The Housing Bubble

The Denver Post reports from Colorado. “A state bill that increases the penalties for violating real estate appraisal laws has cleared the House and awaits Senate action. If approved by the legislature, the bill would triple the maximum prison term and increase sixfold the fines for first-time offenders. Inflated appraisals cause buyers to pay more for a home than it’s worth. When the housing market crashed, many homeowners owed more on their mortgages than the market value and many faced foreclosure when they couldn’t sell.”

“‘We find that a common denominator in an awful lot of the fraudulent activity is bogus appraisals,’ Colorado Attorney General John Suthers said. ‘We wanted to put some more teeth into the fraudulent appraisal law.’”

“Increasing the punishment isn’t likely to stop mortgage fraud, Jim Spray of America’s Mortgage LLC said. The beaten-down housing market has done it on its own. ‘The product’s not out there; the value is not out there,’ Spray said. ‘The days when equity could be invented are gone.’”

The Arizona Daily Star. “For a snapshot of this spiraling housing crisis, head out to Gladden Farms in Marana, where tracts of new homes made for pristine suburban living sit in a dust bowl of unfinished development. Gladden Farms was supposed to be the thriving residential center of Marana’s town core, and during the big housing run homes there couldn’t be built fast enough.”

“But construction in the sprawling, master-planned community…has stopped: Foreclosed homes dot the streets, many residents are upside down on their mortgages, and planned commercial projects are on hold indefinitely. Gladden Farms is facing foreclosure on roughly 625 acres of undeveloped land.”

“Large, two-story homes with multicar garages are surrounded by bare lots. Tumbleweeds and dust blow off the dirt. ‘It’s a total dust bowl,’ said Jennifer Herndon, whose Hallcraft home sits right next to an undeveloped swath of land.”

“She and her husband bought the home in December 2006, just as Tucson’s housing market was peaking, so Herndon is upside down on the property. She said she doesn’t worry about it so much because they bought for the long haul, but she acknowledged that the decline in values has gnawed at her husband.”

“Down the street, Jeff Hodge has many of the same concerns. Dust, he said, collects in his swimming pool, he’s lost a fortune as values drop, and there is no sign of the promised commercial development. Rather than shop at the planned Fry’s that was supposed to be built a few blocks away, he and Herndon make the 10-minute trip to a Bashas’ at Dove Mountain.”

“‘We got left sort of holding the bag,’ he said. ‘I wouldn’t doubt if we’ve lost $100,000 on this.’”

The Arizona Republic. “A Glendale home that sold less than two years ago for $259,000 sold again three months ago for $113,000. A Phoenix home that fetched $190,000 two years ago just went for $45,900. A Queen Creek home sold for nearly $275,000 when it was built in 2005. Last month’s price: $78,000.”

“If there’s an upside to the Valley’s growing foreclosure problem, it’s the number of home bargains now available. Lenders saddled by a growing portfolio of foreclosed properties are selling homes for
prices not seen in metropolitan Phoenix for a decade.”

“Bob Ortega bought a foreclosed home in Queen Creek for $90,000 late last year. Similar homes in the area that aren’t in foreclosure were listed for more than $150,000. But he had to buy a new stove, refrigerator, washer and dryer and then repaint and carpet the house. ‘The last owners must have been mad because they did some real damage,’ he said. ‘It was a big headache, but I think I ended up with a deal.’”

“Unfortunately, he is seeing other foreclosed homes in his neighborhood now selling for $10,000 to $20,000 less than he paid.”

“Hossien Safaie of Keller Williams Arizona Realty said he works to find foreclosed homes for clients that can be fixed up in four weeks and then resold quickly before being undercut in price by new foreclosures. ‘The last foreclosure home I worked with a client to buy and fix up was in north Phoenix,’ he said. ‘It resold in a day for a $60,000 profit.’”

“Some market watchers are concerned about too many investors buying foreclosed homes. ‘It’s great that foreclosure homes are selling and investors are interested,’ said Margie O’Campo de Castillo of Arizona Dream Realty. ‘But too many investors got us into the current mess.’”

From Realty InSites. “Clearly, good vacation-land buying opportunities spring from deep pools of inventory — but beware signs of inventory ‘evaporation’ in some areas already. California, Nevada and Arizona were hard-hit “escape” states that registered significant increases in pending sales in January. San Diego and Bakersfield, in particular, saw stunning increases of about 60 percent.”

“Popular Sedona, Ariz. saw its own remarkable rise. Buyer’s broker Roy Grimm said, ‘Sales took off in February, and Sedona’s already up about 12 percent from this time in 2008. Moreover, pending sales are double this point last year.’”

“Grimm noted Sedona’s median home price had fallen to $341,500 in January — from a peak of $660,000 in 2006. With recent sales, it’s already risen to $451,000. His conclusion? ‘When pent-up demand meets bottom, it’s time to act.’”

The Salt Lake Tribune from Utah. “On Thursday, it had been a year to the day that Becky Hjelm put her condo on the market. In that time, she cut the price by $19,000 and hired a new agent, but the ‘For Sale’ sign is still there.”

“Now she’s concerned that potential buyers are going to be lured away by a $6,000 state incentive aimed at getting the housing market moving. Here’s the hitch: Only newly built, unlived-in homes qualify for the state credit, putting Hjelm and hundreds like her at a disadvantage when they’re trying to move their houses.”

“‘It’s discouraging. It’s not going to help me in my house,’ she said. ‘I’m fortunate that I’m not in a situation where I’m going to lose my home, but a lot of people are and it would be nicer for people who are barely hanging on to their houses and want to get out of them to have this $6,000 motivating buyers to buy their homes.’”

The Deseret News from Utah. “An estimated 10,000-12,000 households are created in Utah each year, but no one knows for certain where they are living. They aren’t building houses: The number of building permits along the Wasatch Front decreased 46.4 percent between January of last year and January of this year. They aren’t buying houses: The number of homes sold in Salt Lake County fell 25 percent between January of last year and January of this year.”

“They aren’t renting: Rental rates along the Wasatch Front decreased 2.3 percent between February of last year and February of this year, which indicates landlords are cutting prices to lure tenants.”

“Where are folks living? Wells Fargo economist Kelly Matthews has a theory: ‘People are moving into their parents’ houses or basements.’”

“Jeff Bulkeley, his wife Amanda and their two young sons feel cramped in their Murray condominium and want a bigger house. However, the family will not move directly into a new house. They plan to live with Bulkeley’s parents in Sandy for a while to stash away more money for the down payment. They have listed the condo. ‘We’re going to pay off all of our bills with (profits from the sale) and whatever’s leftover will be our down payment money,’ said Bulkeley, an apprentice plumber.”

The Review Journal from Nevada. “At 5 percent interest, the total mortgage payment on a median-priced $150,000 home in Las Vegas would be $1,080 a month. Most renters are paying $800 to $1,000 a month. The kicker, said mortgage broker Mark Baker of Meridias Capital in Las Vegas, is the $8,000 tax credit for first-time homebuyers.”

“‘When Realtors were declaring, ‘Now’s a good time to buy,’ six to eight months ago, that only meant they needed a paycheck, Baker said. Consumers saw through that. Now the market really has switched, he said.”

“If someone buys a home at $145,000, even if the value drops to $130,000, it’s still not worth it to ‘walk away’ because they’re not going to find a cheaper place to live, Baker said.”

The Las Vegas Sun. “It’s the scruples question of the day. Maybe of the year. Should I stay in the home I love, or stick it to the bank? Financially, you are able to make your mortgage payments. But if your mortgage is greater than the value of the house, why pay it? You’re throwing good money after bad. Paying the mortgage may be the right and legal thing to do, but not necessarily the smart play.”

“One financial adviser says homeowners, in increasing numbers, are taking an unsentimental view toward their houses — once viewed as the pinnacle of the American dream — and making cold, rational decisions to walk away from legally binding commitments.”

“‘That’s the problem with our society: You have an obligation and yet people walk away. If that happens across the country, we’ll go kaput,’ says Frank Farley, a professor of psychology at Temple University and a former president of the American Psychological Association.”

“But such people, he says, aren’t lacking justification: They are the victims of real estate greed and incompetence in the banking and subprime lending industries, and they see corporate America making similar decisions.”

“The number of homeowners bringing foreclosure on themselves could be staggering: More than 234,000 homes in Nevada — 55 percent of the state’s total — are ‘upside down,’ according to First American CoreLogic. That percentage is the highest of any state. Put a different way: Most properties bought here between 2004 and 2007 are upside down or ‘underwater,’ according to Steve Bottfeld, executive VP of Marketing Solutions, a Las Vegas housing consultant.”

“Steve Schauer, a mortgage specialist with Flagship Financial Group, says that of all the upside-down homeowners he meets, about two-thirds say they’re abandoning their homes. The homeowners who opt to stay for moral reasons are the exception, he says.”

“The beleaguered homeowners, Farley says, are empowered by what they see happening in corporate America, where failing companies unabashedly are lobbying for federal bailouts, pursuing bankruptcy protection or otherwise reneging on loans — anything to survive, morality and ethics notwithstanding.”

“Financial adviser Jeff Ballek, who says he does not advise clients to default, finds it ironic that homeowners with the most conventional and conservative of all loans — 30-year fixed-rate mortgages — and were most committed to homeownership are now the ones who are considering foreclosure as an escape from their undervalued homes. ‘At this point, they’d rather destroy their credit for seven years and start over again,’ Ballek says. ‘I don’t think the average person has a lot of remorse anymore. They just feel like a part of the crowd now.’”