Real Estate Troubles Trickle Up

Yes, we know all about this:

http://www.nytimes.com/2008/06/01/business/01town.html?pagewanted=1

Greensboro, N.C.
Spike in Foreclosures Goes Beyond Subprime
Related
Times Topics: Mortgages and the Markets

Sara D. Davis for The New York Times
In some developments in the Greensboro market, construction has stopped on half-built houses.
WHEN Brandt and Tiffany Schneider put their brick colonial on the market for $1.2 million last April, they had every reason to be optimistic. The home, three years old and in a suburban neighborhood here, features a two-story great room with a stone fireplace and a leafy backyard. The couple’s agent told them she would be shocked if it didn’t sell within 30 days. After all, the Schneiders had owned five previous homes over the past decade, all of which had sold in the first month for more than the couple had paid.
A year later, they are renting a house in Madison, Wis., where they moved to be closer to family, and are still waiting for a buyer for their old home. Despite Mr. Schneider’s new job as a manager at a logistics company, his family has had to cut expenses and eliminate vacations in order to cover the $2,500-a-month rent in Madison and the mortgage payments, taxes and utility bills still due in Greensboro.
Half a dozen price cuts haven’t done much to generate more traffic — two months recently passed between showings — and the Schneiders are now asking $874,900. At that price, they would just about recoup what they originally spent buying and upgrading the house.
“We’re hanging on by the skin of our teeth,” says Mrs. Schneider, 41, a stay-at-home mom with three children. At one point, the family held a garage sale to raise some extra money. “We put a lot of cash down, we didn’t take out a subprime loan. But we never thought we’d have a hard time selling a great home in a wonderful neighborhood.”
Nearly a year after the mortgage meltdown became front-page news, the Schneiders’ travails reflect how the nation’s housing woes have moved beyond subprime borrowers in working-class neighborhoods and into the realm of upper-middle-class homeowners.
Last week, a new report showed that house prices nationwide were off 14.1 percent from a year ago, while the Commerce Department said sales of new homes remained near their lowest levels since 1991.
THE market here isn’t like those of Florida or California, which have followed a boom-and-bust pattern, or of Cleveland, where foreclosures have overwhelmed entire neighborhoods. Instead, what’s playing out here is a kind of paralysis, with wide swaths of the market frozen and only the very top end showing signs of life.
This may hint at what’s in store for other real estate markets around the nation that managed to avoid the excesses of the last decade but still find themselves struggling now. Indeed, the recent economic trajectory of Greensboro, a city of 242,000 smack in the middle of the rolling Carolina Piedmont, has run parallel to that of the country as a whole.
Sales of existing homes here are down 22.5 percent from the first quarter of 2007, according to G. Donald Jud, a University of North Carolina economist who tracks the market for local Realtors, compared with a 21.7 percent drop in home sales nationally. Unemployment in the Greensboro area averaged 5.1 percent in April, versus 5 percent nationwide. The mortgage delinquency rate of 4.04 percent, meanwhile, is nearly identical to the country’s rate, 4.35 percent.
“In some ways, Greensboro got caught up in the national housing boom,” Mr. Jud says. “It was neither a bubble nor a bust, but people in the middle are now feeling the pinch from rising costs and getting overextended.”
Greensboro has fared better than other places in terms of foreclosures, though they were up 23 percent in April, versus the same month a year earlier; nationally, the jump was roughly 65 percent. “But that’s still pretty high for us,” Mr. Jud says. “The market is still weakening, inventories are growing and sales prices are dropping.” Across the nation, foreclosures are expected to keep rising, flooding the market with more homes.
In Greensboro at the end of the first quarter, nearly 2,500 homes were on the market, up nearly 12 percent from December. And it’s midprice residences that have been hardest hit. While sales of properties valued at less than $150,000 are down 13.3 percent from a year ago, sales of homes between $150,000 and $350,000 are off more than 27 percent.
The one exception to this otherwise sobering picture is Irving Park, a gracious neighborhood where some of Greensboro’s original tobacco and textile heirs still reside. Like other wealthy enclaves such as Menlo Park, Calif., Irving Park has escaped much of the downdraft affecting outlying suburbs like Summerfield, where the Schneiders’ home is for sale.


Sara D. Davis for The New York Times
Rai Alexander, an appraiser in Greensboro, measures the exterior of a house using a laser.
Multimedia
Gary Jobe says he has done well building new houses on old lots in an affluent area.
But over drinks in the wood-paneled dining room of the Greensboro Country Club, there are whispers that even Irving Park may be susceptible to the downturn. More properties are selling at substantial discounts, at least one member’s million-dollar home is in foreclosure, and a prominent local bankruptcy lawyer says he is seeing a new kind of client.
As recently as two years ago, says the lawyer, Charles M. Ivey III, “I felt like I was a veterinarian for dinosaurs — clients were disappearing.” Now, he’s seeing more and more of what he calls “paper millionaires,” real estate investors who thought that the good times would go on forever. “Mostly they bought a slew of properties, hoping to flip them and with refinancing, they thought they could stretch it out,” Mr. Ivey says. “Hopefully, we can buy enough time to sell off their properties.”
THE brick house on Robdot Drive in Oak Ridge is just a 10-minute drive from the Schneiders’ place in Summerfield, and it looks like any other of the prosperous homes that have sprung up like mushrooms from the red clay earth here over the last five years. Come closer and you quickly realize that something’s not quite right: weather-proofing peeks out from around the front door, and an open garage reveals that the interior of the house contains little more than bare wooden beams.
Construction here stopped abruptly months ago, and now it’s just one of scores of McMansions nearby sitting empty and forlorn on what was farmland until a few years ago. Tobacco barns still dot the landscape, but the farms they once served are gone, paved over by developers and other speculators who figured that housing prices could only keep climbing. “It was like, ‘Build it and they will come,’ ” says Lewis Tillman, who, with his wife Tara, owns Westchester Realty. “Except they didn’t come.”
To make matters worse, these outlying suburbs were built on the premise of cheap gasoline, says Keith G. Debbage, a geography professor at the University of North Carolina at Greensboro who tracks the local economy. With gas at $4 a gallon, he says, “travel costs are now a serious consideration.” Oak Ridge and Summerfield are bedroom communities, he notes, and many commuters drive 30 to 45 minutes each way to jobs in Greensboro and Winston-Salem. “People are doing a serious rethinking of where they live,” he adds.
Now reality has caught up with the hopes that animated so many real estate markets around the country. When the Tillmans moved down to Greensboro from Cortlandt Manor, N.Y., four years ago and discovered these fast-growing suburbs, Mrs. Tillman says, “we thought we’d be flipping homes. Now there’s just so much inventory out there.”
In one Oak Ridge subdivision, Mrs. Tillman’s client is asking $409,000 for a brand new four-bedroom with granite countertops in the kitchen and a Jacuzzi-style bath. She just marked it down from $422,000, but given the slow pace of sales in the neighborhood, that may not be enough. “Builders just kept putting up one spec house after another,” she says.
About 18 months ago, adds Casey Durango, a broker at Yost & Little, builders could hardly keep pace with demand. “They were selling drawings,” she says.
When buyers do turn up nowadays, she says, “they smell blood in the water and routinely offer 15 to 20 percent below the asking price.”
ONE big reason buyers are being so conservative is that mortgage standards have tightened considerably. “We’ve kind of gone back to the old days,” says Christie Caldwell, who has worked as a mortgage broker in Greensboro since 1986. While some analysts say lenders have overreacted, Ms. Caldwell says they are simply being prudent.
Traditionally, she explains, homebuyers who put down less than 20 percent were required to pay for private mortgage insurance. But at the height of the bubble, banks turned a blind eye as borrowers did an end run around the rules by taking out two mortgages, Ms. Caldwell says. That’s much harder to do these days, she says.

Similarly, homebuyers with lower credit scores often have to put more down. Everything just seems more difficult, she says. “Before, we could quote rates without knowing credit scores, debt-to-income ratios and the size of the down payment.”
The resulting crunch is now also affecting both white-collar and blue-collar workers who had depended on the real estate market for employment. Kavanagh Homes, a local builder that specializes in the middle and low end of the market, has cut its work force by half. “We’ve had to really pull our horns in,” says the firm’s president, John Kavanagh.
One home appraiser in the area, Rai Alexander of Taylor Pope & Herring, says the first four months of 2008 “were the slowest I’ve had in my career, and I’ve been in the business since 1991.”
The recent surge in gas prices has been an added burden, since Mr. Alexander covers the cost of fuel himself and typically spends $45 to $50 a week on gas. “I try to bunch up my appointments together so as not to drive back and forth to the office too much,” he says. To make extra money, he also works part-time as a bartender at the Greensboro Coliseum, a local arena, and, with his wife, Denise, has cut back on going out to restaurants.
“It seemed like things just sort of stopped after Christmas,” he says.
Mr. Alexander, 48, grew up in Irving Park and still enjoys driving past fashionable addresses like Country Club Drive, telling stories about Greensboro’s old-money families, like the Cones, who founded Cone Mills and made the denim for Levi’s jeans. Although Cone Mills went bankrupt in 2004, and other local textile makers have cut thousands of jobs, you wouldn’t know it from visiting Irving Park. It has long been among the wealthiest census tracts in the state, according to Mr. Debbage, with a median income of $122,052 in 2000.
“New money has flooded into the neighborhood, with younger people buying older homes and tearing them down,” Mr. Alexander says. “I couldn’t afford to buy.” He now lives in Summerfield, the same suburb where the Schneiders are trying to sell their home.
Sitting in the Sunset Bar of the Greensboro Country Club, Gary Jobe is still enthusiastic about Irving Park, especially the profitability of pulling down older homes on big lots and putting up one, or sometimes two, in their place. A third-generation Greensboro builder with a high-end clientele, Mr. Jobe’s business in Irving Park is thriving.
Mr. Debbage says the very top end of the market in Irving Park is unlikely to feel anywhere near as much pain as newer, middle-class neighborhoods. “There’s a certain cachet and social prestige that’s hard to replicate elsewhere,” he says. “It’s been like that for a century, and it has built up over multiple generations. For those folks to be impacted, you’d have to see a very severe recession.”
For those in Greensboro who are less fortunate than many residents of Irving Park, this is a time of waiting. Not just for all those empty houses to start selling again, or for gas prices to drop. Like the rest of the country, anxious homeowners who have no intention of moving are watching to see if the recent rate cuts by the Federal Reserve put a floor under falling real estate values.
LOCAL residents are also talking up the opening of two projects they hope will replace some of the high-paying jobs lost when the domestic textile industry foundered. After 10 years of planning, FedEx expects to open a new hub at the Greensboro airport next year, which will eventually employ up to 1,500. Nearby, Honda Aircraft is building a new headquarters and factory.
“I don’t know if it will be enough, but it will certainly help,” Mr. Debbage says of the new employers.
Although it will be years before these projects begin to pay dividends, would-be real estate tycoons are still hoping against hope for a quick turnaround.
Driving down the country roads near his horse farm in Oak Ridge late last year, David Tolbert spotted a sign announcing an auction by a local builder who’d run into trouble. He ended up buying the house — the four-bedroom that Mrs. Tillman is now trying to sell for him. “I bought it to flip, but the flippage part is not going so well,” he says.
Like the Schneiders, Mr. Tolbert had always quickly sold his past homes for more than he’d paid. Now, with the carrying cost running at $2,000 a month, he, too, needs to sell and is considering a price drop — though he has already lowered the price once, to $409,000. “We’d hoped to make a profit, but if it doesn’t sell by late this year, my profit will evaporate,” he acknowledges. “It’s a pretty good deal, but I haven’t gotten any nibbles.”
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