A Sense Of Desperation In California
Bloomberg reports from California. “It has taken Susan Erb just three years to see the value of her Merced, California, home plunge by more than half to $350,000. Next month, her mortgage payment jumps 20 percent to $3,321 and she knows she can’t afford it. Her bank won’t rework the loan unless she stops paying altogether. ‘Now I know how people feel when I go knocking on their door,’ said Erb, a real estate agent who works for a company that notifies residents in foreclosed properties that they must vacate. ‘I’m in their shoes.’”
“Merced, the epicenter of the U.S. foreclosure crisis, demonstrates the steep challenges President Barack Obama will face in trying to stem defaults. One in 59 housing units in the Merced metropolitan area received a foreclosure filing in January, the highest rate in the U.S., according to RealtyTrac.”
“For-sale signs are everywhere and a building boom fueled by subprime mortgages has been brought to a standstill. Just 18 construction permits were issued last year. In 2005, there were 1,427. Median home prices in Merced rose from $150,000 in January 2002 to a peak $382,750 in December 2005, according to MDA DataQuick. In December 2008, the median stood at $120,500, down 52 percent from a year earlier, as four out of five resales involved properties that had been foreclosed on in the prior 12 months.”
“‘There were a lot of young families and first-time buyers with not a particularly high income, so it was perfect ground for subprime lending,’ said Jeff Michael of the University of the Pacific’s Eberhardt School of Business in Stockton. ‘You had people streaming in from the Bay Area. This was their chance to get in.’”
“The Obama plan probably can’t help Merced residents Bountay and Khamtanh Rattanavongsa, who walked away from their adjustable-rate home loan last year and were foreclosed upon after monthly payments jumped to $3,500 from $1,800. They’re now renting a house constructed by Kimball Hill Homes, the homebuilder that filed for Chapter 11 bankruptcy protection in December. Across the street, wooden frames of partially built two-story homes, with no windows or doors, are clustered in a former cattle pasture.”
“Khamtanh, a retired school aide, came to the U.S. from Laos in 1978 with her husband, who works as a custodian. Their son lives with them and helps pay the $1,500 rent. ‘I loved my house, I never thought I’d lose it,’ Rattanavongsa said. ‘Now I have no credit. I’ve got nothing.’”
The Tribune. “About four years ago, R.W. Hertel and Sons’ real estate empire was expanding with no apparent end in sight. Flush with profits from roughly 1,000 homes built in San Luis Obispo, Santa Barbara and Ventura counties, partners Ronald W. Hertel and Robert Fowler had a fleet of jets, a yacht, a Camarillo golf course and plans to build hundreds more homes in Atascadero, Santa Margarita, Pismo Beach, Central and Northern California, Oregon and Arizona.”
“Now the company has dissolved, its partnership split. Hertel and Fowler are buried under millions of dollars of debt and foreclosures, and their home-building company, R.W. Hertel and Sons, has been forced into an involuntary Chapter 7 bankruptcy.”
“‘These were jet-setting developers who unfortunately crashed,’ said Vance Rose, who worked with R.W. Hertel and Sons as a winemaker in one of its endeavors.”
“Such stories of failure in the home-building industry have become increasingly common. The National Association of Home Builders estimates that more than 20,000 residential developers across the country have shut down in the last two years. Local builder Rick Loughead, whose family-run company has built more than 1,000 homes in Avila Beach alone and who owns the upscale Dolphin Bay resort in Pismo Beach, described the builder’s situation overall as ‘horrible.’”
“‘Across the board, everyone is crashing,’ he said. ‘There may be some who had a lot of equity in property, but no one is going to be able to keep going on forever.’”
“A former Hertel business partner, Rob Rossi…describes Hertel and Fowler as having an entrepreneurial nature. They took educated risks and ramped up a fairly large building organization from almost nothing in fairly short order, Rossi said. But any builder caught with unsold inventory in this downturn has ‘taken a big hit,’ he said.”
“‘None of us could have seen just how significant and strange it’s been,’ Rossi said. ‘And it’s hardly over. I predict a continued significant decline in housing values.’”
“Fowler ran the operations of the company. Now, he says that R.W. Hertel and Sons, the company that ran the partners’ building operations, ‘is pretty much cooked.’ ‘We’re responsible for our debts, but at this point unfortunately it would take another lifetime to repay them,’ he said. ‘If I knew then what I know now, I would have liquidated everything in 2005 as fast as I could.’”
The North County Times. “Even as sales of foreclosures roared back to life at the end of last year, sales of brand-new homes went comatose. Across San Diego County, one of the nation’s largest with 3 million people and 1 million homes, just 15 new houses sold in December, according to a report released Tuesday by the California Building Industry Association.”
“The fourth quarter numbers, the lowest on record dating to 1988, were of little surprise to local analysts, but spelled trouble for builders in 2009. ‘You’re going to see more failures,’ said Sherman Harmer, former president of the Building Industry Association of San Diego. ‘This is my 40th year in homebuilding, and this is the worst that I’ve ever seen.’”
The LA Times. “Was it the real estate downturn, or were people misled into a risky investment scheme? That’s the question at the center of a lawsuit filed Tuesday that accuses Orange County real estate lender Dan J. Harkey of bilking dozens of investors out of more than $15 million.”
“The lawsuit accuses Dan Harkey of using slick marketing techniques to attract investors in short-term, high-interest loans to real estate developers. It contends that Harkey exaggerated the value of the properties used as collateral by borrowers, making the individual investments appear much safer than they were.”
“The allegations center on a little-known and lightly regulated segment of the real estate industry known as ‘hard-money’ lenders. These lenders often provide financing for high-risk projects that banks won’t touch, such as speculative housing developments. Wealthy individuals looking for outsized returns often provide the investment capital.”
“Harkey said he had been involved in real estate financing for more than 30 years. The Harkeys own a multimillion-dollar home in a gated Dana Point neighborhood. Their car collection includes a Bentley, a Porsche and two Mercedes Benzes, according to Department of Motor Vehicles records. The lead plaintiff in the lawsuit is retired Orange County attorney Lloyd Charton, who said he was owed more than $1 million.”
“‘He scammed us,’ Charton said. ‘The representations that Dan Harkey made about the safety of the loans were untrue. He was bringing in new money to pay off investors on the same loan, and that’s a Ponzi scheme.’”
From The Signal. “The Valley Industrial Association’s message to the city of Santa Clarita - get going on affordable housing. A letter prodding city officials to provide more affordable housing to help stabilize the local economy was drafted by members of the association and delivered to the city Feb. 6.”
“The association’s letter blames community perception for the sparse number of rental units. The ownership-to-rental ratio in Santa Clarita is 80 to 20 compared to 65 to 35 nationally. The community perception is that rental properties attract crime and trouble.”
“Erin Moore-Lay, Santa Clarita housing program coordinator, hammered home a factor in the preference for home ownership. ‘It’s part of the American Dream to own a home. When loans are made available to buy as easy as they were available, people choose to buy,’ she said.”
The LA Daily News. “Exacerbating Los Angeles County government’s worsening financial situation, its property tax revenues are expected to dip for the first time since the mid-1990s, officials said Tuesday. ‘Our county’s fiscal situation … continues to decline,’ CEO Bill Fujioka told the Board of Supervisors.”
“After years of healthy increases in the assessed value of properties in the county, Assessor Rick Auerbach said the $1.1 trillion assessment roll is projected to drop 1 percent this year. Since 1980, the only other times the assessment roll dropped into negative territory were in 1996, when it dropped 0.2 percent, and in 1995, when it fell 1.7 percent.”
“‘For the first time in 13 years, the county will be expecting less property tax revenues than the previous year,’ Auerbach said. ‘When you look at it over the period since 1980, we’ve had an average of a 7.1 percent increase each year in the assessment roll.’”
“Amid the housing slowdown, Auerbach’s office has reviewed hundreds of thousands of homes and condos and lowered assessments on many, reducing the amount of property taxes property owners pay. He expects to review about 500,000 more properties this year to determine whether the assessed values need to be lowered.”
The Press Enterprise. “Public school enrollment in Riverside and San Bernardino counties dropped by more than 8,700 students this year as the region suffered from a housing crisis and high unemployment rates, preliminary estimates show. The slump in the housing market and the region’s high foreclosure rate are largely to blame, Riverside County Superintendent Kenn Young said earlier this month.”
“It’s a mystery, however, where the students are now. School officials said they collect information when students transfer to a new school but don’t attempt to determine how many go to other parts of the state and how many leave California entirely. Young said he thinks many families caught in tough circumstances moved in with other family members, often in the communities they left behind in Los Angeles and Orange counties. Officials in LA and Orange counties said preliminary estimates for 2008-09 show an enrollment increase.”
“Other Inland students left the state entirely, and some immigrants moved back to their homelands, mainly Mexico and Asian countries, Young said.”
“Those who bought their first homes in the past few years, many of them young families with children, are the people most likely to have lost their homes to foreclosure, said Hans Johnson, a demographer with the Public Policy Institute of California. ‘Those are the people who are most vulnerable to the foreclosure crisis because we know how in many cases they were stretching themselves to be able to afford the house,’ Johnson said.”
“In December 2007, Michael Vosganian put a home on Wells Drive in Woodland Hills on the market for $1.55 million. Vosganian’s decision to sell the vacant rental property coincided with the start of the recession - which at that time had not been officially declared. ‘I think it was probably the worst time to sell the house,’ Vosganian said during a recent interview. ‘But when we first put it on the market, there were some comments that the higher-end homes were still doing pretty good.’”
“Vosganian bought the Wells Drive property for about $1 million in early 2006, just as the last boom market was peaking. He owns seven other rental properties, including one he bought in the 1960s for $19,400. Vosganian has rejected two offers because they were too low, said his Realtor, Ruth Garriette.”
“Vosganian has also dropped the price three times, and is now asking $1.18 million. He’s also willing to lease it again - $3,400 a month for just the main house or $4,450 with the guest house included.
Despite the difficulties in selling - or even leasing - a high-end house, Vosganian is not giving up on residential real estate.”
“‘I feel that real estate is the engine that drives California,’ Vosganian said. ‘If you want my opinion, now is the best time to buy.’”
“After graduating last summer from California State University, Northridge, Joey Rispaud put three goals on his agenda: Marry his fiance, buy a home and start a family. He’s done all three. ‘I accomplished all the goals I wanted to accomplish in becoming an adult,’ said Rispaud, 27, a manager at the TGI Friday’s in Woodland Hills.”
“Rispaud and his bride, Diana, paid $279,000 for a two-bedroom, two-bath townhome in Saugus, a short sale put together by his wife’s mother, Anita Levy, an agent in Santa Clarita. The couple moved in on Dec. 8. They are paying about $2,000 a month for their mortgage - just a little more than what they were paying for the two-bedroom apartment they’d been renting in Reseda.”
“They bought the house the old-fashioned way: They saved enough to put down a 3.5 percent deposit, and secured a 6 percent fixed-rate loan. ‘We could easily have gotten a $600,000 or a $700,000 home at a zero-percent interest rate for five years, but there was no way I could afford that (kind) of house,’ he said. ‘One way or another we were going to get stuck.’”
“Of course, there was a lot of second-guessing from friends who would drop by Friday’s and tell Rispaud he was an ‘idiot’ for not taking the real estate bait as housing prices soared. ‘Now they are upside-down or bankrupt. It worked out for my wife and I really well,’ he said. ‘It’s a piece of the American dream.’”
The Press Democrat. “Repeatedly shut out in attempts to buy a home for $300,000 or less, Joseph McCormick bid up the price on the next house. Paying $284,000 — $9,000 over the asking price — was still a good deal for the Rohnert Park home, which sold for nearly twice that amount three years earlier.”
“The strategy worked, leaving the first-time buyer relieved to finally land a house after a sometimes frustrating seven months in the most competitive end of Sonoma County’s housing market. ‘It was difficult. I wasn’t losing hope, but I was starting to second-guess myself,’ said McCormick. ‘It’s a good feeling once you’re in. I figured I’m very lucky.’”
“‘They’re coming out in droves because they know there’s no waiting any longer for prices to bottom out. There’s definitely more buyers than inventory. Anything under $300,000 — it’s gone,’ said Logan Adams, associate broker in Santa Rosa. Adams represents banks selling foreclosed homes. Last month, he had eight such homes — all priced under $300,000 — sell after one day on the market.”
“‘Banks price them aggressively to get them off the books. They want them to sell fast,’ Adams said.”
“Agents said several strategies can help buyers stay in the game at the hot end of the county’s housing market: Start your house hunt on the Internet. Eliminate any properties that have a pending sale, and be ready to tour homes the same day they come on the market. Get pre-approval from a lender. That enables you to make an offer immediately.”
“Make offers ahead of the weekend. Many buyers look at homes on Saturdays and Sundays and make offers on Mondays. Offer at least the asking price and consider going over by a modest amount.”
“‘We have to work very fast in this market because if you don’t, you lose,’ said Theresa Teuma, owner of Legend Real Estate, in Santa Rosa.”
“During his search for a home priced $300,000 or less, McCormick was beaten out by investors and others making large down payments. He increasingly felt a sense of desperation.”
“‘We even made offers without looking at a home,’ he said.”
