The Housing Bubble

ABC 7 Chicago reports from Illinois. “A new survey finds nearly half of homeowners in the Chicago area owe more on their mortgage than the home is worth. ABC7’s Leah Hope has more on the impact of this downturn: Those trying to relocate for a job or find more space for a growing family will likely not get what they want if they are trying to sell. Homeowner Erica Rivera and her sons live in a condo in east Garfield Park. The boys need space, but selling now is not an option. ‘There’s no condos listed in our area that are not short sales…so we we’re not going to sell for less than it’s worth,’ Rivera said.”

“Rivera will try rent their condo and rent a house with a yard for the boys. ‘It’s painful,’ said Rivera. ‘That was the first place that I bought. I bought six years ago, thinking in the future I’ll make some money off of it, and no.’”

“Jen Lavender-Thompson took advantage of the good homes prices and bought last year. The trade off: They lost money selling, but hoped the value of the new South Loop row house will eventually grow. ‘It could take up to a year to sell your condo now,’ said Lavender-Thompson. ‘So, yeah, I do feel like you’re kind of shackled to your real estate now.’”

The Columbus Dispatch in Ohio. “Bill McCorkle was struggling last year with how to drive traffic to his Little Bear Village subdivision when he came up with an idea straight out of a 1930s movie: Let’s put on a show! The result will be seen Thursday, when the Polaris Home Show opens a four-day run at McCorkle’s golf-course community. Unlike the annual Parade of Homes, which typically features homes north of $500,000, the Polaris event will showcase a dozen homes between $280,000 and $450,000.”

“‘I felt there was a need for lower-priced homes in a show,’ said McCorkle, who launched Little Bear Village in 2007. ‘The average working person isn’t looking for a $1 million home.’”

The Kansas City Star. “In late 2007 it appeared that the conversion of five iconic 1920s apartment buildings on Rockhill Road into Rockhill Condominiums was a failed project that might never be completed. First Community Bank, which held the developer’s loan, foreclosed with only about 10 percent of the work complete. What appeared to be a doomed project has turned into a success story, with nearly half of the newly renovated condominiums sold, one more under contract and renovations complete in all but one of the buildings.”

“After exploring the possibility of selling to another developer at a greatly reduced price, the bank decided to explore the feasibility of retaining the property and finding a company to complete the renovations, manage the property and market the condos. Jim Tiehen, president of the Tiehen Group, said his company was a perfect fit for what the bank wanted to do, since it has experience in renovation, property management and marketing.”

“‘The previous developer had been trying to sell the units for around $500,000 and we did a market analysis to determine what a realistic price would be,’ Tiehen said.”

“Tiehen Maintenance immediately began renovating the first two buildings and Tiehen Realty began marketing the condominiums in 2009 with prices ranging from $315,500 to $354,000. ‘That is a great value, when you consider the price per square foot,’ Tiehen said. ‘You just can’t find that for this price near the Plaza.’”

“Mike Tiehen with Tiehen Realty concurs. ‘Before purchasing, buyers have compared our condos to ones in high-rise buildings near the Plaza that are much more expensive,” he said. “When they do their homework and compare our finishes and space priced at $150 a square foot vs. the same finishes and space a half-mile away for $250 a square foot, the decision usually becomes clear.’”

The Journal Sentinel in Wisconsin. “Permits for home construction are off to their worst start in at least a dozen years in some of Wisconsin’s biggest metro areas. Hesitation is gripping the market, said Scott Stortz, broker/owner of Star Properties Inc., a residential real estate firm in Jackson. ‘I think what’s happening is that buyers are afraid to make a move because they are afraid prices are going to drop,’ Stortz said. ‘Our whole lives we’ve been told ‘Buying a home is a great investment. It’s an asset. It’s a good thing to do.’ Now, we’re finding, ‘Oh, housing prices can go down and value can go down,’ and it’s kind of a shock to the system.’”

“‘Buyers are much more picky,’ Stortz said. ‘They are less forgiving than they have ever been. If they are already getting it at an awesome price, they are still wanting more.’”

From WisBusiness. “Wisconsin’s banks and credit unions are ‘improving by the day and becoming more stable than we’ve seen in three years,’ according to the head of the state agency that regulates them. ‘It’s been a very difficult recession for all financial institutions, but less so in Wisconsin than in other parts of the country,’ Peter Bildsten told WisBusiness in an interview.”

“Bildsten, secretary of the Wisconsin Department of Financial Institutions, said six banks have failed in the state during the recession dating back to 2009, with three coming in the first quarter of this year. He said the recent failures were due mainly to accumulated stress. ‘No matter how good of a banker or credit union you are, when property values fall 20 to 30 percent on a home or a commercial property, it’s hard to underwrite that out of a loan,’ he said.”

“Bildsten, a Baraboo resident, credits Wisconsin’s relatively conservative business culture for keeping the lending crisis here from being as bad as in other parts of the country. ‘At times when those curves were going up and people were seeing dramatically increasing property values in Arizona and Florida and hearing their friends and neighbors talking about their second homes doubling in value, we might have gotten jealous. But all in all, by missing out on some of those bubbles, that’s been a plus for Wisconsin’s economy.’”

“Bildsten said he turned down personal friends who wanted loans to invest in real estate projects outside Wisconsin. Some of them ended up going to other banks and then lost large amounts of money, he added. ‘They thought they could do no wrong,’ he said.”

The St Cloud Times in Minnesota. “The developer of a housing subdivision in Brockway Township with a faulty community sewer system faces mounting state fines and threatened legal action from Stearns County. Dozens of privately owned sewer systems were approved in Minnesota during the housing boom without clear rules about who is responsible for maintaining and repairing them. The MPCA estimated in January that about one-third of the roughly 100 community sewer systems that treat at least 10,000 gallons a day are having trouble meeting regulatory requirements.”

“Residents of Mulberry Meadows are frustrated that the problems still aren’t resolved and worried they will end up bearing the costs. ‘The situation hasn’t gotten any better, only worse,’ homeowner Nancy Costanzo said.”

“Joshua Stang, who has lived in Mulberry Meadows for almost four years, took photos about a month ago that show water pooled on the ground. ‘You just can’t imagine what the smell was like,’ Stang said. ‘It was unbearable.’”

The Duluth News Tribune in Minnesota. “Foreclosures, wary lenders and economic uncertainty contributed to a shrinking number of Duluthians owning their own homes over the past decade. ‘The 2010 census definitely would have caught a big part of the foreclosure crisis that was happening in full swing by 2009, with people losing their homes,’ said Tony Barrett, professor of economics at the College of St. Scholastica. ‘But it’s more than that. It’s lenders less willing to make home loans and people unable to make the down payment because of the economy … and suddenly you have fewer people buying and more people renting.’”

“Keith Hamre, community development manager for the city, agreed. ‘It’s a lot harder for people to get a loan now. They need higher down payments. They can’t have too much debt. That’s taken a lot of people out of the (buying) market for now,’ Hamre said. ‘We still have relatively affordable housing, but not if you can’t get a loan.’”

“Joe Johnson, executive VP at North Shore Bank of Commerce, said some people have, indeed, been pushed out of the buying market. ‘The scrutiny level is certainly higher now than it was before 2008,’ he said. ‘Then again, we have people who are qualified to make a move but can’t get out of their current home because of the drop in values. And foreclosures have had an impact on that.’”

The Star Tribune in Minnesota. “During 2010 Minnesota ranked eighth among all states when it came to complaints of mortgage fraud on loans originated since 2006, but the percentage of complaints made last year fell dramatically from the previous year and was well below levels that are considered normal, according to a report. Mortgage fraud in all of its variations helped trigger the housing bust. Fraudulent appraisals, false loan applications and other illegal and unethical doings became all too common. Such activities helped inflate home values before the bubble burst.”

“Now even as the rest of the economy recovers, foreclosure rates are still historically high and home prices in the metro area are at their lowest levels in more than a decade. ‘It used to be a market where anybody with a pulse could get credit and you had rapid appreciation in home values, and those together were like a gold-plated invitation for fraud,’ said Prentiss Cox, a clinical law professor at the University of Minnesota.”

“Nobie and Purvis Singleton are tired. The retirees have been trying to save their lemon-yellow rambler from foreclosure since they met with a housing counselor in December 2008. Like so many families behind on their mortgage, they got stuck in loan modification limbo. Their payments were temporarily reduced while they waited for word about a permanent loan modification. For months, they patiently sent in the same documents over and over at Bank of America’s request — not an easy task for two seniors who use walkers to get around.”

“The couple, who fell behind after refinancing their home to pay off medical debts, are hopeful this will lead to a permanent payment reduction, but are understandably wary. ‘It’ll be something else after that I’m sure,’ said Nobie, 74.”

“‘Nothing will change until we have transparent, clear rules for who gets modifications and we have transparent, enforceable systems for making sure that the modification decisions were properly made and communicated,’ said Prentiss Cox, a University of Minnesota law professor and former assistant attorney general. He calls the bank bailouts and the foreclosure crisis a ‘national shame.’ ‘We pumped $2 trillion-plus into the banks and did almost nothing for homeowners.’”

The Petoskey News in Michigan. “Compared to year-ago levels, Northwest Michigan’s residential real estate market showed slight gains during 2011’s first quarter in terms of transaction prices and the total number of properties sold. ‘I really feel like we’re coming out … not fast, but we’re coming out from the (market) low of ‘09,’ said Pat Leavy, partner and owner at Petoskey’s Kidd & Leavy Real Estate, an agency specializing in higher-end home transactions. ”

“At Real Estate One of Petoskey, broker/owner C.T. Shuman said home sales at lower price points — in the $150,000 and lower range — have stayed fairly active, and there also has been noticeable demand for properties priced above $500,000. The middle range of the market, with homes priced at $250,000 to $500,000 — has remained more stagnant, he added.”

“Shuman said he’s noticed a decrease in the number of properties listed at his agency compared to a year ago. He believes this may reflect people waiting to see if the market strengthens before moving up to a new home. ‘I think that buyers that don’t have to sell are not selling,’ he said.”

“The presence of foreclosed properties on the market has had a restraining effect on real estate values locally and elsewhere. Short sales also have reined in market values somewhat, Shuman noted.”

“Steve Andreae, broker/owner at RE/MAX of Charlevoix, said foreclosures’ influence on the market probably won’t disappear. He noted that another wave of repossessions is predicted nationally, and that the local market could see the effect as well. ‘We know the defaults are still out there, but they just haven’t hit the market,’ Andreae said.”

“Shuman noted another recent challenge facing the market. With few comparable transactions as reference points, he said appraisals sometimes aren’t showing a value that meets or exceeds a home’s asking price, as lenders typically require. ‘I’ve had multiple deals fall apart this year because of the appraisals,’ he said.”

The Kalamazoo Gazette in Michigan. “If cable television were to make a reality show about life in some of Michigan’s suburban and rural counties, it might be called ‘Driving for Dollars.’ In prime residential counties such as Barry, Allegan, Livingston and Lapeer, more than half of all employed residents drive to jobs in other counties. Yet those ‘commuter counties’ boast median incomes well above the state average, according to recent figures from the U.S. Census Bureau. But rising gas prices and a stagnant housing market are prompting some to rethink how far they live from work.”

“Every metro area has at least one outlying community where residents live in nice homes and drive to good jobs in the city or nearby suburbs. That kind of development worked reasonably well for most of the past two decades in Barry County, which maintained a strong housing market and median household income about 20 percent above the state average.”

“But Barry and other commuter counties were battered by the twin hammers of a housing collapse and high gasoline prices. ‘We don’t have a backup plan when we have such a huge economic shift,’ said James McManus, planning director for Barry County, noting Barry has little industrial or commercial tax base to buffer what has been a 10 to 20 percent drop in home prices.”

“‘With tax revenue coming down on residential (property), we’ve felt a huge impact and significant cuts (in county government). … It’s here, and it’s painful,’ he said.”

The News Herald in Michigan. “We’re now heading into the spring selling season, among the busiest times for house sales. And whether buying or selling, the issue of a home’s price is a sensitive one. Most sellers, obviously, want to price their home to get the highest amount possible. Of course, they believe it is worth every dollar. They’ve lived in it, cared for it, possibly even remodeled it in the time they’ve been there. To many homeowners, it’s more than just a house.”

“But many potential buyers are looking for the best ‘deal.’ And especially in Michigan, where occupied homes are competing for sales with many foreclosed properties, buyers will critically examine your home and base their offer on its strengths and weakness as compared with others they have looked at in the area.”

“Many people still overvalue their home, insisting on an excessively high asking price. Regardless of the size or condition of your home, this is one of the worst things you can do.”

“Sellers may have good reasons for setting a high sale price. They may be hoping to use the proceeds to pay off their current mortgage as well as taxes, legal costs, unpaid utility bills or their real estate agent’s commission. Of course, many also look to use profits to pay for part of their next home.”

“But the realities of the present real estate market mean that there are usually far more sellers than buyers. A house that is overpriced will linger on the market. The longer a house sits unsold, the more people may start to view it suspiciously and may begin thinking there must be something wrong with the property. That may cause sellers to panic and they end up dropping their price below the neighborhood average just to generate interest. This means they’re now willing to accept less than what they likely could have gotten if they had just priced their home right the first time.”

“In addition to correctly pricing their home, sellers also have to remember to be somewhat flexible in negotiations, especially in Michigan’s still-soft housing market. Remember that most buyers expect to negotiate on the price. That doesn’t always mean they’re looking to ’steal’ the property: In many cases, homes still sell somewhat close to the asking price, presuming the homes are competitively priced with others in the area.”

“Sometimes, sellers will counter a fair offer with a price only a few dollars less than their asking price. This is usually a mistake. You risk offending potential buyers who rightly assume you’re not really ‘negotiating’ at all.”