The Big ‘If’ In California
The Contra Costa Times reports from California. “Foreclosures are a third of all home sales in California as the majority of homeowners in default lost their homes in the first quarter of the year. About 68 percent of homeowners in default during the first few months of 2008 lost their homes, typically owing around $11,474 and were about five months behind when their lender started to foreclose, DataQuick reported Tuesday. There were 47,171 homes lost to foreclosure during the first quarter, the highest since DataQuick began recording data in 1988.”
“Last quarter’s total rose 48.9 percent from 31,676 in the previous quarter, and jumped 327.6 percent from 11,032 in first quarter 2007. In the last real estate cycle, trustees deeds, which is when the lender officially forecloses, peaked at 15,418 in third-quarter 1996.”
“Lending institutions sent homeowners 113,676 default notices during the January-to-March period. That was up by 39.4 percent from 81,550 the previous quarter, and up 143.1 percent from 46,760 for first-quarter 2007, the highest since DataQuick began recording defaults in 1992.”
“‘The big ‘if’ right now is whether or not the economy is in recession. If it is, the foreclosure problem could spread beyond the current categories of dicey mortgages, and into mainstream home loans,’ said Marshall Prentice, DataQuick’s president.”
“But some economists say that the economy is already affected. ‘We’re already in a recession,’ said economist Christopher Thornberg. ‘You have falling prices and so many people underwater they realize there’s no point in staying in the home and will walk away.’”
“Last quarter’s default numbers were a record in almost all of the state’s 58 counties. The only exception was Los Angeles County, which was hit hard by the recession of the early 1990s.”
The San Francisco Chronicle. “Foreclosures spiked across the Bay Area and California during the first quarter, rising more than 300 percent as home values continued to fall. Lenders took back 6,579 homes in the nine-county region during the three-month period, up from 1,493 a year ago and 4,573 in the fourth quarter.”
“In an indication that the foreclosures will continue to rise in the months ahead, mortgage defaults, the first step in the process, also climbed across the board from January to March, nearly 150 percent in the region and state. Lending institutions sent Bay Area homeowners 16,398 default notices, up from 6,730 in the year ago period and 12,704 in the preceding quarter, DataQuick said.”
The Sacramento Bee. “Banks repossessed nearly 5,300 homes in the capital region during the first three months of 2008, setting a record and pushing the region’s foreclosure tally to more than 15,300 since the beginning of 2007.”
“The number of home loan defaults also neared 10,000 during the quarter in Amador, Nevada, El Dorado, Placer, Sacramento, Sutter, Yolo and Yuba counties, according to DataQuick.”
“The firm attributed foreclosures in the capital region and statewide to falling home values that have made it impossible for many to refinance or sell their homes to escape financial problems.”
“DataQuick noted that because of falling home prices only about 32 percent of those who default on their home loans are able now to save their homes. Six months ago about half were able to save their homes, the firm reported. As recently as August 2006, DataQuick said 95 percent were able to find solutions outside foreclosure.”
“Clearly the major culprit is free-falling home prices that have many people owing more than their home is worth.”
“‘Looking at the directional trend, we expect foreclosure rates in Sacramento to rise as long as house prices are declining,’ said Mark Fleming, chief economist of First American CoreLogic.”
The Union Tribune. “March was the 36th consecutive month of year-over-year increases for both home foreclosures and notices of default.”
“But DataQuick analyst John Karevoll predicted that so long as San Diego County avoids entering a recession, the rate of homeowners defaulting on their mortgages should start to level off later this year and then begin declining in 2009.”
“‘There are two scenarios,’ he said. ‘Scenario one is that the default activity is a nasty case of indigestion that has to be digested, and once it’s digested, the market will rebalance itself. Scenario number two is where we factor in the recession. If we are in a recession, it’s not indigestion anymore. Then the default acitivty will start to migrate from this pool of at-risk home loans into the more mainstream mortgages.’”
“Looked at on a quarterly basis, foreclosures between January and March of this year continued to surge, rising 60 percent compared to the final quarter of 2007. Year-over-year, the increase was 210 percent, DataQuick reported.”
“Similarly, notices of default, the first step in the foreclosure process, were also up, rising 46 percent last quarter compared to the previous quarter, and 128 percent compared to a year earlier.”
“‘The main factor behind this foreclosure surge remains the decline in home values. Additionally, a lot of the ‘loans-gone-wild’ activity happened in late 2005 and 2006, and that’s working its way through the system,’ said Marshall Prentice, DataQuick’s president.”
The North County Times. “Foreclosure notices surged past home sales during the first quarter in San Diego County, indicating that the local housing market recession will get worse before it gets better.”
“There were 8,975 notices of default in the county in the first quarter, more than 50 percent higher than the 5,888 sales, according to DataQuick.”
“In stark contrast, first quarter home sales a year ago in San Diego County more than doubled the 3,931 notices of default.”
“Mark Goldman, a real estate lecturer at San Diego State University, said the numbers indicate that banks are going to seize more properties this year than they will be able to sell. That addition to the overall housing inventory will depress prices for another year, possibly two, he said.”
“‘You have all the lack of lending programs, plus the reduction in [house] values, plus people making less money, plus four dollars a gallon for gas,’ he said. ‘What is occurring in our economy that is going to turn this around? Not anything that I’m aware of.’”
The Record Searchlight. “Commercial real estate agents like to say that retail follows the rooftops. The rooftops have practically stopped budding.”
“Redding is on track this year to record fewer than 100 housing starts for the first time since 1974. And we’re coming off 2007 when the city issued the fewest single-family-home permits since 1981.”
“Almost on cue, available retail and office space appears to be rising. Just drive around town.”
“What’s more, there are finished strip malls sitting largely vacant. Steve Mungia, commercial relationship manager for Umpqua Bank in Redding, said the eyes don’t deceive. Commercial and office real estate activity in the north state has slowed.”
“‘We’re seeing a little bit of a correction, but it’s less severe than the housing market,’ Mungia said.”
“Redding commercial real estate agent Ken Miller said retail complexes don’t happen without an anchor tenant lined up. ‘With the retail economy slowing, you see anchor tenants pulling back,’ Miller said.”
“When I featured California Espresso Cafe in an April 7 business feature, owner Christine Sullivan was candid about the challenge these tough economic times pose for retailers like herself. But Sullivan, who bought the business in October, gave me every indication that she was going to stick it out.”
“Guess not. Sullivan cut her losses and closed suddenly last week. In an e-mail to customers and friends, Sullivan said her rent went up $600, adding that ‘we seem to just keep putting more money in and not enough is coming out.’”
“Roger Lefebvre, who sold the business to Sullivan, still owns the note but wouldn’t say how much Sullivan owes him. Lefebvre has no plans to reopen. ‘It will cost too much to reopen and try to make it the way the market is going today,’ Lefebvre said.”
The Daily Bulletin. “When you’re at the bottom of the barrel, all you can do is look up, right?”
“At least that’s what Jesse Marron and Joe Rodriguez are doing. It’s no fun jump-starting a business in the middle of a recession, but these guys are crossing their fingers that hard work will pay off in the end.”
“In December, Marron and Rodriguez opened Rialto-based J & J Classics and Air Suspension, a classic car parts dealer and refurbishing/suspension service.”
“Right now, business is erratic. One week things are slow; the next week there’s an uptick, and the two entrepreneurs are trying to not turn down customers.”
“‘Friends that’ve been in this business, they’re used to making good money, and they’re feeling low because we’re in a recession,’ Marron said. ‘But us - we never knew what it was like to make big money. It’s exciting, but scary at times.’”
“‘We asked ourselves what it would take to start this shop,’ said Marron. ‘It takes money, lots of money. I took my 1968 Impala Convertible Super Sport and sold it for $22,000 to a guy from Norway.’”
“Challenges are already putting Marron and Rodriguez to the test. ‘There’s times we ask ourselves, ‘Why did we get into this?’ Marron said.”
The Mercury News. “The 17 brand new cottage-style condos near downtown San Jose were supposed to sell swiftly, especially since they were priced to be affordable to low- and moderate-income people, and the developer offers generous loan programs for first-time buyers.”
“But in the eight months since the for-sale signs went up, only one condominium has sold, even though the developer, non-profit Neighborhood Housing Services Silicon Valley, has cut prices twice.”
“Even non-profit developers who aim to provide affordable housing to the valley’s lower-income residents are getting hammered by conditions in the real estate market.”
“‘No doubt this property would have sold out in four to six months but for the subprime debacle,’ said Ed Moncrief, executive director of the developer and home-buyer assistance organization. ‘We hit the market just as the realization of some gray cloud over the future hit.’”
“Two-bedroom condos at Villa Almendra once priced at $535,000 now are offered at $450,000. The units come with new appliances, two-car garages and granite countertops.”
“But Moncrief’s group is facing stiff competition from others. Developer Barry Swenson Builder, for example, has new studio condos nearby starting at $294,000, and there are single-family houses selling for less than $450,000 in some East Side and South San Jose neighborhoods.”
“Desperate to sell, the non-profit now is willing to accept offers from any buyers, not just those who need the special loan programs. And the group will give away a 2008 Toyota Prius in a random drawing to one of the first eight buyers who close escrow before September.”
“Other affordable-housing developers in the Bay Area are hunting for buyers, too. They’re anxious to raise money to pay back their construction loans and worried about financing future projects.”
“South County Housing last weekend auctioned some of its unsold units at Forest Park, a development in downtown Gilroy. Bids started at $295,000; some townhouses were priced at $519,000 last fall.”
“‘It’s a really tough time,’ said Nancy Wright, a senior project manager for South County Housing. ‘The credit issues are so widespread, everyone is being affected.’”
“The units at Villa Almendra went up for sale in August 2007, just as the credit crunch hit Wall Street and consumers’ confidence plunged. Attendance fell at the non-profit’s once-crowded buyer orientation sessions, and by the holidays the group knew it had a problem.”
“‘It was noticeable from the silence we heard, I guess, in terms of home buyers not being there,’ Moncrief said. ‘They disappeared.’”
“Amy Flores, who paid $590,000 for her three-bedroom condo late last year, is the lone homeowner at Villa Almendra. She’s hoping the non-profit’s efforts to sell other units pays off.”
“‘It would be nice to have neighbors,’ she said.”