The Housing Bubble

CBS 4 reports from Colorado. “There were about 65,000 foreclosures in Colorado last year, according to Ideal Homes, an Aurora-based company that tries to help people avoid foreclosure. While many homeowners feel that they have no other options but to walk away, this company…specializes in what are called ’short sales,’ and if they’re successful, they can save financially-distressed homeowners from becoming foreclosure statistics. Once the home is sold to Ideal Homes, the homeowner is free of the mortgage. The company then owns the property and negotiates with any future buyers on the sale price.”

“‘They’ll take anywhere from 80 to 89 percent of fair market value. So regardless of what’s owed on the property, that 80 to 89 percent is the range in which they’ll settle,’ said Julia Gentry, one of the owners of Ideal Homes.”

“Ideal Homes bought Steve and Faye Rushings’ home in Fort Collins. They had been trying to sell the home for five years and had fallen on incredibly tough financial times. ‘We tried to sell it for years and years and the market just kept getting worse,’ said Steve Rushing. “We just weren’t able to sell the home. We tried renting it and that was hit and miss. I changed jobs and that cut my salary quite a bit. Economically, things just kept getting worse and worse. It was getting to the point where we were just barely surviving from day to day. We just couldn’t sell the house, especially for what we owed on it.’”

The Deseret News from Utah. “Zions Bancorp. on Monday reported a second-quarter net loss of $40.7 million. Salt Lake-based Zions set aside a much larger sum — $762.7 million — in the second quarter compared to $114.2 million during the same period the previous year. The increase was in anticipation of ‘deterioration’ in commercial real estate and commercial industry loan portfolios, officials said.”

“Chief financial officer Doyle L. Arnold predicted that the provision for loan losses will continue to be up next quarter, but not as much. In a question-and-answer session, Asked which markets are causing the most concern regarding the troubled loans, he said, ‘All of them. It’s still a pretty crummy economy out there and we’re seeing deterioration in all of it.’”

The Salt Lake Tribune in Utah. “A failed Southern California bank opened Monday under the name of a Zions Bancorp subsidiary after federal regulators seized it late last week. Vinyard had been hurtling toward demise for a year. Reeling under bad land-acquisition, development and construction loans, it was placed on the FDIC’s problem-bank list in July 2008, FDIC spokesman David Barr said.”

“Vinyard’s branches are mostly in eastern Los Angeles County and western San Bernardino County. The downfall of Vinyard and a second bank, Temecula Valley Bank in Temecula, Calif., on Friday brings the number of banks that have failed this year to 57.”

The Arizona Daily Sun. “Jim Miller’s hands are calloused and strong from the two decades he spent building high-end dream homes in Southern California. In 2006, he wanted to retire with his wife here in Flagstaff to be close to his son, a student at Northern Arizona University. Now, he lives alone in a Phoenix apartment working for someone else.”

“Miller said he had built hundreds of homes since 1984, some selling for more than a million dollars, and believed there would be a market for upper-end custom homes in Flagstaff. The year was 2006, the peak of the Flagstaff housing market. ‘Nicer upper-end homes were selling,’ he said. ‘Everyone was buying.’”

“His experience was amplified with the five properties he eventually lost, including the home he bought for his son to live in. In all, Miller estimated he lost $700,000. He blames the banks for the overall national problem with foreclosures. ‘They are the reason we are in this situation. They gave to those who couldn’t afford it,’ he said. ‘The bank doesn’t know what ball they are scratching.’”

“Local builder Jeff Knorr…has poured more than a million dollars into building three townhomes on a quiet 1.8-acre lot on a Country Club cul de sac next to the golf course. The infill project had the newly built luxury townhomes priced between $389,000 and $469,000. But then a wave of foreclosures hit Flagstaff, reducing the value of every piece of real estate in the city and tightening credit for builders like Knorr.”

“So Knorr must sell three units at a significant discount — one has been marked down by $100,000 — in order to build the other eight units he had planned. ‘We are just trying to sell them for whatever we can get for them, basically. To be as competitive as possible so we can be able to move on to the eight.’ Knorr said. ‘We obviously are not going to do well on these three units.”

“The project, conceived in 2006, was designed during the peak of the real estate market, Knorr said. Now he realizes they will only sell with significant discounts. ‘Units we honestly thought would sell in the mid-fours are going to sell now for probably more like mid-threes,’ he said.”

The Arizona Daily Star. “To compete with foreclosures, builders are selling a growing number of homes for $150,000 or less. June also saw a slight increase in building permits, with 220. That’s the most in any month this year and a slight increase over the 209 permits in May. Part of that jump reflects increased interest among buyers, said John L. Strobeck of Bright Future Business Consultants. But builders are also putting up a small number of speculation homes in anticipation that the federal housing tax credit will be extended.”

“‘Even if it’s not, it’s a smart time to put some homes in the ground and sell them off,’ Strobeck said.”

The Associated Press. “Each time Lance and Kelli Thorson thought they had found their first home, someone would outbid them. It’s already happened at least 15 times. This wasn’t how it was supposed to be in a depressed housing market like Phoenix. Buyers are supposed to be able to walk in, and get pretty much whatever they want. Now, the Thorsons have taken up a tactic not seen since the heydays of the housing bubble — they are making offers on homes before they’ve seen them, as many as three per day.”

“Experts say the environment is strikingly similar to what they saw at the height of the real estate bubble. Las Vegas real estate agent Jonathan Abbinante said he has clients who are making three offers a day on homes they’ve never seen. If they get a response, they’ll check out the house and decide whether to continue or back out. He said he sees a similar frenzy for houses he’s selling.”

“‘I sell homes right over the Internet,’ Abbinante said. ‘That’s what I did in 2004.’”

The Arizona Republic. “There are still at least 128,000 other shoes to drop in the Arizona housing market, according to housing experts tracking the progress of adjustable-rate mortgage loans. Scheduled resets for adjustable-rate mortgages are expected to peak in September 2010 in Arizona at a high of about 3,750, and a second peak of about 3,650 is anticipated in December 2011. The total estimated value of ARMs in Arizona that have yet to reset is more than $30 billion, according to CoreLogic data based on loans issued prior to February 2008.”

“Most of them - even those with little chance of paying off their loans - are likely to stay if the payments are still affordable. ‘Sooner or later the decision’s going to have to be made,’ said Jay Butler, director of realty studies at Arizona State University, ‘And human nature is to avoid making those decisions as long as possible.’”

The Las Vegas Sun in Nevada. “Some real estate pros hope the June housing numbers released last week by the Greater Las Vegas Association of Realtors are a sign that prospects for the housing market are improving, but…experts say the major roadblock to recovery is the same obstacle that boosted inventories and pressured prices into a free fall: foreclosures.”

“Prices have fallen 38 percent since June 2008 and 55 percent since the peak of $315,000 in June 2006. ‘Everybody is asking if this is the bottom, but I don’t care if this is the bottom,’ said Steve Bottfeld, executive VP of Marketing Solutions. ‘The key question right now is how long are we going to stay on the bottom.’”

“Although the housing market is heading in the right direction based on June’s sales and prices, the big worry remains foreclosures, Bottfeld said. A moratorium on foreclosures earlier this year slowed the amount of inventory hitting the market, but lenders are expected to begin offering a substantial number of newly foreclosed homes. ‘Until we see those in the coming months, we won’t know when the market is coming back,’ Bottfeld said.”

“Tim Sullivan, president of Sullivan Group Real Estate Advisors, said that, although the housing market is close to its bottom, what is different is this recovery will lag compared with past recoveries. One reason is that real estate growth is driven by jobs, he said. In addition, during the 2001 recession, the housing market didn’t contract, and the market must pay a price for overdevelopment earlier this decade.”

“‘We are paying double this time,’ Sullivan said.”