From The New West magazine

Boise in Its Own Little Bubble

Opportunistic Investors Overshoot Demand, Now Foreclosures Loom Large

By Matthew Frank, 5-01-08

	NOBODY'S HOME: Houses in Boise's 'burbs, some built with out-of-state cash near the national markets' peak, are getting harder to hang onto.

The Treasure Valley Repo Bus Tour embarked on its maiden voyage in March, driving about 25 pre-qualified and hopeful homebuyers on a tour of Boise and nearby Eagle and Meridian, hunting for deals on foreclosed homes.

"In this market it's ‘Think outside the box.' What can we do to generate some business?" says Nate Wilson, who helped organize the monthly bus tour.

In 2005, Wilson's agency, the Boise branch of Keller Williams Realty, had 600 agents. In mid-April, the count was down to about 380.

Boise has been hammered by the national housing slump and the sub-prime loan debacle. In April, there were 200 homes in Ada County scheduled for a trustee sale, the last step in the foreclosure process, compared to 42 last April. March saw 245 defaults filed, up from 99 in March 2007. In the fourth quarter of 2006, single-family home permits plunged 39.6 percent.

Idaho, as of February, ranks 20th in the nation with one foreclosure for every 774 households. Colorado ranks fifth, with one foreclosure for every 305 households. Utah is 15th. Wyoming, with one for every 3,683, is 44th.

While the same factors that triggered the national downturn have been felt in Boise, the housing bubble that ballooned there was, in some respects, a product of Boise-specific forces, says Kirby Robertson, a Mountain West Bank construction lender.

In 2004 and 2005, right as national housing prices neared their peak, out-of-state investors discovered Boise and its cheap housing and solid job growth behind the likes of Hewlett-Packard and Micron. Other factors included low crime, good schools, mountain-town amenities and a research and development-minded Boise State University.

"We got a major influx of people from California and Washington who descended on Boise like a stampede," says Idaho regional economist John Panter.

	"We have an excess supply of housing, plain and simple," says Lender Kirby Robertson

As Robertson explains, the influx of investors formed a bottleneck to available lots, driving up prices, and the new construction boosted existing home prices. Between 2002 and 2006, the median home price in Ada County jumped from about $140,000 to $235,000, and then dipped over the next year, for a five-year annual average growth rate of 10.2 percent. That dip represents a bad case of oversupply.

"The reality is that we have an excess supply of housing, plain and simple," Robertson says.

Trey Langford of the real estate Web site BuildingCredibility.com says the downturn hasn't hurt buyers who live in their own homes and haven't been forced to sell by a job loss or a divorce. Boise ranks pretty low in owner-occupied foreclosures. The house-flipping investors got burned. Investors accounted for about one in five home loans.

A sign of the times, CBH Homes, which has built nearly 8,000 homes in the Treasure Valley and was ranked in 2005 by Builder magazine as the 57th largest homebuilder in the country, held a "Deal of a Lifetime" fire sale in October last year, discounting homes by as much as 70 percent to sell more than 100 homes in two days.

But while Boise's may be one of the hardest hit real estate markets in the Mountain West, it remains better than the worst spots in the country, says Mike Ferguson, who works in Idaho's office governing financial management. Boise's price run-up occurred later than markets such as California, Arizona and Florida. "We went to the punch bowl, but we held off for a while," Ferguson says.

An April report released by the Idaho Department of Finance says, "Idaho's financial institutions are a beacon of good news, in stark contrast to the nation's mortgage crisis." The state's total annual mortgage delinquency number is 3.86 percent, compared to the nationwide number of 6.31 percent.

And Idaho's economy is otherwise pretty healthy. Idaho still boasts a low (but rising) unemployment rate of 3 percent, compared to the national rate of 5.1 percent. The median family income in Boise in 2007 was about $60,000. In mid-April, the median home price was $238,000, down about 10 percent from the previous year.

"I'm not putting on my helmet yet, because I don't think the sky is falling," Robertson says.

--matt@newwest.net [End of article]

So the homes sold to people who could not afford them, who did not have adequate credit, who were a huge risk, are back on the market because the interest rates popped as they were programmed to do, and people could not buy food, buy gas and make the house payment. Gee. Who'd a ever thought?

So who gets bailed? I have one next door, abandoned, the mortgage payers just left in the night months ago. I contacted the recorded mortgage holder as per papers filed at the county courthouse, and guess what? "Oh, we sold that mortgage." I knew they would have. That is how a Ponzi works. Keep one step ahead of the payoff.

So my next step is to file a nuisance complaint with the city. We have a bearcat code officer. The lawn will get mowed, and another lien put on the property. I don't care. The first mortgage holder told me they sent my concerns on to who they sold the mortgage to. Time will tell. No response yet.

The subdividers and builders were just serving the market. The villains are the mortgage people who loaned money, using govt. guarantees, to unqualified people, even if Congress decided to make them qualified. But somehow, I don't think Congress should use my money to bail them out. How about a $100,000 a year salary cut for Congressmen and women until this is straightened out? Take some responsibility. I have a nuisance next door, and it is no fault of mine. Nor the old lady who sold. It is squarely sitting in the lap of the person who loaned money to a person or persons doomed to fail, and many have. If you have to relieve the poor doomed home buyers, then take it out on the mortgage brokers who set them up to fail, and did take real money from them in the process.

We, the taxpayers will get hosed on this deal. The public employee pensions are heavily invested in the industry, and if they lose money, we will be asked to make it up. They never share their gains with us, but they sure as hell want us to protect them from losses. Oregon has lived that nightmare. Years when the school budget, the local road budget, all were cut to make up pension guaranteed money lost to dot-com state investment deals. All upside for workers, and taxpayers take care of the down side. Well, it made me unhappy the first time, and it will change the political landscape the next time.

Institutional investors are public employee pensions and parked taxes collected but not spent, supposedly earning money until payout time. That money is a big player in hedge funds, leveraged buyouts. Oregon has close to a billion with Lone Star, a Texas fund that is collecting money to buy foreclosed real estate at bargain prices. Somehow, the guy with the guaranteed government job, the big time benefits, using the money taxpayers put into his retirement by force of law and the gun, to buy foreclosed property stinks. smells. Has an odor. Once again, Catch 22 and Milo Minderbinder become prescient as to where we were headed and how close we are to being there. You have to wonder if public employee unions are contributing to Planned Parenthood, the eugenics idea Hitler so ardently advanced. This stuff get weirder by the day.

Nice commentary Bear -- lots to agree with there.

For me, this says it all: "The house-flipping investors got burned. Investors accounted for about one in five home loans." As far as I am concerned, you take a risk in any investment. If you lose money, that is the risk that you have to cover. You can't cry, "free market" "let the market do what it will do" when you are on the (wildcat) profit side of the equation, then ask someone to subsidize (socialize) the downside when you lose money.

While I sympathize with those who purchased houses to actually live in, there was still *informed* risk! Taxpayers should not have to cover losses of any financial organizations or the investors they supported. Let the market adjust on its own. And, there is a financial tool to deal with those that need it--it is called bankruptcy. Walking out on a mortgage? I hope that those people (or the legal counsel that told them that was the best alternative) are not just dismissed from the consequences of that action.

My wife and I borrowed fifty thousand to put in a well and septic and buy a garage kit to build a 720 sq. ft. house out of.
If we had only known....We could have built a mansion and let the tax payers pay for it.
Guess we're just not that kind of people.We were offered the same deals, but we knew what we could afford and that's what we had to settle for.

Out of state investors discovered Boise? Yes. Solid job growth driven by HP and Micron? Not likely. Not this decade anyway. Employment has been flat at those to big companies and Micron went through 1,000 person layoffs twice this decade, gradually adding about the same back between the two cuts. HP has been on a retirement/outsourcing binge for years. Perhaps it's all the churning by these companies that brings in a few new faces while those who take a buy-out go do something else.

Half the population growth in the Boise area this decade has come from the rest of Idaho. And a significant amount of in-migration both from Idaho hinterlands and out of state have been retirees. Many of them are moving back. Some are moving to be closer to the grand kids.