The Housing Bubble

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The Desert Dispatch reports from California. “In the past year, home prices have fallen dramatically in Barstow as in California as a whole. Data recently released by the California Association of Realtors shows that home sales are climbing as the median price of a single family home fell off by 40.5 percent from January 2008 to 2009. In the High Desert as it whole, prices dropped by 45.5 percent. for homeowners and people trying to sell, the drop in prices has put many of them ‘upside-down.’ Unless the bank is willing to agree to a ’short sale,’ their only option may be foreclosure.”

“That is the situation for Conrad Wytte, a Los Angeles-based landlord, who said he has been trying to sell a four-unit apartment building in Barstow for the past several months without getting more than a nibble. He bought the property more than three years ago as an investment but found himself losing money, Wytte said.”

“He bought the property for about $350,000 and currently has it listed online for $299,000. Realistically, Wytte said he doesn’t expect to be able to sell for more than about $190,000 — less than what he still owes on it.”

“For Richard West and his two adopted daughters, the rupture of the housing bubble has been a good thing. With home prices in Barstow back to the level before the housing boom, West, a retired missionary living on Social Security income, is within a few weeks of closing on the purchase of a three bedroom house with a pool for $86,000.”

“His mortgage payments will be comparable to what he currently pays in rent on a two-bedroom apartment, West said. Like many homes for sale in the current market, the house was foreclosed upon and is currently bank-owned. That meant having to do more repairs on the property himself than if he had bought from an individual homeowner, but West said the price is worth it.”

“Without the market downturn, he said, ‘I would have had to rent for the rest of my life.’”

The Desert Sun. “Riverside County’s unemployment rate for January may be well above what it was at the end of 2008, as an increasing number of residents find themselves out of work, a county official said. ‘We are seeing about double the foot traffic — 6,000 per month — in our Workforce Development centers,’ said county Economic Development Agency spokesman Tom Freeman. ‘One year ago, we saw about 3,000 job seekers per month.’”

“‘We may have more than 100,000 people unemployed. Without a doubt, construction is taking a hit, followed closely by mortgage lending and other real estate (jobs),’ Freeman said.”

The Bakersfield Californian. “Default filings in Kern set another new record in February despite moratoriums from some big lenders. Last month, 1,611 default notices were recorded here, the most recent report from the Kern County Recorder’s office shows, up from December’s previous record of about 1,550. The number was up from January’s count of 1,353 and exceeded February 2008’s tally of nearly 1,180.”

The Glendale News Press. “The number of code violations, such as unkempt landscape, incomplete construction and mounting trash, on foreclosed homes has increased throughout the city since the housing market downturn, officials said. About 80% of homes listed for sale in the Adams Hill area are in distress, said Realtor Hattie Ramirez.”

“Of 12 homes listed in the area, three were bank-owned and had foreclosed, five were under a short sale, which is pre-foreclosure, and one property was facing bankruptcy, said Ramirez, who is an association board member. Home owners lost their homes because they either bought into the properties three years ago when the market was high or refinanced their homes and took the money out from their properties, but now can’t make up difference, she said.”

“City staff try to work with property owners of foreclosed homes, department supervisor John Brownell said. But if nothing is being done to the properties, owners have two options: fix it or tear it down, he said. ‘They either have to put money into the property to make it presentable or tear it down and clear the lot,’ Brownell said.”

Bay Area Newsgroup. “Thinking about buying new home in today’s beaten-down real estate market? You could end up with as much as $18,000 in government tax credits stemming from proposals to jump-start the economy. A state tax credit worth up to $10,000 started Sunday as a way to encourage people to buy new homes.”

“‘This is something that our industry has been desiring to have for quite some time,’ said Layne Marceau, president of the Northern California division of Shea Homes.”

“The home-building industry is hoping that the tax break will prompt people to consider a new home purchase over a bargain-priced foreclosure, which accounted for 54 percent of existing home sales in January in the Bay Area. In January, only 340 new homes were sold in the Bay Area, a drop of 48.2 percent from a year ago, while the median price was $438,500, a 20.3 percent drop. (The median sale price for all homes, new and existing, was $300,000 in January, or 45.5 percent less than a year ago.)”

“Dianne Crosby, a senior loan consultant at LaSalle Financial Services in Oakland, would have liked to have seen both new and existing homes qualify for the state tax credit. ‘A pervasive source of malaise in the Bay Area real estate industry lies with the inventory of foreclosed and bank-owned properties,’ she wrote in an e-mail. ‘These homes, often in poor condition or abandoned, bring down the value of similar homes in the neighborhood and can be harder to finance because of their poor condition.’”

The Manteca Bulletin. “Thirty-five months ago only 4.8 percent of the people working and living in San Joaquin County could afford to buy a home here. Today, 66.4 of county residents can now afford to buy a median priced home taking it from one of the least affordable counties in California for housing in 2006 to the third most affordable today.”

“That is being made possible by a significant drop in median housing prices going from $435,000 in the first quarter of 2006 to $175,000 at the end of 2008 while median household income at the same time went from $57,100 per household to $61,300.”

“‘I think more and more people are getting the message that this is a good time to buy,’ said Jennifer Harnden of Coldwell Banker Crossroads Real Estate.”

“Tony and Crystal Davenport once thought homeownership was something that might occur after 10 years or so of marriage – if that. ‘Home prices in Manteca were between $400,000 and $500,000 when we first got together,’ Crystal recalled.”

“This month the couple moved into their own home on Wedgewood Way in north Manteca. Their home is costing them $40 a month more to buy that it did to rent a one-bedroom apartment for $1,025 a month previously at Paseo Villas.”

“The couple started out in December working with Realtor Tom Wilson after getting pre-approved for a loan up to $180,000 on the strength of his full-time job with Turlock Irrigation District. They made it clear that they wanted to leave wriggle room so things wouldn’t be so tight that they’d have to be even more careful on how they spent money than they currently were. That brought them to Wedgewood with a $150,000 list price.”

“They would have preferred granite counter tops in the kitchen but they figure they will get that in time and do the work themselves for a lot less money. They ended up in a mini-bidding war. They made the offer on Christmas Eve only to have Wilson call them back to let them know there was another pre-approved buyer but that buyer was maxed out. ‘We ended up getting it for just $500 more,’ Tony said.”

“‘I’m looking forward to the day in 30 years when I don’t have a housing payment,’ he said. Tony said he liked the idea of not ‘writing a check at the first of the month to send money down a hole’ and that instead they were buying something to call their own.”

“Both Crystal and Tony think that anyone that is renting should check into buying as soon as possible noting that the current prices aren’t going to last forever.”

“At the market’s peak in 2006, the median housing price hit $443,000 in Manteca or 7.1 times the city’s household median income of $62,000. Today’s median selling price so far in 2009 is $179,900 or 2.9 times the median household income.”

“”Buying a home with what seems to be non-stop bad economic news fed by cable TV channels didn’t worry the couple. ‘I figured if I lost my job I’d find some way to feed my family and (make the mortgage payments) whether it is flipping burgers, driving a diesel or whatever I needed to do,’ Tony said.”

The Sacramento Bee. “I’m back from listening to Leslie Appleton-Young, chief economist for the California Association of Realtors, who says 2009 will be grim and tough on the economy. But she adds that sales will surely boom in Sacramento, which is again affordable and a beacon for first-time homebuyers.”

“‘The great news is you guys are booming,’ she told a room of several hundred area Realtors, members of the Sacramento Association of Realtors.’Your market is clearing. Markets do clear.’”

“Median prices could fall up to 25 percent statewide, but not that far in Sacramento. It’s already taken the bulk of its hit to pricetags and moved on, she said.”

“Sellers, on the other hand, are feeling the pain. In a survey of them, the four common responses, she said, were: I can’t make my payment. I’m underwater. I need to save my money. I need to get out.”

“In a light moment she showed an editorial cartoon of a guy on a ledge ready to jump. A voice from a window says, ‘Wait, don’t jump until you hear what Alan Greenspan thinks.’ The guy on the ledge says, ‘I am Alan Greenspan.’”

“She noted that the past year has been tough on real estate agents. Membership in the CAR, which peaked at 211,000 in 2007, is projected to fall to 158,000 this year and ‘my guess is we’re going down to 135,000,’ she said. The crowd applauded.”

The LA Times. “Nearly 250 residential developments with a combined total of 9,389 houses and condominiums have been halted in California, according to Hanley Wood Market Intelligence. The units, worth close to $3.5 billion, were in various stages of development. Now, many are in bankruptcy or have been foreclosed by lenders. Developers have halted sales on an additional 370 new-home developments — about 30,000 units worth $11.9 billion. ‘It’s a sad state of affairs,’ said Greg Doyle, regional director of Hanley Wood.”

“They rip out copper wire, haul away pipes and take anything else they can steal from dozens of buildings on the site, abandoned after Irvine developer SunCal Cos. fell victim to the economy. It’s a scene not uncommon throughout California, as residential construction grinds to a halt: a rusty chain the only barrier between the community and a half-built structure in Hollywood; a bare dirt lot in Pasadena; old stoves amid the trash at the site in Oakland.”

“‘I hear hacking and see scary bonfires in the middle of the night,’ said Don Johnson, who lives near the defunct Oak Knoll Naval Medical Center in Oakland.”

From Salon.com. “Some 40 mortgage brokers and real-estate agents are gathered at the Long Beach Hyatt on a balmy Friday in January to attend a seminar conducted by broker Allen Brodetsky and local real-estate attorney Steve Vondran. The mortgage business might have collapsed, but those assembled in the glittering ballroom have each paid $195 so Vondran and Brodetsky can teach them a fresh way to make money off of other people’s debt.”

“‘The Department of Real Estate has granted brokers a whole new product line you never had before,’ says Vondran, as the Dockers- and Ann Taylor-clad crowd read from fat binders and ponder the unfamiliar terms in Vondran’s PowerPoint presentation — ‘LOAN AUDITS,’ ‘QUALIFIED WRITTEN REQUEST.’”

“Unfortunately for the borrower, however, is that the remaining debt doesn’t vanish. Those unpaid tens of thousands are waiting there to be reckoned with down the road, plus years of additional interest. ‘Isn’t that predatory lending?’ gasps one of the attendees at the Hyatt. Vondran and Brodetsky change the subject.”

“The problem is that the majority of loan mods are lousy deals for homeowners. Federal banking regulators recently determined that more than half of all mortgages that were modified by lenders in early 2008 ended up heading into foreclosure again in less than six months. Most loan modifications, in fact, dig borrowers deeper into debt.”

“Shawn Kolahi heads a fire brigade battling the inferno he helped ignite. Following Dana Capital’s business model, Kolahi’s loan modification enterprise relies on subcontractors — some 480 brokers nationwide selling its loan modification services. Some of the ‘affiliates’ appear to be in pretty desperate shape themselves in these hard times for the mortgage industry.”

“One subcontractor recently went into default on his Irvine condo after missing nearly $20,000 in mortgage payments. Kolahi’s wife, an attorney who works with Loan Processing Center to identify illegalities committed back when the borrower first got the loan, is in similar straits. She’s now heading for foreclosure on a loan for nearly $1.2 million on a home in an exclusive gated community in the Irvine hills.”

“‘Why do you think so many loan mod companies are here in Orange County?’ asks Sam Carlson brightly. ‘We’ve got cheap office space and out-of-work loan processors!’”

“Carlson and his boss Kolahi are far from the only exploding-mortgage salesmen now reinventing themselves as licensed loan doctors.”

“Mortgage industry veterans now joining the ranks of loan modification specialists don’t apologize for the products they used to sell. Ty Youngblood, a mortgage broker with 10 years’ experience who now does loan mods with state approval in foreclosure-ravaged Riverside County, says it was impossible to stay in business in Southern California unless one was willing to deal in no-doc, option ARM, cash-out and other toxic mortgages, all of which are still advertised on his Web site.”

“‘I’m just a waiter at a restaurant,’ Youngblood explains by way of metaphor. ‘I didn’t make the food. I didn’t grow the food. I’m just presenting the menu to the borrower. A T-bone steak? I’m just saying it’s on the menu. We didn’t invent these option ARMs — the banks did.’”

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