A Housing Cycle Gone Bad In California
The Santa Cruz Sentinel reports from California. “September’s median price for a single-family home in the county plunged to $475,000, down 32 percent from a year ago. Last month, the median was $582,000; in September 2007, it was $702,500. The median price hasn’t been this low since January 2002. With so many homes for sale — 1,286 listings, near last year’s peak — sellers are at a disadvantage. Heidi Brown would like to sell the home she bought with her partner, a general contractor, for close to $1 million in 2004 and downsize, now that their three grown children have moved away.”
“It was worth $1.6 million at the peak of the market, according to Zillow, Brown said. The asking price is $1.3 million; Zillow’s estimate is $1.13 million. The mortgage on the property is the type where payments will escalate.”
“‘We can afford to pay it, but I don’t want to,’ said Brown. ‘I want simple.’”
“Aptos accountant Patricia Beckwith, who has been watching the market for two years hoping prices would fall, is disappointed. ‘Home prices don’t appear to be dropping very much in our part of the county,’ she said. ‘While my agent, Sabina Brown, e-mails me more frequently about homes being reduced to $499,000, I still think spending half a million dollars on a small house is ridiculous.’”
The Marin Independent Journal. “The California Employment Development Department survey estimates that 1.425 million people were unemployed in California last month. That’s up by 4,000 over August, and up nearly 400,000 from September 2007. With the ongoing housing and credit slumps, construction and financial jobs were among six categories that together lost 18,800 jobs in September, the state reported.”
Inside Bay Area. “The East Bay lost 2,100 jobs, adjusted for seasonal changes, during September, the state’s Employment Development Department reported. The region now has lost 19,800 jobs so far during 2008. During the 12 months that ended in September, the East Bay lost more than 21,000 jobs.”
“‘We are seeing a lot more people who are out of work coming into our career centers,’ said Patti Castro, assistant director with the Alameda County Workforce Investment Board. ‘A lot of people who are looking for work have lost jobs in the mortgage industry, in retail, light manufacturing, finance, call centers, people who were with banks.’”
The Record Searchlight. “The unemployment rate in Shasta County in September hit a 14-year high, the state reported Friday. ‘We’re at the end of the housing-driven recession but at the beginning of the consumer-driven recession,’ Stephen Levy, director and senior economist at the Center for Community Study of the California Economy in Palo Alto, told the AP.”
The Ventura County Star. “From a year ago, the county is down 7,400 jobs. In the past year, the sectors hit hardest include construction, which lost 1,800 jobs; manufacturing, 1,300; professional and business services, 1,400; and financial activities, 900. ‘I’m starting to hear anecdotal evidence for firming of the real estate — perhaps that bodes well for the employment situation for Ventura County, said Edward Fredericks, a finance professor at Pepperdine University. But don’t expect construction jobs to rebound for awhile, if at all, he said.”
“‘For things to get frothy again would be difficult to fathom,’ Fredericks said.”
The Daily Breeze. “The Los Angeles County jobless rate jumped from 5.2 percent in September 2007 to 7.8 percent last month - an increase of nearly 35 percent, the EDD said. Jack Kyser, chief economist at the Los Angeles County Economic Development Corp., said the state’s jobless report was compiled during the second week of September and it does not reflect the financial market situation that worsened later in the month. ‘October’s numbers could be a little bit frightening,’ he said.”
The Desert Sun. “Inland Empire economist John Husing, who has studied this economy since the 1960s, gave the valley economy a ‘D-minus.’ ‘Everything you look at in the newspapers, all the events occurring worldwide goes back to the problems in housing in California, Arizona and Florida,” he said, predicting more waves of foreclosures ahead.”
“Jobs are being lost for the first time in decades, he said, noting the region has lost 81,500 jobs between August 2007 and August 2008. In the valley, the job loss count stood at about 25,000 over the same period. ‘It’ll be the first time in at least 44 years that we’ve seen the overall region and this valley lose jobs,’ he said.”
“Home prices rose like a rocket — up 30.8 percent in 2004, then another 22.6 percent in 2005 and then another 7.7 percent before turning down. Through the second quarter of 2008, the price of an existing home fell more than 21 percent compared to the previous year, Husing said. Median home prices back-pedaled to the 2004 level of $365,000. The median has fallen $104,313, or 30 percent, to $376,045 in the past year.”
“‘The economy is facing the short-term issues from a housing cycle gone bad,’ Husing concluded.”
The Recordnet. “A developer’s bid to build 7,000 homes on a Delta island south of Eight Mile Road was blessed Thursday by the Stockton Planning Commission. Commissioner Christopher Kontos dissented, saying Grupe’s plan is sound, but its timing is off. Similarly, the Sierra Club’s Eric Parfrey said in a telephone interview Thursday that it is unreasonable to approve a major housing project in a market now saturated by houses in foreclosure.”
“‘It doesn’t make any sense to be approving any major housing projects now,’ he said.”
The Press Enterprise. “With lenders less willing to lend and homeowners not wanting to spend, the pool construction industry has found itself treading water in the deep end. ‘We cannot get money for our customers. It’s pretty much shut down the pool industry,’ said Larry McNeely, manager of the California Pools location that oversees Corona, Norco, Canyon Lake and Lake Elsinore. ‘It’s probably the worst we’ve ever seen.’”
“In a high-end Corona cul-de-sac off Eagle Glen, a backyard pool behind a foreclosed home sits half finished. The empty pool was to blame for the first offer on the house falling through because the buyers didn’t want to spend $40,000 to fix it, said Rich Zembrzuski, owner of Corona-based Aquascapes Inc.”
“The bank agreed to pay to finish the Corona pool and landscape the front yard when a buyer offered a high enough price — in this case, $779,000, said Bob Livingston, the real estate agent representing the house.”
The Orange County Register. “Bank robberies in Orange County have increased by more than 50 percent in 2008 when compared to last year, a sharp increase that authorities credit to a stumbling economy. ‘There’s definitely a direct correlation with the economy,’ said Jim Amormino, spokesman for the Orange County Sheriff’s Department. Several of the arrested robbers decide to try to rob a bank while hitting personal economic troubles, Amormino said.”
“‘A lot of people are down and out, losing homes,’ he said.”
From rr. “Downey Financial Corp., the California lender that’s lost 95 percent of its market value in the past year, shuttered a mortgage unit that accounted for more than three-quarters of loan production. Downey, among the biggest issuers of option adjustable-rate mortgages in one of the hardest-hit states in the country, has reported $600 million in losses over the past four quarters.”
“Downey, with 170 branches in California and five in Arizona, said deposits increased in August after falling the previous month. ‘They’ve done everything I think they can to be proactive to get this problem solved,’ said David Lykken, co-founder of Mortgage Banking Solutions, and 34-year industry veteran. ‘The damage has been done.”’
The Daily Bulletin. “Patty Rivera can’t wait to move into her new home at 12767 Province St., Rancho Cucamonga. For $220,000, Rivera will have her first house. The home’s original listing price was $265,900 in June.”
“Rivera, who has always been a renter, said the transition is frightening. While she knows she can make her payments on time, she also knows she needs to prioritize. ‘My last big purchase was in 2002, and that was my car, and that was a big deal,’ Rivera said.”
The LA Times. “Classic houses by Modernist architects — once relatively immune to swings in the real estate market — are no longer able to fetch the premiums they once commanded, if recent prices are any indication. John Lautner’s 1949 Schaffer residence in Glendale, originally listed at $1,958,000 in the spring and then reduced to $1,775,000, has been reduced again, to $1,573,000.”
“In Palm Springs, one of Modernism’s most iconic works — Richard Neutra’s magnificently restored 1946 Kaufmann house, which in May fetched $19.1 million at auction in a deal that fell through — was listed last week for $12,975,000.”
“‘In earlier downturns good architectural properties saw an increase in price,’ said Crosby Doe, the listing agent for the Kaufmann house and an instrumental figure in fostering the market for homes by California’s Modernist masters. ‘This is the first time I can recall prices going down and inventory, select though it may be, increasing.’”
The Financial Post. “One in every 18 homes received a foreclosure notice in Chula Vista, zip code 91913. In the office of the ‘Santa Barbara’ development…sits Hella Formariz. Ms. Formariz has just been through foreclosure hell. ‘I still have to deal with the aftermath,’ says the petite brunette in a near-whisper. ‘It’s not over. I have an equity line. I have to deal with having to pay that back.’”
“Back in 2003, she and her husband were pulling in a combined US$180,000 a year in their jobs in real-estate sales and loans, respectively, much of it on commission. With the money rolling in, it was no problem for them to get a loan for their 2,600-square-foot dream home in Otay Ranch.”
“She bought it for US$500,000, funded by an adjustable-rate mortgage. She sunk another US$35,000 in upgrades. ‘I was making a good income, prices were going up,’ Ms. Formariz recalls.”
“Her problem was not that she did not understand her mortgage, it was that she believed the boom would go on forever. Instead of paying down her mortgage before it reset, she invested in other real estate.”
“Ms. Formariz’s income began to fade just as her adjustable-rate mortgage began to shoot up. Her monthly payments increased from US$2,500 to US$4,000. Eventually, she stopped making payments. It foreclosed about three months ago, selling recently for US$400,000. Her marriage did not survive the stress and she now lives with her young daughter in a home she rents for US$1,500 a month.”
“‘I can’t really blame the banks because I was making the money when they gave me the loan,’ Ms. Formariz said. ‘But I do blame them for not working with me. If they were able to modify my loan I could have got a roommate and I knew I could make it. They didn’t want to.’”
“‘There was perception back in ‘05 that if you did not buy a house today you wouldn’t be able to afford it tomorrow,’ said Mark Goldman, a loan officer at mortgage corporation Windsor Capital. ‘And also, if somebody bought a home and they were concerned about making a payment, the market was saying ‘don’t worry about it, the house will go up in value, you’ll refinance and use that to make the payments. We were on this amazing credit binge.’”
“Fannie and Freddie themselves were on a mortgage securitization roundabout. As publicly listed companies they wouldn’t dare slow things down with stricter credit requirements. In came the subprime loans, adjustable-rate mortgages, balloon mortgages and teaser rates. If you wanted a loan all you had to do was state the income — little or no documentation was required.”
“‘A few years ago you couldn’t give a loan officer your [client's] pay-stubs,’ said Dawn Lewis, a San Diego-based real-estate broker. ‘Loans were all geared to stated income — what can you pay? Did they just not want to deal with the paperwork? All those negative amortizations then gave people a false sense of security.’”
