Paying The Price For A Housing Bubble In California
Reuters reports on California. “‘The golden dream by the sea’ is how Gov. Arnold Schwarzenegger has fancifully described California. Yet for thousands who bought homes during the Golden State’s latest housing boom, foreclosures have turned recent months into a nightmare. Dorothy Hicks, a retired federal employee in Oakland, California, is seeing her American dream of owning a home teetering on the edge of collapse.”
“After refinancing into an adjustable-rate mortgage last year, she faces possible foreclosure on her home of nearly 40 years.”
“Hicks says she was told the mortgage was a fixed-rate loan, but was soon overwhelmed by soaring payments when its interest rates rose. ‘By the time you pay (utility) PG&E, the telephone and the mortgage, you don’t have any money,’ she said.”
“‘We have a lot more of these shady mortgages out here, so that doesn’t bode well,’ said Christopher Thornberg of Beacon Economics in Los Angeles. ‘We’re due for a very traditional consumer-led downturn.’”
“‘Business is picking up and I think it’s going to continue,’ said Patrick McGilvray, president of a Sacramento firm that matches distressed homeowners with investors and home buyers.”
“‘In the early 1990s we were losing a major industry and losing it for good. Now we’re paying the price for a housing bubble, but housing will come back,’ said Howard Roth, chief economist for the state Department of Finance. ‘We really haven’t lost jobs yet. That may happen. But in the early 1990s we lost over 500,000 jobs.’”
From NBC San Diego. “Local homebuyers looking for bargains will have dozens of prospects to choose from at a major foreclosure auction next month.
“More than 125 single-family homes and condominium units are being listed for sale by the Real Estate Disposition Corporation August 18 at the San Diego Convention Center.”
“The property with the highest ‘previous value,’ $670,000 - is a four-bedroom, two-and-a half bathroom house on Vista San Guadalupe in Otay Mesa’s Vista Pacific neighborhood. It was owned by a couple who, according to neighbors, also bought, rented out, and defaulted on two other houses in the area.”
“The starting bid price: $289,000. But real estate observers point out that the sellers have a higher, undisclosed ‘reserve price,’ or minimum - below which bids will not be accepted.”
“The auction-list property with the second highest previous value, $619,000, is a three-bedroom, two-and-a-half bathroom house on Fieldbrook Street near Chula Vista’s Heritage Park. Starting bid price: $309,000.”
“Next-door neighbor Andy MacNeill tells NBC 7/39 that the couple who defaulted on the house ‘got in about two years ago and actually did a lot of upgrades and stuff. But I think they got into the wrong type of mortgage and couldn’t handle it. It kept goin’ up every other month.’”
The San Diego Union Tribune. “For some home sellers, putting up a for-sale sign is getting to be a costly exercise. In its latest price report, DataQuick Information Systems found nearly 17 percent of homes sold in the county last month closed escrow at a price less than the previous sale.”
“That’s way up from 2.7 percent a year ago. The median difference in price was $61,000.”
The LA Times. “Possible household foreclosures in Riverside County are up 281% in the second quarter compared with the same period last year, according the real estate tracking firm RealtyTrac.”
“The firm reported 12,759 filings of mortgage default notices, auction sale notices and bank repossessions during the quarter. Los Angeles County led the state with 24,054 foreclosure-related filings, the firm said.”
The Daily Bulletin. “Foreclosures are continuing to climb locally, and it’s a trend that should continue for at least the rest of the year.”
“The two Inland Empire counties were among the hardest hit in California during the first half of 2007, with Riverside up 207 percent from the same period in 2006 and San Bernardino up 186 percent, according to RealtyTrac.”
“‘We haven’t seen the end of this,’ said Redlands-based regional economist John Husing. ‘The situation will get worse before it gets better. We are moving into a period when more homes will be at risk.’”
“Statewide, the number of homes in foreclosure was up 170 percent from a year ago, as California is being hit much harder than the nation as a whole.”
“Every one of the six Southland counties was up at least 125 percent from a year ago.”
“Husing said to really understand the numbers, it’s important to know where are the at-risk properties. ‘I’m not at all surprised to see more foreclosures out here than in Los Angeles,’ he said. ‘If you look at home sales in 2004, 2005 and 2006, you’ll see that there were more homes sold in the Inland Empire than in L.A.’”
“Bill Velto, manager of Tarbell Realtors in Upland, said many of the people in foreclosure now clearly fell prey to unscrupulous lenders. ‘Some of them put people into loans (when) they knew there was no way that they could make the payments,’ he said.”
From KGET.com in Bakersfield. “As the housing market fizzles, the number of foreclosures is on the rise, and scams and real estate frauds that went unnoticed amid a flurry of mortgage applications are now coming to light.”
“Local attorney Kathryn Fox said her phone has been ringing with local people claiming they were the victims of real estate fraud. ‘I have a lot of people that are not in the financial position for this type of home, something really out of their price range,’ said Fox.”
“But what if the homebuyer is in on the scheme? Here’s a typical property flipping scenario: The flipper buys a property for a specific price, $300,000, for example, and then artificially inflates it’s value by obtaining a false appraisal.”
“Now the overvalue of the home is repurchased at the higher price by associates of the flipper. The flipper pockets a profit, and usually offers kickbacks to the appraiser and associate who helped buy the home. But the associate never pays the mortgage, and the home goes into foreclosure by the lender, who is left holding the bag.”
“‘When you qualify people on facts that are not true, or embellish the facts or leave out bad facts, or you assist them in buying and know they are not going to be able to service the debt, or service the loan, you’ve got a problem,’ said Fox.”
“‘You can do anything with the property as long as it keeps going up in value,’ said Attorney Cal Stead from Borton, Petrini & Conron. ‘It’s when the increase in value tapers off is when you start having these foreclosures.’”
The East Bay Business Times. “Home building permits in the Oakland metropolitan area were down more than 50 percent in June compared to the same period a year earlier, according to the California Building Industry Association.”
“Permits were down nearly 30 percent year-over-year last month in the Vallejo-Fairfield metro area.”
“Overall, California’s total housing starts fell more than 50 percent year-over-year: 9,536 permits in June compared with 19,637 in June 2006. The total last month dipped 14 percent from May, when 11,064 permits were pulled.”
The Fresno Bee. “For the first time in years, sales-tax revenues are dipping in many central San Joaquin Valley communities — raising the possibility that some cities might have to cut services.”
“Valley cities have based their spending plans on the assumption that those revenues would keep going up, as they have for years.”
“Local officials said they suspect the decline here is tied to the Valley’s worsening housing market. Consumers worried about decreasing home values or their ability to make home payments may spend less in stores, they fear.”
“Riverside and San Bernardino counties received less sales-tax revenue in the holiday 2006 season than they did in the same period the year before. Sales-tax revenue dropped in Sacramento County the past two quarters in which figures are available, compared with the year before.”
“Clovis had a 3% decline in sales-tax collections during the first three months of this year, the city’s first quarterly decline in at least four years, city figures show. ‘I’ve never seen two quarters in a row that were flat or down since I’ve been with the city,’ said Rob Woolley, a city employee for 20 years.”
“In a market where prices for new homes have skyrocketed over the past 10 years and forced some buyers out, there’s actually a positive side to high-priced housing.”
“That’s the conclusion the California Homebuilding Foundation recently came to in a study published this month on the fiscal impact new housing has on local governments.”
“With higher-priced new homes, more money is being made off of property taxes, one-time taxes, and home-building fees, said John Frith, VP of public affairs for the California Building Industry Association, which works with CHF.”
“A surge in housing prices over the past five years is fuel for CHF’s argument that new housing pays for itself and then some, Newman said. Besides more revenue from property taxes, one-time taxes and home-building fees, new housing attracts wealthy middle-income residents which in turn attracts commercial development that’s vital to the existence of several cities.”
“However, new housing’s positive economic impact on local governments only came about in the past three years, according to Redlands-based economist John Husing.”
“Husing said Inland Empire cities have consistently argued over the years that new housing doesn’t pay for itself, and they’ve been correct in doing so. New housing has only been paying for itself since 2004, Husing said, a time when prices were peaking or still climbing in some areas.”
“‘It really had a lot to do with assessed valuation,’ Husing said, noting that CHF’s report might not hold up if home prices continue declining. ‘Going forward, it probably will fall into a different dynamic.’”
The Record Searchlight. “Pulte Homes may have dropped its option to buy the Nine Mile Ranch property, some 3,100 acres near Cottonwood it had pegged for the ‘active-adult’ Del Webb community Sun City Tehama. But neither the mega-homebuilder nor the land owner is talking.”
“Former Del Webb spokeswoman Judy Bennett said Monday that she heard Pulte has walked away from the project. Bennett and former project manager Brendan Leonard were among 45 people let go in June.”
“Bennett said it was at a June 29 party with former Del Webb employees at her house that she was told Pulte wasn’t pursuing the land deal in Tehama County.”
“Leonard said he couldn’t speak for Pulte or Nine Mile Ranch. But he did say, ‘If they’re (Pulte) not out of the picture, they’re not spending money on it (Sun City Tehama).’”
“With foreclosure notices up in Shasta County, the opportunity for mortgage fraud has jumped. The FBI reported in May that California is a hot spot for lending predators.” “In Shasta County, the number of homes in some stage of foreclosure in the first half of 2007 is up 118 percent from a year ago.”
“‘I have talked to several different agents who have come across clients who have fallen victim; it is getting prevalent,’ said Nicole Dutell, branch manager of The Prime Financial Group in Redding.”
“The distressed property owner gets a call from someone who wants to help. They offer to lend the homeowner money, but in doing so the homeowner will have to transfer title.”
“Dutell says, use common sense. Who’s going to lend $100,000 to a homeowner who can’t make a mortgage payment on a house with zero equity?”
“There are some areas in the north state where home sales are actually up in 2007, bucking a countywide trend that has seen a 10 percent dip in sales. Take, for example, Lake California…near Cottonwood where prices have dropped about 12 percent from a year.”
“Homes are selling for about $279,000, down from $320,000 a year ago, added Bob Neher, co-owner of Vintage Realty.”
“And the typical-sized home selling in Lake California is about 1,600 square feet, a floor plan dwarfed by some of the 2,000-plus-square-foot monsters being built in Redding. ‘It doesn’t seem that many people are looking for homes that big right now,’ Neher said.”