Now The World Is A Different Place
A report from the Star Tribune. “Warren Smith, chief financial officer of 1st American State Bank of Minnesota, sounded exasperated as he rattled off a long list of loans for commercial real estate projects that threaten to sink his bank. There was ‘Gold Mountain,’ a planned community of million-dollar homes just north of Phoenix that never got off the ground because it lacked a reliable water source; three condominium projects in and near Miami now in default; and a troubled condo and retail development, called ‘Founders Circle,’ in Apple Valley.”
“Smith said he spends ‘100 percent’ of his time trying to sort out loans that have gone bad. ‘I’ve got so much going on that it’s hard to keep track,’ he said. ‘It’s just a matter of coming to work and hoping that I can get through it.’”
“‘The banking industry, in general, has been waiting for commercial real estate to be the next shoe to drop,’ said Dennie Emmans, executive director of a trade association of about 250 bank holding companies in the Upper Midwest. ‘Well, now the shoe is dropping, and it’s dropping pretty hard.’”
The Des Moines Register. “Iowa banks are dealing with the devastating housing bubble that continues to pop in areas like Florida and Arizona. Several Iowa banks, including Liberty Bank of West Des Moines and Bankers Trust of Des Moines, tried to take advantage of the boom in high-growth states to expand business. ‘That’s what so many banks in the Midwest did because of the limited growth opportunities at home,’ said Ken Thomas, an independent bank consultant and economist. ‘They would go to the big cities, or they would open offices in Florida or Arizona. A lot of banks did that.’”
The Denver Daily News in Colorado. “City Park resident Sylvia Herring stopped paying her mortgage after she became suspicious of the subprime mortgage buyer who purchased her mortgage. Now Herring is attempting to halt the foreclosure proceedings on her home after the once Lafayette-based Jaguar Group was accused of defrauding several local banks out of millions of dollars.”
“Herring’s mortgage was not originally with the Jaguar Group. But as has been the case with the housing crisis in America, mortgages have been sold and packaged into bonds many times over. The practice has raised a possible defense for some borrowers, as was reported in last Monday’s Denver Daily News.”
“For Herring, the issue is a matter of principle. She says she isn’t going to give money to a company that has been accused of fraud. ‘I could have paid it and they could have kept screwing people,’ said Herring. ‘But a stop has to be made … I draw the line, I’ll make the sacrifice.’”
The Denver Post in Colorado. “Metro Denver suffered a record drop in sales of existing homes in 2009 amid the recession and tight lending conditions. For the year, 42,070 homes were sold in metro Denver, the fewest since 1997 and a 12 percent plunge from 47,837 in 2008, according to Metrolist data. The biggest percentage drop previously was a 4 percent decline from 2007 to 2008.”
“‘For 2010, we’re going to be looking at more of what we saw last year,’ said David Simonson, a Realtor with Re/Max Professionals. ‘I think you’re going to see lending continue to tighten up incrementally. You’re going to see the luxury-home market continue declining until people feel more secure with their jobs.’”
The Aspen Daily News in Colorado. “Overall, statistics paint a grim picture of 2009. Garfield County ended with a 5.8 percent unemployment rate…well up from 2008’s 3.1 percent. Real estate prices fell 10 percent last year, and the number of sales plummeted from a peak of nearly 2,500 in 2007 to fewer than 500 last year. Housing-unit building permits plummeted from 401 in 2008 to 60 in 2009.”
“‘I wouldn’t call it so much falling off a cliff rather than a pretty rapid slide down a mountainside,’ said Julia LaVigne, of New Castle-based Ribbon Demographics Housing Analysis, who compiled the statistics.”
“Construction, a backbone of Garfield County’s economy, is struggling. Construction job listings are few, and home values and lending policies have combined to discourage new big projects. ‘The reality is, speculative lending is pretty much nonexistent at this point,’ said Ian Exelbert, market president of U S Bank in Glenwood Springs.”
The Post Independent in Colorado. “According to LaVigne’s report, median and average residential real estate sales prices dropped 10 percent from 2008 through October 2009. However, according to Michelle James, co-owner and broker with Vicki Lee Green Realtors in Glenwood Springs, the numbers she’s seen indicate the decrease in sales prices to be more like 12 to 15 percent in the past year.”
“‘We’re seeing a higher drop,’ James said. ‘More like 1 to 1.5 percent a month.’”
The Arizona Daily Star. “Foreclosures in Pima County continued their skyward climb through the end of 2009. At the close of the year, trustee sale notices — filings that say an auction has been scheduled for a property because a borrower is in default — reached 12,184, a 36 percent increase from 2008. And that’s after foreclosures nearly doubled from 2007.”
“People who bought or refinanced their homes with adjustable-rate mortgages when the market peaked about three to four years ago are getting hit the hardest, said Richard Rhey, executive director of the Southwest Fair Housing Council. On top of that, many people are struggling with unemployment, he noted. ‘People made bad decisions. People always make bad investment decisions,’ Rhey said. ‘But they’re paying for it in a much more stringent way. It’s dramatic. Families are devastated’”
“James Wallace, a contractor, said he is working to stave off foreclosure on the Oro Valley home that he moved into in 1993. Wallace, said he was hit by a ‘double whammy’ as the housing-market slide hurt his business and he was afflicted by colorectal cancer…It became a struggle to keep up with his original mortgage and a second one he had taken out in 2002 to generate cash flow for his business.
Now, he’s working with Bank of America and Chase to negotiate modified loan payments. While Wallace doesn’t owe more than his home is worth, he was skeptical about finding a buyer if he put up for sale.”
“‘One way or another I will keep that house,’ he said.”
The Arizona Republic. “The empty Centerpoint high-rise condominium towers that loom over Tempe, once a symbol of the city’s downtown residential boom, have fallen into foreclosure. Centerpoint’s foreclosure is the second high-profile Valley development to be foreclosed on in less than two weeks.”
“The Tempe City Council waived height requirements to approve the 22 and 30-story buildings. Tempe leaders hailed the coming of hundreds of affluent condo dwellers and wagered Mill Avenue’s future on the promise of an urban mecca. Instead, weathered plastic tarps now drape the windowless towers, and the fenced structures have become shelters for transients.”
“Mark Winkleman, a chief operating officer for ML Manager, is part of the team representing the collection of real-estate moguls, Phoenix Suns players and the hundreds of other investors who had a stake in Mortgages Ltd. Winkleman said that buyers already are inquiring about Centerpoint.”
“‘It’s a high-profile project . . . in a terrific location that’s attracted the attention of major companies around the country looking for a project like this that needs to be completed,’ he said.”
“The Valley’s real estate boom-and-bust cycle left an almost unimaginable 80 million square feet of excess office, retail and industrial space on the rental market at the close of 2009 - the rough equivalent of 1,600 football fields.”
“‘As 2009 closed, the metropolitan Phoenix economy continued to feel the effect of the recession as both the commercial and residential real-estate markets were impacted by the deepest recession since the Great Depression,’ Jeff Cooledge, firm research manager, reported. ‘In an overbuilt market, any new construction is not expected for some time.’”
The Verde News in Arizona. “There are signs the market has begun to find the bottom. Prices have returned to levels not seen since the bubble began expanding 10 years ago. And sales are up because houses are affordable. In 2009, 51 percent, or 529 out of 1,038 homes that sold in the Verde Valley, were distress sales. And because the supply of distress sales remains high (251 of the 1,086 homes currently listed) most real estate brokers and mortgage lenders agree they will continue to drive the market into the foreseeable future.”
“Sedona, which has remained the most active home market throughout the downturn, has seen the median price of a home slip from $530,000 in 2006, to $359,000 this year. Similarly, Cottonwood has fallen from $215,000 to $135,000, Camp Verde has fallen from $225,000 just two years ago to $140,000 and the unincorporated area of Beaver Creek from $190,000 to $124,000 over the same period.”
“Cottonwood mortgage broker Mark Miskiel points out that the inventory of distress sales may not be what it appears to be and could continue to climb, or at least remain the same for some time, due to the way many lending institutions are handling their inventory of bad loans. ‘There is a ’shadow inventory’ of bad loans out there that is starting to get some notice. We know that foreclosures are increasing. We are even starting to see them in the prime market. And the banks realize that they are cutting their own throats by flooding the market with foreclosures.’”
“‘So some properties that have been foreclosed on are not being listed until months later, in an attempt to not flood the market. It’s hard to quantify how much of that inventory is out there but we know it exists. By my estimation it will remain a buyer’s market for years to come,’ says Miskiel.”
The Deseret News in Utah. “It is with a sense of uncertainty and pragmatic realism that had many industry insiders attending the Real Estate, Development and Construction Lending Summit at the Salt Palace Convention Center wondering ‘what’s next’ for Utah’s real estate industry. An audience of about 200 people listened to local analysts and association leaders express their thoughts on how the market arrived at its current state and where it could be headed.”
“‘All the things you want to occur in a down cycle like this are taking place,’ Michael Castleman, executive VP of national housing research firm Metrostudy said. The market is stabilizing itself by eliminating excess inventory, forcing prices down and pushing weaker players out, he added.”
“He said that while the market is working through its problems, some issues still need to be addressed, including the exorbitant price many developers paid for land during the real estate boom just a few years ago, making new residential construction exceedingly tough in today’s struggling market. ‘In very simplistic terms, too much money was chasing too few deals,’ Castleman said. ‘Too much debt was embraced on asset values that really weren’t sustainable.’”
“The president of the Utah Association of Realtors said the outlook for Utah’s real estate market this year is still not clear. ‘If (government-driven incentives) exit the market in a way that is market-friendly, and people understand that the adjustment is coming … the transition will be really good,’ Lerron Little told the Deseret News.”
The Salt Lake Tribune in Utah. “In a depressed housing market, one developer has turned to an auction in hopes of finding buyers for ritzy condominiums in a slope-side lodge at Deer Valley. Ironwood Resort Development has scheduled a Jan. 17 auction — just days before the Sundance Film Festival begins — to sell eight residences in Silver Strike Lodge at Empire Pass, a ski-in/ski-out condominium at the base of Deer Valley’s Silver Strike chairlift.’
“On the block are a pair of two-bedroom units, two three-bedroom and three four-bedroom residences, plus a two-story penthouse. Minimum bids will range from $1.15 million to $1.5 million each for these units, whose previous asking prices were from $2.4 million to $3.3 million.”
“‘We were holding open houses and they weren’t selling [enough] units,’ said Matt Mullin, a principal figure in Ironwood, which sold 15 of Silver Strike Lodge’s 34 units after construction was completed in August of 2008.”
“Ken Stevens, West Coast chief executive, said auctions appeal to both buyers and sellers. For sellers, he said, ‘an auction sets your project apart. There’s so much inventory across the country that, unless you have some sort of event-oriented focus on your community, you’re an also-ran. Sellers who haven’t bought the land too expensively are prepared to trust what the market delivers.’”
“In the past, Ironwood asked purchasers of other company projects what they liked and did not like and made changes accordingly, Mullin said. ‘But one thing we haven’t listened to them about is price. We did our research on the market and determined what we thought people will pay,’ he added. ‘But now the world is a different place.’”
“‘With this auction,’ he added, ‘we will be accepting what our buyers determine homes at Silver Strike Lodge are worth in today’s market.’”
The Nevada Appeal. “Reports that Nevada’s population growth stalled — and possibly has even been thrown into reverse — came as no big surprise to many Northern Nevada businesses. But the findings by the U.S. Census Bureau and the State Demographers Office provided factual confirmation to support the strong hunches of businesspeople who have struggled with declining markets.”
“The Census Bureau estimates that Nevada’s population grew by 1 percent from mid-2008 to mid-2009. State Demographer Jeff Hardcastle, meanwhile, estimated that Nevada lost 1 percent of its population — roughly 28,000 people in the past year.”
“George Shoenberger, whose Shoenberger & Shoenberger Inc. manages 650 apartment units in the region, says apartment owners have suspected for months that the region’s population may be declining. ‘My sense is that people are moving out of town,’ Shoenberger says. ‘If there aren’t enough people to go around, we’ll have vacancies.’”
“Vacancies in some smaller apartment complexes, he says, are running as high as 25 percent. Owners are scrambling to reduce rents and throwing in incentives such as free television sets to retain existing renters and attract new ones. ‘The apartment market has been impacted dramatically,’ Shoenberger says.”
“Kenneth Blomsterberg, who brokers apartment-complex sales and invests in Reno-area multi-family housing projects, says rising joblessness is a key factor. ‘They just can’t find any work,’ he says of hundreds of apartment tenants in the region. ‘They’re moving out.’”
“Even before the Census Bureau and State Demographer’s reports, some retailers were trying to figure how apartment vacancies could be rising at the same time that hundreds of homes stood vacant in the region. One explanation: Folks had doubled-up in apartments to save on rent or moved home. ‘But that didn’t explain the entire thing,’ says Kelly Bland, a senior vice president and specialist in retail at NAI Alliance in Reno. ‘It would not come as a surprise that we lost population.’”
“The president of the Reno-Sparks Association of Realtors says the group keeps an eye on population trends but doesn’t find the current situation alarming. The region’s underlying assets — its location and its business climate — will continue to be attractive to businesses, retirees and others, says the Realtors’ Ken Amundson.”
“But he says the long-term health of the economy and the return of a growing population depend on efforts to create more jobs in a diversified regional economy. ‘People go where the jobs are at any give time,’ Amundson says.”
The Mesquite Local News in Nevada. “In May of 2007 we had no shadow inventory; virtually everything listed was sold, including the few foreclosures, and banks were not holding them back off the market at that time. Many questions surround this so called shadow inventory supply of housing; some even dismiss the idea as a scare tactic and illusion.”
“Mesquite, Nevada real estate statistics since May of 2007 show a steady, dramatic, and continual climb in failed listings. These properties were active for sale and did not sell and are not actively for sale today.”
“Notice of defaults, those falling at least ninety days behind on their mortgage payments, has spiked to its highest level in the second half of 2009. Many of these will become short sales or foreclosed bank owned properties. Foreclosures and bank owned vacant properties in Mesquite continue to climb and the banks are not listing them.”
‘They appear to be holding them waiting for either a dramatic market change or more likely a change in government regulations regarding asset values and bank solvency, particularly ‘realized’ verses ‘unrealized’ losses on the books of the banks.”
“They may actually believe they can release these at a pace where they can control prices and manipulate the market. I know they have not acted rationally, but this would be off the scale of stupid.”
“During the boom years, the emphasis was ‘A Rich, Rewarding Lifestyle.’ ‘The Next Palm Springs’ was often heard around the city’s halls. Many larger and expensive homes were built. The bulk of the market selling today is the lower end; smaller, more efficient homes. The 2009 median price for all housing sold and closed in Mesquite was $165,000. If you are builder, there is a target number for you.”
“Mesquite’s challenge will be to bring a product to the market in the future that will meet the needs of this retiring generation. Affordable housing must top the list of priorities (think $110 per square foot), along with solar orientation, efficiency, comfort and livability.”
“Some may say that Mesquite was built for the wealthy and must remain that way; I say, if that is to be the case, it is going to become mighty lonely around here.”
Whoohoo, Colorado thread. So I ask again, will Boulder *ever* crack?
As long as they don’t have to sell, no. Personally I don’t see the allure. Boulder is a dump.
One thing that is helpful is that these markets tend to follow similar paths. Colorado and Denver was in full decline in 2005. Here we are over 4 years later and their sales drop below 1997’s. This suggests that not only will we see a “double dip,” but several drops over many years.
The North County Times did a great analysis once where they pointed out that in the last bust, prices fell for years AFTER foreclosures peaked.
I tend to be skeptical of people who think their town is the greatest, but I have to admit there are some really nice things about Boulder. I’m not sure what you mean by “dump”…the older housing stock, or the industrial areas on the east side, or ??? I like the businesses/restaurants and the tech jobs and the mountains on the edge of town and the bike paths and etc..
But yeah, maybe it is as simple as “nobody has to sell”.
I really like Boulder, but that’s because I could pass for the stereotyped Boulder resident: an overeducated person who exercises a lot, eats organic food, and is politically liberal. I did not visit until 2002; otherwise, after graduation, I might have headed there rather than to Florida.
I am aware that the city has been described as “twenty square miles surrounded by reality.”
I totally don’t fit in…basically I’m a Wyoming redneck that happens to work in tech, but I still like it. If I ever move back to Wyoming what I’ll miss the most is the food choices.
I really like Boulder, but that’s because I could pass for the stereotyped Boulder resident: an overeducated person who exercises a lot, eats organic food, and is politically liberal.
I look forward to treeing the last of your sort with Bloodhounds….
heheh..and their cats too.
Hmm…apartment rents and occupancy falling…and yet some think that the way to riches is to buy a cheap home and rent it till the market ‘returns’…
The final end of this bubble will occur when those mentioned above capitulate.
“Warren Smith, chief financial officer of 1st American State Bank of Minnesota, sounded exasperated as he rattled off a long list of loans for commercial real estate projects that threaten to sink his bank. There was ‘Gold Mountain,’ a planned community of million-dollar homes just north of Phoenix …..
I’ll bet old George Bailey never lent much outside of Bedford Falls!
Permit me to add s’more words to the above quote:
There was ‘Gold Mountain,’ a planned community of million-dollar homes just north of Phoenix that never got off the ground because it lacked a reliable water source;
The part I boldfaced is the key problem with development in Arizona: Water. We just don’t have enough of it.
You’ll be hearing much more about this problem in the months and years to come.
I made a post the other day that I had a niggling feeling back in the late 1990’s that WAMU might be heading for trouble when I saw WA
Sorry, to finish,
When I saw WAMU branches springing up in S Florida. WAMU had been the gold standard in residential mortgages and personal banking in the northwest for as long as I had been here, but it seemed odd that they thought that somehow they understood the Fl RE market.
The rest they say is history.
Yeah, I had my own WTF moment wondering what a Minnesota-based bank was doing loaning money to all those distant projects where they didn’t have a clue of local realities.
Banks will male good loans if they can, if they can not make good loans they will make bad loans, if they can not make bad loans they will make worse loans, but they will make loans.
Speaking of water, I can’t believe Mesquite ever had that much either. The hotels and golf courses probably soaked up all the Virgin River that runs through it.
It figures that a bank from “the land of 1,000 lakes would lend money on a project in AZ without FIRST making sure of the water rights. Wasn’t there a story awhile ago about some development they built where the water was TRUCKED in?
At least around here in Boise the county won’t issue permits until things like water rights are settled first. There’s a big proposed development in the foothills above Boise whose permits were recently rejected on that very basis. No water - no permits. Go away.
We have multiple developments in Pullman, WA that haven’t sold or built on a single lot for two years yet not one has foreclosed. We have 200 developed lots in town, and FIVE sold over the past year (three to a graduate student speculator). What in the world are the banks waiting for?
I would hate to think about how many developed lots are available here in greater Boise - probably thousands. Long-term planning efforts were overridden during the boom years - at least now things have cooled off and sanity is returning to the planning.
Spend some quality time with Google Earth almost anywhere and you can find the remains of failed speculation from the past 50 years.
The most famous is perhaps HOVE, short for “Hawaii Ocean View Estates”. It’s on the southeast poriton of the Big Island, labelled as such.
East of Deming, New Mexico there are thousands of lots that went on eBay for around $2,000 for a 1/4 acre lot during the rah-rah fest of 2004-2007, which is about 10 times what they’re really worth considering the 20 years they’ve been sitting there no one has run utilities out to the site, let alone a real road.
I have a co-worker here in MA that back in the late 70s/early 80s oil shale hoopla that bought an acre lot (unseen) southeast of Pubelo, CO. He finally saw it about 10 years after he bought it, after driving what he calls “miles and miles and hours untold” on dirt roads out in the middle of nowhere to find the lots staked out on the eastern plains of CO. He’s long since abandoned any memory of the property, he pretty much figures he got scammed and never owned anything anyway.
So..yeah, Google Earth is the best ammo for the “they’re not making any more land” crowd.
Bad Chile,
Very interesting perspective. The kindly gentlemen that ran “I can’t sell my house” used a model airplane and attached a camera to it so he could showcase and document all the brown lawns in the IE.
Very funny stuff. From an aerial view, it’s like.., guess which of these homes are in foreclosure/abandoned!? Kind of like an open book test.
Funny though you’d mention HOVE. I’ve been talking back and forth w/ a CPA to get a feel for what’s going on there. Kevin explained you could see power poles and roads going basically NO where and developments the jungle had reclaimed! Still, I’ve never ruled out the Big Island, kind of like the Philippines only a much shorter plane ride from Portland.
Maybe that’s what Balloon Boy was really doing - mapping out all the Denver foreclosures from the air.
By the way, I typed it wrong for HOVE - it should read Southwest.
Interestingly enough, it is also the southern most part of the US.
Its hard to imagine where anyone would think that kind of growh would come from in Pullman. No offense to the town, but unless you work for the University or Schweitzer Engineering I’m thinking it would not be at the top of places to live.
Its always been interesting to me that engineers (or any professional) would move go to work for Schweitzer, move to Pullman and buy a house there. If it doesn’t work out with Schweitzer, and you own a house in Pullman, you are hosed, big time.
I went through that exact thought process, middle of last year, considering Schweitzer as an employment candidate. They’re doing a substantial amount of hiring for people with backgrounds like mine. Buying at Moscow/Pullman’s grossly inflated prices was out of the question for us, though, for the exact reason you mentioned. Just like it was with W.L. Gore in Flagstaff in 2006. Nice places, but…
Much easier and less stressful to just stay debt-free keep picking up whatever comes available, and keep our powder dry.
Home prices are inflated mainly because the town prohibited almost all growth for a couple of decades after the last housing bust in the early 80’s. A third of WSU employees do NOT live in Pullman, most in Moscow with others scattered around to the smaller towns in the area. So there actually would be growth, at the right price. But they continue, even now, to build luxury homes at $150-$200/sq ft, and try to sell 9000 sqft lots at $60-100k.
Schweitzer has stopped bringing employees into Pullman because it was so hard to recruit. They have instead opened small satellite offices in Boise, Spokane, Seattle, etc… And engineers are allowed to telecommute from anywhere. So Schweitzer isn’t driving growth and the university is shrinking with massive budget cuts. Somehow I don’t think that graduate student is going to make a killing on those lots he purchased.
Of course around here MD, if you’re not on city water, the question is whether the ground will “perk”. Because if you’re sitting on an impermiable layer of clay, your septic system won’t work. I’m guessing that all that sand in AZ perks REAL WELL.
It perks too well. And that’s a big problem in the landscaping trade. You need to get the soil to the point where it actually holds onto the moisture for a while.
“For Herring, the issue is a matter of principle. She says she isn’t going to give money to a company that has been accused of fraud. ‘
What an honest moral person! NOT!
It’s amazing what excuses people think up.
Hmm, one could make the same argument for not paying taxes to FedGov. Then again, they have much bigger truncheons than the guys at Jaguar…
Herring must think - mistakenly - that the reporter will call her out if she claims to be a “victim,” so now she’s a crusading campaigner against fraud. Forgive my misty eyes.
Note she is taking the moral high ground for a company that is ACCUSED of fraud.
Here’s an article from 10 months ago.. May 2009 about Jaguar Group LLC being sued… evidently they defaulted on loans but secretly sold off some of the collateral.
There have been several judgments awarded. Some have been paid in all or in part..
Bank of Choice won a $10.9 million judgment
Colorado State Bank and Trust .. $12.8 million..
Citywide Banks sued and was awarded $3.2 million.
From what I gather, the entire list of creditors is not known ..
..At one time, Jaguar Group was the largest company in Colorado buying performing and nonperforming single-family, subprime residential mortgages, according to Colorado State Bank and Trust’s lawsuit…
http://denver.bizjournals.com/denver/stories/2009/05/11/story1.html
——–
So, who’s the predator and who’s the victim.. the banks.. Jaguar.. that lady who won’t pay? It doesn’t matter.. because the bubble collapse will kill ‘em all and God will sort it out.
Several Iowa banks, including Liberty Bank of West Des Moines and Bankers Trust of Des Moines, tried to take advantage of the boom in high-growth states to expand business. ‘That’s what so many banks in the Midwest did because of the limited growth opportunities at home,’ said Ken Thomas, an independent bank consultant and economist. ‘They would go to the big cities, or they would open offices in Florida or Arizona.
It’s amazing how people out of the “line of fire” as it were decided to run down range and stand in front of the target.
“because of the limited growth opportunities at home”
( read easy money elsewhere! )
Hey! We’re missing out on The Boom! Better find guys w/ leather toolsbelts and cell phones to lend to! And then of course drag the entire town down w/ them. Perfect.
River City’s just GOT to have a boy’s band.
…and a monorail.
LOL. Yeah, this is what ushered in the “brokered CD’s” where rinky dinky local banks had to offer ever higher rates in order to keep their ponzi afloat.
And the write up’s always sounded so damned sensible:
“Liberty Bank ( with assets of blah, blah, blah ) has been in constant operation since… blah, blah, blah. Now offering… blah, blah, blah.”
“It became a struggle to keep up with his original mortgage and a second one he had taken out in 2002 to generate cash flow for his business.”
If his contractor business wasn’t generating it’s own cash flow in ‘02, he must have been doing something wrong. More likely, he was just living beyond his means.
There was a lot of that LBYM virus going around Oro Valley. And the denizens of Oro Valley tend to look down on us Tucsonans for doing the same thing.
‘They may actually believe they can release these at a pace where they can control prices and manipulate the market. I know they have not acted rationally, but this would be off the scale of stupid’
Any student of economics should know that a market as large as housing can’t possibly be manipulated in the long run. And if they are mistaken, their bond and shareholders will pay for it. Not to mention the people buying in at these prices.
Again, we must consider the post-bubble economy. There will be demand and recovery where people land with real jobs. So right now, it isn’t clear what the value of all these houses in Nevada, for example, really is.
As for the lenders trying to manipulate prices, one thing I learned in the business world is that decision makers almost always take the path of least resistance. But regulators are supposed to force them to act otherwise, and that’s what isn’t happening.
Meanwhile, I continue to find people in the industry openily discussing this practice, all over the country. IMO, this inventory will be a big story in the future and we can expect the press to say, “everybody knew this was happening.”
What about the impact of low population growth rate? It will be really hard to get rid of the excess with very low growth. Top it with high unemployment and some illegals returning home, and you have the perfect recipe for future trouble.
SMF,
Good point, never really thought about it that way. Our own daughter has even put off having children for the immediate future.
Even though she has a very solid career ( ahem, ’state’ employment ) and a great husband, they won’t be up-sizing any time soon. With or withOUT new additions to the family.
Meanwhile, I continue to find people in the industry openily discussing this practice, all over the country. IMO, this inventory will be a big story in the future and we can expect the press to say, “everybody knew this was happening.”
Looks like they wore out that “No one saw this coming!” meme.
But, if everyone knew that this was happening, why isn’t it making it into the current headlines? Heck, we’re sure talking up a storm about it.
Slim,
Yeah I’ve seen a change in the REIC-think on that one. From Gary Watts “15% is in the bag” to NOSTC to being nothing more than consensual/conventional wisdom.
Morphing is what they do best.
slim:
Its an easy answer….none of us are employed by people at the top….or else we would make damn sure it was right in their face every morning.
Can you imagine a tell all book about Greenie/Benakie, and their Interns forced them to read this blog everyday and they did nothing?
Look everyone, the Flagstaff paper ran a little article about Ben:
http://www.azdailysun.com/business/local/article_26238719-a56e-512d-9e18-4588c1accd8b.html
Props to Ben! Here’s what all the excitement is about:
Ben Jones, a blogger and real-estate analyst, was recently recognized by Inman News as one of the 50 most-influential people online in real estate.
The blog was launched in 2004 and has been recognized as an important resource for information and insight into the housing market.
Jones owns a property preservation, management and investment company out of Flagstaff.
Speaking of the world, it appears the Dubai real estate boom was built on sand.
http://www.bloomberg.com/apps/news?pid=20601087&sid=a4TwfiSIfjdM
“Dubai’s housing rout sent prices down 52 percent in the past year, prompting some homeowners to abandon their cars and mortgage payments and flee the country. Not one received a foreclosure notice. Until now.”
Key words…”flee the country” best not ever return. More than the debt will be awaiting their return.
The folks? in Dubai don’t cotton to people leaving behind unpaid bills.
Dubai’s bubble made our bubble look sooo small in comparison.
Another seldom spoken bubble is the Chinese bubble. My sister-in-law was there (Shanghai) years ago and already noticed the large amount of unoccupied office space.
And things have only gotten worse in China since then…
Not to stereotype, but East Asians are the world’s worst compulsive gamblers. Note that I didn’t say anything about their driving skills.
But…but…but…I thought Dubai’s “Islamic banking” meant no-interest loans for all, only you’d lose a hand if you skipped a payment.
Maybe that’s why they fled the country. With extreme haste.
Having nearly been relocated to Dubai for work a couple years ago…
If you’re a non-citizen that owns property in Dubai (which you were only granted that right in 2004), the only entity to which you can sell property to is…the state owned property developer (Nahkeel).
If you’re a non-citizen, your visa is tied to your job. Lose your job, 30 days to leave.
Your employer is required to notify the mortgage holder that you lost your job. The bank then notifies the state, which revokes your visa, meaning you cannot leave the country until you pay off the loan. But there isn’t a free market for property since the only reason the state will take your property is if they can resell it at a profit, which they can’t anymore.
That sounds downright un-Christian. Oh, wait a minute.
Gives a whole new meaning to “option ARM”.
Having lived in Az for over 20 years and now going on 3 years living in Utah, I can see the similarities that the two places have in this decline. Arizona has much more pain to come that will be spread out over many years because of the shear size the boom and Utah has the same because of the velocity of the boom. In my zipcode in Northern Utah (84414), median prices rose from 164000 to 238000 in just five short years. This is an area that is 60 miles from Salt Lake City!! I am an outside here because everyone thinks “its different here”.
We’ve lived in UT for 20+ years now and we’ve also spent a lot of time during the last 4 years checking out different areas of AZ. The way that I describe it is that UT is lagging AZ (both upside and downside) by about two years in the visible characteristics of the bubble. Of course there are lots of exceptions to that general statement, but I think it holds fairly well. I don’t think the magnitude of the whole thing in UT was quite as large or deep, but UT has way more of a bubble than most people think.
I’m in North Weber count and I guess that I am more cynical than most because I am a renter but want a house for the family. Most homes that fit my needs are priced near $100/ sq ft. There are short sells that are in the 65-70/ sq ft but they are insanely huge (3800 sqft) and usually ended up with multiply offers. I don’t see the local wages supporting this price activity.
UT is still very much in denial, even as prices continue to fall. Like I said, everything is delayed from AZ/NV/CA/FL.
Price to monthly rent ratios for mid-range stuff in SL County are currently still running at just over 300, and rental rates are plummeting. We’ve got 20-25% downward left to go on average.
This was supposed to be a reply to az_scorched above.
Interesting, we are getting price/rent ratios around 200 these days. So Pullman must be adjusting a bit faster than your area. Nothing like big university layoffs to scare the bejesus out of people.
“While Wallace doesn’t owe more than his home is worth, he was skeptical about finding a buyer if he put up for sale.”
Can somebody explain to me how something can be worth more than what a buyer is willing to pay for it?
Can somebody explain to me how something can be worth more than what a buyer is willing to pay for it?
Uh, well……….better talk to Suzzane.
Her research explains everything.
If the seller isn’t willing to let it go for what a buyer is offering, then the seller “values” the place more than the buyer.
You always have to include the seller in the valuation determination. If a buyer offers $250k for a house, but the seller won’t let it go for less than $280k, then the ‘value’ is $280k, no?
Good point, utility is subjective. A house in Detroit might be worth $1 to the highest bidder but the owner might value it at a million dollars for sentimental reasons and refuse to sell.
However, Wallace didn’t say he owed less than his home was worth to him in the subjective sense, but what it was worth generally (i.e., the appraised value). He implied that he would have sold the house if he thought he could get a buyer at that price. So I’m still unsure how something can be valued at, say, $500k when nobody, not even the owner, is willing and able to pay that much for it.
“Market Value” is what a buyer will pay AND what a seller will accept; you have to have both pieces resolved. “Investment Value” is what a property is worth to a specific person; i.e. your seller’s investment value is $280,000 and the buyer’s investment value may be $250,000.
Real Estate
What Wall Street Bonuses Mean For U.S. Housing
Francesca Levy, 01.11.10, 04:00 PM EST
The return of exorbitant banker payouts might help stimulate the economy–but the proof won’t be found in the real estate market.
image
After a year in which banks could neither afford nor justify rewarding their employees above their annual pay, big end-of-year compensation packages have returned. Observers of the luxury real estate market hope this will counter the blows taken by high-end housing last year, when bonuses all but disappeared.
Unfortunately, the bonus money is unlikely to trickle down into housing markets in any significant way. Developers say finance professionals that would normally splurge on luxury homes are still skittish because of stock-market volatility and a shaky job market.
Johnson Associates, a New York-based compensation research firm, projected in November that incentive pay would rise by roughly 40% for this year. Before 2008, an increase like that would have translated into money in real estate brokers’ pockets, as finance-industry workers invested in second homes and vacation properties.
“Starting in January or February, brokers would call us up saying, ‘I’m expecting an offer on this property or that property,’” says Edward Mermelstein, a real estate attorney and co-founder of Manhattan law firm Edward A. Mermelstein & Associates, of pre-financial-crisis trends. “I’m not expecting that this year.”
No Bonus, No Down Payment
…
Office Space - everyone move your desk to the basement (and please leave your swingline).
http://www.charlotteobserver.com/kerryhallsinge/story/1131283.html
Is it not a trusim that home price should reflect the incomes of the area, and , therefore, median priced homes should be about 3 times the median income!
Why is it that home prices seem to exceed that truism?
And should the home prices not reflect the highs , and the lows, of the incomes of the area?
Or is it that low income families , of 50% of median, can never afford to buy homes due to the cost of taxes and maintenance?
JackO
To be fair, low income families probably shouldn’t be buying so median home price might well be more than three times median income. That said, in many areas these two statistics became completely disconnected.
In 2008, in the United States of America, the poverty threshold for a single person under 65 was US$11,201.. wikipedia
What kind of house can be built for .. say.. $30K, including the land? Would you want entire neighborhoods packed full of those cardboard shacks in your city? Do you want one nextdoor to your property?
$30K is mobile homes.. and that in fact is what the “poor” buy if they choose to buy a home… and they rent the land under them.
You might get a Katrina Cottage for that…but you won’t get the land or utility hookups.
Maybe there should be villages of Katrina Cottage rentals, that would be cool.
i dunno..
Part of the reason the Katrina Cottages were any sort of a viable option was because FEMA was paying out something like $70,000 to deliver and set up one of their lousy trailers.
$30K?
This site claims the 400 to over 1,000 square-foot cottages can be set up in days for less than $60,000.
http://thanks-katrina.blogspot.com/2008/01/katrina-cottage.html
Land.. that’s gotta be an “extra” cost.
And it seems that local governments were (and prolly still are) opposed to these relatively cheap but affordable, permanent houses. Permanent cheapo neighborhoods might have a bigger problem with permissions..
anyway.. all we gotta do is wait till the McMansions fall to the price of a Katrina Cottage. Then add some partition walls. Lower the ceilings. Install two front doors and make a livable duplex.
telling it like it is:
http://www.commondreams.org/headline/2010/01/11-7
In another page from this same book, Tucson’s about to celebrate its annual Dillinger Days. The event commemorates the 1934 capture of bank robber John Dillinger. Trust me, the Tucson Police and Fire Departments are still proud of they roles they played in that one.
I went to a Dillinger Days lecture a couple of years ago. It was presented by a retired Tucson Fire Department captain, and he started by listing the Depression Era bank robbers who are still household names. Y’know, Bonnie and Clyde, Pretty Boy Floyd, Al Capone, and John Dillinger.
He asked the audience why these guys are still so well known. We were stumped. Then he told us it was because the bank robbers were folk heroes. After so many homeowners and farmers had been foreclosed on, the banks weren’t too popular. (Shades of modern times, eh?)
In 1960s parlance, the bank robbers were stickin’ it to the man.
Uh, not to be overly picky, but I don’t think Al Capone was a bank robber.
Ambrose Evans-Pritchard is always a good read. But I think he’s got it wrong here:
“How anybody can see imminent inflation in the dying embers of core PCE, just 0.1pc in November, is beyond me.”
Deflation is inevitable as asset values evaporate, but that’s not the only side of the story. Does Evans-Pritchard think that Bernanke will sit idly by while deflation bankrupts the overleveraged American consumer and government? On the contrary, Bernanke himself has said the Fed’s mistake during the 1930s was insufficiently loose money. He must continue to inflate the monetary base by buying Treasuries. This is directly inflationary and ultimately, aiming for a little inflation, he will give us a lot.
(Meant to reply to pressbox’s previous link with this comment.)
‘This is directly inflationary and ultimately, aiming for a little inflation, he will give us a lot.’
H B PUFF N’ STUFF ALWAYS THERE WHEN THINGS GET ROUGH
H B PUFF N’STUFF YOU CANT GET A LITTLE IF YOU CANT GET ENOUGH.
“Federal Way broker gets 5 years for mortgage fraud”
By Mike Carter
Seattle Times staff reporter
A Federal Way mortgage broker has been sentenced to five years in prison for defrauding lenders of more than $47 million.
Victor Kobzar, 32, operated two area brokerage companies, Nationwide Home Lending and Kobay Financial Corp., and formed a third company, Emerald City Escrow, through which he obtained fraudulent loans in the name of “straw buyers” who otherwise would not be qualified to obtain the loans, according to federal prosecutors. They say more than a dozen banks and other lenders were victimized.
Continued…Google the title for more.
And now to Florida. What has been going on this last year. I hear that housing prices have farther to fall but in my area here on the Treasure Coast they are listing them higher. They aren’t selling, but they are listing them higher. Seems that the 8K really allowed the market to sell lots of houses. What will happen when the 8K is removed and should I wait it out and see? Or should I try and buy now…even if the house is not quite what I want?
The fact that they are listing these houses higher, as if expecting prices to increase…really has me concerned. Do they know something I don’t?
You hear the talk about interest rates increasing. Should that even concern me. Even if it increases a little…I think I would rather be in a house that cost me more than in a house I don’t love.
I’ve been looking in Vero Beach, Port St. Lucie, and Stuart.
If I take my time and search for another year….am I risking missing the bottom. I don’t think so, but I’m doubting my smarts…right now.
There’s still plenty of stupid (money) floating around, and until that pool is cleaned and drained we can’t begin to see the bottom.
Sellers and their agents who strive to get their paws on that money are doing the smart, studious and patient buyers among us a valuable service, imo.
If you like Port St Lucie, there are crazy low prices there now. Just watch out for the chinese drywall.
I am feeling in the same boat as you but I have jumped and made an offer on a short sale at 88.00 a square foot under air. High end, crazy upgrades on two fenced acres surrounded by hedges, really nice paved circle driveway, hurricane impact windows and doors, eight foot doors, high end tile, knock down ceilings, textured walls, cove ceilings, crown moldings, expensive fixtures, reverse osmosis, huge a/c unit all in perfect condition. There is nothing removed except for all of the appliances.
I am satisfied with that. If I lose out, oh well, I have put my life on hold for to long. My husband is getting deployed for eight months. I am sick of my landlord.
I am done with this bubble, the waiting and spending 1500 on rent each month. I have now waited two years four months since we moved to Loxahatchee and have been a slave to the bubble for the last ten years.
I hope that the members of this board to not flame me.
I am happy and at peace with my decision. This is our last home before retirement.
Wish me luck and good luck to you.
Are you sure it just wasn’t replaced a few months ago? As long as it smells ok…then go for it….As I have always said price really doesn’t matter if you intend to die in the house…
It will only matter to your kids when they realize how much of their inheritance you threw out the window on a house….LOL
huge a/c unit all in perfect condition
No, this house is the original home built by a contractor. He put his heart and soul into this house and sadly died shortly after.
As far as the kids, I think they will still make out very well. A lot of kids have NO inheritance to look forward to. My husband was one of those types. Got nothing when both of his folks died.
I don’t think kids should rely on that to get them through their life anyways.
For us, we saved and didn’t rely on any hand outs from anyone.
The world may be a different place, but not here in Maryland.
I was insulted today at work by a trio of coworkers who think I am “stupid” for not buying an overpriced dump right now since there are “so many opportunities out there.”
First, I didn’t ask them for their worthless opinions, and my finances are NONE of their business.
Second, each of these geniuses claimed there was no Bubble on the way up, and said that I had no idea what I was talking about over the past years.
Now, here we stand in economic ruin for the EXACT reasons that I predicted (thanks to this Blog and others), and they not only remain blind to the future, they are blind to the PAST?! Not one of them has wit enough to consider that maybe if I was right about the Bubble and they were so clearly wrong, maybe they should shut up about real estate?!
Some brilliant lines from these clowns:
1) Rising rates will mean HIGHER prices: Heavens, how many times are we going to have to refute this one?
2) Real Estate always beats inflation: Maybe over the LONG term, but not always in a reasonable amount of time, and certainly not now, barring hyperinflation of course.
3) I shouldn’t worry about maintenance costs for a house because I can do all that myself. Yeah, putting on a new roof in my “free time” sounds like a good idea!
And these economically blind idiots are all engineers.
Fools… I am surrounded by fools that deny the past… Heaven help us all…
if they’re so sure about all that, tell them you’ll buy something if they’ll cosign your loan.
“And these economically blind idiots are all engineers.”
Don’t feel bad. I was at lunch with a PhD colleague just before Christmas. He’s response to my ALT-A tsumani conversation was “the refi rate will be lower because it’s based on LIBOR and LIBOR is low”.
The fact that banks aren’t interested in refinancing all this underwater collateral went over his head.
Just keep reminding them that for all these reasons THEY should be buying investment properties - lots and lots of them.
I too, am getting a lot of “things are getting much better and it’s the time to buy.” Of course in my case if they are right I will simply leave CA. I am not buying a house at these prices, period. So I tell them they either have to quit saying that crap (I say it nicer) OR they have to help me pack. People will do anything not to have to help you move so they drop it.
If it keeps just keep reminding yourself that yes all you say is true and it’s none of their business. But they honestly believe it (and can’t see their own bias in why they believe it) and they are trying to help you in their own strange way. So smile, pleasantly disagree with them and enjoy your rental!
Thanks for the support, folks!
It’s just frustrating… I don’t expect a pat on the back for seeing this coming (thanks to everyone here), nor do I rub their noses in it. But it blows my mind that they deny the past: the Bubble itself, their own track record regarding economic predictions, etc.
San Diego RE Bear, I hear you - Maryland is in the same deranged hole as California, just without as nice weather. If the Fed somehow props this mess up forever and we’re stuck with tear-downs selling at 4x income for ages to come, then I simply won’t buy. Just because overpriced junk may some day be even more overpriced doesn’t mean it still isn’t overpriced junk.
Of course they are blind to the past. They were wrong in the past. They don’t want to remember the past. Look how many people are suddenly claiming that they knew about the bubble. I guess they think that we don’t know how to use Youtube.
It’s the old saying: Success has many fathers; failure is an orphan. Or, more accurately, the fathers of failure suddenly come down with a bad case of amnesia.