The Housing Bubble

The Voice of San Diego reports from California. “Home prices in San Diego County logged a 25 percent drop from July 2007 to July 2008, according to the latest Standard & Poor’s/Case-Shiller index. That 25 percent year-over-year drop was the steepest on record. The decline returns home prices in the county to a level not seen since late summer 2003. July’s index shows housing prices are still 74 percent higher in the county than they were at the start of the decade.”

“The impact on the regional economy has been marked by significant job losses in construction, finance and real estate. The San Diego economy has been destabilized by the housing market — including that job loss, falling housing prices and foreclosures, leading to another monthly drop in the University of San Diego Index of Leading Economic Indicators, released Tuesday.”

“‘Right now there’s just so much out there in terms of inventory and foreclosures and so on that it’ll take awhile before all of this stuff is chewed up,’ said Alan Gin, USD economics professor who compiles the index.”

The North County Times. “While a historic real estate crash has reduced prices in North County, the recession also has caused an uptick in activity to city programs that make grants to first-time home buyers. To encourage homeownership, Escondido and Oceanside offer interest-free loans to low-income borrowers.”

“For James Class, Escondido’s program allowed his family to upgrade from the condominium conversions they could afford to a three-bedroom attached house sufficient for his wife and two children. Class has lost some value in his home. A nearly identical home to his across the street is on sale for $230,000, down from the $315,000 he bought his home for in August 2007.”

“Class said he was not worried because he can afford his payments and will wait until the market recovers before even considering selling. ‘It could be several years before it makes sense to move,’ he said.”

“Sales in high-end areas such as Encinitas and Carlsbad tumbled from a year ago, according to a monthly housing report by the North San Diego County Association of Realtors. And analysts said price drops are starting to accompany the sales decline in those areas.”

“‘The people who really have to sell, they’re dropping the list price by a few hundred thousand dollars,’ said Eric Elegado, a real estate agent in Mira Mesa who also specializes in Rancho Bernardo and Rancho Penasquitos. ‘As prices keep coming down and more foreclosures come on the market, you’ll see prices come down even more.’”

“While some real estate agents point to a rush of investors leading the sales bump as an indicator of a recovering market, other analysts said they foresee more turmoil in the housing market.”

“‘Last year it was awful, so it’s 9 percent above awful,’ said Bruce Norris, founder of a real estate investment firm based in Riverside that covers Southern California. ‘I would consider it fairly meaningless when saying we’re entering a healthy market. We’re not. We still have a lot of foreclosures to work through.’”

The La Jolla Light. “La Jolla has reclaimed the distinction of having the nation’s ‘priciest’ real estate, according to Coldwell Banker’s annual Home Price Comparison Index. Gregg Whitney, who along with wife Lisa have been selling homes in the Jewel for years, said that in this down housing market it is a lot tougher for sellers because people know ‘they’re getting lower valuations than they would have had two or three years ago.’”

“But on the plus side, he added, the housing crunch is ‘bringing the market to a more realistic valuation.’”

The San Diego Business Journal. “Bill Hoffman has been through a few economic cycles in his career, but the current financial morass has this veteran executive stumped. ‘This is the worst I’ve seen in my 30 years in this business. The RTC (Resolution Trust Corp.) and savings and loan era doesn’t even come close,’ said the founder and president of Trigild, a San Diego firm that manages distressed properties.”

“Eighteen months ago, the firm would receive two to four calls a month from lenders about nonperforming development projects. Today, it’s one or two calls per day. Hoffman estimates there are 1,000 detached housing sites, three-quarters of which aren’t completed; and more than 1,000 condominiums. He anticipates the latter category to double in the next few months.”

“Trigild manages projects in 15 states, mostly concentrated in California, Florida and Nevada. The work includes seven projects in Florida with 360 residential units, Hoffman said. The number of bad loans and defaults in the Sunshine State is unprecedented, he said.”

“‘There are high-rises that are virtually dark in Miami,’ he said. ‘There’s a condo project we have that had been asking between $375,000 to $400,000 per unit a year ago. Today, if we can get $200,000, we’d be a hero. But the biggest part of the problem is where are you going to get financing? Even if you put 90 percent down, it’d be tough to find a lender.’”

The Press Enterprise. “The index that measures the pace of Inland Southern California’s manufacturing sector sank to its third-lowest level ever last month. Bill Joor, co-owner of Joor Brothers Metals, a Corona fabricator that makes construction-site silos that hold cement and sand, described conditions as ‘fairly poor.’”

“‘So much of manufacturing is tied to housing, or at least a large percentage of it,’ Joor said. ‘Most of that has pulled in its horns.’”

Inside Bay Area. “The struggling economy has eroded the vitality of Bay Area auto dealerships, causing a number of them to shut their doors or shrink their operations in the past few days. In the East Bay, Silicon Valley and on the Peninsula, a string of auto dealers has gone out of business. ‘We are seeing on a weekly basis dealerships closing throughout the state,’ said Peter Welch, president of the California New Car Dealers Association.”

“‘A year to 16 months ago, probably about four out of 10 vehicle purchases were done with home-equity loans,’ Welch said. ‘Now a lot of people no longer have equity in their homes. That source of financing has gone away.’”

The Sacramento Bee. “California is running out of cash – again. Eight days after Gov. Arnold Schwarzenegger signed a new state budget to end a record 85-day standoff, the nation’s financial storm poses a new threat to the state’s ability to pay its bills. ‘It’s now very clear that the financial crisis on Wall Street is affecting California – its businesses, its citizens’ daily lives and its state government’s ability to obtain financing,’ the Republican governor said.”

The San Francisco Chronicle. “A California mortgage banker whose business failed a year ago amid the housing collapse and is facing a fraud and embezzlement lawsuit by former branch managers is now leading the industry’s effort to lobby Congress for the $700 billion Wall Street bailout.”

“John A. Courson, ran Central Pacific Mortgage out of Folsom, a suburb east of Sacramento, before it collapsed in February 2007, The Sacramento Bee reported this week. In July, he was named chief operating officer for the Mortgage Bankers Association of America in Washington, D.C., and is set to become the association’s president in January.”

“Florida branch manager Jenny Mann said she was surprised to learn that Courson found a job representing the mortgage industry before Congress. Mann alleges she lost $20,000. ‘When I saw he was appointed chief operating officer, I nearly died,’ Mann said. ‘Don’t they know he did this to us? I would have assumed he would never work in this industry again.’”

“Tracy Dearman runs a small San Francisco brokerage that was started by her grandmother on Haight Street more than 50 years ago. ‘We have seen many cycles in the real estate market, but nothing quite like this,’ said Dearman. ‘Our sales and finance have dropped significantly; I mean to a crawl.’”

“HSM has a nonprofit arm, SF Urban Community Housing, which is run by Kelly Dearman, Tracy’s sister and HSM co-owner. In operation for four years, it teaches first-time home buyers about finances. ‘If the people who are in foreclosure now had known what everyone in the classes learns, then they wouldn’t be where they are,’ Dearman said. ‘This is a good lesson that a little bit of education can’t hurt when you’re purchasing the biggest asset in your life.’”

“In August, the median price for sold homes in the city was $780,000, down 12 percent from a year earlier, according to MDA DataQuick. That was the smallest price decline of any Bay Area county. But sales are slowing more in San Francisco since it does not have a flood of bargain-priced foreclosed homes.”

“‘San Francisco is like a little island,’ Dearman said. ‘We feel (the downturn) but not to the same degree. We feel it from the standpoint of people who aren’t ready to pull the trigger. But values of homes in San Francisco are still very, very good.’”

Palo Alto Online. “So far, there’s no undercurrent of panic in the area, according to realtors. But that doesn’t mean Palo Alto won’t be affected by larger market troubles. The credit crunch could make loans harder to get and more expensive, realtors warned. But they stopped short of saying prices would ever dip.”

“Steve Bellumori, a Menlo Park-based agent, described trying to secure a loan for clients with good credit and well-appraised property. As in the past, he thought it would take three days for the bank to approve the paperwork. He was surprised when it took more than three weeks. ‘There was no risk to the lender. They just didn’t know if they wanted to lend, period,’ he said.”

“‘A year ago you could buy a house for a million dollars and put nothing down,’ said Tracie Southerland, a financial adviser, referring to the pre-mortgage-meltdown period. Now, on so-called jumbo loans of $729,000 or more, the rate has generally gone up from 20 to 25 percent down, she said.”

“As the economic environment gets a bit chillier, even local houses are taking longer to sell – up from between one and 14 days to sometimes a month or more, property brokers said. ‘Previously, if it took more than two weeks, you panicked and as an agent you said, ‘Oh my god! What’s going on?’ described Realtor Dan Dykwel.”

“What’s going on is nothing new, Bellumori added. The savings and loan crisis of about two decades ago was also caused by shoddy lending practices. ‘It’s pretty astounding. … The lending didn’t learn its lesson in the early 90s and here we are again. …Look around. Everyone wants to live better, but you can’t live only on credit,’ he said.”

The Marin Independent Journal. “Marin supervisors Tuesday authorized another $500,000 in loans to bail out a program that makes it possible for low-income residents to buy homes in Marin. So far, the authority has been forced to repurchase 11 of the program’s 316 homes, most of which are condominiums, to keep them from being sold at market-rate prices and lost to the program.”

“Peter Ramsay, who oversees the below-market-rate program for the housing authority, laid the blame for the program’s problems with lenders who provided low-income participants loans, based on their homes as collateral, which in many cases vastly exceeded the amount for which they could be sold for.”

“The latest property the authority has had to rescue from the auction block is at 51 Terrace Drive in Marin City. Supervisors Tuesday approved a loan of $169,321 for the property. The property was severely over-encumbered with loans. According to the notice of trustee’s sale, the house was used to secure more than $400,000 in loans.”

“‘The forces that were working against us were so out of control,’ Ramsay said, ‘that it’s not surprising that we have incurred one or two problems. I don’t feel we should accept reproaches for lack of vigilance because our regulation was in fact good. If the lending community had been acting responsibly, they wouldn’t have made those loans.’”

The Sublette Examiner reports from Wyoming. “Sublette County has not only avoided the housing-market crash, it has remained protected from global economic instability. Jeff Patterson, 1st Bank president, pointed out there are no troubled banks in Wyoming, ‘particularly in our area,’and any savings that fall under the FDIC are guaranteed should a bank fail. On the bigger economic picture, Patterson sees the nation’s economic stability in terms of the government’s commitment to the system.”

“‘You know that the government is standing behind (the economy),’ he said. ‘And your faith in the financial system should be as strong as your faith in the government.’”

The Vail Daily on Wyoming. “A study by a California-based firm found that the median home price in Teton County had dropped 9 percent in the last year. But David Viehman, a local appraiser and real estate agent who has studied the market for number of years, says the Californians crunched the numbers in ways that don’t necessarily make sense.”

“As Viehman crunches the numbers, prices for single-family homes have actually increased in the last year by 2 percent. However, he discounts condos, townhouses and fractional ownerships — which may have been included in the tabulation of a 9 percent decline.”

“What clearly is happening, he says, is that locals continue to escalate their prices as if a boom were still occurring. As a consequence, lots of properties are on the market. ‘Locals can’t get over the fact that their property is not worth more than it was last year,’ Viehman told the Jackson Hole News&Guide. ‘They won’t come off their price.’”

The Flathead Beacon from Montana. “There are factors contributing to the lending climate in the Flathead that took effect long before the volatility of the last few weeks. The market for ‘jumbo loans,’ mortgages for more than $417,000, ‘disappeared sometime last spring,’ according to Bob Schneider, commercial market president for Northwest Montana branches of First Interstate Bank. While these loans aren’t widespread in the Flathead, they are often necessary when the buyer of a multi-million dollar home wants to finance part of the sale. But the housing market collapse in California, Arizona and Nevada has made secondary market financing for these loans hard to find everywhere.”

“‘We have to keep it in-house to satisfy that borrower,’Schneider said. ‘We don’t want to take the rate risk with a whole bunch of those loans.’”

“The slowdown in residential and commercial construction in the Flathead, which has set in over the last year, has few investors interested in financing such ventures. ‘Would we be looking at new subdivisions? No. Looking to finance a spec house? No,’ Schneider said. ‘That type of lending, I think, is being slowed down all over the valley.’”

The Idaho Mountain Express. “The housing and financial industry crunch has left another casualty, this time in Idaho’s Blaine County where a developer has suspended a planned 421-unit project. Kevin Adams, a Tennessee developer who is behind the so-called Sweetwater Community in Hailey, says ‘No one is doing anything out there - it doesn’t matter what the square footage price is.’”

“So far, only 49 town home units have been completed. None of the units has sold.”

The Seattle Times from Washington. “The Seattle-area housing market, once touted as bulletproof against the forces that were pulling down other markets across the country, is now stressing out sellers. Sellers are accepting terms they might have scoffed at before, such as contingent offers and lease-purchase deals.”

“The first offer Jason Stanifer got on his Factoria town house was in April — six months after he put it on the market and one month after he stopped paying his mortgage, which started the foreclosure clock ticking. While waiting for the deal to close, he took the town house off the market for more than a month. But that buyer backed out. In July, he got another offer and took the property off for two months. Again, the deal cratered, this time because of financing — one day before the deal was to close.”

“Stanifer bought the three-bedroom home four years ago and took out a second loan on it, investing the money in his mortgage-brokerage business. As his business dropped off dramatically in summer 2007, he did the math. With one of the loans, an adjustable-rate mortgage, about to increase by $1,000 a month, he realized he no longer could make the monthly payments, which totaled $4,000.”

“So he put the home on the market in October 2007 for $479,000, confident it would sell. But no offers came. When he received his first late-payment notice in March, ‘I was on my knees over a trash can’ getting sick.”

“He thought the town house would show better vacant, so he moved his family to a rental in May. By the time the third offer came along, he had dropped the price about $115,000 from the original listing.”

The Stranger on Washington. “Behind an overgrown laurel hedge, a house perches over Lake Union on the north slope of Capitol Hill. Andrew (not his real name) moved in two years ago, splitting the $2,200 monthly rent with three housemates. Although the relationship between the four tenants and their landlord devolved over time, that conflict, combined with the foreclosure crisis, produced an unexpected windfall: free housing.”

“The tenants found a notice from U.S. Bank taped to their front door. It said the landlord was $15,000 behind on his mortgage payments and that the bank would auction the house off in April. April came and went. ‘No one called us, no one said rent was late, and no one said that if we don’t pay rent we will be evicted,’ Andrew says. The residents…continued to pay utilities in their own names. But they didn’t pay any rent.”

“In early September, the bank posted another note on the door. This time, it offered the residents a deal: If they moved out within a week, they’d get $1,500 to divide among them. Knowing eviction could take months, the tenants let the week run out. They’re currently in their tenth month of rent-free living. ‘Neither the owner nor the bank has told us we need to leave the premises at all,’ Andrew says. ‘We are renters turned squatters.’”

“This August, home foreclosures in King County were up 60 percent over the previous year, according to RealtyTrac. Tammy Chan, a company spokeswoman, says banks repossessed 272 properties in King County via foreclosure that month; as of August, more than 1,300 repossessed homes were sitting in inventory, unsold.”

The Lake Oswego Review from Oregon. “The bankruptcy of Lake Oswego-based Renaissance Custom Homes is already squeezing Metro-area companies. Kim Whitman, VP of sales and marketing at Renaissance, said the company has been particularly hard hit by failed sales on 95 homes. Renaissance builds high-end housing in the $350,000 to $1 million price range.”

“Buyer inability to sell existing homes, however, left the company holding 95 custom-built homes in 2007. Those homes were nearly a third of the 318 built that year by Renaissance. Gary White at White Wykoff and Company said his advertising agency is owed $97,600 by Renaissance Homes. With uncharted waters ahead, he said it’s difficult to know what businesses tied to homebuilding should expect.”

“‘I’ve been in the business for 40 years and I have seen the spikes before and usually, like during the 70s and into the 80s, interest rates would spike and home sales would drop off,’ said White. ‘It’s always been a cyclical business. But nothing like this. This is just unbelievable.’”

The Oregonian. “In 2005, during the building boom, Bend added more than 2,000 new single-family homes. So far this year, the city of Bend has processed just 234 permits for single-family homes. Locals say the market dropped almost overnight.”

“‘People at first believed we were immune to the slowdown. By mid-June 2006, things stopped selling, but they didn’t stop building,’ said Sharon Miller, executive director for Neighbor Impact, a community action agency providing food, energy and housing assistance in Deschutes, Jefferson and Crook counties.”

“”Right now we’re seeing families and individuals who never thought they’d be here,’ said Angie Albiar, a local Human Services manager. The newcomers include builders, small-business owners, massage therapists, hairstylists — and many are ashamed to be there, Albiar said.”

“On Thursday, they included a middle-age blonde who works in the real estate industry. A deal she’d been waiting for had fallen through, and because she works on commission, that means she hasn’t had a paycheck since July 15. ‘I’ve been living off my savings and credit cards,’ she told Chris Perris, a food stamp intake worker. Now, the woman said, she’s two months behind on a $4,100 mortgage payment — on a property that would sell for less than she owes.”

“Later that day, Perris saw a builder and his wife. He’s still owed for past jobs. Meanwhile, he said, the flow of new houses has dried up. The couple just received a foreclosure notice from their bank because they’re two months behind on their $3,000 monthly mortgage.”

“‘We’ve come to the point where we can’t pay that mortgage anymore,’ the wife told Perris.”

The Bend Bulletin from Oregon. “With three months left in the year, Deschutes County is on pace to nearly triple the number of notices of default filed in 2007. The city of Bend’s Quarterly Financial Outlook released Monday reported 130 foreclosed homes for sale in the county in August, with a total of 139 foreclosed homes sold in the county since the start of the year.”

“RealtyTrac listed 390 bank-owned properties for sale in Deschutes County as of Wednesday.”

“It remains to be seen if the federal government’s mortgage rescue program, passed with much fanfare in July, and the current market bailout bill working its way through Congress will cushion the economic blow to Main Street. For Tumalo resident Robert Austin, a homebuilder with 39 years in the trade, it’s too little, too late. On Tuesday, a notice of default was filed against a 20-acre Tumalo property he built a home on two years ago. He and his wife intended to move into the house. But first, Austin had to sell his existing property, on a neighboring 20 acres.”

“After more than two years on the market, nobody has bought it, and Austin could no longer keep up payments on the two homes. ‘We did everything we could do,’ he said. ‘We made payments as long as we could and then couldn’t make payments anymore. Times have been real (bad).’”

“Austin has two other homes he built for sale. If neither sells, he’s likely headed for bankruptcy, he said. ‘I’ve built for 39 years and I’ve never been in a default position, and to be in this position is frankly just unbelievable to us,’ Austin said.”

“With so much foreclosure activity, it’s bound to affect property values for homeowners current on their mortgages, said Bend real estate appraiser Scott Buckles. When sales of distressed homes become predominant in a neighborhood, an appraiser has to take those values into account, he said. ‘If you think your house is worth $500,000, but four similar houses sell for $350,000 in a foreclosure process, then those become the predominant value indicator in the neighborhood, so it’s going to bring home values down,’ Buckles said.”

“He said he used to do upwards of 600 appraisals a year. Now, he’s down to eight or 10 a month, he said, and those are coming from the somewhat steady stream of divorces and deaths. Were it not for those, he said he’d have to fold up shop.”

“‘What’s happened, from the top of Awbrey Butte to the double-wides in Plainview, these people who bought overvalued property then took out a (home equity) line of credit then saw their values drop 20 to 25 percent and they are upside down, and no one is going to refinance that because they don’t have enough equity,’ Buckles said. ‘I don’t think the refinancing boom is coming back, even if rates drop to 3 percent, because no one has equity. It’s really distressing … I’m looking for something else to do.’”

Please visit the HBB Forum. Post off-topic ideas, links and Craigslist finds here.