The Housing Bubble

The Gazette reports from Colorado. “The Pikes Peak region’s residential market has had thousands of foreclosure filings over each of the past three years. Commercial property owners are being plagued by the same woes homeowners have faced: a horrible economy, tumbling property values and difficulty borrowing money. Three years ago, the number of commercial properties with loan balances of $1 million or more, and which fell into foreclosure, totaled 15, according to a Gazette analysis of El Paso County Public Trustee records. A year later, the total was 24. In 2009, the number of commercial properties with loan balances of $1 million and up and that were foreclosed on had ballooned to 73.”

“‘I think there’s going to (be) a flood of distressed properties coming back on the market,’ said Jim Justus, president of a Springs brokerage.”

“A patient heading into a doctor or dentist’s office might notice chipped paint or a bathroom that’s not as clean, said Randy Dowis, a broker with NAI Highland Commercial Group in Colorado Springs. ‘It depends on how observant you are,’ Dowis said.”

“The downturn is good for investors because discounted properties will be available for sale — assuming a buyer has cash or can obtain a loan, he said. But property owners who aren’t in trouble should think twice about trying to sell. Falling values mean that owners who can wait out the downturn should hold onto their properties. ‘If you don’t need to sell it, forget about it,’ Justus said. ‘We’re in this for what could easily be another two years.’”

The Summit Daily in Colorado. “Some 5.4 percent of local residents were unemployed in January — well below the statewide rate of 8.2 percent, according to the Colorado Workforce Center. The Summit County unemployment rate may have been lower because more jobs are available during the ski season. Or perhaps people leave the pricey area when they can’t find work. ‘I think the economy is still fairly good, but we have seen a lot of people move out — particularly in the construction trade,’ said Jennifer Kermode, executive director of Summit Combined Housing Authority. ‘We’ve seen a lot of people relocate somewhere else.’”

“Summit County Commissioner Karn Stiegelmeier said that…there are many people who are self-employed or in real estate having an especially tough time making ends meet. ‘I think the true impact to the county, in terms of the needs, is greater than that,’ she said. ‘(Many) Realtors are not really getting an income they can live on.’”

The Salt Lake Tribune in Utah. “The tidy split-level on a large corner lot in West Valley City has a lot going for it. The house is in a nice neighborhood, it’s clean and updated, and has big yards front and back. Three years ago, at the market’s height, similarly priced homes would have sold quickly — some within days or even hours. But like scores of other properties priced in the low-$200,000 range in the Salt Lake area, this five-bedroom, three-bath property listed at $210,000 has languished on the market.”

“On a quiet cul-de-sac in West Jordan, sellers Joe and Kristina Duquette have their 1,900-square-foot home on the market for $224,900. In 2007, the couple saw homes in the area selling in the high $200,000s, with one topping out at $320,000. Today a foreclosure next door is listed for $195,000, while other sellers keep cutting prices. To help compensate, they recently lowered theirs by $10,000. ‘Even a year ago, homes were going for $250,000,’ said Joe Duquette.”

“After a few encounters with bargain-hungry buyers, many sellers ultimately decide to stay put and not move up. Others elect to rent, rather than sell their properties, even if it means getting rental income that doesn’t quite cover their mortgage. ‘Buyers want a three-bedroom, two-bathroom home with a fireplace for only $100,000,’ said Salt Lake Board of Realtors president Bill Heiner, only half-joking. ‘But that’s just not reality.’”

“Heiner stops in front of a house listed for $225,000. At the height of the market this house probably would have sold quickly, in the high $200,000s. Last year, it listed for $239,000, but where the price goes next is anyone’s guess. ‘This is about what a home like this should sell for,’ Heiner said. ‘But in a market like this, that doesn’t mean anything. All that matters is what a buyer is willing to pay.’”

The Associated Press in Arizona. “Hundreds of homeowners trying to avoid losing their homes to foreclosure met with housing counselors and lender representatives at an event in Glendale. Avoiding a foreclosure notice is just what drew Surprise resident Denise Knott to Glendale. Her home, bought in June 2008, has plunged in value and her fiance hasn’t been able to find work in construction. Still, the retail manager isn’t ready to walk away from her home. ‘I’m hoping to get my mortgage modified and get into a payment that I can sustain,’ she said.”

“But Knott is also realistic of her chances of getting a modification that lowers the debt to a level that makes sense. ‘I look at it this way,’ she said. ‘I love my home, I want to keep it. But I really might be better off letting it go and renting.’”

From KYMA in Arizona. “Shelley Ostrowski is a local expert and associate broker at Century 21 action group in Yuma. Ostrowski said, ‘I would say a decline is probably the best word to describe foreclosures in Yuma, but I do think its slowing. I do see from my business, that’s 95 percent foreclosures. I do see a slow down.’”

“She said even though foreclosure notices are down two percent from January, Yuma’s housing market is not out of the woods yet. Ostrowski said, ‘I think we’re still going to see quite a few, I do, but I’m not gonna say that it’s gonna be as heavy as last year.’”

“But there is a flip side. Ostrowski said in this buyer’s market, there lies great opportunity to cash in. That’s exactly what Yuma resident Ryan Seale has done. Seale said, ‘I bought a foreclosed home. Best investment ever, my first home, my wife and I bought it.’”

“Seale purchased a foreclosed home back in July of 2009. He said he’s never regretted the decision. Seale said, ‘A month later it was appraised at $25 thousand more than we bought it for. So right there I just made $25 thousand equity on it.’”

The Reno Gazette Journal in Nevada. “adjustable rate mortgages became popular during the housing boom as a way to get more people approved for loans. And particularly in Nevada, which continues to have the highest percentage of ARMs in the nation. The fact that ARMs continue to account for a large chunk of mortgages in Reno-Sparks makes them veritable wild cards for the local housing market.”

“One type of adjustable-rate mortgage, the ‘Alt-A’ ARM, accounted for 4,420, or about 60 percent, of active mortgages in the Reno-Sparks metro area by the end of December — a rate more than four times the national average. Of those ARMs, 2,267 have yet to reset. Although resetting ARMs hit Reno-Sparks hard just a few years ago, low interest rates should help soften the blow for this year’s resets. But this would be a temporary reprieve at best, said Ken Wiseman, broker-owner of Reno Rancho Realty.”

“‘With interest rates so low, some people will see their mortgage adjust to a lower interest rate,’ Wiseman said. ‘Unfortunately, it’s not going to be locked. And if interest rates start rising within the next year like many experts are saying, then you’re going to see another wave of people defaulting on their mortgages.’”

“Wiseman owns a condo rental with an ARM that he couldn’t refinance because it didn’t have enough equity. He tried a loan modification but was turned down. ‘They told me I didn’t qualify because I didn’t have ‘hardship,’ Wiseman said. ‘I guess they still see me as a target to make money from. I’m doing OK so I won’t just walk away. But rental rates have gone down so much that I’m sure a lot of people are just throwing in the towel.’”

The LA Times. “Few plans embodied the hubris of Nevada’s go-go years like Lake Las Vegas, the wannabe Tuscan village launched two decades ago 17 miles from the Las Vegas Strip. Over the years, Michael Jackson dodged paparazzi at the Ritz-Carlton. Elizabeth Taylor jetted in for her 75th birthday. Celine Dion bought a million-dollar home. At the time, it probably sounded like a can’t-miss pitch.”

“Conceived as a competitor to upscale getaway Palm Desert, Lake Las Vegas, on some days, is now more a lavish ghost town. The 3,600-acre development, like so many in Clark County, suffered one malady after another. When Lara Volkonskaya opened her Hermitage Art to Wear shop in 2008, she spent $25,000 on a single chandelier while retooling the store to resemble an art gallery. Her first customers all took home floaty — and pricey — silk clothing.”

“But within months, business had evaporated. ‘My store is a high-end store,’ Volkonskaya said. ‘Right now, I’m in the wrong place.’”

“Such a predicament was unfathomable to backers of Transcontinental Corp., which launched Lake Las Vegas. It was assumed that Lake Las Vegas would provide second and third homes, or investment properties, for the well-to-do. Transcontinental Corp. defaulted on $540 million in loans and lost the property in foreclosure. Lake Las Vegas was scooped up by a turnaround management firm, Atalon Group, and entered bankruptcy in 2008.”

“‘Put bluntly, the project was ill-equipped to deal with any slowdown in the real estate market,’ Atalon president Frederick Chin said in court documents. The development, he said, lacked money for infrastructure and the golf courses (only one of which remains open).”

“Inside the development’s gated communities, home after custom-made home was abandoned in the foreclosure crisis. Foreclosure sales have spiked, but the average closing price for foreclosed homes in December was $174,000. That same month, new home prices averaged $669,000. In the meantime, the new owners hope to woo more full-time residents and businesses have retooled their pitches for a less-affluent crowd. The Loews hotel, in hopes of luring corporate groups, dropped the word ‘resort’ from its marketing; that signaled extravagance.”

“Two years ago, Sandee Hiegel rented a one-bedroom condo for $1,400 a month, which she considered a bargain. This year, she moved to a similar condo for $900 a month. ‘They’re pretty much giving away units now,’ she said.”

“A hostess at the Black Pepper Grill in the MonteLago Village shopping district, Hiegel enjoys her short stroll to work and walking her two Maltese on the Ritz’s grounds. Would she buy something in Lake Las Vegas? She hesitated. ‘It’s got to come back,’ she said, a mantra oft-repeated in Nevada these days. ‘I mean, how much lower can it go?’”

The Las Vegas Sun in Nevada. “More than 150 people who filed into the Centennial High School gym at the start of a housing workshop Saturday hosted by Rep. Dina Titus, D-Nev. Peter and Jean Girard haven’t gone into foreclosure and they are still current on their credit card payments and two mortgages. But they are suffering and worry about what is next. After moving to Las Vegas in 2003 from Chicago to semi-retire, the couple saw the value of their house double in the boom years. So they bought and moved into a larger house and rented out the first.”

“Then things got tough; the values of both houses plummeted, Peter went back to working 60 hours a week and they had to use their retirement savings to get by. ‘I don’t know how long we can chip away at our retirement — not forever,’ Peter Girard said.”

“They tried to get the bank to change the rate on their second mortgage, but since they are current on their payments, Girard said the bank gave them a worse offer than what they already had. ‘When you get a ridiculous offer like that, you don’t even respond,’ Girard said. ‘Since we’re not behind, they don’t want to talk to us. If you’re in foreclosure you can get help, but if you’re not, you don’t…We don’t have sour grapes about any of it, but we need some adjustments to our mortgage.’”

“Johnny Holmstrom is a union plumber who lost his job when work finished at CityCenter. He has stopped paying his mortgage and got a letter saying the bank intends to foreclose on his house. ‘When you lose 60 percent of your income, it’s tough,’ he said. ‘The kids got to eat. What are you going to do?’”

“Holmstrom paid $250,000 for the house a few years ago, but the house across the street just sold for $75,000, he said, leaving help from the bank or foreclosure as his only ways out of the situation, he said. He said he hopes the bank will help, but he’s almost indifferent at this point. ‘They can have it back if they want it, but I don’t think they want it, so they need to work with me,’ he said while filling out a bank form. ‘Am I in bankruptcy?’ he read out loud, ‘Not yet, but it’s coming.’”

The Las Vegas Business Press in Nevada. “People are walking away from their mortgages by the thousands, making a financial decision that it’s better to take the hit on their credit score than try to recover $300,000 of negative equity on a $600,000 home purchased at the peak of the housing bubble. Bill and Lynn Jerbis haven’t paid their $2,400 monthly mortgage payment since October after failing to get a loan modification. Both have taken cuts in income. Meanwhile, the value of their home has dropped from $429,000 to about $142,000.”

“‘We can’t afford to pay this and live,’ Bill Jerbis said. ‘I would just be using the savings I had built up. We are not leaving, unless they physically come take us out of the home.’”

“While homeowners may not have jobs or assets today, time is on the lender’s side. ‘I hear (lender) attorneys say they’ll put a clock of one or two years on the debt, so the person can get a new job and back on their feet. Then they’ll start wage garnishment,’ bankruptcy attorney Philip Goldstein said. ‘It’s a very cruel economy right now.’”

“‘Here’s the predicament we find ourselves in,’ said housing analyst Larry Murphy of Las Vegas. ‘While some of our neighbors are negotiating a short sale or a loan modification or simply walking away from their home, others who elect to stay in their homes and continue making payments feel a sense of desperation and betrayal. Why? Because your neighbor who paid $240,000 on his home and put 5 percent down now owes $225,000 on a home worth $95,000. His equity in the home is negative $130,000. Even if his home appreciates at 3 percent a year for the next 25 years, it will only be worth $198,000.’”

“‘So your neighbor vacates his home, which goes into foreclosure, sits empty, deteriorates, taxes don’t get paid, homeowners association fees don’t get paid, the value declines, which in turn causes all the homes in the neighborhood to decline. Now your neighbor no longer has negative $130,000 equity. Instead, he has zero equity. Now which equity would you rather have in a home? Zero or negative $130,000?’”

“Tisha Black-Chernine of Black Lobello law firm in Las Vegas, said people tried to get a loan modification and when that didn’t work, they opted for the short sale. Now they just don’t want to pay their mortgage. ‘They’re going to look at strategic default with a keener eye,’ Black-Chernine said. ‘We’re at 60 percent negative equity position in some houses. They’re starting to realize it’s throwing money in the hole.’”

“Lynn Jerbis knows one thing is certain — no remedy exists that will make her home whole. ‘At 59 years old, we don’t have the time for this home to come back in value,’ she said. ‘We will die before we see equity.’”