The Housing Bubble

ABC 7 News reports from California. “More than 1,600 foreclosure notices went out in the Bay Area in the first quarter of this year and a quarter of them came from Contra Costa County. That’s a 140 percent increase in foreclosure activity in just one year. Misery had a lot of company on a Friday night in Antioch, where homeowners tried to negotiate their way out of foreclosure and keep a roof over their heads.”

“‘So what I’m here to do is ask Washington Mutual to seek a return on my investment,’ said Gary Robinson, an Antioch Homeowner.

“A few years ago, Gary Robinson bought this home in Antioch for about $700,000 using an interest-only loan and an adjustable rate. ‘My mortgage is at $5,000 dollars. It went from $2,000 to $5,000 and the house is worth 60 to 50 percent less,’ said Robinson.”

“‘Here basically, the brokers were writing down whatever numbers they thought would help people get the loan without any regard to how much they were actually making,’ said Noah Zinner, Bay Area Legal Aid.”

The Monterey County Herald. “It was the summer of 2005. Homes were selling fast in Monterey County, fueled by easy credit and the sense of euphoria within the real estate industry, which had not seen such success since the 1980s. Among those caught up in it was one young couple.”

“After visiting an open house one Sunday, they met a Realtor and were coaxed into making a full-price offer. Before they knew it, they were in contract to purchase an 863-square- foot, two-bedroom house for $609,000.”

“Their Realtor referred them to a mortgage representative, who took their application and suggested they go with the ’stated income’ format. They recall the phrase he used: ‘Your incomes need to match the home you are buying.’ Apparently theirs did not, so he raised the income numbers by 40 percent.”

“Within a year, our couple’s payment increased by $898, a 26 percent hit to their pocketbooks. By September 2006 they were distraught with rising payments. A friend referred them to a local mortgage broker who was touting a terrific 1 percent payment program. It was too good to be true, but they took the bait and refinanced with the infamous ‘option ARM’ loan. For the grand finale, she saddled our couple with a three-year prepayment penalty.”

“Today, their combined loan balance is over $600,000 and their home is worth well under $500,000. They are making the minimum payments because they cannot refinance. They have called their lender seeking relief, however, none has been offered. They cannot sell due to market conditions and may be forced to walk away from the property, as so many others have chosen to do.”

From NBC 11. “California and the Central Valley will be and has been hit especially hard, NBC11’s Mike Luery reported. Terry Towne is going through tough times. The home he bought had been valued at $565,000 just three years ago. Now it is worth less than $300,000, Luery reported.”

“Towne said his mortgage payments have grown by $900 a month, forcing him, his wife, and his three children to move out. ‘I told the two oldest ones, they asked ‘Why are we moving?,’ and I said ‘Because mommy and daddy can’t afford to pay for this house anymore.’ It’s just costing too much money.’”

“Terry is not alone. His real estate agent Jacque McBurney has 23 ‘distressed properties’ she is trying to sell. ‘These guys have put money down and they’ve lost all their savings for a down payment to get into a dream home and now their dream home is gone,’ she said.”

The Union Democrat. “Dozens of homes in Tuolumne and Calaveras counties have reverted back to banks as the result of foreclosures so far this year, according to real estate records.”

“In the last year, Tammy Ennis survived the end of a troubled marriage, losing a job and the financial strains of being a single mother. In February, she lost her home in foreclosure. Ennis and her three sons had to move out of the Sonora home she had owned for about seven years.”

“‘I’ve had my weak moments,’ she said. ‘One of them was when I found out I was going to lose my house and my job at the same time.’”

“It was just a couple of weeks later that she found a place in Jamestown, with the help of friends. The three-bedroom, one-bath portion of the house she is renting for $800 a month is half the size and half the monthly payment of the Sonora house she lost in February.”

“It was hard, she said. She had been trying for several months to find a place where her musician sons would be able to practice their drums and electric guitars. They have their own punk rock band.”

“‘That was my top priority,’ she said. ‘They have to be able to do their thing.’”

Bay Area Newsgroup. “Employers jettisoned 6,800 jobs in the East Bay in June, state labor officials reported Friday. The East Bay has lost 18,500 jobs in 2008. More than 10,000 of those jobs vanished in the past two months. The job losses in the East Bay were so severe that they accounted for more than half of all jobs lost in California last month. Statewide, 12,800 jobs were lost in June, the state’s Employment Development Department reported.”

“‘The East Bay is being pummelled,’ said Christopher Thornberg, a partner with Beacon Economics. ‘The whole state is in recession and so is the East Bay.’”

“‘It’s difficult to find work, very much so,’ said Shuandra Plute, a Pleasanton resident who has considerable experience in the mortgage industry.”

“Plute loved the years she spent in the mortgage business. ‘The pay was fantastic, but there is nothing left here,’ Plute said. ‘I know more friends who are unemployed in the mortgage business than are employed. The industry is not hiring. It’s pretty much find a job wherever I can now.’”

“Some East Bay residents are finding work in the real estate industry, but partly because of the misfortunes that have devastated the housing market. Concord resident Kristina Markovic sought work for a month before she landed a job with a real estate appraiser in Walnut Creek.”

“‘There are so many foreclosures that there is a lot of business for appraisers,’ said Markovic.”

From KSBY 6. “Loan officers at San Luis Capital in San Luis Obispo are holding on as the finance world rides out some tough times. ‘People with strong income and down payments and strong credit: it’s really not that difficult to get loans. We’ve kinda gotten back to underwriting like we used to 10 years ago,’ said Chris Orsini, a senior loan officer for the mortgage bank.”

“But the numbers of loans coming in are nosediving, and business is down compared to this time last year. ‘Personally, really, I’ve had to make some sacrifices at home. Expenses - you know, really had to tighten the belt,’ said Orsini.”

“‘Our business is down about 35 percent from originations from last year, in ‘05 and ‘06, which were still the promising years,’ said Chad van Til, owner of San Luis Capital.”

The Mercury News. “Santa Cruz County’s median home price fell to $600,000 in June, a $157,000 drop compared to the same month last year, according to statistics released Thursday. The statistics show that median-home prices haven’t been this low since 2004.”

“‘There’s almost no discretionary buying or selling activity going on,’ said DataQuick spokesman John Karevoll. ‘It’s all scraping the bottom: foreclosure resales, lots of distress sales.’”

The Modesto Bee. “Home sales in June continued the trend of recent months, with median prices dropping but the number of sales rising in the Northern San Joaquin Valley. Stanislaus County’s median fell to $201,000 last month, down 6.5 percent from May and 41.4 percent from June 2007, DataQuick reported.”

“In Merced County, the median price slipped to $160,000 last month, 44.8 percent less than a year earlier. The number of sales rose 63.1 percent. San Joaquin County’s median was at $227,000 last month, down 42.8 percent from June 2007. The number of homes sold was up 74.3 percent.”

“Turlock real estate agent Larry Rumbeck said the latest report shows prices continuing to get more in line with what home buyers make. ‘With the incomes we have in the valley, those are affordable (mortgage) payments,’ he said. He characterized the boom years as a ‘false economy.’”

“Stanislaus County’s median peaked at $392,000 in December 2005. The collapse since then has put many construction and real estate people out of work. Many recent buyers have faced foreclosure as their monthly payments reset and their home values dropped below their loan balances.”

“DataQuick analyst John Karevoll said 70 percent of California housing is ‘on hold’ and the other 30 percent is in what he called ‘a spectacular downward spiral.’”

“‘Foreclosed properties are dragging everything down, and it’s this vortex,’ Karevoll said.”

The Bakersfield Californian. “Residents of the Windermere tract and Castle & Cooke agree the community offers unique living in Bakersfield. Economic factors are prompting design changes, and the city’s Planning Commission approved the developer’s proposed tweaks at its meeting Thursday.”

“The developer’s ‘new urbanism’ concept is a tough sell in the housing market and a drag on the company’s finances. Castle & Cooke has sold 12 homes in two years. ‘With that rate, it will take us 40 years to build out Windermere,’ said spokeswoman Darlene Mohlke.”

The North County Times. “During a foreclosure workshop held last weekend in Murrieta, more than 350 residents sought information and advice on keeping foreclosure signs off their front lawns.”

“Of about 20 banks and lenders who were asked to participate in the workshop, only one, Washington Mutual, came to the event. The empty seats frustrated council members. ‘It’s going to take effort on everyone’s part to solve the problem,’ Councilwoman Kelly Bennett said. ‘(The lenders) are in our community by the fact that they are lending on properties in this town, and they need to be at the table next time.’”

“John Sini, a Realtor in Murrieta, who has lenders in his office, said he received an e-mail from the city inviting him to the workshop, but he had other arrangements for the day. While he agreed that some communications among the different parties invested in the housing market could be useful, homeowners won’t get anywhere until they actually contact their lenders.”

“‘Everybody’s in the same boat,’ Sini said. ‘And one entity is not going to be willing to compensate enough to satisfy the other. It’s going to all boil down to how open their bank is to modifying their terms.’”

The Desert Sun. “At a time when housing sales are down 13.3 percent from the year before, foreclosures and short sales are drawing multiple offers, many from first-time buyers who are trying to get into the market.”

“‘It’s a reality that this is where a good percentage of sales are coming from, just because of the price reductions,’ said Greg Berkemer, executive VP of the California Desert Association of Realtors. ‘For some agents, this is all they do. For some agents, this is all they’ve ever done.’”

“In June, 1,198 Coachella Valley properties were in some stage of foreclosure, according to RealtyTrac.”

“Windermere Real Estate listed more than 80 bank-owned properties and foreclosures in a recent Desert Sun advertisement, with prices starting at $24,900 in Salton City and $39,900 in Desert Hot Springs.”

“Banks also aren’t as open to dealing with a ‘laundry list’ of buyer demands, Berkemer said. ‘The seller is already writing a check to get out of the house,’ he said. ‘They’re probably not inclined to replace the carpet and the pool. They want to get out. What you see is what you’re getting.’”

From KABC 7. “Many would agree when it comes to foreclosures in the Southland, the Inland Empire may have been hit the worst. In some neighborhoods it seems like for every owned house, right next door there’s a foreclosure. And dead grass, lockboxes, and ‘for sale’ signs are some of the very things driving property values down.”

“‘It’s affecting the values here in Sierra Lakes,’ said Sam Suarez. “I think they’ve gone down — our house two years ago was 560, they’re down to 3, like the low 3s.’”

“Tarbell realtor Deeann Parra said the number of buyers has jumped 30 percent. ‘Pretty much the ‘03-’04 prices are back, which means the buyers who lost out in ‘05-’06-’07, they’ve now come back out of the woodwork,’ said Parra.”

“‘You’ve got a lot of people that were cut out of the housing market because prices were crazy,’ said housing expert John Husing. ‘People were buying houses not to live in, but as an asset to ‘flip’ and make money and all the rest of that. That could only go on so long, and it collapsed, so now’s the time when you’re able to go out and find houses, that you can actually afford the real prices they should have been selling all along.’”

Readers suggested a topic on the possible future of the housing market. “Instead of just timing the bottom, let’s map it out. Will there be more or less regulation? Heads rolling at the Fed? RTC 2.0? Unrest in the suburbs threatening the gentrified city core and art district riverside lofts nearby?”

One posted. “Will we see an acceleration in the decline of prices once the FDIC begins taking over multiple financial institutions? My understanding is that in the past they generally have moved to dump properties relatively aggressively.”

Another asked, “How did we go from, ‘It’s not a bubble; it’s froth. Heck, use an ARM; you’ll save.’ to ‘Hurry, Mr. 6Pack. You’re doomed unless we get a signed blank check that we don’t need and promise not to use?’”

A reply, “I don’t know who the government is going to take the money from in order to pay for these bail-outs. Keeping the interest rates low is creating inflation and taxing everyone right now.”

“So far I have lost about 70K on my house (I put 50% down on my house when I bought it ,and I have a fixed rate). My earnings have gone down about 25k a year because of the low interest rates, my buying power is getting creamed with this inflation.”

“This baby is hitting everybody. Still, there are people that are getting hit harder than me, especially people who are losing jobs or can’t find jobs. Job creation, by any means, is the best way to stimulate the economy in my view. I wish this whole damn world would get off real estate as the only industry that Americans can generate income from.”

One asks, “I’d like to see more discussion on how state and local governments are likely to react to the new twists and turns of the bubble collapse. For example: Farifax, VA wants to buy 10 foreclosed houses to turn into affordable housing.”

“What happens when they begin to see the funds they have invested start to drain away (let alone decreased transfer tax revenue)? Do they change direction on the purchases? Raise taxes! (you can be burned at the stake in several parts of VA for suggesting such a thing).”

The Toledo Blade. “Yesterday morning, Toledo and Lucas County officials, neighborhood groups, housing advocates, and others gathered to discuss what to do about the vacant homes that blight a host of neighborhoods. A study released earlier this year estimated that vacant and abandoned properties cost Toledo taxpayers at least $3.8 million in 2006.”

“Cuyahoga County Treasurer Jim Rokakis said the situation in Cuyahoga County is dire and that the number of foreclosures jumped from 3,000 annually before the current crisis to more than 15,000 last year.”

“‘What do you think a property is worth if there are 20 homes on your street and 10 are vacant and three have been torched in the last year?’ he asked, referring to the plight of one elderly homeowner in the Glenville neighborhood on Cleveland’s east side. ‘The reality is there is no value on that house.’”

“‘We need a responsible body that can take possession of the properties and decide what to do with them based on what’s best for the community,’ he said. While he said a land bank would not be a cure-all, ‘if we sit back and do nothing, I can only tell you it’s going to get worse.’”

The Columbus Dispatch. “Ralph Stover has good credit and a steady job. But he took out a risky interest-only first mortgage and a second mortgage to buy a new 1,900-square-foot condominium in 2003 with no money down.”

“He paid $170,900 for his three-bedroom, three-bathroom unit near Polaris, but an appraisal he had done in April because he was thinking about refinancing showed it was worth $160,000. Other units are selling for $150,000 or less, he said.”

“His first mortgage is going to reset to a higher interest rate early next year. That means his monthly payment will more than double and then float every six months based on national interest rates, he said. Locking into a fixed-rate mortgage would be even more expensive, costing him close to half his monthly income plus a hefty down payment and thousands of dollars in up-front points and fees.”

“He’s beginning to think foreclosure might be the best of his bad options.”

“‘My fear is that we haven’t seen the bottom of this, and if we don’t see the bottom of this for another two years, my home might be worth 120 (thousand dollars),’ said Stover. ‘Then you start wondering: Am I throwing good money after bad?’”

“Because the purpose of a down payment is to ensure that the lender can recover the full amount of the loan in the case of default, the potential fallout from people in Stover’s situation could be ‘a sucker punch’ to the economy, lenders and neighborhoods, said James Newton, chief economic adviser for Commerce National Bank in Columbus.”

“Walking away ‘is becoming more and more common,’ Newton said. ‘If this were done on a large-scale basis, this would extend the credit crisis into the far future,” by dumping more vacant homes into a bloated market and onto banks’ balance sheets. It would be devastating. It would just take the credit crisis and amplify it that much more.’”

“A common thread among these homeowners is that they purchased exotic mortgages rather than the traditional, fixed-rate products.”

“‘It’s the people with interest-only and (adjustable-rate mortgages) who are really having a problem,’ said Kevin O’Brien, a Columbus lawyer who represents banks in foreclosure cases. ‘Some of these people just get pushed off the financial cliff, and then you’re done.’”

“Until last year, the price decline affecting Stover hadn’t happened in recent history. Before 2007, the median condo sale price declined only twice in Franklin County in the past 20 years.”

“But in 2007, the median condo price plunged 8.5 percent. Single-family house prices peaked in 2005. By the end of last year, the median house price had dropped about 5 percentage points.”

“‘If things continue to go the way they seem to be going, it’s going to be unaffordable,’ Stover said. ‘I’m just not going to make it.’”

The Merced Sun Star. “The Merced City Council tackles more fallout from a housing boom gone bust tonight. The council will vote on whether bonding companies will perform $8 million of infrastructure work that developers failed to complete in two stalled subdivisions.”

“At both Bellevue Ranch East and Highland Park, developers say they haven’t sold enough houses to pay for the infrastructure they were required to put in. At Highland Park…shortly after the builder installed some streets and curbing on the 17-acre site, work halted. The 124 houses planned for the neighborhood were never built. In March, the city declared the site a public nuisance.”

“Bellevue Ranch opened its first model homes in 2005, as Merced was riding a wave of real estate speculation and unprecedented home price appreciation. When it’s completed years from now, the community could hold as many as 6,000 houses and apartments.”

“Today, parts of the subdivision are occupied, complete with green lawns and cars in driveways. But other sections are swaths of overgrown land. Cables and pipes that were meant to be hooked up to future houses now poke through 4-foot weeds.”

“One partially built neighborhood, Riverstone, seems completely abandoned. A row of four deserted model homes is fronted by a bone-dry yard. On the next street sit 15 lifeless houses. Half are finished, but empty, the rest are partially built plywood husks.”

“City Attorney Diaz said the city has been approached by investors interested in buying parts of the Bellevue Ranch development.”

“Between May 2007 and May 2008, the median price of a new home in Merced dropped from $360,000 to $243,990, according to the California Building Industry Association. Sales of new homes during that period dropped 64 percent, with 84 new houses sold in May 2007, compared with 30 sold in May 2008.”

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