[getsmart-l] The Housing CRASH that just keeps on crashing n crashing...

[23skidoo]

This housing bubble burst is a crash that just keeps on crashing n crashing...

Film at 11:00
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http://www.sfgate.com/cgi-bin/article.cgi?f=/n/a/2007/10/06/national/... 
D14.DTL 

Boom, Bust in Area Beset by Foreclosures 

By Adam Geller, National Writer 
The Associated Press 
Saturday, October 6, 2007 


Queen Creek, Ariz. -- Out on Phoenix's suburban fringes, where cement mixers 
are fast colonizing what's left of the hay and cotton fields, the day is 
winding to a close. The home hour has arrived. 


But sundown gives away a troubling secret: Behind dark windows and many 
unanswered doors, it's clear nobody is coming home. 


The ranch home on Via del Palo where the newspaper in the driveway has been 
sitting unclaimed since April. The house at the corner of 223rd Court with 
faded fliers stuck in the door. The two-story on Via del Rancho with the 
phone book on the step. 


They're all empty, left behind by a rising tide of foreclosures. 


This neighborhood has a still-unfolding story to tell, and it is not always 
a comfortable one to hear. 


Not long ago, builders were raising home prices here thousands of dollars 
week after week. Families pitched tents in front of sales offices and waited 
for Saturday morning lotteries to win the right to buy. Buyers - including 
more than a few speculators - gambled with loans whose risks were obscured 
by euphoria. 


This is the tale of how America's real estate boom came to a seemingly 
ordinary subdivision called the Villages at Queen Creek, where the whipsaw 
of easy credit has led to some extraordinary times. 


They were the best of times, for a while. The empty homes, though, raise 
serious doubts about what comes next. 


As the nation confronts skyrocketing foreclosures, and policymakers try to 
contain a symptomatic credit crunch, what is happening here and in scores of 
similar neighborhoods is worth considering. 


Because while the pressures at work in Queen Creek were extreme, the choices 
people made - and the consequences of those decisions - are not so different 
from those faced by thousands of other homeowners and their neighbors. 


"Honestly," says Joy Kessler, a mother of three boys standing on the 
doorstep of the house she and her husband are surrendering to foreclosure, 
"if you were in this situation, what would you do?" 


___ 


In June of 2004, Dave Gustafson took time off from his job as a supermarket 
produce manager, and the family headed to Arizona to visit relatives. The 
buzz of construction - and word of low home prices - convinced them to have 
a look around. 


Dave and his wife Maryann liked what they saw. 


Back in California, they had contented themselves with less than 1,100 
square feet. But salesmen here showed them floor plans that would give them 
2 1/2 times the space for half the price. 


The place they liked the best was a subdivision called the Villages, a 
crescent-shaped warren of streets cradling a golf course, quickly filling 
with sand-colored stucco homes. The local schools had a good reputation. It 
was affordable. There was an extra-big lot on a cul-de-sac, with enough room 
in back for a pool. 


"The sales person was saying that they (homes) were going up $1,000 a week," 
Dave Gustafson recalls. "So when we came to look, we signed right away." 


Builders made it easy. A downpayment of $2,000 to $5,000 was all it took to 
get started. Buyers could borrow at low teaser rates, requiring payments of 
nothing more than interest. 


As promised, home prices were going up faster than the houses themselves. 


By the time the family's new home - a two-story model called The Starling 
with a cathedral ceiling in the living room - was completed the next spring, 
the $179,000 base price had climbed to $220,000. 


"We were making money while we were waiting," Dave says. 


The Gustafsons picked out Corian counters and maple licorice-finished 
cabinets at the builder's design center, and opted for a pool and a 
whirlpool bath, adding more than $50,000 to their loan. The interest rate 
was fixed for only two years, but they didn't worry. With prices rising so 
fast, they could always refinance. And in five or six years, the Gustafsons 
figured, they'd sell for $500,000 and downsize. 


They hung a plaque over the dining table: "Home is Where Your Story Begins." 


They were hardly the only ones feeling optimistic. 


Kris Rowberry was ecstatic when the value of his home in nearby Gilbert 
started to take off. So he bought a second one in the Villages as an 
investment. 


"I was thinking, man, if I could have 10 properties, I could just kind of 
retire ... and kick back and live off the income," says Rowberry, a nuclear 
safety inspector. 


But the speculative mind-set confounded buyers like retiree David Pickering. 
When Pickering and his wife left Pennsylvania in August of 2004 for a new 
home in the Villages, they'd never heard of interest-only loans and the idea 
of buying a home as an investment hadn't occurred to them. 


They were simply buying a place to live, hopefully for a good, long time. 


Around them, though, such notions began to look very old-fashioned. 


___ 


The American Dream is a myth overdue for revision. 


"There's been a huge shift in the way people view their houses," says John 
Karevoll, who tracks real estate for DataQuick Information Systems. "Your 
house now can basically be used as an ATM." 


Twenty years ago, families celebrated when they got a mortgage and again 
when they retired the loan. A home meant security. The financial commitment 
promoted both pride and neighborhood roots. 


But Americans have become much more mobile, and looser lending has made it 
easier to buy a home and to borrow against its value. 


Now a home is more - or less - than a place to live. It is an investment - a 
way to make money and finance a lifestyle, says Robert Manning, an expert in 
consumer credit and debt at the Rochester Institute of Technology. 


The housing and lending industries encouraged that transformation, promoting 
not just subprime loans but mortgages requiring little or no documentation 
of income, no money down, and interest-only payments. 


When easy borrowing combined with a run-up in prices, speculators joined the 
fray. In Arizona and other Sun Belt states where foreclosures are rising 
fast, homes not occupied by their owners account for an outsized portion of 
foreclosures, according to the Mortgage Bankers Association. 


But the rise in interest rates and drop in home prices has put the most 
pressure on people who live in the homes they own, and who hadn't counted on 
the market shift. 


It used to be that when things got tough, Americans did everything possible 
to protect their homes. But now, faced with foreclosure, many have reordered 
priorities - making payments on things like credit cards while neglecting 
mortgages, according to the credit scorekeeper Experian. 


That is at least partly a matter of psychology. When people who bought 
almost entirely with borrowed money see that worth disappear, there's little 
incentive to hold on, says Stuart A. Feldstein of SMR Research Corp., a 
Hackettstown, N.J., research firm. 


Few players, though, seemed to appreciate the chance they might get caught. 


"Lenders never said no," says Jay Butler, director of realty studies at 
Arizona State University. "Nobody expected this to continue, but they hoped 
it would just long enough to get out of it - and they were caught up in the 
whirlpool." 


___ 


By late 2004, the Phoenix real estate market was roaring. 


The euphoria reached Queen Creek, so far out the freeway hadn't arrived yet. 
If you couldn't afford something closer in, real estate agents told buyers, 
"drive until you qualify." 


The town's population almost quadrupled to 17,000 in just five years. 


Buyers lined up for the chance to make a downpayment in the new 
subdivisions. Rowberry joined 200 people one Saturday morning for a chance 
at 15 lots. He snapped up builders' price lists. Every week, the homes cost 
$1,000 to $5,000 more. 


Meanwhile, skyrocketing prices in California and Nevada sent investors to 
greater Phoenix in search of the next great deal. 


"I'm just one guy and it wasn't unusual to get three (calls) a day" from 
speculators, says John Wake, a real estate agent. "A lot of them weren't 
sophisticated. They'd never invested before." 


In the Villages, already half completed, remaining lots looked too good to 
pass up. One Southern California investor, Alan Jullien, bought three homes. 
A flight attendant, Angela Nazario, bought a two-story house even though she 
lived by herself and was frequently on the road. A local real estate agent, 
Sean Bacon, bought two. 


Homeowners who bought earlier were feeling good. The market spike turned the 
Gustafsons' $235,000 home into one worth $380,000. 


Across the Valley, homeowners watching their home values shoot up, borrowed 
against those gains. 


"Talking to a lot of co-workers, everyone was doing the same thing - taking 
out lines of credit, milking it for all it's worth," says Matthew Berends, a 
homeowner in Surprise, another Phoenix suburb where prices soared. His home 
is now in foreclosure. "In one year for a house to go up $80,000, it's like 
too easy." 


But some relatively modest purchases would prove to be risky gambles. 


Greg Giniel and his wife moved into a home on East Sanoque Drive bought by a 
friend, with Giniel as a silent partner. What Giniel hadn't counted on was 
that the friend had also bought three other homes around the Valley, all 
financed with adjustable rate loans that were bound to rise. 


One street over, the Kesslers paid $279,000 for a house in the fall of 2005. 


With $25,000 down and an interest-only loan, it seemed like a wiser deal 
than their old rental. 


There was a problem, though, obvious only in hindsight. A market that had 
skyrocketed was about to take a plunge. 


___ 


It takes time for a homeowner to get into trouble, but sometimes not all 
that long. 


In the summer of 2006, the Gustafsons fell behind on their mortgage 
payments. Their interest rate was set to jump. In August, their lender 
started foreclosure. 


Meanwhile, problems began to snowball. High gas prices prompted people to 
rethink the idea of owning a home on the outskirts. Investors rushed to 
sell. 


In 2005 - a record-best year for Phoenix real estate - just five homes in 
the ZIP code containing the Villages were lost to foreclosure, according to 
Information Market, a Phoenix real estate research firm. 


Last year, lenders claimed 15, nearly all in the final two months of the 
year. 


So far this year, 75 homes have been claimed by banks. But with the market 
so soft and more adjustable rate mortgages about to reset, that could be 
just the beginning. 


In the Villages, many of the homes where foreclosure is pending are already 
empty, a sign owners have given up. 


In a big subdivision - about 1,400 homes - the problems aren't always 
obvious. The golf course remains carefully watered, the playgrounds neatly 
swept. Many streets, particularly in areas built before prices spiked, are 
filled with families who take walks with strollers in the evening or grill 
burgers in backyards overlooking the greens. 


But on other streets, the presence of homes without curtains in the windows, 
with dirt and cobwebs collecting in doorways, is almost eerie. 


Even when the market was good, some Villagers were troubled by the large 
number of investor-owned homes, empty or filled with renters. 


Then late last year, moving vans began to pull up to some homes at odd 
hours. Auction notices were posted on front doors. The oleander and mesquite 
trees that do so well here in the desert sun turned brown in yards left 
without water. 


In May, the house to the left of the Pickerings' on Calle de Flores went to 
foreclosure. Two weeks later, the house on the right followed. Both had been 
empty for months. It made David Pickering vaguely uneasy. He couldn't help 
wondering whether empty houses might attract vandals. 


"The weeds in the back are getting so tall now that they are growing over 
the separating wall into my yard," he e-mailed, alerting the homeowners 
association to one of the vacancies. "Something must be done about this. ... 
The property must be under financial responsibility of someone." 


For a couple of months, landscaper Nick Bourque - who lives next door to 
three foreclosed homes in a row on Via del Palo - made a point of keeping 
the abandoned yard bordering his free of nutsage and old newspapers. 


"I just figured after a while, the heck with it," he says. A real estate 
agent scheduled an auction of the home, but found no takers. 


On Via del Rancho, Christelle Palmire watched as the home next door was 
abandoned to foreclosure. It stayed empty, too. 


This Halloween, Palmire plans to take her son trick or treating in a 
friend's subdivision where she knows most doors will be answered. 


"You drive around this subdivision and there are 'For Sale' signs 
everywhere," she says. 


The problems become self-perpetuating. Researchers say that each foreclosure 
chips away at neighbors' property values. But foreclosures here compound a 
larger problem. 


Builders continue adding homes to the market at reduced prices. Investors 
are trying to sell. Lenders are seeking buyers for foreclosures. Homeowners 
whose financial troubles might be solved by selling can't compete, real 
estate agents say. 


"Sometimes the neighbors don't like you so much because you're one of the 
reasons the values are declining," says Kim Gordon, a real estate agent 
specializing in foreclosures who is listing two homes in the neighborhood. 
"But everyone has got their part in it. The homeowners overextended 
themselves." 


In many ways, the Villages is lucky because so much was built before the 
market soared, says Amanda Shaw, president of Associated Asset Management, 
which administers it and 300 other Arizona subdivisions. The company, which 
once saw two foreclosure notices a month in its communities, now fields 
three to five each day, and some of its subdivisions have been hit much 
worse. 


But it can be difficult to know when homeowners are in trouble. 


"There are people who think they don't have an alternative ... other than to 
turn the lights off at 1 in the morning, hop in the U-Haul and just leave," 
Shaw says. 


Now, says Ed Stutz, who lives in the subdivision and pastors the nearby 
Family of Faith Fellowship church, at least three Queen Creek homeowners 
call each week asking for help paying their bills. That never used to 
happen. In September, the church decided to offer budgeting advice. 


"They saw a lot of home for a pretty decent price and I don't think they saw 
the handwriting on the wall," Stutz says of his neighbors. "People took a 
gamble and now it's hurting." 
___ 


It's worth much less than it used to be, but it's home, Dave and Maryann 
Gustafson decided. 


In May, their lender agreed. 


The company modified their loan, temporarily trimming the $1,000 a month 
increase in their payment to $400. It's a stretch, but will keep the 
Gustafsons in their home at least until the modified terms expire in two 
years. 


Greg Giniel is not so sure. His home, owned by his investment partner, is 
scheduled for a foreclosure auction in November. 


"I've got to figure out how to buy my own home back," Giniel says. "If God 
doesn't pull me out of this one, I don't know where else I'm going to go." 


Things looked just as uncertain to Joy and Paul Kessler, until they did the 
math. 


They could fight to save their house. But what was the point? It's worth at 
least $40,000 less than they paid. They can rent in this depressed market 
for a fraction of their monthly payment. 


"It's sad to say but honestly, we don't feel like there's anything worth 
saving in this house," Joy says. "Financially, we've got nothing to show for 
it." 


So the couple decided to let the place go. Everyone said it was the right 
thing to do. 


Still, it doesn't sit right with her husband, a painter and construction 
worker. When times were good they made a commitment, Paul tells Joy. 
Somehow, it doesn't feel right to just walk away. 


http://www.sfgate.com/cgi-bin/article.cgi?f=/n/a/2007/10/06/national/... 
D14.DTL 

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