They Took The Punch Bowl Away In California
A report from the California UHS. “Home sales increased 56.7 percent in August in California compared with the same period a year ago, while the median price of an existing home fell 40.5 percent, C.A.R. reported. ‘Although the month-to-month decline in the median price was the smallest in a year, it’s still premature to say that the median price has begun to stabilize,’ said C.A.R Chief Economist Leslie Appleton-Young.”
“‘While sales appear to have turned the corner, the median will experience additional downward pressure as we move into the off-peak season in the coming months, and will continue to face pressure from distressed sales,’ she said. ‘Sales are just one of the variables that must fall into place before we see real improvement in the market.’”
The LA Times. “As California’s biggest builder of new homes posted its seventh straight quarterly loss Friday, Westwood-based KB Home said it was trying to boost sales by building small, lower-priced houses instead of the larger ones that had sustained the company during the housing boom.”
“KB Chief Executive Jeffrey Mezger said that foreclosed houses being sold at fire-sale prices were continuing to pull home prices down.”
“Mezger said KB Home had begun a new strategy in the Inland Empire and a few other areas across the nation in which it planned to expand its developments. The company has been selling smaller houses at lower prices in areas such as Beaumont in Riverside County.”
“Mezger said the company had to shift to smaller, cheaper houses to compete with foreclosed houses flooding markets such as the Inland Empire. ‘The challenge is how do you get your pricing down on new product so you can make money at these lower levels,’ Mezger said.”
“The company last year shifted from building 3,400-square-foot homes selling for $450,000 to 2,400-square-foot homes selling for $300,000. ‘That worked for a time, but the market continued to move away from us,’ Mezger said.”
“Now, KB Home is building three-bedroom, 1,230-square-foot homes selling for $200,000 in the Inland Empire, Mezger said.”
The Valley News. “The financial crisis that has staggered Wall Street and mired the nation’s housing and credit industries also grips southwest Riverside County, local business and government leaders agreed at a regional summit last week.”
“Unsold homes, plummeting property values, vacant office and commercial suites and sagging employment have taken a deep toll and it will likely take two to three years for the area to rebound, speakers and panelists predicted at an annual Interstate 215 forum that attracted about 1,000 participants in Temecula.”
“‘I don’t have to tell you these are painful times in many sectors of our economy,’ said County Supervisor Jeff Stone, whose district takes in much of the Temecula, Murrieta, French Valley and Wine County areas. ‘We are facing the worst housing crisis since the Great Depression.’”
“At one point in his remarks, Stone likened current conditions to an ‘economic Armageddon.’ In a sharp turnaround from previous South Corridor Economic Development Summits, Stone and a range of other speakers winced as they reported on regional growth and business outlooks.”
“They said the local housing market is so flooded with foreclosures that a Temecula builder has stopped pitching its model homes to prospective buyers.”
“‘It is chaotic,’ said Fred Grimes, CEO of a pair of commercial real estate sales and leasing companies. ‘Lenders are being very, very cautious.’”
The Santa Cruz Sentinel. “Customers of Washington Mutual voiced relief Friday, the day after their bank collapsed and was sold to JPMorgan Chase. Michael Gerami, a WaMu customer and owner of National Security Industries, predicts the economic turmoil will get much worse.”
“Here’s why: American real estate is valued at $22 trillion, and the Mortgage Bankers Association says more than 9 percent of U.S. mortgages are delinquent or in foreclosure. Do the math: almost $2.2 trillion in bad loans. But banks show only $400 billion in loans. Gerami’s question: Where’s the rest?”
“With the federal government indicating more than 100 banks in trouble, he figures the prudent thing is to move money out of the American economy. ‘I’m extremely scared,’ he said.”
The Associated Press. “Experts say that the government’s enormous plan to relieve Wall Street banks of their bad investments has a decent chance of stabilizing home prices, at least in theory. ‘The root cause of the problem is that we don’t have any home buyers,’ said Edward Leamer, an economist at the University of California, Los Angeles. ‘They’re going to sit on the sidelines - by and large - until they get a better deal.’”
“Paul Castor, a corporate attorney, is reluctant to buy a home for his family in San Diego at current prices. He has a down payment of more than 20 percent and has made two offers in recent weeks, but the sellers’ asking prices ‘were unrealistic and I wasn’t going to budge.’”
“If nobody accepts his offer, Castor is more than willing to keep renting and hope home prices fall further.”
The Voice of San Diego. “More than one-third of the houses listed on the market in San Diego County this year have been short sales, but they count for a much smaller percent of the homes that actually sell.”
“‘The general discouragement you get from the banks leaves a lot of sellers just letting the properties go into foreclosure,’ said real estate agent Dan Cassidy, who focuses on urban listings in North Park, Hillcrest and downtown. ‘That leaves people to see foreclosure and nonpayment as the best possible option.’”
“‘A desperate would-be short seller could list a house for 30 percent below the comparable properties,’ wrote economist Ryan Ratcliff, ‘but the combination of red tape, overwhelmed and understaffed loss mitigation departments at the lenders, and misconceptions about what’s needed to get the sale approved means the house doesn’t sell any faster.’”
“‘I’m telling my clients, ‘If you want to buy a short sale, plan on four to five months,’ said real estate agent John Kline, who focuses on short sales in North County.”
“In some cases, banks are asking sellers to prove their financial hardship with tax returns and to promise to pay back the difference even after they’ve left the house. And there’s always the chance that while a real estate agent is negotiating a short sale with the bank, another branch of the bank is working to repossess it, sending it to auction and selling it out from under that agent.”
“Real estate attorney Mike Spilger counsels real estate agents, buyers and sellers that the short sale route is not simple, and may be worse than just letting the house go to foreclosure. There’s some circular logic inherent to becoming approved for a short sale, he said, especially because a seller must already be behind on mortgage payments for the request to receive a response.”
“‘They don’t believe you’re having trouble until you’re two or three months behind, but once you’re two to three months behind, your credit’s already shot,’ he said.”
“To realistically forecast the bottom of the housing market, Ratcliff argues, you have to acknowledge that ’short sales have temporarily hijacked the market mechanism.’”
“What’s coming next in the region’s housing market will depend more on how short sales and bank-owned houses are dealt with by lenders than on the region’s median price reaching any sort of ‘magic’ level that would convince buyers to snap up all of the homes on the market.”
The Union Tribune. “After years of outpacing the rest of the country in economic growth, San Diego County had fallen nearly to the national average even before the local real estate industry went into free fall.”
“‘Normally, as long as the rest of the economy is strong, the housing market follows along, but now it’s been the opposite,’ said economist Kelly Cunningham of the San Diego Institute for Policy Research. ‘The housing market has dragged our economy into a recession.’”
“‘Right now, it’s not as much fun as having a housing boom, but they took the punch bowl away from us,’ said Ross Starr, an economist at the University of California San Diego. ‘We should recognize that California’s centers of research have been centers of growth for decades, and San Diego participates actively in those. If all you had was real estate, life would be harder but you’ve got real estate and brains.’”
The American Statesman. “Jake and Cynthia Stewart are the type of people Austinites are supposed to love to hate. They’re not from here; they just live here - in a half-million-dollar house in Travis Heights that the 33-year-olds bought with their fancy Golden State money.”
“As housing prices in Austin continue to rise, as traffic grows more pervasive, and as retail and nightlife stray from the Keep Austin Weird vibe, much of the blame is directed toward the influx of Californians who supposedly are buying up all the real estate and, by default, negatively transforming the culture.”
“‘Any town or community with gravity or appeal usually has a scapegoat, and California is maybe the scapegoat in this case,’ Jake Stewart says.”
“Condemning Californians isn’t just an undertone of our collective conversation. American-Statesman humor columnist John Kelso has written about it, and the same sentiment has played out from the bathroom wall at Mohawk on Red River Street that reads ‘I hate this part of California’ to the billboard for an East Austin residential community that reads ‘Live east before the Californians do.’”
“A footnote reads: ‘Californians, please substitute New Yorkers.’”
“David McDonough ups the ante on the theory of rising prices. McDonough and his fiancée own a house a couple of blocks east of the Stewarts, close to the heart of South Congress Avenue. They moved to Austin about a year and a half ago from Los Angeles, where they’d lived for five years.”
“‘People complain about us pushing up the housing costs,’ he says. ‘I didn’t purposely overpay for a house. The price is what it is.’”
“No matter how well the Stewarts conform, they are still a bull’s-eye for some prospective home buyers for whom the market is getting out of reach because of the echelon of buyers like the Stewarts who can afford higher-priced homes. Jake doesn’t know if that’s fair.”
“‘When you’re moving from California,’ he says, ‘you’re not making California income. You’re having to adapt. I think Californians may just be willing to take a bigger hunk out of their pot for houses.’”
