At First It Was A Bonanza, Then It All Went To Hell
The Napa Valley Register reports from California. “Napa issued building permits to 2,456 residences during the decade, including two large, upscale apartment projects and a growing number of attached townhomes. With builders hammered by the recession, the city issued just 15 residential building permits through the first 11 months of 2009. This is a record low. Home values fell significantly over the past two years with the collapse of a national housing bubble. ‘We’re back down to 2002 levels. The equity of the past seven years has been wiped out,’ Randy Gularte of Heritage Sotheby’s said.”
The Manteca Bulletin. “All value gained – and then some – in the past 12 years for Manteca resale homes based on median price at the close of escrow is gone. Back in the high rolling times of five years ago, such borrowers simply refinanced their homes as the median value of existing homes shot up in Manteca by more than 125 percent from 1998 to 2006 when it peaked at $413,000.”
“Realtors are now citing cases of people who bought their homes in the mid-1990s when prices were lower than they are today who are now losing their homes because they over leveraged homes with debt as equity grew. The year 1998 was when the resale market lurched forward with sales doubling and value going up by roughly 30 percent over the previous year of 1998 when 259 homes sold with a median value of $131,000. It was also when the median price for the 243 single family homes built that year sold was $177,000 or just $375 more than what the median price of an existing home sold for in 2009.”
“‘The fairly quick turnover of foreclosed homes shows the American Dream of owning a home is still alive,’ noted Realtor Tom Wilson.”
The Fresno Bee. “University of California professor Ruth Mostern bought a 1920s house on a tree-lined street near downtown when she moved to Merced about five years ago. Her employer — the new UC Merced — was sprouting six miles away on an old golf course rimmed mainly by cow pastures. ‘I feel like I’ve really found a way to make myself a part of the community,’ said Mostern.”
“But the campus also drove speculation that has factored into Merced’s foreclosure rate, which leads the nation. Several officials recount stories of outside investors shuttling between real estate open houses in vans, buying up investment property ahead of UC construction. Then the bubble burst.”
“‘People went too fast and a little too aggressive in the housing market because they were going to make some pretty good money,’ said former mayor Ellie Wooten. ‘You can’t really blame the university.’”
The Sacramento Bee. “As a branch of Sacramento’s Nehemiah Corp. of America prepares to break ground on Township 9, one of the most significant developments planned for the capital region, an earlier condominium project funded in part by the organization faces litigation by disappointed buyers. In April 2008, 20 percent of the 272 units were classified as uninhabitable by the property manager – only three years after they were first put up for sale. A lawyer for the homeowners association, which is rapidly burning through its reserves, says it may soon be too broke to pay water and sewage bills.”
“Nehemiah expressed regret about the outcome of the Rollingwood Commons condominium conversion but said it had no control over the fund’s management of the project. ‘It was done with the best of intentions, and circumstances beyond anybody’s control led it to be a failure,’ said Peggy Jones, the head of the Nehemiah Community Reinvestment Foundation.”
“Flush with cash, the fund went shopping for properties from Fair Oaks to Truckee. Six years later, Nehemiah and other investors have lost much of their equity. ‘At first it was a bonanza, and then it all went to hell,’ Jones said.”
“‘The money they were going to use to fix this place up, they skimped on that for profit,’ said Alan Baryak, an owner and member of the Rollingwood Commons Condominiums Owners Association.”
The Merced Sun Star. “Entering the new year, California continues to be the blue lagoon for the mortgage mess. It is one of five states leading the nation in ‘underwater’ mortgages. That situation extends the housing meltdown to homeowners with good credit. Thirty-five percent of California mortgages are under water, according to First American CoreLogic. In the Sacramento metro area, it is 44 percent.”
“Law professor Brent T. White, in an important new paper, ‘Under Water and Not Walking Away,’ describes the problem: A young professional couple with excellent credit and a solid income bought an average three-bedroom house in Salinas for $585,000 in 2006. Their monthly payment is $4,300. Then the housing bubble burst and their house now is worth only $187,000 — though they still owe $560,000 on their mortgage. He estimates it would take them more than 60 years just to recover their equity.”
“In White’s example, the couple could continue to pay $4,300 a month. Or they could go into foreclosure, rent a place for $1,000 a month, and in a few years buy a home selling at a pre-bubble price of $180,000 with monthly payments of $1,200. Or they could approach their lender/loan servicer and attempt to get a loan modification that reflects the home’s real value, voluntarily writing down some of the principal.”
“The latter is the best solution for everybody. The problem is, such loan modifications just aren’t happening.”
The Bakersfield Californian. “The residential real estate market hit bottom last year and we’ll likely see some ‘flattening out’ this year, said Nance Fillmore, president of the Bakersfield Association of Realtors. Prices plunged in 2007 due to a massive influx of foreclosures, but modest price increases resumed last year and will continue, she said. ‘It’s not going to be another boom like we had before,’ Fillmore said. ‘We’ll just return to slow, steady growth. That’s going to be the new normal.’”
“Fillmore said she isn’t too concerned about another big wave of foreclosures depressing prices again. ‘It’s been the rumor for months, but seeing is believing, and so far they just haven’t appeared,’ she said. ‘The president is pushing the banks to do loan modifications to keep people in their homes, and I don’t think we’re going to see a flood of shadow inventory. Banks are letting them trickle out slowly at a monitored rate. It really is in their best interest to continue doing that, because if they dump them all at once, they won’t get as much for them.’”
The Voice of San Diego. “San Diego County home prices rose again in October, continuing a streak of monthly price gains that began in the spring. Why the price increases? Can they and will they continue? There’s a common player in many of the factors linked to the increased players: the federal government.”
“Jed Kolko, research fellow at the Public Policy Institute of California, said it’s not possible to conclude the housing market wouldn’t be turning around on its own two feet without the government boosts. ‘Reports about the housing market suggests that we’re still sort of either bottoming out or prices are increasing slightly,’ Kolko said. ‘We can’t see what would’ve happened to the housing market without these programs or these credits.’”
“‘What’s moving the market now are stimuli and supports,’ said Mark Goldman, local mortgage broker and real estate lecturer at San Diego State University. ‘What’s going to move the market in general over time is going to be jobs and income.’”
“But there’s a backlog of distressed properties that could tip that balance — commonly referred to as the shadow inventory. As of Tuesday, there were 8,801 homes that had received notices of default — the first stage of foreclosure — within the last four months that had not yet progressed to the next stage, according to ForeclosureRadar. And there’s an even bigger backlog in the second stage. ForeclosureRadar said 10,652 properties in the county are actively scheduled for foreclosure sale — Notice of Trustee Sale, the second stage of foreclosure — but haven’t yet been sold or canceled.”
“Those combined 19,453 active foreclosures total more than twice as many homes are currently on the market. Kolko sounded a cautionary note about San Diego residents who bought their homes in the last several years. ‘How many mortgages have adjustable rates that reset in 2010?’ he said. ‘Many borrowers took out … loans that haven’t reset yet and when they do, there may be people who can’t afford the payments.’”
“Those resets are the biggest question for many San Diego homeowners. Jonathan Heller bought a three-bedroom house in Tierrasanta in 2006, placing a down payment of $35,000. Now he thinks the house he paid $480,000 for is worth about $427,000. ‘If you look at it that way I’m definitely in the deep end,’ he said.”
The Union Tribune. “Economists and market analysts who watched the decade’s gyrations can imagine both a worst-case scenario or a best-case outlook, but they stress the need to return to market fundamentals. ‘Over the long haul, house prices can’t grow faster than people’s income,’ said James Hamilton, an economics professor at the University of California San Diego. ‘Many people ignored that lesson over the last decade and paid a pretty high cost.’”
“Some economists say prices could dip in 2010 as foreclosures and defaults multiply. But over the long run, many expect appreciation of a few percentage points over inflation — roughly 6 percent annually. San Diego’s year-over-year price change in November was 6.6 percent. If that rate persists, the peaks reached several years ago will be seen again by 2018, said Robert Kleinhenz, a former Cal State Fullerton economics professor and now an economist at the California Association of Realtors. ‘Whether we hit that mark or not, I’m not making a forecast,’ Kleinhenz said.”
“Christopher Thornberg, a former UCLA Anderson Forecast economist and co-founder of Beacon Economics in Los Angeles, rang early warning bells about a pending real estate bust — calls that he said were usually met with laughter at his speaking engagements. Thornberg said he believes San Diego is well-positioned with a diversified economy to recover from the recession and the real estate debacle.”
“‘In the long run, I’m optimistic,’ Thornberg said. ‘I worry about the next couple of years. … We have not escaped the consequences of our actions quite yet. I wouldn’t call the new decade a clean slate by any stretch of the imagination.’”
The North County Times. “In early 2008, Steve and Lisa Daniels, along with their six children, were afloat in the housing market bubble. An adjustable-rate mortgage allowed them to springboard from a Corona condominium to a $630,000 home on Sherry Lane in Murrieta, where they lived while construction finished on their $1.5 million, custom-built house in the nearby community of La Cresta.”
“When they moved to La Cresta in November 2008, Steve had a thriving small business, and everything seemed to be going great. But even as they packed up to move, the construction market in Southern California was falling apart, and its demise took the Daniels family down with it. By the end of 2009, the La Cresta home was in foreclosure… Steve’s business was barely bringing in any money, and they were in default on their mortgage for the Sherry Lane house.”
“An adjustable-rate mortgage allowed them to springboard from a Corona condominium to a $630,000 home With property values still rocketing upward at 10 percent a year, they figured buying a house was better financially than renting. Armed with an exotic loan from JPMorgan Chase & Co. that let them choose how much they wanted to pay…they spent $660,000 on a 3,500-square-foot house on Sherry Lane.”
“They decided to pay only the interest on the loan, and then sell it when they moved to the new house. If they were lucky, they figured, they might even make some money on the deal.”
“When the construction loan for the custom house converted to a mortgage, the interest rate leapt to 8.5 percent. There was no way the Danielses could afford the $10,500 monthly payments, so they didn’t make them. They tried for a loan modification. Their lender, National City Bank, called Steve with their analysis. ‘They said, ‘You’re not making $32,000 a month anymore.’ I said, ‘When was I ever making $32,000 a month?’ Steve said.”
“‘There was fraud,’ Lisa said.”
“Lisa and Steve have no idea what the future will hold. ‘I don’t know what we’re going to do now,’ Lisa said. ‘I’m not sure when they’re going to come and kick us out of this place.’”
