percent drop from the $80,000 price in January. That’s a 50 percent drop since February 2008. There were 1,204 new listings of condos and town houses in February with a median price of $94,400, a 5.5 percent decline from January.”

“In February 2,268 home sold, a 2.9 percent increase over January. Despite the increase in sales, that mark is nowhere close to the market’s peak when 3,552 homes sold in June 2004. ‘These statistics are in line with trends we’ve seen over the past year or so,’ the Realtor group’s president, Sue Naumann, said. ‘It’s encouraging to see more homes selling each month, but we know declining prices are driving these increasing sales.’”

“Bank-owned properties account for at least three out of every four sales and those foreclosures continue to force home prices to fall, she said.”

In Business Las Vegas from Nevada. “It doesn’t sound good when there is an analogy between the Las Vegas economy and cliff diving, but that’s how UNLV economist Keith Schwer described the latest numbers released March 10 by the Center for Business and Economic Research. All 10 categories of the Southern Nevada Index of Leading Economic Indicators declined in February, eight by double digits from last year’s levels. The components of the index have even fallen below their counterparts in the national index, he said.”

“‘It is dropping precipitously,’ Schwer said. ‘It’s what we refer to as a cliff-diving chart.’”

“The main index fell 4.68 percent in February compared with February 2008. One of the biggest reasons for the decline was a 16.7 percent drop in taxable sales in December, the latest monthly data available, Schwer said. The second biggest drag on the index was a 75 percent decline in the value of housing permits issued in December. There were only 148 home permits issued in December - a 25-year low.”

“Construction had a horrific month with the Clark County Construction Index down 36 percent, Schwer said. Since September, the index has fallen more than 30 percent when compared with the previous year. Commercial construction is headed down the same road as residential activity, said Jeremy Aguero, an economist.”

“Construction jobs are down more than 11,000 and those losses have created job losses elsewhere, Schwer said. The Las Vegas jobless rate reached 10 percent in January. ‘The rise in unemployment does not bode well for the housing market,’ Schwer said. ‘It puts further pressure on foreclosures.’”

The Review Journal from Nevada. “ManhattanWest had two ’savior groups’ that wanted to rescue the mixed-use condo project in the southwestern Las Vegas Valley, but the developer refused to talk with them and went into hiding, one of the project’s lienholders said. More than $30 million in liens have been filed against ManhattanWest, which halted construction in December. Developer Alex Edelstein said the project is a casualty of the financial crisis and that he’s looking for a group of investors to finish the project.”

“‘Alex won’t call them back, won’t take their calls and can’t be found,’ said Jeff Glass of Hydro Pressure Cleaning, whose company is owed about $500,000 for seismic repair on concrete columns.”

“‘I talk to groups all the time, but so far it’s all hat and no cattle,’ Edelstein said. ‘They tend to want me to produce masses of material for them but are reluctant to verify any of their bonafides.’”

“The only assets trading hands right now are doing so at the most distressed of possible prices, and bankers aren’t willing to write down ManhattanWest to that level, he said. ‘They, like me, think it will be worth much more than the market is valuing it at,’ he said.”

“ManhattanWest is the latest condo project to go belly-up in Las Vegas. Last year, Mira Villa condos and Vantage Lofts stopped construction and went into bankruptcy. Sullivan Square had barely begun excavation before the project was canceled. Spanish View Towers was the first high-rise project to stop construction after partially building an underground parking garage.”

CBS News on Nevada. “Ever since Vegas sprang from the desert in the 1940s it seemed a place immune to the economic ups and downs of humbler cities. There were always more customers for every new hotel, casino and show. Vegas has long been the place where people came to find work when they couldn’t find it anywhere else. And when the rest of the country was booming, Vegas boomed even more.”

“‘Between 2003 and 2007, we saw housing prices essentially double in the Southern Nevada area,’ said Jeremy Aguero, an economic analyst in Las Vegas. ‘We were growing faster than everybody else. We were selling more houses. We were building more office buildings. We were building more hotels than anyone else in the nation.’”

“Now this city of excess has an excess of all the wrong things. ‘On a per-household basis, we have among the nation’s highest rates of foreclosure, the highest rate of unemployment claims,’ Aguero said. ‘You see the lowest rate of population growth in probably 50 years.’”

“Miles from the Strip, Tanya Rucker worries she won’t have her little home to come home to. Like nearly 60 percent of the people in Las Vegas with a mortgage, she owes more than her house is worth. ‘I’ll be honest, I paid $226,000 for it,’ she said. ‘And now, I think they’re selling for, at the most, $180,000, some maybe $170,000.’”

“A single mother with a four-year-old daughter, her income has dropped dramatically as fewer people come to the spa where she works. ‘When I first moved here, I think that I thought the grass would be greener here,’ Rucker said. ‘And it was, for a long time.’”