There’s No ATM Left To Tap In California
The Pasadena Star News reports from California. “Two years ago, owning a three-bedroom craftsman home in Pasadena was a dream Arturo and Olga Avon could never hope to attain. Today, with the median home price lower than it has been for at least five years, the Pasadena couple - and many others like them - got a rare crack at owning such a home. ‘We knew we’re getting a really good deal,’ said Arturo, sitting in the living room of the Marengo Avenue craftsman the couple purchased in October for $329,000.”
“But as in many cases in this new housing market, the Avons’ story has another, less-pleasant back story: The home they purchased sold in 2006 for $549,000, leaving its former owner with an unaffordable mortgage. It had to be sold to the bank at a loss. A study of 10 homes sold in Northwest Pasadena in the past six months showed the same pattern. All the homes went for under $350,000, even though all of them had been bought by previous owners for much more just a few years earlier - more than $500,000 in many cases.”
“In April, the median sales price of a home in Pasadena was $462,500, compared to $620,000 a year ago. Since then, many of the best deals have turned up in the 91103 area code of Northwest Pasadena, said local Realtor Doug Willis. But, he added, as foreclosures continue to spread throughout the city, prices have also begun to fall elsewhere in Pasadena.”
“So is it a good time to buy? ‘Real estate people will tell you it’s always a good time to buy,’ said Willis. ‘It is competitive… but people are thinking, ‘If I don’t get in now, when am I going to be able to?’”
The Press Enterprise. “‘I think it is a good time,’ said Mayra Gomez, 24, who with her husband and two children moved a week ago into a three-bedroom house on a golf course that they bought from a bank for $254,000 in Riverside.”
“Gomez said they’re overjoyed to buy a house with a Federal Housing Administration loan that required only a 3.5 percent down payment. When they first went house-hunting 18 months ago, she said, lenders wanted 20 percent down, and houses cost a lot more.”
“Real estate agents say because the number of foreclosed properties on the market has declined substantially this year, buyers are forced to bid against one another for what is available, with successful offers frequently above list price. ‘Just about every property now has multiple offers. The market is looking more and more like a sellers’ market,’ said Mike Teer, broker-owner of Teer One Properties in Riverside.”
The County Sun. “It’s time to buy a new house, homebuilders say. They said that a year ago while home values continued plunging, but nowadays straddling the fence too long could mean the difference between getting a great bargain or losing it.”
“Welcome to home shopper’s limbo, a place from which David and Denise Espinoza just escaped. After home shopping for one year, the couple finally purchased a new house this past week in Bonita Canyon, a KB Home neighborhood in Fontana.”
“The couple’s repeated $250,000 bids on foreclosures in Riverside hadn’t attracted any bites, leaving them tired of competing with buyers who are driving up the price of foreclosures through multiple bids, David said. The smallest Bonita Canyon model seems attractive: 1,400 square feet with no frills for about $235,000. With homeowner’s insurance and other costs - assuming your credit score is good enough to secure a 5.75 percent interest rate - your monthly payment would probably come out to somewhere between $1,600 and $1,800.”
“But the Espinozas went for the big one - a 2,200 square-footer, which came out to almost $290,000 including some upgrades.’We were looking (to pay) $1,700 a month, and now we went up to $2,400 a month,’ Denise said.”
“First-time home buyers across California who meet certain requirements are qualifying for $18,000 in credits. Because of this, home sales have doubled across the state, and foot traffic in sales offices, on average, has jumped 80 percent from a year ago, said Tim Coyle, senior vice president for Sacramento-based California Building Industry Association. ‘The super good news is that (building) permits are being pulled,’ Coyle said.”
“California’s $100 million pot for home buyer tax credits is near dry, prompting the builder’s association to push for more. Even if another tax credit is passed, the Inland Empire new home market’s bottoming out could take much longer than anyone anticipates, former home builder Mark Gardner said. After 21 years in the homebuilding business, Gardner - former owner of Redlands-based Gardner Construction - got out. He’s now branch manager for Prime Lending in Redlands, a mortgage lender. Gardner doesn’t foresee new home starts in the Inland Empire picking up for a long time.”
“It’s only logical the two-county region’s new home market will be the first to recover because it was the first to get hit and the hardest, some say. Gardner isn’t buying it. ‘We’re going to be the last to recover out here,’ he said. ‘With prices coming down … people would rather be closer to the beach areas. They won’t wanna’ drive all the way out here if they don’t have to.’”
“Bruce Norris, who runs a real-estate investment company in Riverside, said the numbers are not a positive sign for the area’s housing market. ‘San Bernardino (County) has got twice as many foreclosures as they do sales,’ said Norris. ‘They’re not going to be recovering in price any day soon.’”
The Review Journal. “There’s more pain to come, said Whitney Tilson, principal of T2 Partners and publisher of a June report on the housing and credit crisis. While the majority of mortgage defaults so far have been subprime borrowers, more middle- and upper-income homeowners are starting to walk away from their mortgages, he said.”
“Tilson is now seeing the third wave of prime loans defaulting due to job losses and home price declines. Prime loan default rates have jumped from 0.5 percent to 4.5 percent in the last year, he said. In California, the average mortgage owed on homes in foreclosure is $412,000, while the average appraised value of those homes is only $235,000. That’s going to cause a lot of people to walk away from their obligation, Tilson said.”
“‘The average person in foreclosure in California is 43 percent underwater, so it’s not like these people are close to the edge and you can save them with a loan modification,’ he said. ‘These people are deep, deep underwater. Are you going to keep paying when you’re that far underwater?’”
“When both the husband and wife were working, they could afford a big mortgage, Tilson said. Now, with 10 percent unemployment and some 3.5 million job losses, they’re tightening their belts. ‘It’s not just unemployment, it’s underemployment, people taking cuts in pay and working fewer hours. So what you’re seeing is the middle and high end start to tip over,’ he said.”
The Fresno Bee. “Figures released Friday by the state Employment Development Department showed California’s unemployment in May rose to 11.5% from 11.1% in April. It’s a record for the state, according to statistics dating back to 1976.”
“The housing bust across the western U.S. sent the region’s jobless rate bolting past 10% in May — the first time in more than 25 years that an entire region of the country has suffered double-digit unemployment.”
“‘The West is where houses are being abandoned most quickly, because it has the largest percentage of the population under water — owing more on their houses than they’re worth,’ said Robert Reich, a professor at the University of California at Berkeley. ‘They lose their capacity to borrow. All of that means that they can’t buy very much.’”
The Tribune. “Luke Tilley, senior economist with IHS Global Insight, said the San Luis Obispo County community will see improvement faster because the recession was not felt as ‘deeply or severely’ as in the Central Valley, Southern California and the Bay Area.”
“‘Southern California (mostly Orange County) lost jobs directly because of the high concentration of subprime lenders, and the ports have slowed in the face of declining international consumer spending,’ he said. Communities such as Riverside were overbuilt and are still hurting badly, he said.”
“But other economists said the Global Insight analysis may be overly optimistic given the uncertainty surrounding California’s fiscal crisis, a slow turnaround in consumer spending and the housing market decline, which caused many baby boomers to lose considerable wealth. ‘Though the region has not felt the recession as much as those in the middle of the housing bubble, and some think that means the region will recover from what it has felt more rapidly, what is required for recovery is for consumers to spend at rates they were spending at before, and many economists don’t believe that they will,’ said Jerry Nickelsburg, senior economist with the UCLA Anderson Forecast.”
“He added: ‘And all bets could be off, depending on what cuts in government spending means for your region.’”
The Contra Costa Times. “The jobless rates in the East Bay and California soared to their worst levels on record, climbing to double-digit rates during May, grim reminders that the recession continues to ravage the statewide economy. California lost nearly 69,000 jobs in May.”
“‘This is not a normal recession,’ said Dan Hamilton, director of economics with the Thousand Oaks-based Center for Economic Research. ‘It is a recession that is accompanied by a financial meltdown. Unfortunately, those kinds of recessions last much longer than usual.’”
“The big problem for the economy: Consumers can no longer use big gains in stock prices or housing values as a sort of piggy bank for spending, said Jon Haveman, a partner with Beacon Economics. Those bulwarks of consumerism have toppled. ‘There is no ATM left for the consumer to tap,’ Haveman said.”
The Recordnet. “Wayne and Theresa Crawford have scoured the Stockton foreclosure market for more than six months in search of a fixer-upper starter home they can help their 20-year-old son, Waylon, buy. Waylon, a single father working as a grocery store cashier, can afford the monthly mortgage on a $75,000 home. That sum, an unthinkable price just two year’s ago, can buy a three-bedroom house in a decent neighborhood, and the handy Crawford men can work any repair projects themselves, Wayne Crawford said.”
“The outcome of the family’s search thus far: frustration. And real estate agents say the Crawfords’ experience is not unique in Stockton’s market for bank-owned homes priced at less than $300,000. San Joaquin County’s median price is $155,000, according to May statistics. ‘We’re fully qualified, have a 20 percent down payment, and we’re offering above asking,’ Theresa Crawford said. ‘We put in our bids, and we don’t hear back, or they tell us we’ve been outbid. It’s been so long now that interest rates are going back up again.’”
“The inventory of foreclosed homes has shrunk, too. A federal 90-day moratorium on foreclosures so banks can modify loans for struggling homeowners will keep the inventory low.”
“It takes patience, perseverance and a little luck to score in this market, Stockton agent Art Godi said. ‘It’s a learning process for every client,’ Godi said. ‘They make their first offer under asking and don’t get it. They make their second offer at the asking price and don’t get it. Then, they start going over asking, and it’s still hit or miss.’”
“But after more than a half-dozen offers, some well above asking, the Crawfords are beginning to lose energy. After learning last week that a three-bedroom home on Galloway Court went to another buyer despite the Crawford’s offer of $5,000 over the listed price, the family matriarch said she might be ready for a break from their search.”
“‘It’s a dream for Waylon, and he’s beginning to lose patience,’ Theresa Crawford said. ‘He lives at home now but wants a place he can fix up and have a room for his daughter. This might be the straw that breaks the camel’s back.’”
From Bloomberg. “Shirley Breitmaier’s mortgage payment started out at $98 when she refinanced her three-bedroom home in Galt in 2007. The 73-year-old widow may see it jump to $3,500 a month in two years. Breitmaier took out a payment-option adjustable rate mortgage, a loan popular during the housing boom for their initially low minimum payments.”
“More than $750 billion of option ARMs were originated in the U.S. between 2004 and 2008, according to data from First American and Inside Mortgage Finance. California accounted for 58 percent of option ARMs, according to a report by T2 Partners LLC.”
“Breitmaier, who has been in the home for 45 years and lives with her daughter, now fears she will lose the off-white stucco house that’s a hub for her family. ‘I wish the government would bail us out like the banks and the car businesses,’ she said. ‘I’d like to go from here to the grave next to my husband.’”
“Paul Financial LLC originated the loan and it was sold to GMAC, said Cameron Pannabecker, the owner of Cal-Pro Mortgage and the Mortgage Modification Center in Stockton, California, who is working with Breitmaier. ‘This loan is a perfect example front to back, bottom to top, of everything that has gone wrong over the last five to seven years,’ Pannabecker said. ‘The consumer had a product pushed on them that they had no hope of understanding.’”
“Peter Paul of Paul Financial, based in San Rafael, said he wasn’t familiar with Breitmaier’s loan agreement but disagreed with Pannabecker’s characterization. ‘The problem is, real estate values went down,’ Paul said. Paul said he’s winding down the company and hasn’t made any loans since the fall of 2007.”
