The Housing Bubble

Chicago Public Radio reports from Illinois. “Just a few years ago, homebuyers stampeded into brand-new condos all over Chicago. Then, reality hit. Water started leaking in. Mold crept up the walls. Elevators stopped working. Now the city of Chicago is trying to clean up the mess by chasing after developers responsible for shoddy work. But the city’s good intentions have, in some cases, made life even tougher for the homeowners. Mary Feeney and her neighbors contacted their alderman, who said to call the city. They did and the city sued their developer, Jerry Czerwik. But Feeney and her neighbors were also named on the lawsuit.”

“FEENEY: ‘I mean that’s what was so ironic when we were first found as defendants in the same pool as the developer, it was like, well the only reason you have a case is because we called you, and now we’re defendants?’”

“Greg Janes from the city’s law department….says it’s frustrating knowing he set out to help people only to have this happen. JANES: ‘You know, every time we try to work with a building and a general contractor, I think, let’s hope it doesn’t turn out that at the end the unit owners are still on the hook for over $100,000.’”

“Feeney says she now knows one thing for sure. FEENEY: ‘I will never buy a property in Chicago again.’”

The Chicago Sun Times in Illinois. “Last July, I wrote about the issue of condo contract ‘walkaways,’ people who never close on a condo sale because the unit’s value has fallen, and they lose less money by giving up their deposit. Since then, the walkaway situation, also known as ‘contract fallout,’ apparently has gotten worse.”

“Developers of new buildings had fallout rates of 25 percent to 40 percent last year. At the release of her company’s annual report on downtown condos, Appraisal Research Counselors Vice President Gail Lissner said the lucky developers have just 25 percent. Others are in the 50 percent range, she said. She said one building, which she wouldn’t name, may be well above 50 percent, but simply refuses to cancel sales agreements, hoping the buyer will eventually show up for a closing.”

Crain’s Chicago Business in Illinois. “Developer Gary Rosenberg says he has lined up $100 million in financing for a 220-unit condo tower in the West Loop. Developers still are sitting on about 3,000 unsold condos and townhomes that have been completed or are under construction, according to Appraisal Research. Though it may sound to like a crazy idea to some, Mr. Rosenberg says ‘it’s a good time’ to start a new condo tower.”

“Mr. Rosenberg doesn’t rule out the possibility of switching from condos to apartments, saying his capital source ‘is providing us total flexibility’ to respond to changes in market conditions. ‘We’re prepared to go rental if sales don’t go as well,’ he says.”

Medill reports Chicago in Illinois. “The Fed’s mortgage-buying will end March 31, and the home-buyer tax credit expires at the end of April. Many believe that the modest recovery during the last few months will prove to be a fiction when these government-backed programs end. ‘I see no evidence that this [industry] has the capacity to stand on its own two legs. Even with these dramatic government efforts to bolster home sales, they’re still languishing at recessionary levels,’ said David Rosenberg, chief global economist at Gluskin Sheff & Associates Inc.”

“Illinois is one of the markets likely to see a double dip. In Chicago, ‘Stability is eluding the market,’ said Genie Birch, president of the Chicago Association of Realtors. ‘Without revisions in lending regulations…Chicagoans will witness declining homeownership, loss of tax revenues and erosion of the equity they have placed and created in their homes.’”

The Northwestern in Wisconsin. “Realtors in northeast Wisconsin saw existing home sales surge during the last quarter of 2009 in response to what many thought was the end of a tax credit for first-time homebuyers, but agents are expecting those sales to continue after Congress extended the credit through the first part of this year.”

“With low home prices, interest rates hovering around 5 percent and the tax credit, now is a prime for people to explore the housing market, realtors said. ‘Now is a very good time for anybody who wants to own a house and commit to the obligations that go with home ownership,’ said Shellie Mathe, manager with First Weber Group.”

“Low interest rates and home prices along with the tax credit leave Realtors urging people to consider finding a piece of property they can call their own. ‘There was a big rush leading up to the first expiration date and I really feel Congress doesn’t have the appetite to extend this again,’ said Kevin Purtell, broker/owner of Premier Group.”

The Fond du Lac Reporter in Wisconsin. “Fond du Lac real estate agents are finally feeling a stir after enduring three years of a listless housing market. Thanks in part to new tax credits for homebuyers, real estate agents are answering more phone calls, scheduling more showings and greeting more new faces at open houses.”

“Broker associate Steve Klapperich added that growing interest in homes has given agents confidence, and it’ll be interesting to see what happens in early spring and summer. At this point, no one knows if the federal government will offer further incentives for homebuyers, he said. ‘Only time will tell,’ he said. ‘We don’t know if credits are in the cards. At some point, they (lawmakers) have to turn the tap off.’”

“The real estate market itself had been in trouble since 2006, when home prices across the country had ballooned to the point where many were unaffordable. Scott Swick, owner of First Weber and Winfield Homes in Fond du Lac, said sub-prime loans and ‘easy money’ allowed some consumers to buy more house than they could afford or invest too much money into upgrading a home. Stated-income loans caused some of the biggest problems, since buyers could tell lenders how much they earned and the bank wouldn’t verify the information. The market has since bottomed out and prices are more in line with what people can pay.”

“‘It’s painful for the sellers but a bonanza for buyers,’ Swick said.”

The Wisconsin Law Journal. “Faced with a dramatic increase in foreclosure filings in Milwaukee, last year the city launched a new mediation program. Edward Harness, who represents borrowers, acknowledges that the program is well-intentioned. But he says it has its limitations. ‘It’s not even a true mediation because you’re not allowed to mention the merits of any defense that may be raised as part of the action. It’s more like a foreclosure loan modification settlement conference,’ he says.”

The Michigan Messenger. “When Lansing Mayor Virgil Bernero kicked off his campaign for the Democratic nomination for governor earlier this month, he announced that his number one goal was an immediate two-year moratorium on home foreclosures. But this week Bernero’s foreclosure thunder may have been stolen when former Genesee County Treasurer Dan Kildee announced he was officially seeking the Democratic nomination as well. Kildee is a nationally recognized expert in foreclosure issues and his Genesee County Land Bank has drawn national praise and serves as a model for the way communities can handle large numbers of foreclosed and abandoned properties.”

“Wauwatosa lawyer Michael Maxwell, notes that the program’s effectiveness depends on ‘whether the person on the lender’s side of the table is a decision maker. In the civil litigation model, judges don’t hesitate to order that someone with … settlement authority be present at the mediation. That hasn’t happened in the foreclosure mediation system yet.’”

“Only one day after declaring his intent to run, Kildee took dead aim at Bernero’s proposal in an exclusive interview with the Michigan Messenger. ‘I agree with his sentiment. What I want to find is a practical solution that is constitutional,’ Kildee said.”

“‘The truth of the matter is that the 90 day reprieve doesn’t go far enough,’ Bernero said. ‘Yes, families need guidance and financial training to get them through this, which is something that I support, but they need a more realistic timeframe to learn how to get their finances in order without staring foreclosure in the face as they count down the 90 days.’”

“‘In many cases, we are not just talking about budgeting, we are talking about finding another job to deal with a mortgage that has doubled as quickly as Michigan’s unemployment rate,’ Bernero said.”

The Daily Record in Ohio. “Whether building, buying or borrowing, the housing market in Wayne and Holmes counties mirrored the economic climate of 2009: It was a tough year. Alan Ratliff’s company, Ratliff Custom Homes, had been building 35-40 homes a year, but it did about half of that in 2009, he said. About five years ago, Ratliff said people might decide to build in a very short time frame. If they saw something they liked, they would build. However, those people are out of the market right now, he said.”

“Since 2001, the high-water mark was 869 houses sold in 2003. Since then, the number dropped to 861 in 2004. The sharpest drop came between 2004 and 2005 when homes sold fell 16.3 percent to 721, this at a time when the Ohio Realtors Association was reporting record-breaking levels of sales.”

“Despite the economy and reports banks are not lending, ‘we have money to lend,’ Fitz Gibbon said. ‘There may be tightening by some banks in the country, but for Wayne Savings and most every other community bank, community banks are still lending money. That’s our job.’”

“However, borrowers need to be qualified, he said. ‘We are not doing a borrower any favors if we make them a loan they cannot afford,’ he added. ‘Look at foreclosure notices; a vast majority are from out-of-town banks.’”

The Des Moines Register in Iowa. “Banks’ troubles, in the form of mounting bad loans, are expected to continue this year, officials predicted Tuesday as they analyzed the results of a difficult 2009. ‘I don’t see any rapid recovery,’ said Iowa Banking Superintendent Tom Gronstal. ‘We are going to be working through this for more than a year.’”

“The drop in profits may have been bigger if not for extremely favorable interest rate conditions, said Eric Lohmeier, managing director of NCP Inc., an investment firm in Des Moines. Banks are currently able to borrow funds at close to zero percent, much lower than what they pay as interest on deposits. This is a positive for banks’ income, but it’s ‘not what we consider a sustainable practice,’ Lohmeier said.”

“‘Unemployment is a big factor right now,’ said Lohmeier. With unemployment in Iowa reaching 6.6 percent in December, up from 4.4 percent the previous year, ‘it’s going to get worse before it gets better,’ he said.”

The St Paul Business Journal in Minnesota. “The final developer-owned condo in the Carlyle tower in downtown Minneapolis has sold. The sixth-floor unit, a former sales office that overlooks the Mississippi River and the Stone Arch Bridge, sold in the first week of February for $830,000, about 7 percent above the listing price of $775,000.”

“When plans for the Carlyle were announced in 2004 at 100 Third Ave. S., the condo market was near its peak. About 30 people waited outside overnight to get a good spot in line when the sales office opened in 2004. By 9 a.m., there were 200 people waiting to reserve their units.”

“More than 85 percent of the units sold in the first 15 months, but then the housing market stalled for much of 2008. In the past two years, with the help of discounts on about the last 15 units, the developers sold them off one by one. There are still more than a dozen units available for sale at the Carlyle, but all are resales.”

“What closed the deal, said (listing agent) Barbara Brin, was the perception of value. The retired couple who bought it had actually considered buying a similar unit, but at a higher price, in the 255-unit, 39-floor tower for several years, Brin said. In that, the Carlyle’s last sale has something in common with a lot of homes that have sold this year — buyers believe they got a really good deal. Almost every condo building in downtown has units for sale that are priced $100,000 less than people paid for them a few years ago.”

“‘There are some really good values out there. I think they are almost jaw-dropping they seem so low to me,’ she said.”

The Star Tribune in Minnesota. “Despite the recession, numbers compiled by the St. Paul Area Association of Realtors show a more than 16 percent rise in home sales in the 13 counties surrounding the Twin Cities between 2008 and 2009 — growth sparked at least partly by unprecedented tax credits and low mortgage rates. The programs have been unable to stem falling home values, which slid 15 percent in 2009.”

“John Addler and his fiancée moved in together a little earlier than planned last month. In this economy, it was a sound financial decision. The 26-year-old Best Buy employee, who had planned to buy a home after his wedding this spring, got a jump-start and purchased a three-bedroom house in Shakopee, spurred by an $8,000 federal tax credit for first-time home buyers that will expire in April.”

“A separate federal program that has been keeping mortgage rates artificially low ends next month. Addler, still paying rent on his Bloomington apartment, said he couldn’t imagine buying a house without the extra boost. ‘When we were writing out that down payment check, it’s not too hard to write it out knowing that you’re getting it all back,’ he said of the tax credit.”

“Minnesota’s housing market is stabilizing, but prices dropped more here than the national average. Mortgage delinquency is at or over the national average in Isanti, Sherburne, and Chisago counties. These three, as well as Anoka and Scott counties, are among the state’s ten counties currently hardest hit by foreclosure, according to the New York Federal Reserve Bank.”

“The Twin Cities region has grown by up to 25 acres per day in recent years. Providing houses with water and sewer, roads and other infrastructure demands a long-term and expensive public commitment. The foreclosure wave serves to highlight how households, local and state governments are all leveraged by development that relies on cheap, distant commutes to workplaces and services. As we’ve relearned in recent years, leverage works just as swiftly in reverse as it does moving forward.”