The Housing Bubble

It’s Friday desk clearing time for this blogger. “When Donna Vieira bought a $560,000 home in Reno in 2005, the San Leandro, Calif., resident thought she had the perfect second home. Six years and $350,000 worth of payments later, Vieira finds herself out of her Reno property and in the middle of an extended legal battle against Wells Fargo. Vieira alleges that she was the victim of both a fraudulent loan and a fraudulent appraisal. A second appraisal that came as she closed escrow revealed that the value of the home she bought was $243,000 less than the mortgage she signed, Vieira said. Vieira was so upset that she reported the original appraiser, whose license eventually got suspended.”

“‘I haven’t even moved into the house yet when I found out,’ Vieira said.”

“For Jenny and Robert Click, the loss of their Dale City home, scheduled to be sold at a foreclosure auction Jan. 6, has loomed over their holidays. Last week, the only sign of Christmas was the tree that took up a corner of the living room, where Click said she had cried tears of joy the day her family moved in 11 years ago. ‘I was thinking I had finally made it,’ she said. ‘I had my own house.’”

“When they bought the three-bedroom house for $87,000, Click was earning $18 an hour driving a dump truck. Robert Click was earning slightly more by driving a truck for a construction company. Once the run-up in house prices began, she said, they were bombarded with offers to refinance. They did so twice, pulling out $70,000 in equity to make much-needed repairs to the roof and a bathroom and to pay off their cars.”

“‘It’s like free money,’ is what they said,’ she recalled. ‘Except that it’s not free!’”

“The average Maryland home reassessed last year lost a record 22 percent of its value, while the average drop the year before was nearly 20 percent, assessors said. It’s hard for a homeowner to decide how to react to falling assessments, said Carlos Plazas, who lives in Patterson Park, one of the Baltimore neighborhoods the state just revalued. He likes the idea of a lower tax bill, but it would also mean that homes in his neighborhood have lost value. ‘I don’t know if it’s a good thing or not,’ said Plazas.”

“Winfield realtor Joan Turner, who tracks homes that may be headed for foreclosure, observed the price of many homes in foreclosure lately has been between $50,000 and $60,000. In addition to the moderately priced homes listed in foreclosure filings this fall, there were also a few with higher and lower mortgages, including a home with a $132,000 mortgage and a mobile home with a $6,000 mortgage.”

“But the picture was changed from 2009 and 2010, when foreclosure filings included homes with mortgages of up to $350,000. More than one high-end homeowner simply walked away during that period, Winfield realtor Alan Herrman said. Both Mike Mildfelt, president of the Community National Bank in Winfield, and John Sturd, community president in Arkansas City for the Union State Bank, pointed to lax mortgage-making on the part of brokers and outside lenders as a prime cause of those troubles.”

“‘There were a large group of folks who were not prepared to own a home’ who got mortgages in the 2005-2006 period, Mildfelt said.”

“With foreclosures still hitting the housing market hard, at least one metro city is so wary about empty houses turning into rundown rental properties that it plans to limit the number of rentals allowed on each block. Those types of rules are already established in Minnesota college towns such as Winona and Mankato, but as metro areas seek to try them, it could lead to a battle: property owners who can’t sell their vacant houses and say they could face foreclosure if they can’t rent them out vs. cities that say too many rentals can drag down everybody else’s property values.”

“City Council Member Jim Englin said too many rental properties can crush a neighborhood. ‘If I have three renters around me and you are telling me my housing value doesn’t go down, you are wrong.’”

“The Dzierzbickis live in Cary, Ill. They bought a house in Winona for their daughter while she attended Winona State, and they have been unable to sell it since her graduation this past spring. Although they spent $30,000 to upgrade the house for safe renting, the city wouldn’t let them rent rooms to students when their daughter was there, and it’s standing empty now because of the rental restriction, Ted Dzierzbickis said.”

“‘I have a very strong personal belief that the city is overstepping its bounds by telling us we can’t rent a property that we own,’ he said.”

“The well-known Northside Realtor at the other end of the phone line was angry. She had just come from a foreclosure closing on a $150,000 house. The defaulting homeowner, who put no money down and only made three payments, walked away from the closing with a $13,000 check, thanks to various government programs.”

“‘This is just wrong,’ she said. ‘The man makes $11,000 a month as a salesman. He trashed the house and walked away with a big check. The public needs to know that this type of thing is going on.’”

“According to the Canada Mortgage and Housing Corporation, resales are likely to rise by nine percent in 2012, to 36,000 transactions. It also anticipates that the annual average price for all home types will settle at $788,000 in 2011, which is 17 percent over that of the previous year. For 2012, the average price is forecast to increase by two percent to $805,000.”

“Although houses are expensive in Metro Vancouver, Central 1 Credit Union’s Pastrick doesn’t view the regional market as being in a bubble. ‘A bubble in real estate or in any asset market usually needs to have a fair amount of speculation present as well as very easy money,’ Pastrick said. ‘Money is cheap but not easy.’”

“Royal LePage’s third-quarter House Price Survey indicated that home prices in West Van have increased a staggering 25 per cent, the largest jump in the region. A detached bungalow in West Van rose to $1.2 million, up from $900,000, while two-storey homes jumped to $1.3 million, compared to $988,000 in the previous quarter.”

“From January to September 2011, 969 detached homes sold in West Vancouver with a median price of $1,780,000. Over the same period last year, 537 homes sold at a median price of $1,488,000. Bill Binnie, broker and owner of Royal LePage North Shore, told The Outlook one reason for the dramatic increase in prices was a ’shift in consumer demand’ from Asian buyers from Richmond to West Vancouver.”

“West Van realtor Jason Soprovich told The Outlook this spring marked ‘one of the most feverish pitches in purchasing power’ he’d seen in nearly 20 years.”

“Alice Batista readiliy admits she was blinded by dollar signs and slick advertising when she dialed up the Trump hotel and condo sales office back in 2006. The single mother of three became convinced that $50,000 was a small price to pay to get in on the ground floor of what was, at the time, the glitziest new high-rise planned for downtown Toronto — the five-star Trump International Hotel & Tower.”

“In fact, Batista became so swept up in the hype, within a few weeks she’d put $165,000 deposits on two units worth $2.4 million. Only as the Kitchener-area woman signed the legal documents would she find out that one of the suites — a one-bedroom condo with library on the 45th floor — was owned by the director of sales for the project. Legal documents obtained by the Star show that sales director Adina Zak bought the preconstruction condo for $948,100 in 2006 and flipped it to Batista six months later for $350,000 more.”

“That $1.3 million flip of an unbuilt unit to a new buyer violates a key condition in sales agreements, imposed on most buyers by developer Talon International Inc. That condition stipulates that units can’t be sold until completion. But her boss, Talon chief executive Val Levitan, defends the sale, saying he had a “moral obligation” to let Zak — ‘and a few other customers’ — buy a unit and flip them for their own profit. ‘Adina has been with me for 11 years. She is a very dedicated person who I wanted to do a favour for . . . Sometimes you make an exception.”

“Zak refused to comment when reached by the Star: ‘We’re on vacation and she’s not taking any calls,’ said her husband.”

“Batista is kicking herself for getting so caught up in the condo craze and Trump name. ‘I don’t belong in Trump tower,’ says the woman who has bought, renovated and rented out several homes, but never condos. ‘I thought I’d be able to get a Trump tower suite for less than everybody else. I didn’t think I’d get rich. I just thought I’d make a little money and maybe have a place to retire someday.’”

“For those watching local real estate values, it’s a frequent question: ‘After we’ve suffered through all that we have, when will there be light visible at the end of the tunnel?’ There is no better metaphor to describe the journey of ups and downs-well, downs-of the Malibu market. Actually, there is light visible at the end of the tunnel! For a specific portion of the local market, the darkness is turning to bright light.”

“Annual sales over the past four years have averaged about 150 home units in Malibu, not nearly enough to sustain previous values. (That is, the sales pace has been inadequate unless the inventory also stayed very low, which it has not). Whereas the joyous 2003-2005 years saw the tally of Malibu home listings below the 150 level, it bloated to more than 300 this past summer. Thus, inevitable price drops, now in the 40-45 percent range from the peak, have resulted.”

“The supply/demand dynamics get worse the higher you go. For properties listed at more than $5 million there have been 19 sales recorded, with 105 properties on the market. Talk about being in a dark, narrow place.”

“At least this can be said about current times: It is more encouraging than 18 months ago when all of Malibu’s micro-market box cars were deep in the mountain, the light faded from the rear and imperceptible ahead, scant few sales and way too many sellers at every price. Not far down the tracks, particularly for lower-priced investment-seekers, comes the next real estate phenomenon: all those buyers who grew comfortable standing on the platform, not realizing the choo-choo left the station.”