A Housing Market Detached From Reality
The Ukiah Daily Journal reports from California. “Worried consumers, investors and home owners are looking at today’s economy and pulling back on financial adventures. One of those adventures is real estate, where the risk factor was considered nil just a few years ago. Now, local Realtors are seeing not only a drop in prices, but a drop in people ready to buy - fueled in part by a lending system that has retreated to strict financial rules. ‘We’re back to income, assets, credit and long-term job stability,’ as requirements for a home loan, said Ginny Richards of Mission Hills Mortgage Bankers at Park Falls Plaza in Ukiah.”
“Richards said the days of getting a loan with no money down and no proof of income are over. If you’re buying, Richards advises, ‘Get a preapproval now.’ Trying to get an approval while you’re standing in the house you want is not going to work anymore. The days of one-hour loan approvals are gone.”
“If you’ve got the wherewithal, it’s a good time to buy. ‘Absolutely,’ said Realtor Russ Tow, noting that lending rates are competitive, although ‘mirage financing is pretty much gone.’”
“Lenders have suffered under the ‘buy and bail’ syndrome and will now likely be requiring anyone who is looking to leave one home for another to have at least 25 percent to 30 percent equity in their current home in order to get a loan. Richards explained that ‘buy and bail’ is what happened when a homeowner with little equity saw a home across the street for a better price, got a loan for the second home telling the lender he or she planned to use the original home as a rental, bought the second home and then simply walked away from the payments on the first home, letting it go into foreclosure.”
“According to the County Recorder’s office, some 135 homes have gone through foreclosure since Jan. 1 in Mendocino County. According to local Realtor Dick Selzer, there is a glut of housing in the Ukiah Valley at the moment, with some 65 percent of available housing the result of foreclosure or some phase of foreclosure.”
“Selzer says he believes the boom in prices in this area - which began to turn about three years ago - sent home prices much higher than they ever should have been. He said a home in the Oak Manor subdivision in Ukiah, which was selling for $420,000 three years ago, probably should have been priced at about $325,000 and is selling at about $275,000 now. He said when you talk about depressed housing prices you have to discount the $420,000 price, which was unrealistic to begin with, and think only of the difference perhaps between $325,000 and $275,000.”
The Contra Costa Times. “While San Mateo County is not seeing a lot of foreclosure activity, short sales are common, said Patricia Lindo, a Realtor in Burlingame. ‘There are tons of them going on all over Redwood City, a lot of them in Half Moon Bay, lots in Daly City; South San Francisco is not doing so good,’ said Lindo.”
“‘Sales are definitely up, but prices are down because of the foreclosures. The banks are pricing them very, very low,’ said Steve Dhillon, a Realtor with the Fremont office of the Realty Experts. ‘Some people will sell low and some will buy low.’”
“Sandy Mann recently did a move-up buy that allows her to live in larger house in Union City than her current home in that community. The three-bedroom, two-bath home was listed as a bank-owned foreclosure for $439,000, or about $300,000 less than similar homes were going for two years ago, Dhillon said.”
“Mann said she would not have been able to afford it when home prices were higher. While she still has to sell her current home, Mann expects to rent it out until the market improves before selling it.”
The San Francisco Chronicle. “‘I always dreamed, but never thought I would be able to swing it,’ said David Prazniak, a United Airlines flight attendant. He is days away from closing on a two-bedroom stucco home near the Oakland Zoo. He’s paying $170,500 - about one third of the property’s $495,000 price in early 2007. His monthly payments of around $1,100 for principal, interest, taxes and insurance will be less than his rent.”
“In a sign of the bargain-hunting competition, Prazniak was outbid on four foreclosed homes. ‘If it’s in a good neighborhood and it’s a decent house, and it lists at $200,000 or below, it goes in five days to a week, generally over asking with multiple offers,’ he said, sounding like a veteran of the bubble years - except for the price reference.”
“Washington Mutual Inc., the Seattle bank seized by federal regulators and sold to JPMorgan Chase in September, said Thursday that it will shutter its Pleasanton campus and cut hundreds of San Francisco positions, eliminating 1,600 Bay Area jobs in all.”
“In addition to setting about 1,600 people scrambling for work, the consolidations will dump around 350,000 square feet of commercial space onto a local market already awash in sublease space. The news comes on the heels of Citigroup Inc.’s announcement earlier this week that it would cut 53,000 jobs, which is likely to translate to at least hundreds of lost positions across the Bay Area. ‘Next year, we’re going to have the sublease swap meet of the century,’ said David Klein, a partner with San Francisco brokerage firm NAI BT Commercial. ‘Sublessors competing for the same tenant (will) all say, ‘I can do the deal cheaper than you,’ and the landlords will be playing catch-up. It’s the harsh reality of a recession.’”
Inside Bay Area. “Job losses in California’s mortgage, banking and related sectors won’t abate any time soon, warned Dan Hamilton, director of the UCSB Economic Forecast Project. The big problem is that the housing market has yet to hit bottom, by most measures. ‘Foreclosures will probably increase in 2009 compared with 2008,’ Hamilton said. ‘We just don’t see how housing can come back next year. That means the financial sector can’t really recover and grow until the problems in housing are pretty much taken care of.’”
From Bloomberg. “Downey Financial Corp., the California thrift crippled by bad mortgages, and smaller PFF Bank & Trust were closed by regulators today and taken over by U.S. Bancorp. Downey Financial, based in Newport Beach, California, lost about $680 million on mortgages in the past five quarters. The lender is the last of the five biggest sellers of option adjustable-rate mortgages to fail or be sold.”
“‘With the deterioration in the economy and especially the California economy, it suggests even more losses are coming’ in Downey’s portfolio, said James Barth, former chief economist at the Office of Thrift Supervision and professor of finance at Auburn University, in an interview before the takeover was announced.”
The LA Times. “If the Inland Empire is one of the birthplaces of the current recession, it is also at the forefront of the nation’s growing pain over joblessness — with the highest unemployment rate of any large metropolitan area in the country. The region’s troubles are set against a backdrop of growing unemployment throughout the nation.”
‘The downturn has all but erased the glow of optimism the Inland Empire enjoyed only two years ago, when newly minted mansions and an array of upscale retailers fashioned parts of the region into a more affordable Orange County in the making. In many cases, those developments are now symbols of the decline, from the sparsely populated outdoor malls to the rows of repossessed homes — victims of housing price plunges of 35% in Riverside and 37% in San Bernardino in the last year.’
“John Husing, who heads Economics & Politics Inc., an economic research firm specializing in the Inland Empire, says 2008 will be the first year the region has failed to increase its job base in the 44 years he’s studied the area. ‘This is an interruption in the economy caused by a housing market detached from reality,’ said Husing, who traced 95% of the Inland Empire’s lost jobs to the residential construction industry.”
“‘There is real pain almost everywhere you turn. My daughter is a counselor at Riverside Community College and she told me she met a [student] whose house was up for foreclosure. Her last resort would have been to move in with her parents, but their home is up for foreclosure,’ said Riverside Mayor Ronald Loveridge.”
The Press Enterprise. “The Inland region’s population was considerably smaller in the summer of 1993, when 158,000 people were unemployed. There were 175,100 idled workers in October, the state Employment Development Department reported Friday, 61,500 more than a year earlier. California’s unemployment rate of 8.2 percent is the highest in 14 years. One worker in 10 in Riverside County is now unemployed.”
“‘The core of the problem is we’re not building any houses right now,’ Husing said. ‘Whether you love the homebuilding industry or hate it, it was the main source of outside money that came in and drove our economy.’”
“Husing said this is much worse than the recession of the early 1990s, a period where the Inland area, for all its problems, continued to see job growth. Much of that unemployment was local people who lost jobs in Los Angeles, he said. ‘This is going to be really ugly, and we’re just getting started,’ Husing said.”
“As owner of a Riverside-based job placement company, Audrey Loera said she’s constantly talking to very worried people. ‘We keep telling people to try back after the first of the year, but some people call us every day,’ she said. ‘We’re able to get some people work, but the employers are being very selective right now.’”
“Loera said she recently spoke to a laid-off manager who had earned a six-figure salary but is now willing to take a warehouse job paying, at most, $10 an hour. ‘That’s all we’re getting,’ she said. ‘It’s so slow.’”
The Daily News. “The Santa Clarita Valley housing market should recover by next summer, an economist told local business leaders Thursday. Mark Schniepp delivered that message to a room full of business leaders, Realtors, commercial real estate brokers and developers at the Hyatt Valencia ballroom Thursday morning.”
“‘That housing recovery will start to boost economic growth,’ Schniepp said before his presentation. ‘No longer will it be a drag on the Santa Clarita Valley economy and it will start to lead this area as well as the rest of the nation out of recession.’”
“Although home sales are up slightly in the Santa Clarita Valley, the median price of a home was down nearly 24 percent compared with last October. Developers have delayed building new homes so they won’t have to sell them under these distressed conditions. The average price of a new home declined 13 percent from a year ago.”
“Fewer than 600 units are expected to be built this year, the lowest annual total since records on the Santa Clarita Valley have been kept, according to Schniepp’s report.”
The Tribune. “One day after a study ranked the San Luis Obispo-Paso Robles region as the second priciest in the nation for housing — behind New York -— the California Association of Realtors has released data showing that 38 percent of county households can now afford to buy an entry-level home.”
“That figure is up from 20 percent of San Luis Obispo County households in the third quarter of 2007, according to the association. To purchase a home at the entry-level price of $356,120, a county household would have to have a minimum qualifying income of $69,300. The figure of $356,120 represents 85 percent of the county’s prevailing median price, the level at which most first-time buyers purchase a home.”
“The county is the second least affordable in California behind the San Francisco Bay Area. The most affordable area in the state was the High Desert region at 73 percent. San Luis Obispo County’s real median family income, which has fallen in three of the last four years, stands at $50,668 in 2008, according to the UCSB Economic Forecast Project.”
“Robert Kleinhenz, an economist with the California Association of Realtors, said the near doubling of affordability compared to a year ago is a ‘very good sign’ for the county’s housing market. ‘At some point in the future, one of the necessary ingredients for the housing market to turn around in San Luis Obispo County is for affordability to get back where it was earlier in the decade before everything went through the roof,’ he said. ‘Homeowners may not be so happy, but prospective homebuyers find now that a house that was out of their reach two, three, maybe five years ago is maybe now something they may be able to buy.’”
The Desert Sun. “Real estate professionals Thursday were told to prepare for a housing market in 2009 that is frothy, but built on a dune of shifting economic sand. There will also be an outcrop of what’s known in the housing industry as the SPQ: Seller Pain Quotient.”
“‘It’s the variable that occurs when they see equity eroding in front of their eyes,’ Patrick Veling, president and founder of Brea-based Real Data Strategies Inc., told the California Desert Association of Realtors at its 2009 industry forecast.”
“‘This is not the market in which sellers should be testing the market,’ Veling said. ‘It is not the market in which good real restate pros should allow potential sellers to test the water.’”
“With the predictions, Realtors and brokers were told there are silver linings. ‘Bank influence will continue to drive price,’ Veling said. ‘But 2009 will be the absolute best purchase opportunity in the desert that we have seen for a long time.’”
“‘Mortgage availability is at serious risk due to speculators who drove lax standards,’ Veling said, noting that it has all come back to haunt the industry. He warned, ‘Be careful of blame: You can’t blame AIG, Wall Street, Lehman Brothers or anyone else because no one was blaming anyone when all this fueled the record price run-ups that we saw. … We’re as culpable as everyone else.’”
