The Housing Bubble

The Philadelphia Inquirer reports from Pennsylvania.”On its stylish Web site, Creating Real Estate Innovations promises ‘unique, deeply satisfying living experiences’ in Philadelphia. Yet after five years that spanned both the heady days of the real estate boom and the hellish days of the bust, CREI’s creative output consists of little more than abandoned projects and unfinished condominium buildings. Robert King, project manager of Anthony Biddle Contractors Inc., of Ambler, said that if the bank took the building back at the sale, ‘there is very little likelihood that we’ll ever get paid the hundreds of thousands of dollars we’re owed’ for shoring up American Loft’s foundation.”

“The balance owed for the foundation work was never paid, King said. ‘They did give us a condo unit in American Loft,’ he said. ‘But what good does that do us when the bank owns the building.’”

“Price break on luxury condos in striking glass tower in Center City. Best offers over $250,000 considered. That’s the strategy for moving 40 of the 178 units still unsold at the Murano at 21st and Market Streets, to be sold at auction for sums 50 percent below their original list price later this month.”

“What happens to those who have already paid full freight for their condos? Jon Gollinger, president of Accelerated Marketing Partners, of Boston, which is handling the sale for Murano’s developer, planned to address that last night at a closed meeting of Murano’s property owners. ‘Of course, we wanted them to know what was going on before we began publicizing it, but we are counting on the fact that people who bought into the Murano were looking for a particular lifestyle,’ Gollinger said.”

“Toll Bros. Inc. yesterday reported a second-quarter net loss of $83.17 million, compared with a net loss of $93.74 million, a year earlier, on revenue 51 percent lower than the same 2008 period. While saying that it appears ’some buyers are beginning to reenter the new-home market’ and that cancellations are leveling off, CEO Robert I. Toll also observed that ‘concerns about job security and the economy continue to inhibit traffic and the conversion of deposits to contracts.’”

“Despite lower sales, especially in the New York market, ‘we’re still making a bushel of money,’ Toll said during a conference call.”

From Bloomberg. “Toll Brothers Inc. and Hovnanian Enterprises Inc. fell in New York trading after their fiscal second-quarter losses exceeded analysts’ estimates and U.S. job losses mounted. Hovnanian reported land impairments of about $319 million in the quarter. The company ‘mothballed’ 9,800 lots in the second quarter, halting sales and development on those properties until housing values improve, Hovnanian CEO Ara Hovnanian said in a conference call.”

“About 1,500 of those lots are in Pennsylvania, New York and New Jersey, where a waterfront development with views of Manhattan was postponed. The mothballed lots account for about 45 percent of all those owned by Hovnanian, according to an investor presentation.”

“‘It just doesn’t make sense to go forward,’ Hovnanian said on the call. The homebuilder has a three-year supply of lots, he said.”

The Maryland Daily Record. “Just a couple of blocks from the blue-light police cameras on Belair Road in Northeast Baltimore are houses with porches and front lawns, and trees that line the streets. But lately, Belair-Edison has also had ‘For Sale’ signs. Lots of them.”

“This area of Northeastern Baltimore saw more foreclosure filings than any other neighborhood in 2008 and the first months of 2009, according to the Baltimore Neighborhood Indicators Alliance. Local housing counselors say the high foreclosure rate was caused in part by increased sales during the housing boom coupled with a decrease in income during the recession, leaving many new homeowners unable to pay the mortgage.”

“A few miles away from the shady lawns of Belair-Edison, the number of families seeking foreclosure prevention assistance at St. Ambrose Housing Aid Center, has doubled in the past two years and could double again by the end of 2009. ‘We’ve seen our caseload go from 700 (families) a year, to 1,400 last year,’ said Vincent P. Quayle, executive director of St. Ambrose. ‘This year we’re probably going to see 3,000. ‘Right now at St. Ambrose I’ve got 10 people working on this,” Quayle said. “We used to have two counselors.’”

“The signs of economic trouble were apparent in Baltimore’s housing market well before the stock market plummeted in the fall of 2008. The median price of a Baltimore house decreased nearly 35 percent from its peak in July 2008 to last January, according to the Maryland Association of Realtors.”

“In Quayle’s experience, there used to be three main reasons why people lost their houses: They got sick, they lost their jobs or their marriages failed. That was true until about five years ago. ‘Five years ago, my chief counselor came to me and said, ‘Vinnie,’ he said, ’something different is going on out there,’ Quayle said. ‘We’re beginning to see families, not for those reasons, but we’re beginning to see families who could never really afford to buy the house in the first place.’”

“Quayle said…’the industry came up with gimmicks to make it easier for folks like this to buy houses.’”

“Gimmicks like no-interest loans, or loans where the initial calculation of the monthly payment includes just the monthly mortgage, leaving out the cost of taxes or insurance. That means an unexpectedly large payment later. People on fixed incomes or living paycheck to paycheck didn’t catch on, Quayle said.”

“The staff at St. Ambrose has seen another sign of trouble, Quayle said: a demographic change in clientele. ‘We’re seeing more stable people, more middle-income people. Their problem is they bought the home for $400,000, now it’s worth $250,000… They’re trying to figure out what to do.’”

The Memphis Commercial Appeal in Tennessee. “By early May, the 2-acre yard marred by tall weeds, dead tree branches and leaning fences branded the five-bathroom house in Germantown as a foreclosure. With neighboring homes valued at more than $1 million, the feral yard at 2420 Johnson finally received a rough mow arranged by the city. Sold for an unusually high $1.3 million in 2004, the vacant house has been in foreclosure twice since 2005.”

“In communities where protecting home values is practically the prime directive, the Shelby County Assessor’s office reports that values in suburban towns have risen since 2005, often by double digits.”

“Jimmie Tapley is a VP and Bob Tapley a broker with Crye-Leike Realtors in Memphis. Loose lending and escalating mortgages are a major cause of foreclosures in the suburbs, too, the Tapleys said. But even those mortgages might have remained viable in some cases if job or business losses hadn’t hit.”

“‘It’s hard to say who is to blame,’ he said. ‘I think there were a lot of mortgages made that should have never been made. What that would have meant though is a lot of people owning might not have been able to.’”

“Phyllis G. Betts, director of the Center for Community Building and Neighborhood Action at the University of Memphis, cites ‘pushing the envelope foreclosures’ as a primary cause in the suburbs. Two-year ‘teaser’ mortgage interest rates allowed homeowners who would have succeeded with a lower-priced home to buy a more expensive one, she said.”

“They bet that home values would rise and that they could refinance before mortgage rates escalated.”

“In upscale areas, vacant foreclosures are less likely to be abused or to attract flocks of investors, Betts said. In many cases they’ve become very good deals for those seeking home ownership. The exception: Unfinished subdivisions in some areas of southeast Shelby County in particular won’t be good deals until a plan and assurances are made that vacant lots, unfinished streets and vacant homes will be taken care of, Betts said.”

The Courier Journal from Kentucky. “Amid one of the toughest housing markets in decades, some downtown Louisville condominium projects are being delayed, while developers turn others into rentals or try promotions such as offering to pay buyers’ mortgage payments for a year. A Courier-Journal review of 12 projects in the downtown area shows that five — mostly larger ones, representing a total of 760 units — are on hold, including one in foreclosure. And of the seven projects completed or partly completed in the past several years, only 77 of 287 units have sold.”

“Louisville Metro Mayor Jerry Abramson echoed the comments of developers, real estate agents and others when he predicted it will be a temporary downturn that reverses once the economy picks up.”

“‘It’s not good, but we’re really strong, compared to our sister cities around the country,’ Abramson said. He said he’s confident the same downtown attractions that started the condo building boom a few years ago ‘will reignite the investment of folks looking for a downtown experience.’”

“Ice House Lofts, initially was planned to include several dozen condos with prices starting at $189,000, said David Barhorst, a partner in the proposed project. But he said a large number of condos for sale downtown, combined with weak demand at higher price levels, prompted a shift to offering half the 52 units as rentals.’

“Work on the Ice House project was expected to start as early as the end of 2007. Barhorst said he now hopes to start construction this fall.”

“Gallery Square Lofts and Fifth Street Terraces also are welcoming renters after being initially planned as condos only. Lamont Breland, who represents the fourth company to market Fifth Street Terraces in as many years, said he’s even offering to pay buyers’ mortgages and maintenance fees for six months. At the 42-unit Mercantile Gallery Lofts, buyers are being offered one year of no homeowners’ association fees and no payments on a 30-year mortgage.”

“‘Clearly the momentum that was there a couple of years ago has slowed down,’ said Duane Schrader, who with wife Nancy bought a condominium a year ago at Bycks Lofts. But Schrader believes the condo will be a solid long-term investment. ‘I wouldn’t want to force it on the market right now, but we plan to stay.’”