A Foolish Investment In California
The Fresno Bee reports from California. “Some 40,000 to 45,000 Fresno County property owners may be in line for a break on their taxes next year, a silver lining in this deeply depressed housing market. Like their colleagues across California, officials in the county assessor’s office are flooded by requests to reduce the home value assessments that property taxes are based on. They’re getting so many requests, in fact, that they’re taking the unusual step of slashing many assessments without being asked.”
“The adjustments are too late to help with current taxes, the final payment for which is due Thursday. But they may lessen the housing slump’s sting for recent buyers like Peter Fahey, who bought a southeast Clovis home in 2005 for $315,000, only to see its value plummet.”
“Late last year, after a potential lender’s appraisal placed his home’s value at $280,000, Fahey asked for an assessment reduction. Based on recent sales of similar houses in the area, his assessment was cut even more, to $245,000, a reduction of more than 20% that should cut his tax bill by a like proportion.”
“‘Everybody makes a foolish investment at least once,’ he said.”
The San Francisco Chronicle. “As the nation’s housing market swoons, lenders are tightening their grip on their money. Last month, that credit crunch reached Brent Meyers.” “He owns a substantial investment portfolio and a million-dollar house in Moraga. He pays his bills on time and has no credit card debt. His credit score, he says, is around 800.”
“But in mid-March, Bank of America cut off his home equity credit line of a little more than $180,000, citing a decline in the value of his property. Meyers is now scrambling to come up with $75,000 to pay for a major landscaping project and is canceling other big spending plans.”
“‘My wife would like a new car, but that’s going to have to wait,’ he said. ‘We’re taking a $75,000 cash-flow hit, and I want to boost savings.’”
“As home prices started to sink…lenders including Bank of America, Washington Mutual and Countrywide Financial cut back on home equity loans to reduce their exposure to the housing market. ‘These are unprecedented market conditions,’ said Bank of America spokesman Terry Francisco.”
“Warren Leiber, Brent Meyers’ landscaping contractor, sees the spending slowdown every day. His Walnut Creek business, serves an affluent corridor from Benicia to San Ramon. A typical job comes in at $30,000 to $40,000.”
“He estimates that 80 percent of his clients used home equity loans or mortgage refinancings to pay for his services. Now, with that tap choked off, his strapped clients are backing off, knocking $10,000 or $20,000 off their work orders, if they go ahead at all.”
“‘Things started to really go south back in October,’ Leiber said. ‘We would get to the point of reviewing proposals, and people would say, ‘That’s great. Looks terrific. But it’s more than we can spend right now.’”
“‘Some of our clients have not been paying on time,’ he said. ‘I have quite a few clients who owe me various amounts of money. People have their pride. They won’t say they’re having a hard time. That’s started to concern me.’”
“When Meyers took out the credit line in November 2006, his home was valued at $1.475 million. With less than $1 million in principal outstanding on his first mortgage, he had a comfortable equity cushion to cover the line.”
“A few weeks ago, Meyers got a letter from Bank of America informing him that the line had been suspended in its entirety. When he called to ask why, he was told that his house had dropped to an estimated $1.09 million in value, which left insufficient equity to cover the line.”
“Losing the credit line is prompting him and his wife to retrench. ‘I’m going to change my spending behavior because I lost access to $180,000,’ he said. ‘We’re going to be deferring other expenditures to build a pot of money to replace what Bank of America took away.’”
“Bay Area home sales have plummeted to their lowest level in two decades, making the wait between commission checks unbearable for many agents. Bonnie Stevens, an agent in Pleasanton, began her real estate career in 1995, at the end of the market’s last down cycle.”
“‘This is actually worse than 1995. There are agents in my office who have been in the business for 30 years telling me that this is the worst they’ve seen,’ she said.”
“During her 13 years as an agent, a good year for Stevens has meant selling 15 to 18 homes. So far this year, she’s sold only one.”
“But she isn’t giving up yet, although she’s testing out a second career doing direct sales for a Los Angeles clothing company. She said she got into the clothing business because all of the fun had been zapped out of her real estate job and she was looking for something new.”
“‘I wanted to do something different that was more fun than real estate,’ she said. ‘I love real estate, but it’s really not a lot of fun right now.’”
The Monterey County Herald. “The Commons at Rogge Road was to be the model for providing low-cost homes and apartments for people priced out of a superheated Monterey County housing market. The project was praised at every juncture as it made its way through the approval process to its March 2006 unanimous blessing by Monterey County supervisors.”
“Today, the first 46 homes in the phased development are empty. They have been on the market since August. Not one has been sold. And the developers are seeking changes to the original deal designed to ensure affordability of the homes and apartments. They want the changes just to sell the homes, complete the project and avoid big losses.”
“‘We’ve already resigned ourselves that we are going to lose $2 million to $3 million, if we can get the restrictions modified,’ said William Silva, chief financial officer for Woodman Development, who bought the home sites. ‘If not, the losses will be far greater.’”
“It’s the empty homes that are the rub. And they’re why the developers are seeking project changes from the county. ‘Right now we don’t have a fighting chance in the market,’ Silva said.”
“The plan originally was to sell the homes to income-qualified buyers — families making up to 180 percent of median county income — for $273,553 to $483,517. Silva said they’ve cut prices by up to $84,000 to lure buyers, but to no avail.”
“Those one-time affordable prices — up to $300,000 below what some homes in North Salinas were selling for a couple years ago — are now bobbing on the wave of a deflated housing market, where new or foreclosed homes in the same area may be going for the same price or less, he said.”
“Buyers can now find homes in the same price ranges without those kinds of strings attached. The resale restriction is radioactive. ‘No discerning buyer in their right mind is going to buy our house, as nice as they are, with a 20-year deed restriction,’ Silva said.”
“Silva quickly denies any assertion the developers are seeking to get out from under…the provision of affordable housing. ‘That’s not what we are trying to do,’ he said. ‘Everything is work force housing now. We have prices today that match what they were a decade ago.’”
The LA Daily News. “In all the chatter these days about mortgage reform, the new rules for appraisers aren’t getting a lot of attention. But that issue gained traction after New York Attorney General Andrew Cuomo began investigating allegations of conflicts of interest, fraud and other misconduct.”
“One result is that mortgage giants Freddie Mac and Fannie Mae agreed to cooperate with Cuomo and the Office of Federal Housing Enterprise Oversight in helping regulators tighten home appraisal practices to ensure there is some independence in the process.”
“Cuomo subsequently terminated his investigation into some of the business practices at Fannie and Freddie.”
“The result is the Home Valuation Protection Code, scheduled to take effect Jan.1. It essentially tries to prevent anyone in the residential real estate food chain from pressuring an appraiser to inflate a home’s value - a not uncommon practice during the industry’s boom. The mortgage industry has until April 30 to comment on the code.”
“Ted Faravelli, executive director of the San Jose-based California Association of Real Estate Appraisers, conceded that some appraisers were pressured to value homes above the fair-market price during the housing boom.”
“‘We cannot have have future erosion in the public trust as what we do as appraisers,’ Faravelli said. ‘I think we have been tarnished. Much of it is our own fault.’”
“Faravelli also has one big problem with all this. The code doesn’t have any real punishment for breaking the rules. He said that exerting the kind of pressure mentioned in the code should be a crime.”
“‘In short, I think it’s just so much rhetoric,’ he said of the code. (But) ‘I applaud the efforts of everyone trying to find a solution.’”
The North County Times. “Real estate agents are buzzing: Homes are half-priced. There is a swarm of buyers. The housing market is starting to recover. The recovery is being driven by aggressive pricing on cheaper homes, with discounts up to 60 percent off previous sales prices.”
“The best deals, according to listing data, appear to come from areas on the outskirts of San Diego in areas such as Valley Center and Ramona and in foreclosure clusters such as Oceanside.”
“But not everyone is sold on the idea that this is a recovering housing market. Some data suggest that home prices will continue to decline: It would take more than 12 months to sell all the homes listed for sale. Foreclosures skyrocketed in 2007, and some foreclosure trackers expect even more this year than last.”
“Prices have dropped for 19 straight months, with the last four months showing some of the steepest declines.”
“All those numbers fail to faze real estate agents’ optimism because, they say, current activity will not show up in such data for another two or three months.”
“Oceanside has seen some of the county’s deepest price reductions. During the boom of the market, some neighborhoods with relatively higher crime rates saw home prices soar past $450,000. Now, some of those homes have entered, or are in danger of, foreclosure and are listed for less than $200,000.”
“Despite a price tag more befitting the Midwest than San Diego, many of the Oceanside homes struggle to sell because of the condition and location, real estate agents said.”
“Maria Lopez, a Vista agent, listed a Libby Lake-area home for $199,000 to $212,000, at least 57 percent below the last time it sold in 2007 for $490,000. Foot-high weeds blanket the home’s front and back yards. Bits of trash litter the deeply stained carpets inside. But there are no holes in the wall. This one is in good shape, Lopez said.”
“Still, the five offers she has received are all from investors, not would-be homeowners. ‘Even though there’s people who want to buy a home at this price, they don’t think it looks like this. They don’t see the value,’ Lopez said.”
“Mostly, investors will look to fix up a home and sell it for a profit. But some homes are so deeply discounted, said Brian Crisp, a San Diego broker who structures loans for investors, that investors can rent them for a profit.”
“‘My business had doubled just in this month. And I’m seeing some cash-flow potential with a lot of deals lately,’ he said. ‘But those guys (investors) are running a lot of risk because there’s so much volatility in the market. … Your exit strategy has to be really bulletproof, or you’re going to lose your shirt.’”
“Some analysts said that sellers are hesitant to reduce their asking price, meaning widespread affordability could take a long time.”
“‘Those who are paying attention and realizing that they’re not getting any offers, they’re going to figure it out and lower their price,’ said Jim Klinge, a real estate agent in Carlsbad. ‘How many sellers are willing to keep lowering their price until it sells? Maybe one out of 50.’”