The Old Box Isn’t Working In California
The North County Times reports from California. “Analysts said last week that North County homeowners can expect little relief from President Obama’s $275 billion housing bailout, based on details the White House made public last week. For openers, few local homeowners will qualify for a new refinancing program in the bailout because it targets homeowners with mortgages backed by Fannie Mae or Freddie Mac. As for the refinancing piece of Obama’s package, homeowners must have a Fannie or Freddie mortgage and carry a ‘loan-to-value’ of 105 percent or less, meaning the amount owed on the mortgage is no more than 5 percent greater than the value of the home.”
“That’s a problem in San Diego County, where prices have tumbled 38 percent since 2005 and many mortgages carried small down payments, meaning thousands of homeowners owe far more than 5 percent over the home’s market value. Economics professor James Hamilton agreed…that the housing problem is too big for Obama’s solution. Further, the UC San Diego professor said if the bailouts go too far, it might make the problem worse by encouraging foreclosure.”
“‘Does everyone presume once they have negative equity, it’s time to ditch their obligation and once they’re there, they’re entitled to assistance from taxpayers?’ Hamilton said. ‘If we get to the point where everyone is thinking that way, it’s way too big a problem for the government to solve.’”
“Cecilia Rocha, a Bonsall resident…fell behind on the payments and is now hoping a short sale will go through, meaning she will sell the property for less than its loan amount. ‘When I was looking for help,’ Rocha said, ‘nobody gave me any solutions.’”
The San Francisco Chronicle. ” More than 90 percent of Bay Area mortgage holders cannot qualify for the low-cost refinances included in President Obama’s housing rescue package, according to an analysis of loan data from Zillow. That is the smallest percentage of people eligible for the refinances anywhere in the country, Zillow said.”
“‘Around here, most of the market just doesn’t qualify; it’s going to bypass us,’ said James Wilcox, a professor of finance at the Haas School of Business at UC Berkeley.”
Bay Area Newsgroup. “If somebody owns a home that’s now worth $300,000 — January’s median home price for the Bay Area — they would be disqualified if they had to borrow more than $315,000. Numerous Bay Area homeowners whose mortgages are in trouble have loan balances well above those levels. Some observers criticized Obama’s proposal to allow bankruptcy judges to restructure mortgages to a lower principal balance based on existing values.”
“‘That provision could slow lending even further,’” said Brian Wesbury, chief economist with First Trust Advisors. ‘Why would I want to provide someone with a loan if a bankruptcy judge can unilaterally change the terms of the mortgage?’”
“The possibility that the president has the wrong prescription for the housing market isn’t the only ominous development for the reeling industry. Regulatory and market forces could spur a new epidemic of foreclosures this year and banish a current pause in defaults. In some cases, big lenders have suspended the launch of new foreclosure proceedings, voluntarily or under government pressure. Plus, numerous adjustable-rate mortgages that gave borrowers multiple options for their monthly loan payments are about to reset to market interest rates.”
“‘The lull is artificial,’ said Christopher George, president of San Ramon-based CMG Financial Services, a mortgage and finance firm. ‘There will be a series of further waves of foreclosures.’”
“About 25 percent of California homeowners suffer from negative equity, which means the loan balance exceeds the current home value, O’Toole of Foreclosure Radar said. The Bay Area could be in worse shape. ‘Investment houses, empty houses, homes owned by people who were never going to be able to make the payments anyway, they will contribute to the new foreclosures,’ O’Toole said.”
The Press Enterprise. “‘Whenever it comes to government programs, the devil is in the details. The guidelines and restrictions they adopt are sometimes very prohibitive which doesn’t make them very usable,’ said Nancy Herrera, an agent with the Riverside branch of Pacific Sunrise Mortgage.”
“Wells Fargo said Thursday it had seen a surge in calls about the plan and Bank of America reported an increase in calls about refinancing although none of the callers mentioned the plan. A Bank of America spokeswoman said the company had no plans to hire more staff in the face of the new program.”
“Bunker Rayner, owner of Corona Mortgage Financial Corp., said he was surprised he didn’t receive inquiries Thursday. He said that may be because previous foreclosure prevention programs touted by the federal government have worked for only a fraction of homeowners in distress. ‘We got more calls when other programs were announced. I think they are tired of being disappointed,’ Rayner said.”
“For homeowners, there is bright side to falling home prices: Lower property taxes. Thousands of Bay Area homeowners had their property taxes cut last year under a state law that requires a reassessment when a home’s market value falls below its assessed value. The number of homeowners who could see lower property taxes is likely be even more this year.”
“Livermore resident Wanda Del Conte saw a yearly savings of about $851 off her 2008-09 property taxes. The assessment on her five-bedroom home she purchased in June 2006 was reduced by $125,000 to reflect its Jan. 1, 2008, market value of $900,000.”
“‘When I got my tax bill in October I saw that it was coming down and I was like, ‘yeah,’ and I’m celebrating and I’m happy,’ she said.”
The Sacramento Bee. “County assessors all over the Sacramento region are warning homeowners about a company trying to bill homeowners for something they already get for nothing. And in some cases, the company is telling property owners they will be hit by a $30 fee if they are late to respond.”
“Earlier this month, Vic De Stefani of Folsom received one such letter in the mail, saying that because of the recent housing slump, his home’s value was now overassessed by about $150,000. Getting a reassessment on his home would save him about $2,000 in property taxes annually, the letter said. All he’d need to do was mail $179 to a post office box in Los Angeles, the letter said. But if he didn’t send the letter in by Feb. 27, the service would cost another $30, it said.”
“‘It’s the second one I’ve got,’ said De Stefani, who bought his home in November. ‘The original one said that for $95 they could lower my taxes by $750 (annually).’”
“De Stefani said he was immediately skeptical, but decided to check out the company with county officials. ‘I showed them the letter and they just laughed,’ he said.”
“Kathleen Kelleher, Sacramento County’s assistant assessor, said her office won’t begin considering new property values until June. ‘We’re in a period of time where it’s too late for last year and too early for next year,’ she said. ‘We kind of question why there’s any urgency to file.’”
The Manteca Bulletin. “There have been 131 resale homes that have closed escrow in the first seven weeks of 2009 in Manteca with a median selling price of $179,900. The vast majority of those homes are selling for less than it would cost to construct and pay required fees on a new home. A 1,094-square-foot home with three bedrooms and a bathroom closed escrow for $70,000 on Feb. 10. A classified ad in the Manteca Bulletin last Sunday for a kissing cousin of that home on the same street with three bedrooms and one bathroom has a rent of $1,080.”
“That’s more than double or $600 more to rent than to buy each month. Buying also comes with tax advantages that renting doesn’t. It is a trend throughout California that Wells Fargo Bank CEO John Stumpf noted Friday has created the opportunity of a lifetime in the Golden State with homes selling for less than it would cost to build them new.”
The Ventura County Star. “The rental market is softening, spurred by a feeble economy that has more people searching for roommates or moving home with their parents. Rents fell by as much as $200 or $400 per month at a handful of apartment complexes last year, while most other property owners froze or slightly reduced rents, said Dawn Dyer, president of Dyer Sheehan Group in Ventura.”
“It just isn’t worth taking the chance of losing tenants to make an extra $25 a month, said Linda Gilden, a Fillmore resident who owns an apartment building in Santa Paula. She noted that once a tenant is lost, an apartment stays vacant for a while. ‘I would love to have an automatic turnover like I used to, but now it takes several weeks or a month,’ she said. ‘Our philosophy is to take a little less than market value in order to keep the tenants.’”
“It’s not as if renters will be rejoicing every time they write the rent check, said Caroline S. Latham, president of RealFacts. Tim Kephart certainly isn’t. A handyman from Santa Paula, Kephart said rents need to fall much more in order to be affordable. ‘The rental market in this county is outrageous,’ he said. ‘You’re paying $500 for a 10-by-10 room with a closet, and you’re sharing a bathroom with somebody. You may have laundry privileges; you may not. You may have room in the fridge; you may not.’”
“Property owners like Gilden, (have) had a difficult time retaining tenants during the past two years. She’s considered lowering rents because of worsening economic conditions, but she hasn’t acted upon it. Right now, she’s in wait and see mode. ‘It’s kind of like waiting for an earthquake to happen,’ she said. ‘You know it’s going to happen eventually. You just don’t know how bad and how much it’s going to affect you.’”
From Reuters. “Experts agree California home prices will ultimately rebound but caution that real estate investing in this economy — the worst contraction since 1982 — should not be undertaken by amateurs or the faint of heart. ‘You have to have a pretty strong feeling about where this is all going,’ Stuart Gabriel, director of the Ziman Centre for Real Estate at the University of California, Los Angeles, told Reuters. ‘This cycle is so different from prior cycles that it’s very difficult to extrapolate.’”
“‘Most would argue that California is not going into the sea,’ he said. ‘On the other hand it’s not totally out of the question that this particular period of weakness could extend for a while, and that means multiple years.’”
“Chris Twoomey and his wife Jennifer illustrate the risk underlying the perceived opportunities. They moved to California from the Midwest in 2004 to pursue acting careers and had just begun to think the dream of home ownership was out of reach when the crash came and they saw their chance. The couple pounced in January, right after Jennifer learned she was pregnant with their first child, making an offer on a small, bank-owned home in suburban Los Angeles.”
“But the day after the Twoomeys’ offer was accepted, Chris was called into the cafeteria at his job in a cosmetics company warehouse and laid off. ‘Sometimes in our dark moments we sit around and say to ourselves, ‘Look, forget the acting, forget everything, this is the time to bail’ (from California). We can be doing this someplace else that’s still warm but doesn’t cost as much,’ Chris told Reuters in an interview.”
“‘But we’re sticking it out,’ he said. ‘It’s perverse, but something inside of us does want to stay here. It’s sort of a belief that because it is Southern California and because it is the kind of place where everybody wants to be, it will come back eventually.’”
The LA Times. “John Burns, an Irvine consultant to home builders, said he expected the market to continue to drop despite the increase in affordability. ‘They’re still not as affordable as they were in 1995 and 1996, and I think there’s an almost certainty prices will keep falling,’ Burns said.”
“Even after the economy exits the recession, people will continue to lack the confidence to buy a home, Burns said. ‘It’s bubble psychology. People believe when something happens for three, four or five years in a row, it’s likely to keep happening. It happens in boom times as well.’”
“Aarchan Joshi…who lives in north Redondo Beach, is putting off a move to Manhattan Beach. He could afford to move now but thinks ‘there’s a big disconnect. The more affluent areas are really just beginning’ their price declines, he said.”
“A bit of an armchair economist, Joshi said he figured Manhattan Beach’s median home price is 13 times its median household income. ‘It’s completely unsustainable,’ he said. ‘My range would be when it gets to seven times or eight times income, that would trigger me to seriously look at buying a home,’he said. His guess is that will occur around 2012.”
The LA Daily News. “These aren’t the best of times to own a home - especially when a school district wants to bulldoze it and build a campus on the property. Los Angeles Unified School District officials are trying to seize three Sylmar homes for a new K-8 school at the intersection of Bledsoe Street and Dronfield Avenue. But the homeowners are holding out for more money - or are simply trying to block the move - saying the district wants to buy them out cheaply in the depressed real estate market.”
“‘They’re trying to cherry-pick at the bottom of the market,’ said Paul Croswhite, who says the district has offered him $749,000 for his home, which he said was valued at about $1.5 million three years ago. The offer, he said, would leave him with less than $100,000 after paying off his mortgage.”
The Orange County Register. “TWR Framing had 3,500 carpenters two to three years ago, building 6,000 houses a year all over Southern California. Now, it employs just 175, and last year it built just 1,000 homes. ‘The challenge that you have is just operating at 10 percent of your peak volume,’ said Tom Rhodes of Newport Coast, owner of the Corona-based framing business. ‘Nobody’s making money. You can’t make money at these levels.’”
“Companies have cut their staffs by 80 percent to 90 percent, hours and benefits have been slashed, and profit margins are slim – or non-existent. And forecasters project that construction levels will fall even more in 2009. ‘The problem is: how do you stay in business? I mean, these are pretty tough times,’ said Bill Watt, president of a small homebuilder in Newport Beach that’s gone from building 100 homes a year to two or three last year.”
“I do believe you’ve got to think outside the box because the old box isn’t working. They’re not lending is the biggest problem. Well, that’s not the biggest problem. The biggest problem is no demand,’ he said.”
“Lennar Corp. gambled that if it waits, it’ll get top dollar for three massive Orange County housing developments: Great Park Neighborhoods, A-Town in Anaheim’s Platinum Triangle and Central Park West along the I-405 in Irvine. The projects have been on hold for a year, even though development was under way on Central Park West and in A-Town.”
“‘When the music seemed to have stopped back in ‘06, we in the industry were left with an inventory problem,’ said Emile Haddad, Lennar’s chief investment officer, referring to the vacant, completed homes homebuilders couldn’t sell. ‘We don’t want to add to the problem of more inventory.’”
“Haddad noted that most of the sales are for homes priced at $500,000 and below.”
The Appeal Democrat. “The seller’s loss is the buyer’s gain in the Mid-Valley. While median home prices have plummeted in the last year, home sales have almost doubled as homeseekers take advantage of great bargains, low interest rates and foreclosures. ‘Now is definitely a good time to buy,’ said Connie Coughlin, a real estate agent in Yuba City.”
“In Yuba County, the median sales price saw a 32 percent drop from January 2008-2009, as the price fell from $233,250 to $158,000, DataQuick reports. Sutter County fared slightly better, with a 26.9 percent drop in the same time period. The median home price went from $227,000 to $166,000. The Mid-Valley’s drop is less than the California average of 41.5 percent. The statewide median price of $224,000 is the lowest figure posted since May 2001.”
“Coughlin encourages anyone looking for a home to find one real estate agent to work for them. ‘That’s what Realtors are for, to help you reach your goal,’ she said.”
“Bank-owned properties and foreclosures make up the majority of homes on the market right now, Coughlin said. It may be a buyer’s market but residents are still quick to fight for a greater bargain. ‘There is plenty to choose from but everybody still seems to want to steal them,’ she said.”
