The Housing Bubble

The Marin Independent Journal reports from California. “A crumbling Marin housing market is booming business for Coldwell Banker broker George DeSalvo. The veteran agent deals in real estate owned, or REO, properties that have gone through foreclosure and into bank ownership. DeSalvo described today’s market as the worst he’s seen. ‘I think this has close enough parity to foreclosures that took place during the Depression,’ said DeSalvo, a Novato resident who works out of Greenbrae.”

“DeSalvo said REO listings make up 21 of his 27 deals this year with more than a dozen on the way, compared with five REO homes during the first half of 2007.”

“Noting high interest rates and low prices created the early 1980s slowdown, DeSalvo said, ‘Now the rates are lower and prices just got too high, and it was too easy to borrow money. It’s a combination of everybody.’”

“For the first quarter of 2008, 314 homes and condominiums in Marin faced a notice of default, the first step in the foreclosure process. That represented a jump of 166 percent compared with 118 properties during the same period in 2007, according to ForeclosureRadar.com.”

“County foreclosure sales in April nearly doubled the previous month’s sales.”

“Edward Segal, CEO of the Marin Association of Realtors, said he has seen ‘a big spike’ in member requests for workshops on foreclosures, short sales and REOs over the past six months. One such session last month was standing-room only.”

“‘We’re probably a microcosm for what’s happening across the country,’ he said. ‘When it comes to agents becoming aware of certain transactions that weren’t on the horizon before, this is an example of that.’”

“Realtor Vince Gramalia in San Rafael, has practiced real estate in Marin for more than 30 years but spends about 75 percent of his time dealing with REO properties these days.”

“‘Being in the business for a while, I was aware of it since the early ’70s,’ he said. “We went through a couple phases like this, and we saw this coming.’”

“DeSalvo keeps in contact with other REO agents across the state and nation and described his workload as a tiny fraction of others’ work, including a Santa Rosa agent with 200 listings and a Las Vegas agent with 800.”

“DeSalvo said about 40 percent of his listings are occupied by tenants, many of whom learn of their rental’s default when he appears on their doorstep. He also sees a lot of fraud in San Rafael’s Canal area, with prospective buyers duped into signing papers they shouldn’t have.”

“DeSalvo sees a silver lining for all involved. ‘Potential buyers can get a very good deal,’ he said. ‘The sellers getting foreclosed should not have been able to buy in the last three years. They have an opportunity to move on with their lives and learn.’”

The Mercury News. “Should you be concerned if your home value is dipping? Is this really a good time to buy a house? How do you avoid losing a home? And what the heck does ‘affordable’ really mean in this market?”

“‘Housing prices look so good right now that you’re tempted to jump in,’ said perspective first-time home buyer Linda Durham. ‘But you don’t want to end up like the people who have lost their homes and helped drive the market down.’”

“Durham, like others considering dipping a toe in what is a shark-infested housing market, is trying to arm herself with as much information as possible to avoid getting in over her head.”

“About 20 people such as her attended an affordable housing seminar in San Jose on Saturday trying to get clear answers from experts. The event was planned as part of Affordable Housing Week.”

“‘With the housing market being like it is, we think basic education is important,’ said Assemblyman Jim Beall, San Jose, whose office helped organize the event. ‘People just don’t have a dime to spare.’”

“The definition of affordable in Silicon Valley sometimes seems flexible. An affordable housing project built in San Jose by the non-profit Neighborhood Housing Services Silicon Valley started selling condos at $535,000 and now offered at $450,000. That’s still out of reach for some.”

“At the seminar, one woman, who declined to give her name because she works for a mortgage broker, asked if she should tell her lender that she may be laid off. Sitting two rows in front of her, Haileyessus Tessema, of San Jose, wondered if it is a good idea to buy a foreclosed home.”

“Yi Chong Hun, of Los Gatos, doesn’t want to take advantage of the misfortune of others, but the housing bust has put some new condos closer to his price range.”

“‘It makes you kind of nervous,’ he said. ‘But then you also get nervous about buying now - what if the market goes down a bit further?’”

“‘If you can afford it, you can do it,’ said Speaker Miguel Palma, a San Jose CPA, adding that it is still better for some people to rent rather than go into debt. The most important thing, he said, is to talk to a professional who doesn’t work for a mortgage broker or real estate agent.”

The LA Times. “California’s monthly unemployment rate held steady at 6.2% in April, but experts warned that the state’s joblessness could worsen if consumers kept a tight hold on their spending.”

“One economist likened the current calm to the eye of a storm. ‘Hurricanes come in two waves as part of a big circle,’ said Christopher Thornberg, a principal at Beacon Economics. ‘On the front end were housing and financial problems, and on the back end is consumer spending.’”

“‘Home values are falling, mutual funds are losing value, the job market is weak, inflation is eating up increases in incomes. All of that adds up to a grim situation for the consumer,’ he said.”

“April saw moderate growth in government jobs. But the bump may be short-lived, warned Stephen Levy, director of the Center for the Continuing Study of the California Economy in Palo Alto.”

“‘Presumably, we’re coming up on the time when they will disappear,’ Levy said, noting that Gov. Arnold Schwarzenegger is calling for deep spending cuts to fill a projected $15.2-billion hole in next year’s state budget.”

“‘The only worry I have is it seems like companies are shying away from adding to their payrolls,’ said Esmael Adibi, an economist at Chapman University in Orange. Employers, he said, ‘are worried about recession, and everybody is kind of in a holding pattern.’”

“Consumer spending is a concern, especially falling demand for big-ticket items such as refrigerators and television sets, said Ross DeVol, the director of regional economics at the Milken Institute in Santa Monica. ‘If you don’t need to buy a new house, you don’t need new furniture.’”

The Merced Sun Star. “The Central Valley’s depressed building industry has claimed another victim. After 21 years in business, the BMC West building materials store on West 16th Street in Merced is closing, the company announced Friday.”

“BMC West will shutter its Merced and Bakersfield locations within the next 60 days, said Mark Kailer, VP of BMC West’s parent company.”

“‘The difficult decision to close our facilities in Merced and Bakersfield is a necessity based on today’s challenging business environment and weakness in the housing markets in California’s Central Valley,’ said CEO Stanley M. Wilson. ‘Single-family housing permits in the Central Valley markets we serve have fallen sharply from 4,905 in the first quarter of 2007 to only 1,877 in the first quarter of 2008.’”

“BMHC started bracing for a slowdown in 2005 when construction activity soared to ‘extraordinary’ levels, said Kailer. But no one predicted the severity and length of the slump, he said. ‘The downturn has been much deeper than anyone expected it be,’ said Kailer.”

“News of BMC West’s closure comes six months after another Merced building supplier, 84 Lumber, shut its doors. When 84 Lumber’s Highway 59 location closed in December, the company said it would convert the building into a production plant.”

“Now that plan has been scrapped. ‘Due to the continuing decline in housing starts and demand we have made the decision to sell the property and not convert it into a manufacturing facility,’ said VP of Marketing and Public Relations Jeff Nobers.”

“In March, the state saw a 49 percent drop in new home sales compared with the same period a year ago, a slight improvement over the 57 percent sales drop California saw in February.”

“In Merced, sales of new homes dropped 80 percent in March compared with last year. In new subdivisions tracked by the California Building Industry Association, 15 homes were sold, compared with 75 sales in 2007.’

“The median price of a new home in Merced fell 8.6 percent in March to $309,990, compared with $339,000 last year.”

The Daily Press. “After California lost more jobs in construction than any other industry this March, the Victor Valley has been hit hard as residential construction jobs become scarce. People who took up residential construction in the area during the housing boom are trying to find commercial construction jobs or other lines of work, such as Rudy Cortez, owner of RTC Construction in Victorville.”

“‘There were big companies doing big residential construction projects in the High Desert and that completely stopped,’ said Cortez.”

“As of March approximately 15,000 construction jobs had been lost in San Bernardino and Riverside Counties since the same month in 2007, according to the California Employment Development Department.”

“Thurston Smith, Hesperia councilman and president of Smitty’s Concrete Pumping…said the trickle down effect of the housing slump also effects the supply side of the construction, as his business is going to Riverside for work.”

“‘This is a cyclical thing, usually over 10 years,’ said Smith. ‘This is about my fourth go around. I don’t know how long this one will last or how bad it will get.’”

“Smith said this downturn part of the cycle is always bad because construction workers are sometimes caught living beyond their means.”

“‘I told my guys in 2006 that this wouldn’t last and nobody believed me,’ said Smith. ‘When construction is good, workers go buy a new truck.’”

The Press Enterprise. “Those who bought Inland Southern California houses at the top of the market and have watched their property values plummet can expect lower property taxes this year, say assessors for Riverside and San Bernardino counties.”

“Starting this month, the assessors’ staffs will review 381,000 residential properties to determine if their assessed values should be lowered.”

“San Bernardino County Assessor Bill Postmus and Riverside County Assessor-County Clerk-Recorder Larry Ward said real estate values have dropped precipitously and they are resolved to revalue affected residential properties en masse rather than wait for homeowners’ requests.”

“Foreclosures in both counties have hit record levels and continue to escalate. ‘There are a lot of people in pain in San Bernardino and Riverside counties. Every amount of savings will help these people save their homes,’ Postmus said.”

“‘If you bought a home after January 1, 2004, we will be reviewing it and there is a pretty good chance you will get some sort of reduction,’ he said. The reasoning, he said, is because local property values have generally rolled back to 2004 levels.”

“Ward said his goal this year is to review the assessed values of 230,000 homes. By contrast, he said, last year 10,857 residential properties were reassessed.”

“Assessed home values adjusted this year in Riverside County on average will see a 20 percent cut, translating into a $1,200 annual property tax savings, said Riverside Assistant Assessor Frit Swain.”

“Postmus estimated that in San Bernardino County the average reduction will be about $75,000, producing a $900 property tax reduction.”

“The anxious homeowners include Stephen Ebo. Ebo said he and his wife paid $560,000 in July 2005 for their five-bedroom house in Sycamore Creek south of Corona, then refinanced it for $670,000 last August.”

“Since then, he said they have seen their home value shrink about $200,000 while they scrimp to make a monthly mortgage, insurance and property tax payment of $4,800. Ebo, who commutes 95 miles each way to his job in Chula Vista, also has been hit by the price of gasoline, which costs him about $400 a month.”

“Ebo said aims to have his property taxes reduced by $200 a month. ‘It would put a couple more meals on the table and more gas in the car,’ he said.”

Readers suggested a topic around economic signs. “Offbeat signs of possible financial desperation. 1. At work yesterday, I heard the people running the social club (which theoretically operates on an cash-based honour system) discussing one person who was into the club for over $300 in IOU’s.”

“2. The weekly duplicate I attend at the local Bridge Club has seen a significant drop-off in numbers over the last year. There’s a quiet belief that some pairs are playing rubber bridge at each other’s homes to avoid the fees.”

One added, “We know that stores like Home Depot and Lowes are empty and having problems since they are directly related to housing. But what about stores that aren’t related to housing in any way?’

“Recently, I have had to buy some new clothes. In two stores I go to, both were empty when I went. Both of them are also running a lot of buy one shirt (or pair of pants, etc.), get the second shirt (or whatever) 50% off deals. This is in addition to the $20 off coupons they sent me (which I have never gotten from either of them before). The whole thing reeks of desperation on their part.”

One had this, “Usually Borders and Barned & Noble are busy on weekends, but a few days ago they seemed a little quieter than usual. Macy’s is dead. Catalog stores are sending me sale emails every day of the week. (Probably because I broke down and bought a few things.)”

Another posted, “I work with car dealerships and times are sure tough for them. One service department went from seeing 140 new cars everyday two months ago to an average of 70 new cars daily. The sales department just can’t seem to get the suv’s and anything priced over 30k off the showroom floor. The traditional cliente of said dealership are 100k+ annual income types.”

One on groceries, “I went to the local Kroger today around lunchtime. It was deserted. It was like being there in the middle of the night. When I went to checkout, I was the only person there, all of the lines including the self check out were empty.”

“This week I was also in one of the upscale northern burbs. A new ritzy non-anchored retail center called The Avenues had just opened. It looked to be about 90% leased. But within a 2 mile radius there are at least 5 brand new unanchored retail centers that are completed with no tenants. I’ve never seen even one new retail center in the Atlanta market that was not immediately leased up.”

“And scariest of all, there are now green & white government signs posted on Hwy. 9 in Roswell ( another upsacle area) to direct people to the North Fulton County Food Bank. I guess this is where all the former Kroger shoppers have gone.”

The Orlando Sentinel from Florida. “The auction of the remaining 20 or so office condo units in the north and south towers of The Plaza in downtown Orlando went more slowly than many expected Thursday, one more sign of the stagnant real estate market.”

“Most of the suites that were sold range from 2,600 to 3,500 square feet. The three largest, priciest units on the top floor of the south tower went for $150 per square foot. They were originally at $265 to $285 per square foot.”

“Other units generally sold during the auction for $141 to $147 per square foot. ‘These are prime locations,’ Lori Chipps said, urging bidders on, sometimes dropping down to $1 per square foot increments when the bidding slowed. ‘This is an unbelievable deal.’”

The Asbury Park Press from New Jersey. “Little Silver resident Bruce Jennings has had his four-bedroom house on the market since December. He started by asking $489,000. He has reduced it several times to its current price: $449,000.”

“Prospective buyers have attended open houses, but, so far, no serious offers have come in, he said.

“‘There seems to be people going around, kicking the tires, but since the market has been declining, they are offering very, very low numbers to try to ’steal’ one as opposed to coming in with comparable sales,’ said Jennings, a senior loan officer at Allstate Mortgage in West Long Branch.”

“The economy may be one reason his home has not sold yet, he said. ‘My house would be perfect for a young couple, or young couple and a child, but they don’t want to take on the financial obligation of a house right now because they are afraid of the economy.’”

“Jim Brown, executive VP at USA Financial Services in Spring Lake Heights, said the market is seeing so-called ’short sales.’ ‘There are a lot of homes that are for sale that people are just literally trying to get out from under their mortgages,’ he said. ‘They are solid citizens, but they are not willing to wait the risk out. They are having trouble paying their mortgage and they are trying to sell.’”

“Lawrence Vecchio, a broker in Middletown, estimated that 10 to 20 percent of the deals at his company are ’short sales. ‘In most cases, they (the banks) are taking it because they want to get it off the books,’ he said. ‘They don’t want to go through the foreclosure.’”

The New York Times. “Robin Sotire thought she had a financial plan all worked out when she moved from Arizona to Connecticut in the summer of 2006 to handle her mother’s estate and care for an elderly aunt. She was going to sell her house in Arizona, fix up her mother’s three-family home in Stamford using home equity loans, and then sell both houses.”

“With the profits, according to her plan, she hoped to pay off a $645,000 mortgage she had meanwhile obtained to buy her dream home in quiet, rural Redding.”

“But Ms. Sotire’s dream soon deteriorated into a financial nightmare and has turned her into a statistic in the national foreclosure story. The self-employed healer and metaphysical mystic is in at least $1.6 million debt and facing foreclosure on both Connecticut properties. After taking out a combination of first and second mortgages, refinances and home equity loans on all her properties, she plans to file for bankruptcy.”

“Ms. Sotire financed much of her debt in 2005 and 2006 through ‘no doc’ loans, where she didn’t have to verify income. She said brokers seemed satisfied when she told them what she believed her potential income to be, based on a certain number of clients she estimated she could see each day.”

“Though she had more than $500,000 of first- and second-mortgage debt for the Stamford loans, and still owed $149,000 on the Arizona house, she went ahead and bought the Redding colonial. She said she even used some of the money from the mortgages and equity loans for a $70,000 down payment on the Redding home.”

“Ms. Sotire expected the profits from the sales of the two homes to pay off most of her mortgage for the home in Redding.”

“Jack Scherban, a Stamford lawyer who represented Ms. Sotire on the closings of several of her loans, said he cautioned her that she might be in over her head. ‘It was piling on. I said, ‘Are you sure you can do this?’ but she definitely had a plan,’ he said. ‘She’s very strong-willed and she was going to go through with it.’”

“As she juggled the Stamford and Redding properties, Ms. Sotire fell into a cycle of refinancing to get cash to stay afloat and avoid the steep increases of adjustable rate loans. She said she was unable to work as a healer - she is certified as a master in the Reiki technique - because she was so busy juggling all her responsibilities.”

“Even though she knew it was a risk to buy the Redding home before the other properties were sold, she said she needed a quiet house where she could work.”

“‘At times I was robbing Peter to pay Paul and was amazed when I got mortgages, but I really thought I’d be able to pay everything,’ she said. ‘When houses didn’t sell, everything spiraled down. Looking back, I’m smarter and would do things differently.’”

What do you see in your housing market this weekend? Defaults? “Hawaii’s foreclosure rate tripled in April, with a 218 percent increase over the year-earlier period. ‘There’s no good way to put a positive spin on those numbers,’ said University of Hawaii economist Carl Bonham. ‘There’s no particular reason to think things are going to get better in the next year. The sky’s not falling, but it’s getting a little cloudier.’”

“On a recent Sunday, Laura Ellis and Lorrie Travers of St. Charles-based River City Real Estate packed about 20 buyers into a bus and toured foreclosed houses in St. Charles and St. Peters. There were 992 foreclosed houses in the county in April, up from 146 a year ago.”

“Among them are prospective buyers like Brandon and Jamie Wunderle, who are looking to upgrade from their house in north St. Louis County to something in the St. Charles area. ‘We want to find the biggest house we can afford,’ Brandon Wunderle said.”

Builder problems? “Jason Anthony Manor on Cottontown Road was planned as an all brick-and-stone community. But development stalled last year with one home built and three more under way. The developer, Anthony Inturrisi, has built homes in Forest for at least 10 years. This is the first time that foreclosure documents and multiple liens have been filed against him in Bedford County.”

“A Realtor involved with the project said Inturrisi ‘caught the brunt of the national housing market’ when a bank pulled his credit line with fears of how $400,000 homes would fare. ‘It’s just a shame,’ said Teresa Polinek of the real estate company that marketed the homes. ‘He’s one of the most prominent builders in the area.’”

Lower prices? “The suburbs of New York City were late entrants in the downturn that some economists think is already a recession. The main cause of the current weakness was the bursting of the American housing bubble.”

“‘In 2005, it was almost impossible to overprice a home,’ said Christopher Otteau Otteau, who has been appraising property from northern New Jersey to Delaware for six years. ‘In a tough market, nothing is overlooked,’ he said as he examined a shallow hole near the front door where a tree had been planted. ‘In a good market, lots of things are.’”

Or speculation? “Bob Scott’s Fiddler’s Cove at Prairie Pines, a 51-lot, high-end housing community near K-96 in Maize, was publicly unveiled Tuesday. ‘I guess I timed this thing with the (housing) market so we’d be right on top of it,’ he said jokingly to a group of Maize city officials, real estate agents, bankers and guests during a midday luncheon at the tree farm.”

“Homes will be a minimum of 1,900 square feet and will begin at $500,000. Some will reach $1 million. Scott admits the project is a leap of faith, but its location and amenities make him optimistic.”

“‘My heartburn only comes about 4 a.m. in the morning,’ he said, chuckling.”

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