The Housing Bubble

The Wall Street Journal reports on Georgia. “The No. 1 state in bank failures is making it easier for survivors to deepen their exposure to a single borrower. Georgia Gov. Sonny Perdue signed into law Thursday a bill that allows banks chartered by the state to exceed current lending limits if a borrower hasn’t fallen behind on payments. ‘If this did not pass, it would deepen the real-estate crisis,’ said Keith Caudell, CEO of Bank of Hiawasse.”

“Loan losses since the housing bubble burst have eaten into capital levels at many of the 251 state-regulated banks that existed as of Dec. 31, 2009. For decades, it was illegal for such banks to pour more than 25% of their total capital into an existing lending relationship secured with collateral or more than 15% to an unsecured borrower.”

“Georgia’s failed banks were doomed by risky lending, overly exuberant home building and one of the most relaxed regulatory climates for bank startups, according to some analysts. In one failure, Integrity Bancshares Inc., Alpharetta, Ga., lent almost all of its available capital to one real-estate developer. The money went to five shopping centers, a condominium-conversion project and a primary residence for the borrower, according to people familiar with the situation. All of the loans fell into default before Integrity was seized in late 2008.”

“‘Loan concentration got us into this mess, so more concentration seems counterintuitive,’ said Christopher Marinac, research director at an Atlanta brokerage firm specializing in banks and savings institutions.”

“In 2007, the federal Office of the Comptroller of the Currency made permanent a pilot program allowing nationally chartered banks to exceed U.S. restrictions in states where more favorable terms are available. The move was a concession to national banks that argued they faced a competitive disadvantage to state-regulated banks, said Mark Tenhundfeld, at the American Bankers Association. In 2007, Arizona bumped up its single-borrower limit to 20% from 15%, partly because bankers complained about higher limits in California and Nevada.”

“‘If I asked those same bankers if they wished they stayed at 15%, probably most of them would say ‘yes’ because of some of the losses they have taken,’ said Tom Wood, acting superintendent of financial institutions in Arizona.”

The Atlanta Journal Constitution in Georgia. “The Midtown site of the proposed Trump Towers development has been listed for foreclosure, according to published reports. The planned development by Wood Partners was to include two towers, one 47 stories and the other 38, with 563 residential units. Prices for the residential units were to have ranged from $500,000 to $1.6 million.”

“Construction had originally been scheduled to begin in 2007, with a 2010 completion date. ‘The start of that project is a long way off at this point,’ Bennett Sands, director of Wood Partners, told the AJC last summer.”

From WABE in Georgia. “The news about Trump Towers has resuscitated fears that a second wave of the mortgage crisis is on the horizon: this one caused by commercial loans. One person who’s already been affected by stress in the commercial market is Joe Cressaty. He owns the Say Hey Deli on Peachtree Street. When he opened the sandwich shop two years ago, the area was primed for development. New condos were going up nearby and he was optimistic about what that meant for customer traffic. ‘Our sales are down 30 percent off last year,’ Cressaty says. ‘So we’ve been hit pretty hard. We had hoped that when they were done building that people would move in, but they haven’t sold a single unit. And the construction crew is gone now, so kind of a double whammy there, you know.’”

“Just up Peachtree Street, as you move into Buckhead, things get worse. Andy Feinour, senior VP of advisory services for Carter Commercial Real Estate, surveys the Buckhead skyline from his midtown office tower. He easily picks off the buildings that are in trouble with their mortgages. ‘From an office perspective, of those 16 or so tall buildings you’ve got four of them that are new, and basically vacant,’ says Feinour. He also points to several new condo buildings that sit empty. Feinour says that many of these and the office buildings are already in default.”

“Harvard Law School Professor Elizabeth Warren predicts things will even get worse once the banks admit their losses. Warren heads a congressional oversight panel that came recently to Atlanta to assess just how bad the picture is. ‘These mortgages are going to fail, and they’re already starting to fail,’ says Warren. ‘And we fear we’re going to see more failures in 2011, 2012, 2013. We’re only on the front end of this crisis.’”

From CBS Atlanta in Georgia. “‘As an Atlantan, you do wonder and do kind of worry about what it means,’ said Midtown resident Nina Parker. ‘You know it looks bad, and I just walked from there so to walk by this empty building where nothing is happening it looks bad, and it looks like there’s no progress going on downtown. I think there are a lot of people that are genuinely looking for work and opportunities so when those kind of things come to a screeching halt, it does not follow through and create those opportunities.’”

The Ledger Enquirer in Georgia. “Home foreclosures headed for auction outside the courthouse in Columbus have jumped 29 percent this month, according to a review of required legal notices filed with the Ledger-Enquirer. Columbus isn’t alone this month in terms of rising foreclosures. The hard-hit Atlanta market, considered the state’s economic hub, also has seen a sharp spike in foreclosure notices, the Atlanta Journal-Constitution reported Monday.”

“There have been more than 10,300 filings this month in Georgia’s capital city, up 27 percent from nearly 8,200 notices in January, according to data supplied by Alpharetta, Ga.-based Equity Depot, which tracks the 13-county Atlanta market.”

“The concern for the local housing industry is if this month’s spike is an aberration before a hoped-for slowing of filings, or is it a sign of a new wave of foreclosures. ‘I think the number of people that are going to lose a home have probably already lost it’ in the Columbus market, said Howard Jefferson, a broker with Columbus-based real-estate firm Coldwell Banker/Kennon, Parker, Duncan & Key.”

“Jefferson said he anticipates local foreclosures declining as the market moves into the crucial spring and summer selling season. It boils down to supply and demand, he said. ‘We’re about to see a higher demand for homes that will, in turn, reduce the number of foreclosures that we see,’ he said, referring to an expected increase in homebuyers generated partly by federal tax credits this spring, along with an influx of military-related purchasers from Fort Knox, Ky., through the summer and into the fall.”

“Some damage already is done, however. RealtyTrac, on its Web site Wednesday included a list of 451 bank-owned homes for sale in Columbus.”

The Sun News in South Carolina. “CNN Money named Myrtle Beach one of the fastest growing foreclosure hotspots in the nation. ‘It doesn’t surprise me that we’d be up there on a per capita basis because we’re not that big an area, but we’re such a heavy investor area so you’re just going to see that,’ said Tom Maeser, a real estate analyst for the Coastal Carolinas Association of Realtors.”

“About two-thirds of properties on the Grand Strand are owned by investors or are second homes. Owners of investment properties are having trouble cash-flowing the properties and are just walking away from the properties, especially if the appraised value dropped below what they owe on the mortgage. ‘The investor is going to do that a lot quicker than the permanent home owner,’ Maeser said.”

“‘With the feeding frenzy we had here, there is no doubt in my mind some of those were speculators,’ said Rod Smith, the director of general brokerage at Coldwell Banker Chicora. ‘That’s really where most of this problem came from.’”

“For the past year and a half, Myrtle Beach has been on the down side of the swing. Back in the ’90s, it was hurricanes. This time it was a national recession that has cut deeper than most people anticipated. Myrtle Beach city manager Tom Leath and budget director Michael Shelton have said people will have to adjust their expectations if they think the city is going to bounce right back to the boom times. Even when the economy turns, Leath said, the city is still overstocked with real estate inventory, and sales are going to have to catch up before the market really makes big gains again.”

“As Shelton told the council earlier this week, ‘flat is the new up.’”

From Greenville Online in South Carolina. “Twenty-four-year-old Brandon Mueller wasn’t thinking how achieving his dream of homeownership would impact the residential real estate market in Greenville. But Mueller’s purchase of his first home last month in the West Greenville area helped push local homes sales up 10.3 percent last month compared to January 2009.”

“Nick Sabatine, the Greater Greenville Association for Realtors CEO, considers the increase ‘extremely encouraging.’ ‘It says that recovery is beginning in Greenville,’ he said. The prices of most of the homes being sold are between $175,000 and $225,000, Sabatine said, and ‘that’s the first-time homebuyer price range.’”

“Mueller said buying a home will have him prepared to benefit from the rising home values.The average home price in the Greenville market was up 4.2 percent, from $165,734 in January 2009 to $172,662 last month. Mueller called the tax credit a nice incentive, but it wasn’t what pushed him to buy.”

“‘The driving point for me is it was within my means of budget, and realistically my mortgage payment is about the same I would be paying on an apartment,’ he said. ‘So for investment reasons, why would I put my money into an apartment when I can throw my money into a mortgage and have something in return at the end of it?’”

From USA Today. “The Wilmington, N.C., housing market ended the year on a good note, despite the region’s tough economic times. Home sales rebounded from a slow start when a boost from the first-time home buyer tax credit kicked in. The buyers who took advantage of it accounted for 34% of home sales last year, says Mary Martin, president of the Wilmington Regional Association of Realtors.”

“The median price of houses sold was 5.6% less than a year earlier. Home foreclosures are declining. New homes are being concentrated in the $200,000-to-$250,000 range, because those are selling, Martin says. ‘Prices seem to be stabilizing, which is good,’ Martin says.”

“The unemployment rate was 10.2% in November, slightly higher than the national rate of 10% at the time. ‘We’ve been more hard hit with this downturn than any of the five that I’ve experienced as an economist,’ says William Hall, professor of economics at University of North Carolina-Wilmington.”

“The real estate development industry in particular is suffering. About three years ago, economic analysts estimated that one out of five people in southeastern North Carolina had a job related to real estate development. The numbers are closer to one in 10 now, Hall says. ‘That is more than just construction. It includes finance, insurance, real estate leasing, architects and others,’ Hall says.”

The Charlotte Observer in North Carolina. “Lake Norman’s beautiful shoreline is covered by hundreds of waterfront homes. ‘It’s 7,000 square-feet,’ said broker Jason Noblitt. ‘It was on the market for approximately $1.7 million.’”

“The 5-bedroom, 4 1/2-bath house is under contract now and Noblitt thinks it’ll sell for under $1 million. That’s a $700,000 discount. ‘In our current market you absolutely are not going to get what you did in 2006 or even 2007. We need to look at where prices were in 2004 and 2005,’ he said. ‘I think the same amount of listings are happening and coming active. The difference is not as many homes are being sold so they are overlapping. It’s just piling up.’”

The Star News in North Carolina. “‘Where’s the bridge to Bald Head Island?’ The question is part of a story making the rounds in the area’s real estate industry. The answer, of course, is that there is none. But it was an honest question asked of a Southport real estate agent by an out-of-town home appraiser.”

“He had arrived, clearly from Somewhere Else, without a boat to Bald Head or the ability to use the local multiple listing service to check statistics, the story goes. How could he appraise a home in the Wilmington area when he didn’t live here? Though lenders and real estate agents say bad appraisals are not derailing the closings of home sales, they wonder whether it’s wise to add another variable to the area’s complex real estate equation: foreclosures, investor homes, and values that historically have varied from one part of town to another or from one subdivision to the next.”

“Appraisal management company, or AMC…act as middlemen between banks and appraisers. And they sometimes send appraisers from hundreds of miles away to value property. AMCs are an outgrowth of the Home Valuation Code of Conduct. It became effective May 1, 2009, when mortgage company Freddie Mac said it would no longer purchase mortgages from lenders that did not adopt the code.”

“The code is meant to, among other things, build a firewall between the lender and appraiser to block any conflict of interest between the two. Some banks, especially large ones, use the AMC as that barrier. But the code can – and is – being followed without the use of AMCs. While most in the housing industry agree the code was needed, the emergence of AMCs raises hackles.”

“‘AMCs are a train wreck,’ said longtime Wilmington appraiser Howell Graham. The appraisers that AMCs hire for lenders are ‘looking for the cheapest guy they can get.’”

“No matter where the appraiser comes from, the facts of life are: We’re in a deep recession and housing prices have taken a dive after a huge run-up. From nearly more than a thousand sales a month amid the boom, we’re down to 300 or 400 now, and many of them are foreclosures or short sales, according to the Wilmington Regional Association of Realtors.”

“Though prices vary by region, ‘by and large the average price on one- to four-family dwellings is down 25 percent,’ said Dale Hall, chief banking officer of First Federal Savings and Loan of Charleston, which took over the failed Cape Fear Bank last April. ‘If a house appraised for $200,000 before the recession, on average it would come in now at $150,000,’ said Hall.”

“The code has its base in the era of easy money: With prices thought to be rising forever, many banks would make a loan even if the house being bought was overvalued. After all, the bank wanted to make the loan, the buyers wanted to buy and agents wanted their commission. But appraiser Graham said that because his office ‘was known to be conservative office, Realtors would not call us to ‘make it work’”

“Wilmington-area residents realized the folly of it all when the housing bubble burst and Cape Fear and Cooperative banks failed. It’s a different story these days.”

“‘The lenders I’ve spoken with want the fairest appraisal they can get,’ said David Small, sales manager at Prudential Laney Real Estate. ‘They’re not after overachievers. Lenders are cautious and the appraisers are conservative.”