Market forces some to juggle mortgages

November 18, 2007

BY KATHERINE YUNG

FREE PRESS BUSINESS WRITER

One of the worst housing markets in Michigan's history is taking a heavy toll on Barb Corwin's finances, not to mention her psyche.

The Ann Arbor bar owner is shouldering three mortgage payments. She can't sell her condominium, the house she lives in or the dream house she renovated and planned to move into.

Dropping the sales price on her dream house by $50,000 didn't help. And she can't find anyone to rent her condo.
To keep afloat, she cashed in some of her retirement savings and borrowed money.

"You can't even imagine the stress," Corwin said. "I put all my eggs in one basket. Who would have thought this would have happened?"

The poor job market and the subprime mortgage crisis have cost thousands of Michiganders their homes. But less obvious is the housing slump's growing impact on people with stable finances who are simply trying to sell their homes.

Many now owe more on their mortgages than their houses are worth. Others are dealing with the headaches of renting their homes because they can't sell them. And some have put even more money into their houses to make improvements they hope will give them a sales advantage, often to no avail.

The situation has left sellers feeling frustrated, scared, angry and depressed. To weather the turmoil, they're cutting back personal spending, which bodes poorly for the broader economy.

"It's been a tough road for a lot of folks," said Michael Poulos, chief executive and president of Michigan First Credit Union. "It's got a real psychological effect."

'Never seen anything like this'

In the first nine months of this year, the number of homes sold in the state and the average sale price each fell about 6% from the year-ago period, according to the Michigan Association of Realtors. Michigan continues to rank among the states with the highest foreclosure rates.

"We have never seen anything like this," said David Jensen, vice president and senior broker at Max Broock Realtors in Birmingham.

And most of the bank-owned foreclosures haven't come on the market yet, he warned.

Conditions could get worse if soaring oil prices and the fallout from excessive subprime mortgage lending send the country into a recession, experts said.

The national drop in home prices is at its worst level since the Great Depression, said Mark Zandi, chief economist of Moody's Economy.com Inc.

"In terms of pricing, this will be unprecedented," he said.

That doesn't bode well for sellers such as Roger Haezebrouck, who is looking to move to a more affordable house.

He put his Macomb Township home up for sale a year ago, took it off the market for a few months and listed it again two months ago. It's now listed at $268,000.

At first, he was showing his house to potential buyers five times a week. But during the last four weeks, no one has wanted to take a look.

Haezebrouck estimated that he will get only $1,500 from selling his home for $263,000. If he lowers the price by $10,000, as he fears he may have to do, he said, he will lose money.

Adding to the pressure, Haezebrouck is searching for a job. He's living off his savings and buyout money he received after leaving a job in the natural-gas industry.

To cope, he is turning down the heat, buying food in bulk and driving less often to save gas.

But in the meantime, he has had to fix a water leak in his basement and repaint portions of his house.

"Selling a house is nerve-racking," he said. "Nothing is moving."

Coping with multiple mortgages

The financial pressures of owning a home that nobody wants to buy is also playing out in another way: While some people have sold their houses for whatever they could get, others have opted to take on extra costs to hang on to their homes until the market improves.

That's the case with Liz Considine, 37, of Huron Township. She and her husband put their 2 1/4 -acre Westland farmstead up for sale when they moved to another house with more land. Nearly 2 1/2 years later, they're still looking for a buyer, even after dropping the price from $295,000 to $275,000.

The couple has been able to afford two mortgages. But the financial burden hasn't left them with enough money to buy and care for a horse, a major reason they moved in the first place.

And all the money they have spent on the two houses would have been enough for them to pay off the mortgage on the first one, Considine said. They now have someone living rent-free in that house.

Making matters worse, if they don't find a buyer for their first home soon, they may have to pay capital-gains taxes whenever they do sell the property because of the way the tax laws are written.

"It's been a lot to keep up," said Considine. She said she tells herself not to think about how much money is going out the door. "Two and a half years is getting to be a little too much."

Tim Clyne, a 61-year-old pipe fitter at General Motors Corp.'s Technical Center in Warren, said he's in a similar situation. He is coping with three mortgages plus property taxes because he couldn't sell his house in Troy after building a new one in Shelby Township.

Rather than lower the price of his Troy house, now on the market for $225,000, by $50,000, he tore down two-thirds of a massive garage on the property and sold the lot for $110,000.

That has helped him continue paying two mortgages on the house in addition to the one on his new custom-built home.

Clyne also decided to rent his old house instead of selling it, an increasingly popular alternative for many sellers fed up with the weak market. A tenant moved in early this month, but the rent covers only the original mortgage on the house.

Despite the hassles, it could have been worse. Clyne got out of an adjustable-rate loan for his new house, switching to a fixed-rate one with stable payments. Adjustable-rate loans have caused many borrowers to default on their mortgages as interest rates have risen.

But waiting out the housing slump has affected Clyne's finances. The money from the sale of the land at his old house has dwindled, and he has had to dip into his savings.

Clyne and his family live frugally, driving older cars, going to dollar movies and, when they eat out, going to Wendy's.

"I'm not prepared to give up $50,000 that I will never be able to save," he said, explaining his reasons for refusing to drastically mark down the price of his old home.

But not everyone can get by on renting. Corwin, the Ann Arbor bar owner, had been leasing her 1,000-square-foot condo for $1,200 a month until her tenant moved out. Now she would gladly accept $800 a month but hasn't had any takers.

It doesn't help that a nearby apartment building is offering units the same size as Corwin's for $545 a month.

The flood of unsold homes also forced Corwin to lower by $200 the monthly rent on another house she owns in Ann Arbor.

How does she keep herself sane? "Am I? I have to exercise every day," she said.

Problem spreads to other states

No one knows when the housing market will rebound. The last nationwide housing downturn started in late 1988 and didn't end until early 1992, Zandi said. And the most severe housing bust since the Great Depression lasted from 1979 to 1983.

Michigan can take consolation that it's not alone in its suffering. The double-whammy of falling prices and an oversupply of unsold homes plaguing the state the last few years has spread to the rest of the country.

Martin Bouma, one of the top realty agents in Ann Arbor, used to feel left out when attending residential real estate conferences around the country because other states were enjoying booming housing markets. That's no longer the case.

"For the first time, everyone else had the same problem," he said of the mood at a recent conference in Scottsdale, Ariz.

Putting plans on hold

Locally, realty agents are hoping the market will start to stabilize next year. But the uncertainty has led some sellers to take their homes off the sales block and put their plans to move on hold.

That's what Brian Pospy did. In the middle of September, he removed the for-sale sign on his Clarkston home. It sat on the market for a little more than a year, even though Pospy had lowered the price by $30,000, to the $270,000 range.

He said he hopes to put his house up for sale again next spring. He wants to move closer to his job in Livonia. But with his oldest son starting elementary school next fall, he needs to make the move soon so his child won't have to switch schools later.

Like many other sellers, Pospy said he has tried to make his house more appealing to buyers. He just finished spending about $2,500 to replace the linoleum on his kitchen floor with ceramic tiles and to install new carpeting in the family room.

Pospy estimated that his house is worth $50,000 less than two or three years ago.

"Buyers are looking for somebody in a distressed situation," he said. "It is a little frustrating."