The Daily Breeze reports from California. “The median price of all South Bay homes sold last month was $513,000, down 12.3 percent from the same month a year earlier, according to a report released by the California Association of Realtors. For strictly single-family home resales, May’s statewide volume was up 35.2 percent over the same period a year earlier.
“In the beach cities, the median dropped only 5.8 percent to $801,000. Redondo Beach saw a 14.8 percent drop in its median to $617,500. The South Bay’s median price drop was far milder than that of Los Angeles County, which saw an annual decline of 30.1 percent to $299,000 in May. The city of Los Angeles saw an even more severe plunge of 45.4 percent to $280,000.”
“‘Buyers are beginning to realize that the combination of favorable home prices, historically low mortgage rates and first-time homebuyer tax credits, may not align again for many years,’ CAR President James Liptak said in a statement.”
“Local home prices continued their slide in May, amid the recession and ongoing job losses.”
“At her first job interview in two months on Friday, unemployed Shellie Langley approached questions about her work history and her knowledge of wine with nervous excitement. Her potential employer is the soon-to-open Tin Roof Bistro in Manhattan Beach, a casual American restaurant in the Manhattan Village shopping center.”
“‘I really need a job so, so bad,’ Langley told her interviewer. ‘I’m completely open for all shifts. I’m looking to be a server but will be a hostess, cashier, anything.’”
“For Langley, who lost her job as a secretary earlier this year when the small company she worked for downsized, the Tin Roof was an oasis in a desert of non-hiring restaurants. ‘It’s been awful. Everywhere I’ve been, they say, `We’re not hiring,’ said Langley, who lives in Hawthorne with her two children. ‘It’s been devastating. I had to let a car go. I’m just on the verge of bankruptcy. I need a job so I can stay in my home.’”
The LA Downtown News. “While the Related Companies’ $3 billion plan to transform Grand Avenue remains on hold, the New York-based developer has more quietly made a significant play in Little Tokyo’s luxury rental market. In 2005, Related obtained city approval to construct a $250 million, market-rate housing community on the site, but subsequently sold two of the Block 8 plots to developers the Kor Group and K. Hovnanian.”
“In turn, those developers separately sold their pieces to AvalonBay Communities Inc., which plans to build another six-story rental project, called Matsu, at the southwest corner of Los Angeles and Second streets. Meanwhile, Related is holding on to the parcel on the northeast corner of the block until the economy recovers, said Related of California President Bill Witte.”
“Lloyd Lee, a 31-year-old real estate loan specialist, and his wife relocated from Las Vegas into a sixth-floor, one-bedroom unit at Sakura Crossing. ‘We were looking for the right combination of security, price, location, amenities and service,’ said Lee. ‘We looked at literally every decent place in Downtown as well as Pasadena and this was the best place to go with.’”
“While Sakura Crossing Project Manager Rick Westberg said that Related is not advertising any rent reductions or other economy-sensitive deals, Lee said his unit at Sakura Crossing is less than $1,700 per month. He would not reveal his exact rent, however, because ‘They might be mad at me for telling you, because I got a really good deal.’”
The Desert Sun. “Riverside County faces economic head winds over the next two years, with another surge in foreclosure activity, minimal employment growth and marginal appreciation in home values, keeping the county’s tax coffers lean, according to a report given to the Board of Supervisors. ‘We’re being battered here very badly,’ Supervisor Bob Buster said in response to the 47-page economic forecast authored by researchers at Cal State Fullerton.”
“Researchers said the Inland Empire’s housing boom put the area ‘in an unsustainable trajectory,’ leading to artificially high median home prices that barely one-fifth of the region’s residents could afford using conventional loan products. The market peaked in 2006, when the median home price in Riverside County reached $415,000. Since then, prices have dropped 60 percent, squashing demand for new construction, the researchers said.”
“‘The Riverside County economy has plunged into an even deeper recession than the national economy,’ the report states. ‘The collapse in the housing market and in housing activity is one of the main factors behind the sharp deterioration of the county’s economy.’”
“The number of California hotels involved in a foreclosure action or in default has risen 125 percent in the past 60 days. Those properties already lost to foreclosure have largely been in the counties of San Bernardino, Riverside and San Diego.”
“Alan Reay, president of Atlas Hospitality Group, said Atlas saw signs the hotel industry may be affected by the housing crisis in California about 18 months ago, and has compiled data over the past year on troubled hotel properties. Initially, foreclosure action was taken against independent hotels, the hotel brokerage and consulting firm noted. Most were boutique motels in secondary markets.”
“‘Only in the last 60 days have we seen a massive run-up,’ Reay said. ‘I think hoteliers are getting to the point of not seeing light at the end of the tunnel, and they’re starting to throw in the towel.’”
“Earlier in June, Sunstone Hotel Investors Inc. disclosed its intent to forfeit the W San Diego to lenders after efforts to reach a compromise on the hotel’s $65 million securitized mortgage failed. Sunstone, a real-estate investment trust, bought the W in 2006 for $96 million, just before the economy slumped.”
“‘It’s the first publicly traded company to take that move,’ Reay said. ‘It’s the tip of the iceberg,” he added. ‘No market or brand is immune in this downturn.’”
From Bloomberg. “Four months after President Barack Obama pledged $275 billion to shore up home sales, the engine that powered every U.S. recovery since 1960 is stalled. Bankers’ reluctance to finance buyers who won’t live in properties is one barrier to a turnaround. There’s little chance the turnover will increase enough this year to end the housing recession, said Andres Carbacho- Burgos, an economist with Moody’s Economy.com.”
“‘We have a lousy job market and an excess of around 1 million extra homes that has to be worked off,’ he said in an interview. ‘The housing market is not going to hit bottom before mid-2010.’”
“If the cost of money doesn’t put consumers off, loan officers’ new strictness may keep them out of the market, said Grant Stern, a mortgage broker in Miami Beach, Florida. About 50 percent of banks tightened requirements for prime borrowers in the first quarter, asking for bigger down payments and more cash on hand, among other things, the Fed said. ”
“‘Six years ago, standards were pretty permissive, and two years ago all you needed was a pulse,’ Stern said in an interview. ‘Nowadays, even people who have reserves that equal amount of the loan are getting rejected.’”
“Driving through Riverside, California, Bruce Norris pointed to a half-dozen empty houses with ‘For Sale’ signs stuck in untended lawns that he said investors might buy if banks would just extend some credit. ‘People today look at us as the enemy,’ said Norris, head of Riverside-based Norris Group, which purchases and renovates homes to rent or sell. ‘That’s a big problem for housing because if we can’t get the financing we need, a lot of these properties are going to sit vacant.’”
The Times Herald. “The Vallejo area was the first in Northern California hit by the recession and it will be the last to recover, according to an economic think tank’s latest forecast. The University of the Pacific’s Business Forecasting Center’s most recent report predicts Vallejo won’t recover to its pre-recession jobs level for about five years, or until the second quarter of 2014. Merced and Sacramento, predicted to be the second last to recover, won’t do so until near the end of 2013, the report reveals.”
“San Francisco and San Jose, on the other hand, will be the first Northern California metro areas to recover — in mid-2012 — a full two years before Vallejo, center director Jeff Michael said. Like most think tanks, the center has not always been right about its predictions. It predicted significant growth in the Vallejo area, for instance, which never materialized, presumably because of the recession.”
“‘Vallejo’s employment was the first to peak, in the first half of 2006, and began a slow decline after that,’ Michael said. ‘Predicted growth just sort of stopped in ‘04.’”
From CBS News. “The value of most Americans’ single biggest investment - their home - continues to fall. And their second biggest - their retirement nest egg - has also taken a hit. Since the bear market began in November, more than $2 trillion in 401(k) savings has evaporated.”
“CBS News business correspondent Anthony Mason reports. Sam and Myrna Cadelinia were hoping to raise a glass to retirement five years from now. But, Sam says, ‘That’s all changed.’”
“Sam owns a San Francisco real estate business and his nest egg has been eaten away by the recession. Retirement portfolio down 25 percent while business has virtually stopped for his company. Now he doesn’t know how to invest what money they still have.”
“‘Not all is lost. Our lives are just evolving differently,’ he said.”
The Mercury News. “Your home equity has sunk and your mortgage is underwater. But if you’re drowning in Silicon Valley’s housing market, Santa Clara County Assessor Larry Stone may have a little relief for you. Almost one in four county homeowners are being notified that their plunging property values entitle them to a temporary tax break averaging about $2,000. The assessor’s office has just mailed notices to the county’s 460,000 residential and commercial property owners, stating the assessed values that will be used to determine their property taxes this year. Those values have been reduced from last year for 90,000 of the county’s 406,000 single-family home and condo owners, thanks to the decline in the housing market.”
“The total assessed value reduction is more than $17 billion, reflecting average reductions of $170,000 for homeowners. By comparison, about 46,000 property owners got reductions last year averaging $78,000 for each home.”
“‘Some people think this is good,’ Stone said, acknowledging it’s perhaps little comfort since every dollar in reduced property tax means $99 in lost equity.”
The Los Angeles Business Journal. “Babette Heimbuch joined FirstFed Financial Corp. more than 25 years ago, just about the time the thrift made its first option adjustable-rate mortgage loan. She was there as FirstFed grew into one of the nation’s largest so-called option ARM lenders. And she is there today as CEO as FirstFed is the last one standing among all the big lenders of those risky loans.”
“The big question looms: Will FirstFed, a savings and loan founded in Santa Monica on the eve of the Great Depression, be next? ‘We’d be fools not to be nervous,’ said Heimbuch. ‘But all we can do now is work really hard to fix the problems that we have.’”
“With 38 branches across Los Angeles and assets of $6.8 billion, FirstFed is L.A.’s fifth largest depository institution. Much of its growth, however, has come on the back of the variable-rate loans that have been defaulting in large numbers in the past two years. FirstFed, the parent of First Federal Bank of California, has endured nearly $300 million in losses in just the past two quarters while its loan-loss provision has ballooned to more than $300 million. Nonperforming assets now stand in excess of 8 percent of total assets – even half that amount would be considered high.”
In January, regulators placed the thrift under a cease-and-desist order over concerns that its capital supply was rapidly depleting. Even its auditor expressed doubt about its ability to survive.
Yet the institution is still around, and executives, who admit that the work can be draining, said they expect it to stay that way.
“The risk in this portfolio was not Armageddon,” said . “It was pain and suffering, but not Armageddon.”
“Management instituted a massive – and, to date, successful – loan modification program beginning in 2007, well before most other lenders saw the need. The company halted its lending and reduced staff levels by nearly one-quarter through layoffs and attrition. Top executives took a 10 percent pay cut.”
“‘We’re the last option ARM lender out there,’ Heimbuch said. ‘Not to say that we’re not struggling and we don’t have to raise capital, but we feel like we’re getting our arms around the risk.’”
“FirstFed had been making option ARM loans without incident for more than 20 years. The loans held up well largely because option ARMs tended to be given to borrowers with good credit and proof of income. But everything changed in the early 2000s, Heimbuch said, when Wall Street firms began securitizing the loans in large numbers. ‘When Wall Street came in and had really low pay rates with no documentation, that just bastardized the loan and ruined it,’ she said.”
“James Giraldin, FirstFed’s chief operating officer remembers the day he realized that Wall Street’s influence would prove disastrous. In the fourth quarter of 2005, he learned that one of the top local competitors was a subsidiary of Bear Stearns. At that moment, he said, he knew that securitization was truly taking hold of the industry. Turning to Heimbuch, he said, ‘This is over.’”
“FirstFed readily admits it made the mistake of dropping its own standards in a misguided attempt to remain competitive. It did that mostly in 2005, a year in which the thrift originated $4.4 billion in single-family loans – primarily option ARMs and most without full verification of income or assets. But the thrift was also one of the first to pull back. By late 2005 and into 2006, managers made the decision to stop underwriting the riskiest loans and begin requiring proof of income. Within two weeks, their business dropped in half.”
“‘We really cut back,’ Heimbuch said. ‘We took a lot of grief for that. People were saying, ‘Why aren’t you lending? Everyone else is lending. What’s the matter with you?’”
“Giraldin pointed out, just a year of unwise lending has pushed the company to the brink of failure. Since then, shareholder value has been all but wiped out. Its stock, which traded at more than $69 a share in 2007, closed June 25 at 35 cents. ‘Most of our pain and suffering comes from that ’05 production,’ he said.”
