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Builders Giving Up On The Sinking Market (4 Trillion in Losses)
CBS News ^ | Oct. 10, 2007 | CNS

Posted on 10/16/2007 7:15:41 AM PDT by 2banana

Builders Giving Up On The Sinking Market In California, Developers Leaving Behind Housing Projects — And Their Tenants

SAN PABLO, Calif., Oct. 10, 2007

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As housing prices continue to drop, developers are scrambling to get rid of houses they can't sell. Many are turning to auctions. (CBS)

Housing Developments Abandoned

Partially-built houses are being left in developments as builders walk away from a collapsing home market. Homeowners who bought at the market's peak are left to absorb costs. John Blackstone reports.

(CBS) In California, where developers have been racing to turn farmers' fields into subdivisions, they're now walking away, leaving houses partially built.

Those who have already moved in wondering what will hit next.

“I'm concerned that once the weather starts getting bad, there's tile piled on the roof that could just fly off,” homeowner Marius Gieske told CBS News correspondent John Blackstone.

Dunmore Homes had building projects in a dozen California communities from Bakersfield to Yuba City. Now it’s halted work everywhere, giving up on a fast-falling market.

“We couldn't sell a moving target,” said John Slaughter, vice president of construction and operations for Dunsmoor Homes. “What we wanted to do is stop.”

That moving target, collapsing house prices, has already cut $1.2 trillion from the value of American homes. And the losses are mounting, going to $4 trillion by one estimate, by the end of next year.

So developers are scrambling to get rid of houses they can't sell. Many are turning to auctions.

“You don’t know where the bottom is, and so an auction will tell you if you hit the bottom and where it is,” said Craig Barton of Anderson Homes.

But as Anderson Homes searches for the bottom, those who bought from the developer at the top feel betrayed.

Sherry and Percy Berquist, who paid $597,000 last year were shocked to see $335,000 set as the opening bid for an identical house to be auctioned. The developer may be able to absorb that loss. The Berquists can't.

“It’s gonna be very tough,” said Sherry Berquist.

Across the street Amy Sturdevant paid $585,000 for a house. But now the developer has set $295,000 as the opening bid for similar houses down the street.

“I feel like my parents’ grave has been robbed. This was an inheritance. I sit out here and I look at this…” said Sturdevant.

Those like Sturdevant and the Berquists who bought at the peak may be the biggest victims of this housing bust said Financial Planner Patrick McGilvray.

“That's the real tragedy for the people who got in at the height of the market. They are going to tough it out,” McGilvray said. “They are the ones who are going to carry the water so to speak for this debacle.”

If part of the reason for falling prices is overbuilding, it may not be over yet. While construction has slowed builders are still putting up new homes at a rate of more than one million this year.


TOPICS: Business/Economy; Crime/Corruption; Culture/Society; News/Current Events; US: California
KEYWORDS: homebuilders; housing
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To: lewislynn

In a buyers market, she should be busy. Lots of discounted properties on the market.


21 posted on 10/16/2007 7:48:49 AM PDT by SeaHawkFan
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To: Alberta's Child
In a number of states (Texas, Oklahoma, and Colorado), it was the energy bust that triggered a drop in real estate prices. The 1986 tax law may have prolonged the decline especially at the residential level. I am not sure how the 1986 tax law affected investment commercial real estate.

I got stung in the decline in real estate in Texas during the mid 1980s. I bought a small house after the peak but I still lost $10,000 after holding the house 6 years. With the improvements, my loss was at least $25,000.

There was no talk of bailouts to the home owner. The bailouts were to the savings and loans so that they could pay federally insured CDs. The Savings and Loans were engaging in risky lending strategies, using money that was federally insured. In retrospect, the CD rates were too high (12% in 1984 for a 4 year CD) and the lending practices were too risky. However, the lending practices were tame by today’s standards.

22 posted on 10/16/2007 7:52:23 AM PDT by businessprofessor
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To: ßuddaßudd
Could be very easily done. Banks or builders do not want to hold property. There has never been a better time to invest. The industry has an excess of houses, finishing materials and labor. Even if you don’t sell, you can always rent, lease-opt, or land contract.

A lot of people got rich on the housing market’s ride up, and there will be wealth generated on the way down as well....

23 posted on 10/16/2007 7:52:31 AM PDT by colinhester
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To: Eagles Talon IV
The # of mortgages in default is equal to aprox 1.5% of ALL mortgages.

The main entities hit are the hedge funds that went out of their way to focus on risky loans

24 posted on 10/16/2007 7:53:10 AM PDT by PapaBear3625
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To: 2banana

bump


25 posted on 10/16/2007 7:53:26 AM PDT by VOA
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To: Larry Lucido
Anyone who paid $585,000 for a house isn’t gonna be sifting through dumpsters just yet, though they may have to buy generic groceries for a while. My give-a-damn meter isn’t registering at all on this story.

Much of this kind of money came from skyrocketing appreciation of prior homes. I remember people laughing at how a model similar to the one they bought last month was selling for $50,000.00 more this month.

26 posted on 10/16/2007 7:55:53 AM PDT by oldbrowser (Orwell was off the mark by 24 years.)
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To: Moonman62

I don’t think the government had much of a choice in the matter. With interest rates declining, these S&Ls were hemorraghing cash and were going to go bankrupt anyway. The loosening of regulations was a desperate attempt to let them try to grow their way out of the problem.


27 posted on 10/16/2007 8:00:51 AM PDT by Alberta's Child (I'm out on the outskirts of nowhere . . . with ghosts on my trail, chasing me there.)
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To: businessprofessor
A big part of the problem was the impact of falling interest rates. When interest rates were high in the late 70s and early 80s, banks had no problem extending CDs at 12% because they were getting 15% on their mortgages at the time. But when rates declined, everyone who was holding a mortgage went out and refinanced -- but banks had no option to refinance a long-term certificate of deposit. Eventually you had banks paying rates of 12% on their CDs while they were getting 9% on their mortgages. Nobody is going to stay in business very long under that scenario.

In effect, the real problem is that the U.S. banking system is rigged so that EVERY MORTGAGE IS AN ADJUSTABLE RATE MORTGAGE -- but only for the homeowner, not the bank. A homeowner with a 30-year fixed-rate mortgage can always refinance the loan if rates decline, while the bank has no option to refinance the loan if rates rise.

28 posted on 10/16/2007 8:06:07 AM PDT by Alberta's Child (I'm out on the outskirts of nowhere . . . with ghosts on my trail, chasing me there.)
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To: Alberta's Child

I don’t see how the parents had anything to do with this woman’s decision to spend $600,000


Looks like she blew the hard earned money of her parents that she inherited. Instead of blaming herself she playing victimhood.


29 posted on 10/16/2007 8:13:02 AM PDT by Joan Kerrey (Believe nothing of what you hear or read and half of what you see.)
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To: Alberta's Child

Actually it was Volcker hiking short term rates up to 20% that initially got S&L’s in trouble and led to the easing of regulations.


30 posted on 10/16/2007 8:22:00 AM PDT by Moonman62 (The issue of whether cheap labor makes America great should have been settled by the Civil War.)
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To: 2banana
From what I am seeing here in Florida, a house that in 2000 went for $120,000 could be sold for $395,000 in 2005 but is now only worth $295,000. Is it a 2 year loss of $100,000 or 7 year gain of $175,000? I guess it all depends on your timing, but it appears that long term investors aren't too worried but the short term flippers are crying because their get-rich quick scheme cost them.
31 posted on 10/16/2007 8:30:10 AM PDT by Armando Guerra
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To: Eagles Talon IV

Even the low rate of sub-prime mortgages among the total national portfolio of mortgages is enough to cause bond holders to sell the debt. You point to your numbers and demand that laymen take notice and say “It isn’t that serious!”

Bankers will point to your very same numbers and not want to have a thing to do with that debt when wrapped up into a securitized package. It isn’t the absolute number of non-performing sub-prime mortgages out there: it is how they have been bundled, mis-characterized and then sold as “safe” (eg, AAA debt ratings) into a debt market that vastly under-priced the risk of this debt.

When a CDO blows up on a banker’s balance sheet, he doesn’t care how much of that CDO is the sub-prime component. Doesn’t care at all. What matters is that the whole CDO cost “X” and now, the ratings agencies are telling him that this large chunk of complicated debt security is entirely suspect. The good debt will be downgraded with the junk debt until the markets find some way of un-bundling the bad debt from the good debt in these CDO’s. Until the debt markets figure out how to do that, your stats don’t matter: a $100 million CDO might have only $1 to $3 million of junk debt in there. Until that $1 to $3 million is broken out of that CDO, the other $99 to $97 million of debt are getting downgraded as well.


32 posted on 10/16/2007 8:33:17 AM PDT by NVDave
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To: 2banana
Partially-built houses are being left in developments as builders walk away from a collapsing home market.

So where are the people now living that would have bought these new houses? Moved back to Mexico, maybe?

33 posted on 10/16/2007 8:33:39 AM PDT by narby
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To: Larry Lucido
So is it safe to move the 401K from the stable principal category to something a bit more risky?

Carolyn

34 posted on 10/16/2007 8:37:20 AM PDT by CDHart ("It's too late to work within the system and too early to shoot the b@#$%^&s."--Claire Wolfe)
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To: 2banana

From c2donath2, we heard: “That’s what happens when people dive into a boom market just before it busts.”

And those people were all greedy -

greedy house buyers with lousy credit and they still thought they should be able to get one or two loans totaling 100% of the $5xx,xxx price of a new home,

greedy mortgage outfits that wanted the fees (no matter how bad the credit) knowing they would hold the mortgage no longer than it would take to package it with a bunch of other mortgages and sell the package to bigger banks

greedy major banks and major Wall Street houses that bought the mortgage packages and sliced and diced them into securitized debt instruments, and sold those instruments without ever doing due diligence on the underlying mortgages (and while, knowing the deals were risky, placed hedge fund bets against the market in the debt packages they were selling - Goldman Sachs profit from these bets have exceeded their losses on some of the worst sub-prime debt packages)

and greedy final investors who did not read the actual prospectus from the big banks and Wall Street houses that, if read carefully, actually admitted how much risk there was in the packaged-debt market of sub-prime-mortgage-based debt instruments.

The greedy homeowner that actually loses their house is most likely loosing a house that, financially, was not going to be theirs for very long no matter what. The greedy home owner that bought only on the expectation that they could sell for a big profit in a year or two, has gotten what they deserve - a good home they need to hang onto for the next ten to fifteen years (as the majority of homeowners do).

Many of the greedy mortgage outfits are out of business or going out. Who should cry for them? No one.

The greedy major banks and Wall Street houses are having to write down billions in assets (investments) that they know will not be assets for long. They are now and will continue to pay for it in their stock prices. The sellers of their stocks will buy stocks outside the financial industry. Even pension funds will not allow their constituents to pay for this, they will sell whatever they see as right to sell, from their shares in companies in the financial industry. Who should cry for any of this? No one.

In the end the biggest losers will be those who deserved to lose and even the riskiest homeowners that simply keep making their mortgage payments and hang onto their houses will still be net-equity investors in their homes before the next growth period in houses begins.


35 posted on 10/16/2007 8:52:29 AM PDT by Wuli
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To: Eagles Talon IV
. More, approximately 96.5% of ALL mortgages are performing well.

Well, prices in a market are set on the margins. The last sale price is the comparable price for the next sale.

36 posted on 10/16/2007 9:00:15 AM PDT by glorgau
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To: 2banana

Personally, I will be OK. I bought a modest house for less than $100K over 15 years ago, and it was last appraised for around $150K. I have a fixed 30-year mortgage at a good rate, and we can easily make the payments. If my home’s theoretical value drops significantly, it won’t make a hoot’s difference to me, as we don’t plan to sell. I do feel for those who are upside down in this crazy market though.


37 posted on 10/16/2007 9:04:08 AM PDT by Sender (Can I just post until I need glasses?)
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To: 2banana

Real mixed feelings about this mess.

I don’t feel sorry for the people who bought more house than they could afford, thinking that the low interest rate party would go on forever. I do feel sorry for those who did everything right, yet still are losing equity because of others’ bad judgment. I am also angry that their bad judgment is going to impact the entire economy.

But let’s look past the here and now. This “crisis” won’t go on forever. There are going to be a some folks who get very rich in a few years because they understand that this situation is an opportunity. I wish I had a few hundred thousand $ sitting around doing nothing to scoop up some properties when they hit bottom.


38 posted on 10/16/2007 9:06:05 AM PDT by Hazwaste (Now with added lemony freshness!)
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To: Sender
Personally, I will be OK. I bought a modest house for less than $100K over 15 years ago, and it was last appraised for around $150K. I have a fixed 30-year mortgage at a good rate, and we can easily make the payments. If my home’s theoretical value drops significantly, it won’t make a hoot’s difference to me, as we don’t plan to sell. I do feel for those who are upside down in this crazy market though.

You will be more than fine. It is my personal belief that nearly ALL subprime mortgages and adjustable mortgages made in the last 4 years will default. It is going to be a tidal wave...

39 posted on 10/16/2007 9:07:48 AM PDT by 2banana (My common ground with terrorists - they want to die for islam and we want to kill them)
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To: Hazwaste
This “crisis” won’t go on forever.

You are correct - the Japanese market only took 15 years to finish...

40 posted on 10/16/2007 9:09:12 AM PDT by 2banana (My common ground with terrorists - they want to die for islam and we want to kill them)
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