June 1, 2009

When Go-Go Went Bye-Bye

A report from the Times Publications. “At the end of this dusty dirt road, half-built casitas bake in the sun a few miles from the beaches of Puerto Peñasco, Mexico, better known as Rocky Point to the tens of thousands of Arizona tourists who visit here each year. Paint peels from two of the vacant models, surrounded by nothing but sand dunes. A nearby ‘golf course’ – void of any fairways or greens – is identifiable only by a rusty sign in the desert sand. Seven years ago, throngs of Mexican politicians, developers and American investors stood on this same spot celebrating the groundbreaking of the casitas, which were to be part of North Beach – then touted as Rocky Point’s largest master-planned development.”

“There’s been virtually no progress on the projects at North Beach, and investors who put down large cash deposits have yet to see any kind of a refund. Ahwatukee seniors Howard and Madeline Israel sipped margaritas and dreamed of watching sunsets from the patio of what would be their private seaside casita. The Israels and other investors were told models would be completed in a few months and that the condos would be move-in ready by the end of the year.”

“‘They made a big deal of the groundbreaking,’ Howard Israel recalls. ‘They passed out T-shirts and hats. They wined us and dined us.’ ‘We said, ‘Wow. This is great; weren’t we smart,’ says Madeline Israel. ‘Then the lies began.’”

“‘It ain’t going to happen,’ says Howard Israel, who invested tens of thousands from his retirement fund into North Beach projects. ‘There’s no way, no way that this is ever going to work out.’”

“In 2005, shortly before construction was halted on North Beach, software engineer Matt Neimeier took out a $250,000 second mortgage on his Phoenix home to pay cash for a fourth-floor condominium at Playa Azul, which was being built by several independent American developers.”

“For more than three years, the condominium tower, rusty rebar protruding from its unfinished shell, has stood like a mirage among the sand dunes. For Neimeier, since the value on his Phoenix home has now plummeted, he owes much more on the property than it is worth and is struggling to make the payments.”

“‘They say we’re either going to give you your money back or we’re going to complete the project,’ he says. ‘I’m waiting for that court case to finish… but the legal system is so corrupt you can’t get good answers.’”

“‘The housing market downturn in Arizona has had a severe impact on Mexican real estate, experts say. ‘Prices have fallen about 30 percent from what they were a year and a half ago,’ says Bill Barvitski, a Rocky Point real estate agent. ‘Speculators are unloading. There are more sellers than buyers.’”

“Tucson seniors Thomas and Barbara Wilson thought they were making a safe investment in one of the oldest hotels in Rocky Point, Fiesta de Cortez. The agreement permitted buyers to use the condo several weeks per year and said owners would receive $500 each month for five years in exchange for forfeiting some of their time to renters. According to the contract, after five years, the Wilsons would own the condo free and clear.”

“Today, they say their investment is sunk into a worthless condo in a defunct hotel. ‘We can still go down and stay there. Of course there’s no hot water, sometimes no water at all. Maid service is next to zilch,’ Barbara Wilson says. ‘The place, for all intents and purposes, is pretty much closed down.’”

“They say they have not received a rental payment in more than two years and that they never received a bank trust on the property, something promised in the contract. ‘They’re selling you something that they can’t give you,’ says Barbara Wilson. ‘It doesn’t matter what you pay for your property down there. If you don’t have a bank trust, you don’t own it.’”

The Yuma Sun in Arizona. “New figures from the Federal Housing Finance Agency show that the average purchase price of a single-family, site-built house in Yuma County dropped by 7.42 percent last year, compared to a statewide average of almost 20 percent. The Yuma County Assessor’s Office reported…a total of 323 homes sold during the first quarter of this year for an average sales price of $179,851. That’s a price decline of 5.77 percent from the last quarter of 2008 and a drop of 17.38 percent over the last year.”

“Yuma County Assessor Joe Wehrle said the average sales prices today are at about the level they would have been anyway if the real estate ‘bubble’ hadn’t occurred from early 2005 through mid-2007, given the steady 2 to 3 percent increases experienced annually up to that time. ‘When you look at the long haul, we’re looking good,’ said Wehrle. ‘The average house prices now are what we would have been hitting if the bubble hadn’t occurred.’”

The East Valley Tribune from Arizona. “Genworth Financial, a national mortgage insurer, says it completed more than 450 mortgage workouts in Arizona during the 12 months ending March 31. Homeowners have to want to remain in their homes and have the income necessary to cover a mortgage to receive a mortgage workout, said Alan Goldberg, VP of homeowner assistance for Genworth’s U.S. mortgage insurance business.”

“Still, federal initiatives aren’t expected to help many distressed homeowners in Arizona because most are too far upside-down, meaning their loan balances are so much higher than the value of their homes, Underwood said. ‘The government hasn’t made any major changes yet to what they rolled out in March, which means if (homeowners) are above 105 percent loan-to-value on their house … then they’re not going to qualify for those programs,’ he said.”

“Darryn Rozas, an independent mortgage broker in Mesa, said it’s still difficult to get banks to work with distressed homeowners because they’re ’so busy that the right hand doesn’t know what the left hand is doing, to be honest.’”

“‘I would say less than 3 percent of Arizonans are even going to qualify for Obama’s stimulus package because of the restrictions that are on it,’ he said. ‘If you were to refinance your property, you’re only allowed to have 105 percent negative equity. Who in Arizona is 105 percent negative? Everybody here is 140-150 percent negative, if not higher.’”

“Also, it’s difficult to obtain interest rates that make refinancing equal a much lower payment, Rozas said. ‘Yeah, interest rates are at nearly historic lows, but who can quality for them?’ he said. ‘Hardly anybody in Arizona can.’”

The Arizona Republic. “Home builders who three years ago were selling new homes at record prices must now overhaul their entire operations to survive. Downsizing until the market recovers is not enough. Valley builders have to adjust to lower prices, cope with a glut of foreclosures and find buyers eligible for financing.”

“Having cut prices on its new homes by more than 50 percent, Meritage Homes of Scottsdale, is attracting buyers in a punishing market. Three years ago, Meritage Homes was selling dozens of $250,000-$300,000 homes in the Maricopa area southeast of Phoenix. Then came the crash. Meritage executives have spent the past six months overhauling their entire business model. They now are building and selling homes for less than $100,000 in the same Maricopa neighborhood.”

“In 2005, Meritage partnered with Scottsdale-based Hacienda Homes to purchase 640 acres in Maricopa’s Lakes at Rancho El Dorado development. As 2007 arrived, the housing market cooled and Meritage and Hacienda couldn’t sell homes in the Lakes development. Together, the builders had sold fewer than 100 homes among 2,200 lots. Neither could afford to hold on to the land. The land was lost to foreclosure last year.”

“Meritage is the Valley’s only local, publicly traded builder. As a public company, it had more financing options than privately held Hacienda. Meritage raised money from a stock offering and bought the land back for about $20,000 a lot, about one third what it paid in 2006.”

“Meritage is now buying the lots of builders that have gone under. Last month, Meritage bought 80 lots in a gated Chandler community for $35,000 a piece. Those lots last sold for $190,000 a piece.”

“‘Meritage now markets homes on the basis of monthly payment, just like apartment complexes have done for years. By focusing on monthly payment vs. overall home price, Meritage hopes to attract first-time home buyers, especially renters. ‘Most of our buyers in Maricopa are renters,’ said Steve Hilton, CEO of Meritage. ‘The average apartment rent in the Valley is less than $800. We knew in order to sell to renters, we had to get our prices below rents.’”

The Park Record in Utah. “The Utah Housing Coalition last month distributed a report by the National Low-Income Housing Coalition claiming Utah’s average rent for two-bedroom apartments is out of reach for many adults. Assuming a person spends no more than 30 percent of their budget on housing, a worker in Summit County would need to earn over $19 an hour to afford a two-bedroom apartment at fair-market value.”

“Ironically, the affordable housing problem is not due to a shortage in housing. According to Eric Allen, regional director for Metrostudy, Summit County has a 39-month supply of single-family homes and a nine to 14-month supply of town homes and condominiums. The oversupply of home inventory in the area is due to sellers refusing to lower prices, he said in an interview.”

“As was addressed in the Park City Board of Realtors quarterly report, vacant lots are not being bought and sold. According to Metrostudy, the Greater Salt Lake area has a 122-month supply of vacant lots under the current pace of absorption.”

The Salt Lake Tribune in Utah. “Utah’s home values fell 9.3 percent in the year that ended in March. It was the sixth-highest drop among all states. Various economists say Utah’s economy and real estate market may not bottom until early 2010. Salt Lake City Realtor Tony Fantis and others think the segment of the market performing worst is the one for high-end properties. ‘There is a lot of expensive stuff, sitting empty, even though their prices are down 50 percent from a year ago,’ Fantis said.”

The Deseret News in Utah. “When the housing boom eventually spilled westward beyond the Oquirrh Mountains, homebuilders were quick to capitalize on the cheap open land and plentiful water awaiting them on the edge of the desolate Great Salt Lake Desert. Grantsville scratched Utahns’ itch for large lots and larger homes at significant discounts compared to the big city.”

“It was as if sleepy Grantsville had started tweaking meth and everyone — from the developers, to the city fathers, to the real estate agents, to the eager homebuyers, to the guys laying sod and sprinkler pipe — wanted to share in the high. ‘It was a frenzy. I don’t know how else to describe it,’ explains one area contractor who’s a lifelong Grantsville resident.”

“‘There may have been a few too many developments on the books,’ admits city planning commission member Angela Grant recalling Grantsville’s go-go years of 2006 and 2007.”

“Grant, a real estate broker by profession, doesn’t see how the city could have done anything differently. If someone wants to develop their land and it’s within the law for them to do so, Grant said, it’s not the city’s job to stop them.”

“But by 2008, go-go had gone bye-bye and the aftermath remains evident today. Off Durfee Street, in the gated Dolorosa Estancia subdivision, siren calls from enchanting and exotic street names like Montego Court, Xiomara Avenue and Belicia Lane have been drowned out by sounds of the deflating housing bubble.”

“Although a large sign posted at the entrance to this upscale equestrian subdivision indicates 11 luxury lots have been sold and four more have been reserved, only five of the development’s 70 lots, originally advertised for sale between $90,000 and $155,900, appear to built on. One is only partially finished with a ‘For Sale by Owner’ sign in the front. A neighbor volunteers that there hasn’t been any work done on the house for months.”

“Nowhere are there indications of the planned 4.5-acre private park and riding trails once promised by local developer Josh Henwood, who declined an interview opportunity. But in comments to the Tooele Transcript Bulletin in late April, Henwood blamed the project’s stagnation on the economy, telling the paper, ‘Nothing is selling right now.’”

“Much of the city’s upscale inventory was caused by builders trying to maximize profit by building larger homes on larger lots of one-third acre and more, she said. Dolorosa, where Grant currently has listings for sale, is a beautiful project but unfortunately arrived late to the party. Silver Fox is the problem child it is, she said, because would-be investors tried to make an easy buck and got caught in the housing downdraft.”

“Bill, a 79-year-old retiree, who asked that his real name not be used, is living in one of just five homes completed in the Meadows at Ranch Road development. The fifth and final house built in the subdivision was finished several months ago and there’s no indication of future activity despite plans calling for dozens of additional homes to be built.”

“‘We’ve got the home and we’re doing fine. Things will eventually fill in around us,’ says Bill surveying acres of empty building lots to his south.”

The Las Vegas Sun in Nevada. “Housing analysts and Realtors have long speculated about how many foreclosures are lurking in the Las Vegas market. Some analysts have suggested that banks may have as many as 25,000 homes in foreclosure inventory that they have been holding back to prevent prices from dropping too far.”

“Dennis Smith, president of Home Builders Research, says that if you supplement the Multiple Listing Service data with daily anecdotal information that comes from Realtors, it appears the inventory of existing homes has reached the point where major banks will soon start releasing some of their foreclosure properties that they have been holding back.”

“That could mean thousands of homes that banks will want to clear from their books, Smith says. ‘Realtors who specialize in foreclosures and bank-owned properties are certainly gearing up for a flood of listings during the upcoming weeks,’ Smith says.”

“How many homes will be released because of this limited supply is yet to be determined, Smith says. The question is whether there will be enough demand to absorb that inventory. ‘Some of the Realtors I respect believe there are plenty of investors and demand from out-of-town people,’ Smith says. ‘However, I believe it is too early to make that call, and they are basing their opinion on hope. Until we know how many properties are going to be released in the marketplace, it is impossible to forecast how long it will take to absorb them.’”

“Although there are a lot of investors who are active in Las Vegas to take advantage of the low prices, Smith points out that UNLV reports 30,000 vacant homes. Many investors have been able to get a 12 percent return from rentals, Smith says. But because the sales to investors have increased the rental supply, that return has dropped to about 10 percent.”

“‘If the return on their investment continues to soften, we will see many of the investors stop buying homes,’ Smith says.”

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Comment by Ben Jones
2009-06-01 08:46:10

‘Meritage is now buying the lots of builders that have gone under. Last month, Meritage bought 80 lots in a gated Chandler community for $35,000 a piece. Those lots last sold for $190,000 a piece.’

This is the race to the bottom. Why is Meritage still building at all? Because prices still give it a profit. And lots will fall further, continuing to lower the basis. Meanwhile, every new house puts previous customers that much further underwater. This CEO doesn’t care. Wall Street is loaning him the money, and they don’t care. And in the face of this, we have the government encouraging people to buy at these prices?

As for the LV REO inventory mystery, readers here know we aren’t being told the truth. And I hear from my REO source in southern California that they are being braced for a flood of listings.

Then, there is the other RE bubble:

‘While everybody’s talking about the battered housing market, there’s a rumble growing about the other shoe that’s about to fall. Foreclosure problems that destroyed residential real estate in 2008 are set to hit the commercial real estate market even harder this year, analysts are warning.’

‘Commercial property values have fallen 30 percent to 40 percent from their peak a couple of years ago and the market is fraught with peril. ‘The problem is banks and lenders were so loose in making construction loans,’ said Hank Gordon, principal of Laurich Properties, a retail developer in Las Vegas. ‘There was no need to build all these strip centers one after another along Rainbow (Boulevard), to pay $20, $30 and $40 a square foot for land and think rents will go up to warrant it and sucker a bank into making a construction loan when demand wasn’t there.’

Comment by Kim
2009-06-01 09:34:19

“And I hear from my REO source in southern California that they are being braced for a flood of listings.”

They’ll be putting out those listings at a disadvantaged time too, meaning this spring selling season will be over by the time those REOs hit the market.

Then again, I went to an open house yesterday. The builder had attached a sheet to the listing sheet that read: “Lock in low construction prices today - Sell your home next spring when read estate prices have increased”. I wouldn’t count on that.

Comment by Professor Bear
2009-06-01 09:36:18

“…they are being braced for a flood of listings.”

Isn’t there at least some chance of federal intervention to prevent or delay this, or am I just thinking like a tinfoil-hat-wearing conspiracy theorist again?

Comment by SMF
2009-06-01 09:47:06

Often, it is forgotten that ’selling a house below builders costs’ means that the builder overpaid for land, materials, and labor during the bubble.

And when that burst…so did plenty of the costs associated with home building.

Home builders make money by…get this…building homes. If the stop building, they may as well close shop and give up.

They will continue to build and adjust their pricing accordingly.

Comment by Bad Chile
2009-06-01 09:28:07

Why is it every time I read one of these ‘couple sob stories’ I’m immediately reminded of the young couple in the movie ‘Boiler Room’ in which the husband drops the college savings into a can’t miss stock prospect based on a cold call?

Comment by RCC_Tiger
2009-06-01 09:35:15

Wasn’t college savings but the down payment on a new house.

Comment by Bad Chile
2009-06-01 11:08:08

Been a while since I’ve seen the movie - thanks for the clarification.

Comment by az_lender
2009-06-01 14:59:43

“down payment on a new house”

– therefore, very little was actually lost! — only the opportunity to become a FB.

Comment by Kim
2009-06-01 09:35:51

It was hard to sob when I was chuckling over the whole “Bonnie and Clyde” thing.

Comment by mikey
2009-06-01 10:44:10

Yeah…appears Bonnie and Clyde were making out like Bandits until their “Investment” Boyz set them up for an ambush.


Comment by sfbubblebuyer
2009-06-01 12:10:28

What kind of retired idiots use their entire retirement nest egg for hard money loans? Especially pooled hard money loans they aren’t servicing themselves? And do it when they have TWO MORTGAGES themselves?

Morons. Had they paid their houses off, they’d at least have had SOMETHING to show for their 1 mill nest egg.

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Comment by az_lender
2009-06-01 15:04:57

Moi. About a mil, which is most of my assets, is in hard-money loans. However, they are MY hard-money loans. No godd@m intermediary like “One-Cap Mortgage.” I own the mortgage deeds, not some sliced diced cubed boobed hocus pocus fruitcake. The question isn’t what retired idiot would put nest egg in hard-money loans, the question is what retired idiot would allow some incorporated shyster third party to do all the loan origination and servicing.

Comment by robiscrazy
2009-06-01 22:47:41


Do you record a Deed of Trust on your loans and use a separate servicer? Or, do you service your own loans?

Comment by az_lender
2009-06-02 03:39:43

If I lend purchase money, I usually have the title agency record the DoT, but thereafter I service my own loans.

If the borrower already wholly owns the property, I draw up the prom Note and the DoT myself, record the DoT, and service the note thereafter.

I provide the borrowers with prepaid Merrill Lynch envelopes and deposit slips. I can phone ML’s 800 number daily to check the amounts of whatever deposits were made. Since I usually have fewer than 30 loans running, the work is very uncomplicated EXCEPT when there are defaults. No important defaults since 2003.

Comment by sfbubblebuyer
2009-06-02 09:30:44

Az, you’re doing all your due dilligence. I consider you a businessperson, not somebody handing over their cash to a hard money lender. You also evaluate what would happen if all your loans went bad as part of your decision process. And I doubt you’ve got two mortgages of your own that are hanging over your head.

Comment by DinOR
2009-06-01 10:06:59

Not going to ‘disagree’ entirely ( and classic btw ) but in many cases these “victims” were actually “co-fraudsters” and accomplices. The guy mentioned in the Puerto Penasco SCAM actually took $250k out of his home on a second and is now having difficulty making the payments?

In truth the only $’s ‘he’ is out are the handful of add’l payments he’s made since that con fell apart. There may have been winners and losers where Flipville was concerned ( but the bank -always- lost! )

Comment by DinOR
2009-06-01 09:42:41

Can’t say as I feel bad about everything that’s taken place in Rocky Point? I don’t think the level of scam/fraud ‘there’ was any more profound or that infestors ‘here’ are finding all that much more satisfaction from the courts?

It just strikes me that there never really was any genuine intent to finish HALF of these damn projects? Once they got their money up front in the form of construction loans they were probably laughing among themselves! “Can you -believe- all that money those idiots just ‘gave’ us!”

Comment by Arizona Slim
2009-06-01 11:07:16

Preach it, D.

Anecdotal evidence of the same thing: I was helping out a community radio station rummage sale on Saturday. A local bankruptcy attorney showed up toward the end of the sale. Yes, he is as busy as a one-armed wallpaper hanger. (I asked how business was it his office.)

What amazed him about our now-busted debt bubble was how easy it was to get a loan. He mentioned the case of a couple of clients who opened a retail store, even though it was obvious that they had no clue how to run the thing.

Comment by DinOR
2009-06-01 11:52:26

Arizona Slim,

Ah… there’s nothing quite like the rummage sale season in Oregon! ( Even in the best of times )

Yeah, I just seem to recall when the wife and I got a 2nd in the very early 90’s the lender asked some very pointed questions as to ‘what’ exactly our designs were for money?

How was any of this going to actually improve our overall financial picture? What ‘other’ debts are going to pay down First!? In fact I think in that era they would make the check out directly to your creditors! What improvements are you planning and how do you feel they will actually improve the peoperty value? Getting handed a check for a quarter mil. to do as you please just seems off the rails.

Comment by marshall
2009-06-01 13:36:06

This reminds me of a friend and old boss who had gotten into mortgage lending back sometime around 2006.
I met up with him and some other friends around Christmas 2007. He was on and off his phone and had to excuse himself to take one of his calls.
When he came back to the table he was shaking his head. When we asked who was on the call he explained:
he had a client and his wife who were both self employed who were trying to buy a $680,000 house. They were having difficulty because they had just come out of bankruptcy not quite 1.5 years previous.
They were being helped by the seller to get some kind of down payment because the seller was anxious to sell because he needed his $ to pay for the $1.2 monstrosity that he had recently purchased and was starting to get desperate.
This is a good guy, who used to be my boss, so we asked him how he thought the couple would ever hope to pay for the house. His answer was “someone will give them a loan.” He had worked with them before and his office eventually passed on the deal. We asked him point blank about their chances and he admitted that he saw them in foreclosure before they would have been in the house 8 months.
No problem to his company though, as they sold most all loans within 8-10 days after close on the then very liquid real estate market. He ended up out of work in 2008 and i haven’t spoken to him directly since then but heard from mutual friends that he had recently come back to the corporate finance world after his foray.
He made some serious cash too.

Comment by az_lender
2009-06-01 15:07:20

I do love the Rocky Point story. Just a couple of years ago a friend of mine in Mesa was yakking at me, “Why don’t you buy something in Rocky Point?” egad, do I look that dumb?

I love being in Mexico, when I can get there, but Arizona is a sufficiently precarious investment environment, thank you.

Comment by DinOR
2009-06-01 15:26:07


And didn’t we ‘all’ have friends that referred to major-freaking-purchases w/ such casual ease? I recall one driftbag I didn’t even know tell my wife and “Why don’t you just make an offer?” while raking his leaves as we just l-o-o-k-e-d at a condo!?

( Would it be too much to ask for us to uh… look -inside- first? ) But especially so where overseas infestments were concerned. I mean it’s Mexico, what could wrong?

Comment by desertdweller
2009-06-01 22:31:23

I know several friends who bought those timeshares. Egads.
Now ones H was fired/let go, Veriz-teleco. So is desperate to co-let.
I just never understand time-shares.

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Comment by buckwheat
2009-06-01 16:43:19

I agree, Mexico is an OK place to visit when you get past the border towns. However I would never, ever, EVER “invest” anything in that country. It makes the corruption in our country look like candyland.

Comment by Paul Mayson
2009-06-01 10:21:04

I am reporting from Port St. Lucie, FL

I have been watching the market here and in Vero Beach closely for some time. Decided to move my young family to one of these. Now we are renting in PSL and I watch the market.

I see the low end even still continues to drop in price. But once a neighborhood home prices gets to low, the neighborhood starts to become unsightly. Old cars parked in yards, no hubcaps, trash in yards, loud music blaring from parked cars. Renters perhaps.

Where once there were nice beautiful new homes that had the potential to become nice neighborhoods, it has become something else. What a shame. I thought I might pick up one of these homes. But now I have changed my search to more expensive homes. Luckily I have noticed them begin to shift downward. I watched one go from $280K to $200 in a blink. I might offer $160 for it. Or maybe $150K.

I’m hoping that buying into a more expenisive area I will avoid some of the issues noted above. Do home prices make the neighborhood?

Comment by Professor Bear
2009-06-01 10:45:00

“Do home prices make the neighborhood?”

Neighborhood incomes make home prices and neighborhood characteristics.

Comment by sfbubblebuyer
2009-06-01 12:12:28

Indeed. Neighborhoods with high prices but low incomes are almost guaranteed to turn into nightmares, especially if they’re not 40-50 year old neighborhoods where the people with low income actually paid of the house 10 years ago and are now retired.

Comment by az_lender
2009-06-01 15:09:03

I used to live in Stuart. There were SOME parts of PSL that were quite nice. I think your instinct is the right one: if you’re going to buy in PSL, stick with the “better” parts.

Comment by WT Economist
2009-06-01 10:25:52

San Diego Metropolitan Magazine: Buy Now or be priced out forever!


“So, let’s cut to the chase: San Diego County continues to grow by 40,000-plus persons annually as more people are born than die. We need to produce more than 15,000 new housing units each year to satisfy that growth. Until the hard times hit, we were meeting that demand with local building and homes in south Riverside County.”

“Now, as the population growth continues and the job market gradually strengthens, eventually we will not have a sufficient supply of new housing to meet the needs of the populace. I will go so far as to forecast a genuine housing crisis within three years. Interest rates are cheap. Buy now!”

Comment by Professor Bear
2009-06-01 11:00:36

Reading that article is a bit like traveling back in time…

Comment by Professor Bear
2009-06-01 11:02:02

“Buy now!”

He sounds like a pretty unbiased observer of the housing market.

Comment by ATE-UP "The Geo-Duck"
2009-06-01 16:20:33


Comment by SDGreg
2009-06-01 11:44:18

“Now, as the population growth continues and the job market gradually strengthens, eventually we will not have a sufficient supply of new housing to meet the needs of the populace. I will go so far as to forecast a genuine housing crisis within three years. Interest rates are cheap. Buy now!”

Once a shill, always a shill. He wouldn’t know a genuine housing crisis if it hit him in the @ss. It apparently wasn’t a crisis when apartment vacancy rates dropped to around 1 percent in the late 90s making it very difficult to find a decent apartment, or when for sale housing became so expensive in the first half of this decade that housing was affordable to a record low percentage of the population. If prices being lower 3 years from now and more affordable to more of the population is a crisis, than that’s one crisis I want.

There’s still a glut of available housing in San Diego and the population isn’t expanding. There are more apartment vacancies than seen in more than a decade, more foreclosures in the pipeline, and construction projects in partial completion on hold because of lack of financing. If there’s a crisis in housing in three years, it won’t be because of too little supply.

“For a more accurate picture of the local housing market, compare home prices and foreclosures by ZIP code with the test scores in the local school systems. An amazing correlation. The National University Institute for Policy Research soon will issue a report on that topic.”

Based on the foreclosure numbers from Professor Bear last week, apparently La Jolla and Rancho Santa Fe must have poor schools too. Who knew?

Comment by Professor Bear
2009-06-01 12:07:40

“If there’s a crisis in housing in three years, it won’t be because of too little supply.”

More likely story:

-Too little supply of low-end affordable housing;
- Continued glut of $1m+ golf course community housing.

Comment by are they crazy
2009-06-01 13:04:52

Isn’t part of the problem that the clog is coming in the move up tiers of housing - no one can move up. I keep hearing realtors saying that once the 1st timers & renters get back in the market, all will be well. Logic says that most of the houses they will buy are 1st tier and foreclosures. Even if people at that level can sell, they most likely ain’t moving up. I read on here the other day that there’s a 40 month supply of homes $750K and up. Who is going to buy those?

Comment by desertdweller
2009-06-01 22:38:19

Aretheycrazy, drive around Las Palmas for an afternoon and see how many $750k+++homes are sitting empty. Deepwell prices are finally coming down.
Either they look deserted, or lots of FS signs.

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Comment by octal77
2009-06-01 11:46:47

…San Diego County continues to grow by 40,000-plus persons…

Let’s give this guy the benefit of the doubt and that his
statistic is correct. (I don’t believe it is)

So exactly where are the jobs to support these 40,000+
persons at income levels to service mortgate debt at
current prices?

Someone out there in SanDiegoMetro land is seriously delusional.

Comment by lavi d
2009-06-01 12:19:06

So exactly where are the jobs to support these 40,000+
persons at income levels to service mortgate debt at
current prices?

To be fair, the article did state that that growth would be due to unequal birth and death rates.

That’s a noticeable departure from the previous mantra, heard in San Diego, Phoenix, Tucson and Las Vegas for the last 20 years - “X,000 people move here a month!”

Comment by Kim
2009-06-01 14:30:32

“To be fair, the article did state that that growth would be due to unequal birth and death rates.”

Yes, it did. If that’s his source for population growth, he might be surprised to learn that babies don’t buy houses and heirs often want to sell them.

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Comment by Kim
2009-06-01 14:36:49

Speaking of heirs… I have a friend trying to unload an inherited 2/2 in a retirement community. She tells me it is getting about one showing a month.

I told her to mark it down below the lowest comp and to - only half joking on this part - advertise it as a foreclosure (even though there is no mortgage on it).

Comment by az_lender
2009-06-01 15:39:55

And to be even fairer, let’s examine his claim that “the job market gradually strengthens” in SD. I betcha PB or Greg can debunk that one. (?)

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Comment by Professor Bear
2009-06-02 06:24:28

In the long run, the job market in San Diego may gradually strengthen. But in the short run, it’s dead.

Comment by Professor Bear
2009-06-02 06:41:23

RE: The strengthening SD job market.

I went to the source of much discussion about the health of the economy, Alan Gin’s USD Index of Leading Economic Indicators.

The ‘Help Wanted Advertising’ component (which measures changes in local jobs listings) has been negative in every month since April 2006, with the biggest drops (over 4 pct each month) from Feb-Apr 2009.

The fine print to the reports states that the ‘Initial Claims’ column is “inverted,” which I take to mean that the sign is opposite its actual direction of change. With that interpretation, initial claims have been increasing in every month since April 2008.

If that is what a recovering job market looks like, then I am sure glad the situation is not getting worse!

Comment by SDGreg
2009-06-02 07:32:51


I agree with Professor Bear. The short term is dead due to the recession and the near medium term doesn’t look much better. There are significant risks to starting or expanding a business in California until the state gets it’s fiscal and political house in order. I don’t know how long that might take if it happens, a few years minimum. That trumps any other advantages San Diego has to offer. There are other advantages that should presumably eventually prevail longer term.

Comment by bob
2009-06-01 21:50:50


Comment by rocketrob
2009-06-01 10:43:47

There are over 50 new high rise condo’s built since 2002 in Rocky Point, probably 10 not finished.. I can’t imagine the carnage to later buyers. But there are winners.. imagine pulling out enough money from your house here in the US to buy a house there cash. Then walk away from your house here. No recourse for the bank. I have seen prices drop 25% in Rocky Point, but there are still buyers.

Further south in San Carlos, there are “For Sale” signs everywhere. I would guess 10% of the homes.

Comment by Professor Bear
2009-06-01 10:46:59

CA is a nonrecourse state for a first mortgage, only. I suppose many got stucco by taking seconds. I will never, ever take a second mortgage here, but I may eventually take a first provided prices eventually return to affordable levels…

Comment by scdave
2009-06-01 12:16:22

Only for a purchase money first Bear…Not refi…

Comment by pressboardbox
2009-06-01 17:36:45

you should change your name to getstucco.

Comment by Professor Bear
2009-06-01 22:51:08

Been there, done that…

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Comment by DinOR
2009-06-01 11:19:48


I’ll take you at your word. But notice the timeline? Starting as early as 2002, if not sooner? I have family in Sierra Vista, AZ and this for them is their closest “beach”. So I’ve tracked it somewhat over the years.

It’s just incredible that pricing ever reached those levels? Now they’re saying sometimes there’s no hot water and at other times, no water at all? Sounds “upscale” to me. My whole plan was to find some place affordable… in San Felipe or RP but it got every bit as ridiculous there as it did here. What a shame.

This is what happens when lenders didn’t even bother to ask what your designs might be when you’re taking a quarter of a million dollars OUT of your home?

Comment by DinOR
2009-06-01 12:58:32

I was surprised to find lo’ and behold there’s a Coldwell Banker office -right- in RP. The prices were nothing short of comical. Frankly every bit as expensive as any beach community in the U.S.

Now I’m sure if there ‘was’ anyone interested in making an offer it would be substantially lower but it just annoys the hell out of me they’d even be a-s-k-i-n-g those kinds of prices! Insane.

Comment by Arizona Slim
2009-06-01 11:08:45

From the original post:

“‘Meritage now markets homes on the basis of monthly payment, just like apartment complexes have done for years. By focusing on monthly payment vs. overall home price, Meritage hopes to attract first-time home buyers, especially renters. ‘Most of our buyers in Maricopa are renters,’ said Steve Hilton, CEO of Meritage. ‘The average apartment rent in the Valley is less than $800. We knew in order to sell to renters, we had to get our prices below rents.’”

Uh-oh. Here we go with another round of that “how much a month” thinking.

This won’t end well.

Comment by sfbubblebuyer
2009-06-01 12:15:28

At least they’re thinking “Owning must be cheaper than renting” in their how-much-a-month brains.

Comment by Groundhogday
2009-06-01 17:32:36

Agreed, if builders are thinking primarily of affordability we are taking a major step in the right direction.

Comment by greginaz
2009-06-01 11:48:44

Go down to RP all the time. Have been going there over the last 20 years and have watched the changes. Unfortunately, not for the better. We were there several weeks ago and stayed on Sandy beach in one of the condo developments. Seems one of the condos on the beach had an 850.00 a month maintenance fee. My understanding is that the condos were originally selling for about 300,000. People were trying to bail out of the condos due to the maintenance fee. Walked down the beach and got curious about one finished condo tower alongside a condo tower that was only girders. Two girls were at the pool so we struck up a conversation. The finished condo tower was basically deserted. They and their friends were the only people there. Seems their uncle bought one of the condos for 1 million and he cannot unload it for 500,000. You should see all of the empy finished condos that may never be sold. Oh yeah, the restaurant where we were staying was continually empty. Seems a pizza was 16.00. Says it all. Going down again in a couple of weeks. Since the real estate bust and swine flu scare, RP has been deserted.

Comment by DinOR
2009-06-01 14:14:17


Thanks for the recent “intel”. It’s this very “stateside pricing model” that drives me off the deep end. $850 a month? You’re kidding right? What, does that cover all the union dues and medical benefits for all the employees down there?

And… just the whole notion of paying a million dollars for -anything- in MX, where’d ‘that’ come from? I thought the idea behind heading south of the border was that although you were sacrificing a lot in terms of personal security, food standards etc. ( the trade-off was that it was a HELL of a lot cheaper? ) At least the girls were able to get ’some’ use out of it before it goes back to the bank?

Comment by greginaz
2009-06-01 17:10:16

That maintenance fee blew me away also. I reread the article to make sure I had it correct. I know which condo it is, but do not want to say. I have been ranting about the pricing in RP the last several years. The housing costs are outrageous and the local restaurant food was priced like I was eating in San Diego. Fish dishes using locally caught fish which should have been cheap were 18+ dollars. That million dollar condo was a penthouse, btw, and was actually slightly more that a mil. I understand that you can get a 1 bed, 1 bath for 80-90,000 now. But I would not trust that the maintenance costs would not rachet up. Cholla Bay, the home of JJs and is a fishing village is now a condo nightmare. Many built and sitting empty. Also outrageously priced. Bubble mania at its finest! But the ocean is great and that is what we go there for. We rent!

Comment by ws
2009-06-02 17:11:31

There’s not an ocean with waves there is there? Looks like the gulf which is a big lake.

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Comment by az_lender
2009-06-01 20:28:17

“Seems a pizza was $16.00″

I don’t think I ever paid more than $16.00 for a night in a Mexican hotel. Best deal was the Flamingo in Merida one week when they were repairing the swimming pool: the whole week for me and a friend was a grand total hotel bill of $21.00 in 1987.

Comment by desertdweller
2009-06-01 22:46:12

Don’t remember what we paid for hotel rooms in Ensenada after going to Hussongs. Only remember waking up to the mattress on the floor and several more college partiers. Nothing funny, too many Tequila sunrises…
What do hotel rooms rent for in Mx anyway?

Comment by Rancher
2009-06-02 06:21:12

Two kilos of fresh shrimp right off the boat
for six bucks a few years ago during the
Christmas season in San Felipe…..slid the
BBQ out of the lower bay on the coach and
my wife grabbed the Tequila…great night!

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Comment by DinOR
2009-06-02 07:02:43

It’s just a whole culture of exploitation. I was watching a special on “Spring Break Rip-offs” and it was never ending. College kids are sold “packages” and they think it’s for the room. They get there and find out it’s per person!

Numerous false imprisonment/trumped up charges along w/ every shakedown imaginary. Ahem, this much ( I expect ) As a sailor back in the 80’s we called it “running the gauntlet” and were practically braced for it!

But these are ’supposed’ to be OWNERS! Not a gaggle of partiers that will come there (once) and then next year shakedown the class of 2010. Getting zonked left and right w/ stateside prices from the rest. right down to the HOA’s is what has been their undoing. Have fun cleaning up that mess guys, without dollar 1?

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Comment by lavi d
2009-06-01 12:15:16

Uh-oh. Here we go with another round of that “how much a month” thinking.

“Low monthly payments forever!”

Comment by mikey
2009-06-01 13:15:14

In the Land of It’s Different Here!

Wisconsin HATES bad news, especially if it affects their Packers or their Cheese and God Given Semi-protected Lifestyle from the Outer World.(that’s you guys if you aren’t one of the Chosen Frozen)

I noticed recently that the Milwaukee Journal Sentinel online News navigation bar recently deleted the REAL ESTATE news section and replaced it with Homes. The old convenient RE section would actually, although most grudgingly, acknowledge some housing bubble stories.

The Homes Section is where you read about Aunt Millie’s killer rose garden and where some j6p and wife snapped up an over-priced, heat sucking, 1875 POS monument to history and stupidity at 400% of what it’s Worth, just to live in something called old world style and charm.

The major Wisconsin Banks, M&I bank, Associated Bank, Bank Mutual and Anchor Bank have ALL been carefully working with the FEDS, MSM, their chosen RE Brokers and local gov’t to attempt to slowly let air out of the sub prime - prime housing bubble so it doesn’t go POP and SPLAT, therefore ruining the whole money and tax game here.

They have, quietly, taken some big hits on some local commercial loans. The problem IS, that some of these “conservative Wisconsin banks” and their holding companies are ON the HOOK for a LOT of very bad loans OUT of state and some are in serious trouble already. They were kind and very big into idiot lending in BOTH residential and commercial in Far Away Places like CA, FL and AZ.

But back to the removal of the RE section in the MJS Online. If it’s hard to find bad news stories and if your primary interest in life is in Millie’s roses or the new defensive line. all is well. Yes…life IS Good if you’re kept ignorant and you still HAVE a job!

From Wisconsin..the state where NO news…is Good News. Hush..hush now !

Comment by Prime_Is_Contained
2009-06-01 15:56:02

“that’s you guys if you aren’t one of the Chosen Frozen)”


I was frozen, but I thawed… :-)

Comment by mikey
2009-06-02 07:32:14

“Stung by losses in the hundreds of millions from construction and development loans in Arizona and Florida, M&I Marshall & Ilsley Bank plans to reduce the size of that portfolio by 50 percent during the next three years”

M&I will focus on its Midwestern markets for construction loans in the future, he said.

Furlong called Arizona and Florida “more volatile” than the Midwest.

“We’ve seen some experiences we don’t want to repeat,” he said.

Ouch..Ouch…That has to be the UNDERSTATEMENT of the year :)


Comment by Professor Bear
2009-06-01 13:47:04

The Spokesman-Review
Letters / June 1, 2009
Fed has too much power

Is it just me, or does something seem wrong about this. The Federal Reserve is a private corporation owned by the largest banks in the country like J.P. Morgan. They are in no way a part of the federal government, but they print money at their own discretion, and loan it out at any interest rate they see fit. Sen. Bernie Sanders (I-Vt.) says the chairman of the Federal Reserve told him they gave $2 trillion to the banks, aside from the TARP money from the treasury. The senator asked where all that money went to, but the chairman couldn’t say, because it could be bad for the banks if that information was released.
In short, the banks who own the Federal Reserve were loaned $2 trillion at near-zero interest by the Federal Reserve, and even a U.S. senator has no right to know where the money went. Dare I even mention the banks charging up to 29 percent interest on credit card loans that cost them less than 1 percent. That’s over 28 percent interest on money effectively printed up in the basement.
What’s wrong with this picture?

Stanley J. Waltz Jr.

Comment by adge
2009-06-01 14:34:40

The bank’s MBA graduates can easily identify what is wrong:

- Bank should charge $50 annual fee for the card. Missing out on free money here.

- Bank should charge 35% interest. Given they have already found a fool paying 29%, maximize the opportunity with a higher rate.

- Bank might be accurately billing. Instead, should make a couple errors and then charge interest until they are fixed.

- Bank is currently responsible for cardholder default. Bank should bribe a few congressman to shift this responsibility to taxpayers.

Comment by aNYCdj
2009-06-01 14:57:12


Discovercard after over 14 years of billing on the 12th now changed it to the 8th no notice no warning…..yup they got 90 days thanks to OHbamaHHH to screw people

Comment by PhillyTim
2009-06-03 08:07:55

Yup.They did the same tome.Only went from bill due on the 5th,to the 1st.

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Comment by az_lender
2009-06-01 14:57:32

“Federal initiatives aren’t expected to help many distressed homeowners in Arizona because most are too far upside down.”

Time for a shocking admission. One (luckily, just one) of my AZ loans is a [brace yourself] second mortgage. It’s a second on an actual house. Never mind how I acquired it. The substance is, I am owed about $15K on a house which, at the time, was appraising in the $300K range and on which the first mortgage was maybe $175K, I don’t exactly recall. The person actually paying the mortgage is the owner’s daughter. She had a debt to me which I allowed to be “translated” into this second mtg. The daughter has always paid pretty promptly, and my attitude now is, she’d better: you can imagine that if she is late by even a few days, I would be all over this situation. The first mtg is not so huge that I couldn’t buy it from the primary mortgagee, so that’s my plan if things go wrong.

In a general way, I am quite forgiving, easy work-outs, etc… but in the case I’m talking about, I would be just itching for an excuse to grab the house, since I wouldn’t feel safe allowing the slide to continue. Hmm, when does that note mature. Just looking it up now. Another six years. NO tolerance here.

Comment by Prime_Is_Contained
2009-06-01 16:06:51

Make sure to consider marketing costs and carrying costs til expected sale in your analysis; ensure the netis worth more than the $175K (plus a safety margin) before you carry through on that plan to buy out the first! Sounds like you could be doubling-down by a factor of ten…

You might be better off just eating the loss unless you’re sure you have a margin of error for unexpectedly-long carrying of the property.

I’m sure you’ll do your homework, though…

Comment by az_lender
2009-06-01 20:31:20

That’s a very good point, and actually I was NOT thinking of it. Since I haven’t held many seconds before, and since none of my previous default problems was a second, I had not followed the logic to its conclusion.

Comment by snake charmer
2009-06-01 14:59:29

You have to be kidding about the name of that Utah subdivision. I know all those vowels sound atmospherically southwestern, but “Dolorosa Estancia” translates into “sorrowful ranch.”

Comment by iftheshoefits
2009-06-01 16:43:51

They wanted to name it “Estancia Pointe”, but opted instead for the more authentic touch…

Comment by palmetto
2009-06-01 18:34:52

I gotta get some shuteye, but I just couldn’t wait for tomorrow’s bits bucket to post this. “Chinese Students Laugh at Geithner”. I’d laugh at the Twinkie, too. In fact, I’d sneer right in his kisser if I could.


Comment by az_lender
2009-06-02 03:49:23

Palmy, is that the link you meant to post? What I get is an article about Geithner telling the Chinese their dollar-denominated assets are safe. It does mention that some students laughed, but I’m thinking you were trying to post a link to a picture?

Comment by palmetto
2009-06-02 04:20:39

Hi, az, just posting the article, no picture. I was rather amused that they laughed at what he said. I wish there was a picture, but after all, this is Red China.

Comment by OriginalFrank
2009-06-02 10:47:35

Well, you can’t blame the audience. After all, this is China we’re talking about, where saving face is very important.

With his set up line (”the dollar is safe”), they must have been sure he was attempting to be very funny, and so they all laughed appreciatively.

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Comment by mB
2009-06-03 11:05:43

The real estate market’s troubles are hitting close to home for Treasury Secretary Timothy Geithner:


Comment by Professor Bear
2009-06-02 07:39:38

More likely scenario than “home sales will likely keep rising”: What little green shoots in housing demand are out there will quickly get exhausted by hyperstimulus efforts. Coupled with rising interest rates, this will lead a further leg down in housing demand and prices later this year. Perhaps the glut of foreclosure homes will help prop up sales volume, though.

Wall Street Journal

* JUNE 2, 2009, 10:09 A.M. ET

Pending-Home Sales Post Increase


WASHINGTON — Home sales will likely keep rising, a report suggested Tuesday, as buyers seize on foreclosure-cheapened property, low interest rates and a tax credit.

The National Association of Realtors’ index for pending sales of previously owned homes increased a third month in a row, rising 6.7% in April to 90.3 from 84.6 in March, the industry group said Tuesday.

Year-over-year, the index was 3.2% above the level of 87.5 in April 2008.

The index is based on signed contracts for previously owned homes and serves as a forecasting tool for the used housing market.

The 6.7% monthly increase was much larger than the 0.5% advance private analysts projected for April.

Last week, the NAR reported existing-home sales rose in April, the second increase in three months. Home resales increased 2.9% to a 4.68 million annual rate; about 45% were foreclosures and short sales.

“Housing affordability conditions have been at historic highs, but now the $8,000 first-time buyer tax credit is beginning to impact the market,” said Lawrence Yun, chief economist for NAR. “Since first-time buyers must finalize their purchase by Nov. 30 to get the credit, we expect greater activity in the months ahead, and that should spark more sales by repeat buyers.”

Comment by bill in Los Angeles
2009-06-02 07:56:43

Maybe Bonnie and Clyde might start robbing banks?

Comment by HighDesertVista
2009-06-02 12:55:10

These factoids on lots are interesting, that’s almost the right price to just buy and sit it out, I would think. Is there a limit associated with these lots that force you to build on them in a certain timframe? I mean right now, buyers now are either knife-catching or getting caught up in the ‘deals’ available from artificially managed SFH inventory (low-end, crack houses, reno-specials, priced to attract multiple bidders, etc.). If you have a longer time horizon (say 10 yrs), and aren’t out to make a quick flip, seems like 30-40k (~15% of peak value) isn’t bad. Just thinking out loud..


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