The Housing Bubble

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I’ll have this post up daily to provide ongoing info on the Vegas meet-up. From the organizers: “It’s official! The first International HBB Meeting will be held in Las Vegas Friday, February 20th through Sunday, February 22nd! The meeting will officially start at 3pm Friday (check-in) and end at 11am Sunday (check-out), although we will probably plan a group lunch for around 11:30 Sunday if you want to catch a slightly later flight. ”

“This will be a chance for HBBers to meet, share info and just have some fun. As an added bonus Ben is expecting a German documentary film-maker to do some interviews. For more details, please check the comments.”

The San Fernando Valley Sun. reports from California. “Marta Sanchez and her husband bought their Panorama City house inApril of 2006, their hearts beaming with hope and high expectations. ‘We could finally say, ‘this is ours’ and stop throwing our money away in rent,’ Sanchez says, recalling the excitement at the time. Then her smile quickly fades. ‘If only we could have known what was coming. We didn’t know this catastrophe was coming - that property values would plummet and the economy would be like this.’”

“Almost three years later, the Sanchez’s are among thousands of San Fernando Valley families teetering on the brink of foreclosure. In the 28th U.S Congressional District, in the San Fernando Valley alone, more than 23,000 homes are in danger of foreclosure this year. Since their loan from Countrywide Financial adjusted last June, the Sanchez’s have not been able to keep up with the $5,000 monthly for their three-bedroom house.”

“‘We’ve only been paying interest on our home for the last two years. We haven’t even begun to cover the principle, so in a way it’s like renting. And for $5,000 we could be renting a house in Beverly Hills,’ she said.”

“Sanchez and her husband knew money would be tight and sacrifices would have to be made when they bought their home for $465,000 in 2006. Their housing payment would go up from a $550 rent to a mortgage of $4,049, but they felt confident that with their steady income they could pull it off. They also felt confident that, though their loan from Country wide would adjust up in two years, their home would go up in value and with equity in the property, they would refinance.”

“But their house is now valued at $274,000 and, not being able to refinance, their monthly payments have shot up more than $1,000 dollars.”

“Jose Hernandez is also hoping to save his parent’s three bedroom home where he lives with his mother and father, two sisters and three nieces. Hernandez’s mother bought the house for $488,000 in 2005. She put $100,000 as a down payment, part of the profit fromthe sale of the small townhouse where she lived with her family for more than a decade.”

“But Hernandez said his mother was steered into a negative amortizing loan. Today they owe more than $500,000 for their home, while at the same time, the value of their house has plummeted. In December…their monthly payment shot up to $3,900 from$2,300 the month before. Since then they haven’t been able to make the payments.”

“‘My parents came from El Salvador looking for something better and they did everything right. They bought something, they waited until they got equity, they sold it, they made a very good profit and they turned around and put a large sum of money as a down payment, and now they find themselves in this situation when they shouldn’t be. My mom feels awful. My mom has actually gotten sick from all of this,’ he said.”

The Ventura County Reporter. “It has been about four months since Tom Roth of Ojai listed a room for rent in his two-bedroom one-bath house. The last time he rented out a room, he paid for an ad in the local daily, and it was scooped up rather quickly. But that was four years ago, and times have certainly changed. Roth has been a cabinet maker for the last 12 years. This is the first time since he began his career in carpentry that it has slowed down to such a degree that he has had to rent out both rooms of his home. He said he has been living out of his vintage Airstream trailer in his backyard in order to make both rooms available.”

“Roth is one of the many homeowners who are trying to make ends meet in the volatile economy. ‘Just in the past year, it seems like there are a lot of rooms for rent,’ Roth said.”

The Ventura County Star. “When the housing market began to slow down, Bill Wilson thought it would be temporary, citing a low unemployment rate and strong economy. A licensed Realtor and real estate investor, Wilson of Camarillo was telling people to grab deals while they lasted, which he thought would be until the end of 2007. Wilson laughs at that advice today.”

“Ventura County’s median sales price for existing detached homes fell to $370,750 in December, or 38.7 percent, from $604,730 for the same month the previous year, the California Association of Realtors reported.”

“Wilson is waiting for…some kind of indication the market is turning around. ‘I might start investing in six months,’ he said. Wilson sidestepped any attempt at prognostication this time by noting he has ‘no idea’ if that might be the tipping point.”

“He admitted he doesn’t want to take a risk in case prices fall an additional 10 percent to 20 percent. ‘It’s tough to part with money and throw it at real estate, because you don’t know if the economy is going to keep slumping,’ Wilson said.”

The Recordnet. “Former Mayor Ed Chavez, who left office in December for a home he had built in Indio, has put his Cavendish Square condominium on the market in a short sale, another in one of the nation’s cities hit hardest by the foreclosure crisis. The two-bedroom, 21/2 bath home has hardwood floors, plantation shutters and a wet bar. It is listed for $160,000. Chavez paid $332,000 for it in 2005.”

“‘I guess it’s kind of the ultimate in symbolism, isn’t it?’ former City Councilman Clem Lee said. ‘The mayor of Ground Zero going through the same thing.’”

“Chavez’s real estate agent, Michael Chacon of M.C. Real Estate of Fresno, said he believed the property has been on the market since November. In a real estate market that has tanked, he said, ‘If you have an investment that is not worth it, … why would you keep paying into it?’”

The Santa Cruz Sentinel. “Bill Brooks has been a residential developer for 30 years and never seen a slower time for development. Brooks…who is just finishing Westlake, a 22-unit town home and condominium project near UC Santa Cruz, said the project will not turn a profit and investment partners will be getting 75 cents on the dollar.”

“Slatter Construction, which scrapped plans to build a condo development in Santa Cruz and switched to a hotel, is steering clear of residential. Details of the new hotel won’t be available for a couple of weeks, but Michael Bethke of Slatter Construction, said it was a market-driven decision.”

“‘I won’t even touch a condo project right now,’ Bethke said.”

The San Francisco Chronicle. “Foreclosures and default notices hit new highs for California and the Bay Area in 2008. In the Bay Area, 61,347 households received (default) notices. Numbers were about 60 percent higher than a year ago. Agencies that counsel troubled homeowners say that loan modifications are becoming slightly more common, but still rarely provide a permanent solution. A report released last month by the Comptroller of the Currency found that 58 percent of modified loans fell delinquent within eight months.”

“Pacific Community Services in Pittsburg counseled about 900 families about mortgage problems last year, according to Thomas LeFleur, executive VP. Of those, 68 received a loan modification. Of all the clients, only three had their principal balances reduced. ‘Everybody’s dreaming of principal reduction because they say their house is worth half of what they owe,’ LeFleur said. ‘That has not started to happen.’”

“At the same time, he said, more homeowners are deciding against paying a mortgage if they are underwater - owing more than their home is worth. ‘We have clients who say, ‘I can afford to make this payment but I don’t know if it makes sense that I should, maybe I’m hurting my family by doing this,’ he said.”

The Press Democrat. “The unprecedented wave of foreclosures that swept over Sonoma County began to ebb at the end of 2008, the first drop in three years, but analysts warned another tide may be building. Some of the decline was likely caused by a new state law aimed at slowing the foreclosure process. Already, there are signs that foreclosure activity is rising again.”

“Real estate agents who sell foreclosed homes for banks said lenders have been holding back on foreclosures. ‘They just pulled the throttle back in the foreclosure process,’ said James Madison, a foreclosure specialist at Coldwell Banker in Santa Rosa. ‘Most of my clients are saying the floodgates are going to open again in February.’”

“Homeowners who once seemed immune to the housing downturn now face having to sell to avoid foreclosure, said Beth Robertson, a Rohnert Park real estate agent. ‘I have gotten a couple of calls from folks that are in trouble that I would never have thought would get in trouble,’ said Robertson.”

“Robertson’s clients are not subprime borrowers. But they now can’t afford loan payments after losing jobs or seeing incomes fall and can’t refinance because their mortgages exceed what the homes are worth, she said. ‘I think we’re going to move into a whole different group. I think foreclosures are going to creep into the upper income brackets,’ she said.”

Palo Alto Online. “The dizzying days of rapid sales with competing offers, plentiful loan money and no contingencies are long over, but the housing market is far from dead, panelists agreed at a community forum Tuesday night. Gone are the days of slapping on a coat of fresh paint, setting out some potted plants and offering a home ‘as is.’ Instead, sellers need to assess what work needs to be done and either fix problems before the house goes on the market or be prepared to fully disclose any issues, the panelists said. ‘This is the most difficult real estate market I’ve ever seen,’ said Steve Bellumori, a Realtor with more than 30 years’ experience.”

“Although the economic fortunes of this area are heavily tied to the stock market, ‘up to this point we’ve been an island of resiliency,’ he said. Bellumori pointed to the lack of land, strong entrepreneurial business climate, good public schools and great weather as key selling points for real estate.”

“But much of his job today is serving as ‘a reality versus a realty broker,’ he said.”

“Although plenty of money is available, the guidelines for lenders have firmed up, Tracie Southerland, financial and mortgage advisor for Opes Advisors, said. Southerland compared housing accessibility in 2003 versus 2009, using a $1.5 million house as an example. In 2003, with 10 percent down, a 4 percent loan on $1.2 million and a second 3.5 percent loan on a $150,000 line of credit, one would need a $143,000 income to qualify. Today, with 25 percent down and higher rates on the jumbo loan, one would need to earn $228,000 a year to buy the same house.”

“‘The buyer pool has shrunk,” she said.”

The Desert Sun. “With foreclosures topping 236,230 across California in 2008 and no economic recovery in sight, a Los Angeles economist advised Palm Springs real estate officials to brace for a ‘mixed bag’ in 2009. ‘This is probably the worst recession we will go through in our working lifetime,’ Robert Kleinhenz, deputy chief economist for the California Association of Realtors said Wednesday.”

“The California Association of Realtors has reported that the median price of existing detached homes in California was $281,100 in December, down 41 percent year over year. In the Palm Springs region, Kleinhenz said, the December median stood at $169,730. That’s nearly 57 percent lower than the median in June 2005 when the market was at its peak at $393,370, he said.”

“Becky Bowles, association president, said the prospect of increased affordability is great news. ‘We can help buyers who have not been in the market for years,’ she said. ‘It’s great to know we’re in a better position to provide housing opportunities to people in areas where they work.’”

The Daily Nexus. “With the recession wreaking havoc on the national housing and credit markets, professor Morris A. Davis traveled to UCSB yesterday to breakdown the key components of the economic meltdown. At his lecture in Corwin Pavilion, Davis - an assistant professor in the Dept. of Real Estate and Urban Land Economics from the University of Wisconsin-Madison - traced the string of events that led to the current financial crisis. The presentation asserted that the failure of real estate value, mortgages, Wall Street, the economy and monetary and fiscal policy are all interrelated.”

“Davis said that prior to 2005, economists and homeowners were not conscious of this bubble, leading to negligence on the part of scholars and investors alike. ‘What happened to the housing market was a historical anomaly,’ Davis said. ‘The society as a whole caused the housing market boom, because people were wildly optimistic about the market.’”

“In 2000, the subprime purchase percent was 2.43, opposed to 2004 when it rose to 14.81 percent - an unheard-of rate of inflation, according to Davis. Davis said average buyers were allowed to take economic risks in housing because it was seen as a risk free investment to the individual buyer. Additionally, when a foreclosure occurred, homeowners did not have to take the loss - the loss rested on the shoulders of the bank.”

“Davis said that American society had been irresponsible as a whole and surmised that the value of homes would not decline in the near future. ‘There was a denial in the market until we were neck high in the muck,’ Davis said. ‘You make one bad bet - that home values don’t drop - and you lose a trillion dollars.’”

“Third-year Spanish major Laura Lozano said the current outlook provided by Davis on the economy is alarming. ‘His presentation was eye-opening,’ Lozano said. ‘It frightened me because I’m about to go out into the workforce. He said the best thing to do now is to buy a house, but I can’t do that.’”

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