The Housing Bubble

The Indy Star reports from Indiana. “Desperate to stay in her Putnam County house in a pending foreclosure last year, Melissa Adams turned to a mortgage consultant she found online. Adams ended up paying $1,500 to the Florida company to negotiate a modification to the mortgage she could no longer afford. It didn’t help. Her 6-year-old home near the Putnam-Hendricks county line, was auctioned at a sheriff’s sale in December. ‘I’m kicking myself’ for paying HomeAssure, said Adams, a forklift driver who now lives in a rental house in Greencastle with her husband and his children.”

“The crisis is fueled by falling home values, rising unemployment and ballooning interest rates on subprime mortgages granted during the housing boom of 2002-06. ‘They’re preying on people who are down on their luck,’ said Pamela Sandlin, a school bus driver who got stung for $3,500 by an Indianapolis foreclosure prevention company called three years ago.”

“She and her husband moved into a rental home in Lawrence. ‘We’ll probably never own another home now,’ she said.”

“In the heart of Carmel’s arts district, the high-priced Monon on Main townhome project sits half completed, months after the builder walked off, leaving building materials strewn on a dirt lot. In Plainfield, just north of U.S. 40, construction in the Blackthorne subdivision has ground to a halt, leaving residents without a promised swimming pool and their unpaved streets with multiplying potholes.”

“In Noblesville, half of the Prairie Lakes townhome development resembles a Western ghost town, with street signs shaking in the wind on empty roads lined only with thigh-high dry weeds. A count by The Star shows…well over 1,000 vacant lots have been abandoned by just four major builders that have exited the market in the past year. That’s more than one-fourth of the total number of new home-building permits issued in the metro area last year.”

“At Prairie Lakes, Chicago homebuilder Portrait Homes pulled out last month, about 100 units short of finishing. ‘We haven’t gotten a letter; we haven’t gotten anything,’ said Ashley McWhorter, who bought her two-story townhome in 2007. ‘I spent $136,000 with them. They should at least have notified us.’”

“Portrait gave up on Prairie Lakes, two other Indianapolis-area communities and the rest of its projects in the Midwest because of the sluggish housing market, said spokesman Jonathan Dedmon.”

“‘I’ll never get out of it what I owe. It’s a mess, really,’ said Vince Novinger, who bought his Prairie Lakes townhome two years ago.”

“Builder-deserted subdivisions can see sharp drops in home values. ‘It gets very difficult to finance a home once the builder has left,’ in part because there tend to be fewer comparable sales to base an appraisal on, said Kim Hockaday, a loan officer for First Mortgage of Indiana.”

“As subdivisions get restructured and put back on the market, homebuyers should be cautious in buying lots or homes in them, said Ira Wolff, an F.C. Tucker Co. real estate agent. Dissension or even lawsuits may exist between the builder and homeowners, subcontractors or lender. The homeowners association may be underfinanced. Or the municipality may have issues with the new building plan.”

“‘People are probably going in thinking they’re bargain-hunting,’ Wolff said. ‘It looks really good on paper, but it could become your worst nightmare.’”

Crain’s Chicago Business from Illinois. “A new train stop is about to open in the center of the business district, with direct service just an hour’s ride from Chicago’s Union Station. Jim Gierczyk, the developer of Light Harbor Preserve condos put up the $1 million to build the new train platform on his property, where he’s trying to move units just a few hundred yards from Lake Michigan. ‘I’ve been telling people for years that they should live here, and now it could become a reality,’ says Mr. Gierczyk.”

“Could New Buffalo be in transition from sleepy summer town to full-time Chicago suburb? ‘We can only hope that people will move here,’ says Marge McGinnis, a waitress at Rosie’s. ‘Goodness knows we’ve got the housing to accommodate them,’ she adds, pointing to empty condominiums across the street.”

The Times Herald in Illinois. “A light snow fell as 10 people huddled Tuesday morning on the front steps of the Coweta County Justice Center on Greenville Street in downtown Newnan to hear the latest round of foreclosure sales. The first several properties offered don’t prompt even a single bid. They come from all over Coweta County.”

“‘It’s got to really be a steal for anybody to buy property on the courthouse steps, these days,’ said Jonathan Camp of Real Estate Title Services, who called out the foreclosure sales. ‘We sell maybe one or two a month down here. I don’t know that I’ll have any sales at all today. We have 16 properties we’re offering. That’s about half of what we normally carry down here.’”

“When asked why there was so little interest in the properties, Camp said, ‘I would assume because the bidders can’t turn around and sell them for what they’re asking. They have to get it cheap enough so they can resell it for a profit.’”

“One longtime player in foreclosed/resale properties who was at the sale, but declined to be named, called the courthouse steps bidding process ‘antiquated’ and said that it makes a whole lot more sense to wait and obtain the property after it’s bank-owned. ‘The banks have to get the money. They don’t want the property,’ he said. ‘The bank will accept low offers because they are not into holding real estate. These days, bank-owned is the only way to do it.’”

“He said banks and resellers often don’t even bother with fixing up the properties before turning them over. ‘There was one property on the market — four bedroom, three baths — for $160,000, and it was ultimately offered for sale at $153,000,’ he said.”

“The opening bid on the courthouse steps was placed at $121,000, but there were no bites, so the property fell into the bank’s hands. ‘I offered $65,000 for it, and the bank counter offered at $67,450,’ he said.”

“That’s the kind of sweet deal that no one is going to find on the steps of the courthouse, he said. ‘They’re selling very, very few,’ he said. ‘You can’t even sell a $100,000 home out here anymore.’”

The C&G News from Michigan. “Spring is traditionally the season when housing sales start to heat up along with temperatures, but in recent years, Michigan housing sales have been chilly to lukewarm at best — even in the once hot Grosse Pointe market.”

“There are signs, however, that sales may be starting to warm up again. As of the first quarter of 2009, said Grosse Pointe Board of Realtors President George Smale, there were more than 500 homes on the market in Grosse Pointe, of which about 30 percent were in foreclosure. That may sound troubling, but Smale pointed out that in other communities, the number of homes in foreclosure is around 70-80 percent.”

“At this time last year, there were about 800 homes for sale in the Pointes, ‘which is huge.’”

“Perhaps more encouraging is a sign that prices, while nowhere near record peaks of recent years, at least appear to be stabilizing. Smale said the average selling price of a home in Grosse Pointe now is about $280,000; in Detroit, by contrast, it’s estimated at $5,000.”

“‘We are not in bad shape with regard to selling prices,’ he said. ‘Every community … has lost value, and I don’t think Grosse Pointe in comparison to other communities has lost nearly as much.’”

The Badger Herald in Wisconsin. “Parents who used to rely on home equity loans to help pay for their child’s tuition will have to look for other methods of payment due to a sharp decline in home values across the nation. Previously, parents could ask the bank for home equity loans as an inexpensive financial aid option, according to Haley Chitty, director of communications for the National Association of Student Financial Aid Administrators.”

“However, the decline in home values has caused lenders to stop offering non-conformal loans, which include home equity loans. ‘If you have a bunch of equity in your house and the value of your home drops, then you can’t draw on that value to help pay for college,’ Chitty said. ‘When real estate prices were increasing fast that was an extra source of money parents could tap into, but as the real estate has gone down that’s not an option for a lot of parents and students.’”

“According to Ald. Brenda Konkel, District 2, Konkel, the state of Wisconsin has seen a 17 to 18 percent decrease in home values. ‘I would be concerned that students would have a harder time because their parents won’t be in the same position to help them,’ Konkel said. ‘Additionally, there are so many more people afraid of losing their jobs at the moment while in the past people felt a lot more confident so I think it’s sort of a double whammy.’”

“‘I think it’s particularly a big issue for parents that live in the east or west coast. Our prices probably weren’t as out of control as they were in other cities,’ Konkel added. ‘I think the biggest impact in the housing market is it used to take less than 30 days to sell a home now it’s taking a lot longer, particularly with condos.’”

The Star Tribune in Minnesota. “Janel Bergum is excited to move into a ‘cute’ Birchwood, Minn., house with four bedrooms and ‘a nice fenced-in yard.’ Her father, Mike Jesmer, bought the house for her on Saturday for $125,000 at an auction held to help mortgage lenders clear the big backlog of foreclosed properties.”

“‘I was very apprehensive and nervous when we came here,’ said Jesmer, who bought the house at the Minneapolis Convention Center event that featured a tuxedo-clad auctioneer.”

“Real Estate Disposition Corp., a California-based company handled the auction that included pulsating rock music, such as ‘Living in America,’ before the rapid-fire bidding began. Bidding assistants raced up and down the aisles of a ballroom that was packed with 1,000 people — more were in an overflow room — as would-be homeowners and investors bought a foreclosed house every two to three minutes.”

“The assistants, also wearing black tuxedos, waved their arms and blew their whistles to attract the attention of auctioneer Mike Carr when a person in their sections wanted to raise the bid. Carr barely had time to take a drink of water between sales as he coaxed the audience to bid higher on each foreclosed property as it was displayed on a big screen. One bidding assistant, sporting a crew cut, leaped on to a chair, screamed ‘yes’ and pumped his fist as a bidder he was handling succeeded in buying a home.”

“Heide Lidstrom-Olson and her husband, Tarryl Olson, of Eagan, didn’t allow the sizzle of the auction to distract them. Veterans of similar auctions, they bought three houses in St. Paul that they plan to turn into rental homes. They had bought five residential properties at earlier auctions.”

“On Saturday, they paid $57,500 for a house that once had sold for $310,000. Tarryl had carefully analyzed the conditions of all of the houses they bid on, and Heide had a complete breakout of earlier valuations and estimated repairs. They bought two other houses, for $55,000 and $32,500. The couple said they look for properties that need paint, carpeting and new appliances, but are in almost move-in condition.”

“Judy and Mark Rygh of Mounds View purchased a Ham Lake home, once valued at $325,000, for $95,000. They’ll need to sink some money into house repairs, but they’re thrilled the property sits on nearly two acres of land.”

“About 40 to 50 protesters, organized by the Minnesota Coalition for a People’s Bailout, gathered outside the convention hall Saturday to call for a moratorium on foreclosures. But they didn’t cross paths with REDC President Jim Corum, who said, ‘The American dream is to buy low and sell high,’ Corum told bidders Saturday. Many of them took advantage of prices and interest rates that have fallen since the housing bubble deflated. ‘A lot of people were priced out of the market.’”

The Minnesota Independent. “Foreclosures have hit Minnesota’s economy hard, leading to a debate among policymakers over how best to provide relief to the state’s families. While much of the crisis is centralized in an area covering two congressional districts, a search of the congressional record reveals that the representatives in those districts are dealing with the crisis very differently.”

“Rep. Michele Bachmann has voted against all but one measure aimed at foreclosure relief, while Rep. Keith Ellison in the neighboring district has supported or introduced more than a dozen bills to address the issue.”

“Ellison has been working to address the crisis. The 5th district, encompassing Minneapolis and its surrounding suburbs, has the second-highest foreclosure rate in the state, with an estimated 4,413 foreclosures in 2008. Ellison authored a bill that gives renters 90 days notice when a housing unit goes into foreclosure and allow them to finish their lease.”

“In the last session, Ellison authored the Fairness for Homeowners Act, which would add new regulations to mortgage lenders such as verifying a borrower’s ability to pay and eliminating pre-payment penalties. Last Tuesday he and Sen. Amy Klobuchar reintroduced that bill. Ellison is also a co-sponsor of 12 other bills aimed at providing relief to individuals and communities impacted by the foreclosure crisis. His voting record in Congress on housing is virtually the opposite of Bachmann’s.”

“Bachmann and Ellison both sit on the Financial Services Committee. Ellison voted for all five of the foreclosure-related committee bills that Bachmann voted against, and the same was true of the five floor votes on foreclosure legislation.”

“Ellison says that Congress needs to do more for homeowners, and for the middle class in general, than it’s currently doing. ‘How can we sit by and act like we don’t care? A home is a big deal,’ he said. ‘The largest asset that people own is their home.’”

“Bachmann…voted against the FHA Housing Stabilization and Homeownership Rentention Act of 2008, which did not receive a floor vote. The bill would have provided mortgage refinancing assistance to struggling families and expanded FHA loan programs. Bachmann further offered an amendment to block increased funding for HOPE for Homeowners, a Department of Housing and Urban Development program that helps families facing foreclosure to refinance their mortgages.”

“When Congress was debating strategies to assist families facing foreclosure, Bachmann called those homeowners ‘irresponsible.’ ‘Now, we can debate whether this is the right thing to do as it may seem that you’re rewarding the irresponsible while punishing those who have been playing by the rules,’ she said in Febraury. ‘When President Obama released his plan … to prevent home foreclosures, the point he wanted to get across to everyone watching was that money from folks who have been making their payments on time will not just be handed over to those folks who got in over their heads and bought a house they knew they couldn’t afford.’”

“Those homes that residents of the 6th district couldn’t afford had a median value of $239,000, according to the 2007 American Community Survey, just above the national median of $229,000. Prices have likely declined considerably since the 2007 survey.”

The Austin Daily Herald in Minnesota. “Jacquie Barth spent the day in Austin Saturday searching for the first house she can call her own. As she stepped into a small, mint-green two-bedroom on 10th Avenue Northwest, her feelings about it were evident. ‘No, not so much,’ she said of the house, listed at $49,000.”

“Barth, 22, who is single and works full-time at Viracon in Owatonna and part-time at Hy-Vee in Austin, met with a lender, who approved her for $40,0000 to $65,000. Realtor Mary Lindgren said there were 45 options in Austin that met Barth’s price range, although many did not fall into her criteria of two bedrooms, two bathrooms.”

“Their second tour was of a one-bedroom, one-bath for $61,900 on Eighth Avenue Northwest. The house had more potential, but the second-story bedroom was very small.”

“In spite of the rough economy and a nation in the midst of a recession, the Austin housing market is doing remarkably well. This week Lindgren saw another ‘good sign:’ she had a buyer who lost a home after multiple offers were made. ‘The doom and gloom is really old news,’ Lindgren said. ‘Things are selling. We’re already doing better than 2008.’”

“Danielle and Troy Schaefer’s yellow, single-story home is nestled among tall, old trees in a winding residential neighborhood in northwest Austin. After searching for more than a year and a half for a bigger house than their one of eight years in the southeast part of town, they found the perfect fit for them and their three children.”

“Their new home, at $145,000, had more square-footage and was a good deal, she said. It was not until three months later their new house actually belonged to them. The Schaefers were not able to move in until March 18, and their official closing date was supposed to be March 17.”

“Danielle explained that although the housing market and ’small kitchen’ were a hindrance in selling their previous house, they experienced some increasingly common problems: picky underwriters and loan issues with their buyers.”

“The Schaefers had locked into an interest rate, even paying extra to extend it, and the buyers’ loan did not go through. ‘It was a huge mess,’ Danielle said.”

“Lindgren also helped the Schaefers buy their home. ‘It was the only deal that ever made me cry,’ she said.”

Danielle said they love their new home, and do not expect to go through the process again for many years. ‘We will not buy again in the future unless it’s our retirement home … nursing home … coffin,’ she said.”

“But the market is not perfect, Lindgren explained. Homes in Austin have showed a depreciation of about 10 percent in 2008. Also, homeowners who have only owned their homes for a few years should either hold off before selling or ‘crunch some numbers,’ Lindgren said.”

“Lindgren said she expects the only thing stopping Austin’s housing market from having a good year is ‘people with bad credit.’ ‘I really believe this,’ she said. ‘I’m not just trying to be a ‘rah, rah Pollyanna.’”

“Realtor Scott Ulland agrees not only that this area is bucking the miserable housing market trend — he says it’s ‘hot.’ ‘We do have values that are down,’ Ulland explained, ‘but we continue to have spring fever. People are sick of the doom and the gloom of the marketplace. We feel as though the buyers and sellers are coming to that conclusion themselves.’”