The Housing Bubble

The News & Observer reports from North Carolina. “At Brighton Ridge, a new subdivision in Angier, a sign welcoming buyers features a child in sunglasses and bathing suit, lazing on an inflatable doughnut. But the neighborhood is hardly so inviting. Empty lots are littered with bricks, sewer pipes and for-sale signs. Fewer than a quarter of the 55 homes planned at Brighton Ridge are finished. Down the road is Wellington, where street lights line a network of roads that lead nowhere. Brush is growing on land that was cleared to sprout 70 houses. Not one has been built.”

“‘It’s a ghost neighborhood that never happened,’ said Dennis Cyrus, the president of Den-Mark Construction, the neighborhood’s developer.”

“The scenario has put about one-fifth of this region’s homebuilders out of business, leaving homeowners angry about absentee developers, worried about their financial future or simply wanting for pool-side cabanas that may never be.In some of these subdivisions, a smattering of early buyers live in real estate limbo; they bought into a plan their builders can’t complete.”

“‘They can’t get anything sold,’ said Diane Hardy, who lives in Winston Ridge, an unfinished subdivision in Youngsville. ‘They can’t get anything finished, and it’s sad.’”

“The sign at the neighborhood’s entrance boasts the developer’s motto: Perception is reality. But at L’Hermitage at Beaver Creek in Apex, that reality means weeds taller than a teenager, a clubhouse pool filled with green water and half-built, mold-infested houses. Families live in two completed homes, which sold for $536,000 and $480,000 in 2007. For neighbors, they have the skeletal remains of homes that never came to be. Diversified Communities, the New Jersey builder behind the project, walked away last year.”

“‘They left town,’ said Dianne Khin, Apex’s planning director, ‘and they didn’t come back.’”

The Sun News from South Carolina. “Carl and Peggy Hoffer don’t mind peace and quiet, but they got more of it than they bargained for when they bought their home in Carolina Crossing. The builder Portrait Homes, halted construction after it defaulted on the loan it got to develop the neighborhood. Next door, a roofless house sits in mid-construction.”

“A handful of other half-built houses across the development have also been abandoned, one a mere wooden framework. Construction crews simply disappeared one day and never came back, the Hoffers said. ‘We knew nothing about it,’ Peggy Hoffer said. It was summer, and ‘it was real hot. We thought maybe they’re not working because it’s so hot.’”

“In Country Manor in Conway, homeowner Hank Grabarz said his home’s value has probably already dropped because of the row of unfinished homes across from his. ‘I can tell you right now it’s probably dropped about 30 percent,’ he said. ‘I’ve watched the market value of the houses across the road start out at one number and end up at another number.’”

“The houses have been sitting like that for at least a year, he said. The exteriors look finished, but open garage doors reveal raw interiors, and black tarp surrounds unlandscaped yards. They will probably need a lot of work if someone wants to finish them, Grabarz said. Something like that can be a bargaining point for buyers, and can drive down prices across the development, said Tom Maeser, market analyst for the Coastal Carolinas Association of Realtors.”

“‘Typically if a house is sitting there, it has a negative impact on the image of the neighborhood, no question,’ he said. ‘That builder, if they go into foreclosure, that house goes on the market at a very, very low price.’”

The Atlanta Journal Constitution from Georgia. “Appraising homes during a real estate bust is rough, but appraisers face an even tougher task valuing vacant subdivisions and other troubled assets on many banks’ books. Georgia’s banks collectively hold billions of dollars’ worth of delinquent loans on foreclosed houses, vacant subdivisions and other troubled assets. Many of the state’s banks had bet heavily on the housing boom in metro Atlanta by making substantial loans to builders and developers.”

“The bust two years ago saddled many banks with difficult-to-value projects such as the Rockdale County townhouse project , who has been an appraiser since 1983, was asked to appraise recently.
A client he won’t name asked him to appraise the townhouse development, which has more than a dozen buildings, after the bank that made the loan failed. The bank failure shut down the builder with three buildings still unfinished, Fries said.”

“The project presents a dilemma for his client, he said. Property values have dropped from roughly $80,000 per unit to $50,000, making it possibly unprofitable to complete construction, though some buildings are nearly 60 percent finished. But even though on paper it might make more sense to bulldoze the unfinished buildings, he added, that would drive down the values of the finished units where more than 100 families live.”

“‘I would imagine they’re scratching their heads wondering what to do,’ said Fries, who has essentially appraised that part of the project as worthless. ‘It’s a tough call.’”

“Last week, accounting rule makers approved changes that will give banks relief from so-called ‘mark-to-market’ accounting that forced them to report heavy losses on ‘distressed’ investments, such as mortgage-backed securities. However, bankers said the change doesn’t bring relief from a similar accounting rule requiring write-downs on troubled real estate loans in which the underlying property has plunged in value.”

“That rule ‘has the potential to make more banks fail,’ said Steve Bridges, president of the Community Bankers Association of Georgia. ‘You’re using real capital to cover theoretical losses [on paper.]‘”

The Pensacola News Journal from Florida. “Next week, Yellow Creek Ranch developers will ask the Santa Rosa Local Planning Board for a green light. The Yellow Creek Ranch plan: 1,200 ‘housing units’ atop 1,500 acres of East Milton land. The home prices are in what developers call the ‘popular price range’ of $150,000-$225,000. We have two words of caution for the Planning Board: Remember Jubilee.”

“Jubilee, or Contrada Hills, or whatever name it now uses, was a huge development planned near Pace. It had splashy billboards. It had a kickoff party with a well-known country music star. It is now in litigation, another casualty of Florida’s housing hangover.”

“Our cause for concern is that our real estate market is struggling, with 5,347 homes currently listed on the market at a median price of $138,000. Even when the economy returns, homeowners and agents will sell against the glut of regular unsold homes as well as a number of foreclosed homes. But the recession isn’t the only problem. In Escambia County at least, we are losing population, not gaining it.”

“Unemployment already is hovering around 9 percent; where would the new Yellow Creek homeowners work? Retirees? Not likely, as Florida has become, at best, the fourth choice for seniors. Yes, the development might create some jobs. But building homes under the justification of economic development, in the long term, has not served Florida well.”

“On its own, Yellow Creek Ranch might be a worthy project. But in a recession where Florida’s housing market is the hardest hit, we have to ask: Do we really need more houses for sale?”

The Sun Sentinel from Florida. “This was the plan: Transform a historical dairy farm into a mammoth $1 billion development packed with homes, multistory condo towers and commercial space. But the housing boom went bust and developer TOUSA Inc. filed for bankruptcy protection last year, leaving residents and city leaders wondering what would become of the sprawling project dubbed Monterra.”

“They now have their answer: The new owner of the parcel, Coral Gables-based developer Jim Carr, wants to build less on his 400 acres. Five-story buildings will be scaled down to two or three; instead of 1,910 homes, he will build fewer than 1,800. Carr thinks single-family homes are a better fit for Cooper City, a bedroom community of 30,000.”

“South Florida already has an estimated 33-month supply of vacant condos and a one-year supply of single-family homes, said Brad Hunter, chief economist for Metrostudy. Carr thinks that’s reason enough for an auto-dependent region like South Florida to rethink its embrace of high-density, mixed-use development.”

“Such projects look good in theory, but ‘historically they don’t work,’ he said, pointing to failed projects from West Palm Beach to Miami. ‘Then you’re just sitting there with empty space.’”

“The Florida Association of Realtors reported that median home prices statewide rose in February to $141,900, the first monthly uptick in six months. In February, the number of existing single-family homes sold in Broward and Palm Beach jumped by 39 percent and 33 percent, respectively, over the year before.”

“The spike in sales is fueled by lower South Florida housing prices, which, on average, are about 45 percent below the peak in 2005. ‘A couple of months ago, nobody wanted to buy, at any price virtually,’ said economist Brad Hunter of MetroStudy.”

“Michael Arno thinks it’s time to buy. Arno hopes to snap up a home in West Boynton for $75,000 less than he would have paid last year. ‘I’m getting ready to start a family, and renting doesn’t work any more,’ he said.”

From CBS 12 in Florida. “For the folks living in the Shakerwood community, in Wellington, higher HOA fees have skyrocketed in recent months. Residents there are having to pay $230 more, and there are multiple reason for the fee hike. The neighborhood consisting of 92 homes, has 25 to 30 of those homes empty. ‘We don’t have many people paying on time or at all. We do have foreclosures, and the money is not there… I just feel like a victim who has to pay for everybody else,’ said Anthony Candusso, a resident.”

“Contractually, a bank does not have to pay association fees once foreclosure proceedings have been filed. But residents still have to pay. ‘When a bank is in foreclosure it’s not paying assessments… It’s not obligated to pay assessments… So therefore, it’s in the banks best interest to drag out the foreclosure as long as possible,’ said David Karpinia, an attorney.”

“Making matters worse, the residents living in Shakerwood, don’t enjoy a community pool or a guardhouse. In fact, in the past couple of years, they’ve had their street repaved and that’s it. And paying hundreds more in HOA fees, is hurting Candusso and neighbors financially. ‘It hurts a whole lot because my husband just got laid off and I clean houses for a living, but everyone has left or can’t afford me… So I’m not doing anything,’ said Danielle Goldberg.”

The Naples News. “Under the current real estate economic client in Florida, many banks and other financial institutions holding first mortgages are contributing to the delinquency of condominium and homeowners’ associations’ assessment funds by stalling to initiate foreclosure actions and then by failing to timely complete their foreclosures once their cases have been filed.”

“These financial institutions holding first mortgages do not want to obtain title through foreclosure during a flat real estate market because then they will have to start paying assessments on units or homes that they may not be able to quickly sell.”

“No assessments are being paid by anyone on these units. Even worse is trying to get these banks and financial institutions to consider or take reasonable short sale offers from ready, willing and able buyers. It appears banks have no experience in short sales or have no competent staff able to review short sales.”

“We have seen banks shoot themselves in the foot by refusing a decent short sale offer and then go through foreclose and get the unit. When they finally sell the unit after foreclosure, the price may be hundreds of thousands of dollars less than if they had taken the short sale. It is as if their work-out department belongs to a different company than their foreclosure department.”

The Bradenton Herald from Florida. “The Manatee County administrator recommended Thursday cutting road impact fees by 25 percent, while commissioners leaned more toward eliminating all impact fees for a year. Citing the need to create jobs, Commissioner Donna Hayes was the first to suggest deferring county impact fees for a year. ‘We have to act quickly,’ Hayes said. ‘We are in very difficult economic times.’”

“Randy Young, of Henderson, Young and Co., said when he started researching the data for his report a lot of changes happened in the Manatee County economy, including the collapse of the housing market. Because of the economic downturn, the construction of new homes in the county has almost come to a stop, eliminating the need for new roads. At the same time, the cost to construct new roads also has declined.”

“Young said changing the impact fee structure would not rescue the housing market. ‘There’s a big stock of housing out there,’ he said. ‘If the county didn’t have impact fees today (the developers) are not going to start building them.’”

“Developers, contractors and real estate business people lined up behind the podium to say otherwise. Many of them related how they have had to lay off many of their workers because of the slump. Britt Williams, of Bruce Williams Homes, said there are home buyers looking from Naples to Pasco County for the best deal and would make the leap if the cost was reduced $10,000.”

“In a telephone interview after the meeting, Sean Snaith, executive director of University of Central Florida’s Institute of Economic Competitiveness, said impact fees probably have little to do with the housing crisis, and suspending them would not stimulate job creation. ‘We faced the same concerns with Amendment 1 (which reduced property taxes),’ Snaith said. ‘They said it was going to jump start the economy, but it only furthered the crisis.’”

The News Press from Florida. “In February, the last month available, 454 bankruptcies were filed in Southwest Florida — 68 percent more than the 271 filed a year earlier. In Florida, there were 67,649 bankruptcies in 2008 — up 63 percent from 41,462 in 2007, according to the American Bankruptcy Institute.”

“Bankruptcies filed by Florida businesses are increasing even faster: up 93 percent from 2,029 in 2007 to 3,923 in 2008. ‘Unfortunately you’re almost ground zero for financial ills from the perspective of the individual,’ said Jack Williams, a bankruptcy professor at Georgia State University in Atlanta. ‘You’re seeing a subgroup of people we would not have anticipated being candidates even a year ago. Many of these people have never failed at anything significant since they’ve been an adult.’”

“Charles Phoenix, a Fort Myers-based bankruptcy attorney, said the trend means that some middle-class people who can ride through a typical downturn are finding themselves tapped out. ‘You’re starting to see people with high-end employment and the inability to amortize mortgages,’ he said. ‘Those people are starting to buckle.’”

“Pamela Leslie was doing database and computer work for mailing-list company AccuData when she started on the sharp decline into bankruptcy. Leslie, of Cape Coral, was laid off by in November 2007 and could not find another job. ‘I lost everything,’ she said. ‘My home, car and jewelry and credit.’”