Draining The Swamp In California
The Press Enterprise reports from California. “Moreno Valley provides a window into the turbulent housing market left in Riverside and San Bernardino counties after real estate prices collapsed. When Inland home prices hit bottom in the second quarter of last year, existing Moreno Valley homes sold at a median price of $139,226, meaning half sold for more and half for less, according to MDA DataQuick. Also, Moreno Valley was more vulnerable to foreclosures than most Inland cities because almost 10 percent of its 5,461 homes had been built in 2005 or later. That was when frenzied buying drove home prices to their peak at the same time relaxed lending standards and risky loan products enabled many people to buy houses they could not afford.”
“Bianca Ward said her parents had no way of keeping an investment home they owned in Moreno Valley after renters left a year ago and her mother’s wages at a casino were cut in half because of the poor economy. Ward said she stayed in the house for seven months without paying rent or the mortgage before moving into a home she bought for herself in Hemet. ‘I was waiting any second for the bank to knock on the door … But that didn’t happen,’ Ward said.”
“She said the bank repeatedly has delayed foreclosing on the house although her parents would like to get it over with so they can start rebuilding their credit. Meanwhile, she said, ‘no one is watering the lawn. It is probably an eyesore for the former neighbors.’”
“James Fino said he was unaware that his house was scheduled to be sold at a foreclosure auction. He said for five months he had been in a trial mortgage modification program through his lender that lowered his monthly payments by $1,000. He said he hoped that the modified loan payment would be made permanent although he had not been able to find a job since he was laid off in September 2008. Fino said he has been glad for the rainy winter because it means his weedy yard is green. He said he can’t afford to water the grass or buy fuel for the mower and the family can no longer use the community gym, boats and other recreational facilities because he has not paid the association dues.”
“When Fino and his wife bought their house four years ago for $415,000, he said they took a mortgage with monthly payments so low that the balance kept growing. ‘It was the easy way to get into a house,’ he said.”
“He had planned to refinance the loan before he would have to begin making higher principal and interest payments. He thought he would do it using the equity he would gain as the house rose in value. Instead, the value of the house plunged to about $200,000, he said. The family’s next challenge could come soon when Fino’s unemployment pay is expected to end. Maybe it will be extended once more and he will land ‘green job’ training through the State Economic Development Department, he said.”
“‘Plan B we haven’t come up with,’ he added. ‘Right now, it is a day at a time.’”
The County Sun. “Hoping preparations now will pay off during the next economic upswing, officials here are hammering out the details of a planned community on the largest piece of development land remaining in the city. The Lytle Creek Ranch Specific Plan on the north side is a 2,447-acre project between the 15 and 210 freeways that features parks, a revamped golf course, retail and more than 8,407 residential units tucked into a development that could see 25,000 new residents come into the city.”
“How much revenue the project will bring into the city’s General Fund and how soon work could start are among the questions that remain to be answered. Officials are waiting on the market to see how soon they can draw in commercial development to the project. Commercial use is vital because it helps pay for the cost of services for the new residents.”
“‘As a general rule, an all-residential (development) would generate a deficit without the commercial,’ said Robb Steel, the city’s economic development director.”
The North County Times. “As builders know better than most, the go-go 2000s are over: $10.3 billion in residential construction spending in 2005 in Riverside and San Diego counties collapsed to $1.8 billion in 2009, according to the Construction Industry Research Board. Struggling local builders and designers are lining up with outstretched arms and rolled-up sleeves for an injection of federal government construction dollars.”
“Chris Close owns Murrieta Development Co., a Temecula-based contractor that for 28 years specialized in underground work, particularly sewers and storm drains in Southwest Riverside County. But starting two years ago, Close noticed some formerly free-spending developers cutting down their projects, while others simply went under.”
“Her own business shriveled: A 150-employee firm at its peak with $50 million in income in 2007 was reduced to $17 million in 2009, and in January she reduced her work force to 30 employees. When Close told her story, she had to fight back a tear. She attended a symposium thrown last week by the California branch of the American Council of Engineering Companies in downtown San Diego. During a break, Close and her consultant stood in the lobby, trying to figure out who they could meet who might be willing to take on Murrieta Development as a subcontractor on a bid.”
“‘It’s like starting over,’ she said.”
The Union Tribune. “Real estate ‘analytics’ are Norm Miller’s thing as vice president of the CoStar Group. The company lured Miller away from his professorship at the University of San Diego last year to analyze the mountain of real estate data the company’s hundreds of researchers dig up — on condition that he could remain in San Diego. Q: From 20,000 feet up, how do you view San Diego’s current real estate market?”
“A: In the big picture, we are in one of the most highly supply-constrained markets that you tend to get on both coasts of the United States. As a result, they tend to have faster rent and price increases and faster price declines. So we end up getting a volatile market. But because we’re supply-constrained, we don’t have as much oversupply in most of the commercial real estate sectors as you have in major markets around the country. At the same time, one of the problems is we’re stuck in California. San Diego would be a great place to live if it wasn’t surrounded by California.”
The Sacramento Bee. “There was a time when California was a migration destination. With its sun-drenched coasts, dynamic economy and boundless promise, it stood as a beacon that drew people from all over the country. Today, after a decade of cascading failures and near oppressive disappointments, there’s a looming sense that California has descended into dreary mediocrity and is headed for imminent disaster.”
“2009 was the fifth consecutive year that more residents left California than moved to California from other states. ‘I hate what California has become,’ says Lisa Duerr, a state worker and California native. ‘I grew up during California’s ‘Golden Age,’ she recalls. ‘The best schools, the cutting edge of everything from culture to technology, the envy of the nation. I never imagined living anywhere else.’”
“Now, frustrated by high prices and tax dollars that support an entitlement attitude at the expense of the middle class, Duerr says, ‘I’m about 10 years from retirement and seriously considering moving out of state.’”
The LA Times. “A job fair at Six Flags Magic Mountain in Valencia, Calif., last weekend drew 1,600 people - in the rain. Universal Studios Hollywood took in more than 1,100 job applications on just one day last month. Disneyland in Anaheim, Calif., and Knott’s Berry Farm in Buena Park, Calif., have received so many job applications that they put off plans to hold jobs fairs this year. Theme parks are being flooded with applications from job seekers, as unemployed mortgage agents, sales clerks and construction workers who can’t find work elsewhere seek temporary positions that often pay little more than minimum wage.”
“‘We are getting a lot of people who, in a normal economy, would be considered overqualified,’ said Joe Selph, manager of staffing and training at Universal Studios Hollywood.”
“Dominick Muniz, 27, used to drive a forklift and work in construction. But this week, he showed up at Knott’s Berry Farm’s employment center in hopes of landing a temporary job that pays $320 to $380 a week. And he’s not picky about what kind of job. ‘I’ve got a family to feed,’ the Whittier, Calif., man said as he filled out the forms. ‘I just want to get whatever comes along.’”
The Reporter. “The long-term impact of the ongoing housing slump and its financial fallout is coming into high relief, as county governments prepare for budget shortfalls caused by declining property tax revenues. In its recently released 2009 Housing Report, the Association of Bay Area Governments noted Solano County cities may face $9 million to $12 million less in property taxes because of high foreclosure rates.”
“Four years ago, in the first quarter of 2005, Solano County had almost no foreclosures. In early 2009, 4 percent of all residential loans in the country were in some stage of foreclosure. An additional 8 percent were at least one payment behind. Both foreclosures and delinquent mortgage payment rates were the highest on record since 1972. At the same time, home prices dropped 19 percent from the previous year, the largest ever recorded year-over-year decline in housing prices, bringing the median home values back to 2002 levels, the ABAG report noted.”
“In 2009, some 58,000 properties were reassessed at lower values in Solano County and Assessor-Recorder Marc Tonnesen expects to adjust property values for about 65,000 homes in 2010. He explained that, in 2009, the county lost $4.5 billion in assessed value and is anticipating another $3 billion loss in 2010.”
“‘The homeowner gets a break, but that means less revenue for the county and the cities,’ Tonnesen said.”
“Solano County Treasurer-Tax Collector Charles Lomeli agreed. ‘The tax base from property value is a significant source of revenue,’ he explained. ‘With that revenue loss, government has to be smaller.’”
The Mercury News. “With even well-managed counties, cities and schools finding themselves in the same budget hole that has swallowed state government, California now confronts a financial crisis that may be unrivaled — though it is also maddeningly difficult to quantify. In fact, the problem is so expansive that several experts contacted by the Mercury News wouldn’t even hazard a guess. So just how broke is California?”
“So why, exactly, have budgets gone so sour in so many places? The simple answer is that local governments have been just as susceptible as state government to the ravages of the recession. Record, prolonged unemployment has sapped a key revenue stream for California’s bigger cities: sales and hotel-occupancy taxes. Building permits and housing construction have slowed to a trickle.”
“And a massive collapse in home values has triggered, for the first time under Proposition 13, a statewide reduction in property tax bills.”
The Press Democrat. “On any given day, homebuyers can chose from 1,300 houses and condominiums in Sonoma County. But just out of sight, a wave of new properties is headed toward the market. A new study estimates that Sonoma County has more than 7,000 houses and condos that will be lost to foreclosures or other distressed sales in the next few years. While these properties aren’t currently for sale, they eventually could reach the market because their owners no longer can afford them. If correct, the forecast by John Burns Real Estate Consulting would surpass the 5,600 homes already seized by banks in foreclosure proceedings over the past three years.”
“Some observers have portrayed the shadow inventory as a potential flood that could overwhelm the market. But analysts and real estate agents suggested that what lies ahead for the housing market better resembles the slow draining of a swamp, one created by years of risky loans and hyperinflated prices. ‘It’ll be 2015 or ‘16 before this thing is over,’ said James Madison, an agent who specializes in selling foreclosed homes.”
“Some fear the estimate of 7,000 homes in shadow inventory may turn out to be too low. Forrest Jinks, a principal in the Santa Rosa real estate investment company Altus Equity LLC, said government loan programs and tax credits are still allowing some buyers to purchase homes with virtually no money down. With the government incentives, buyers often purchase the most expensive place they can afford, and ‘any hiccup in their employment’ could put them into serious trouble, he said.”
“‘It was that kind of lending that got us into this trouble in the first place,’ said Jinks.”
“Dustin Hobbs, a spokesman for the California Mortgage Bankers Association, rejects any talk of a flood of new inventory. ‘I don’t see any reason and any movement to dump hundreds of thousands of properties in a short period of time,’ he said. ‘That wouldn’t help anybody.’”
“Even so, many current homeowners won’t be able to save their homes. Some agents said the banks may delay the day when they take back those properties, but that approach only postpones the day when home values rebound. ‘I hate to say it, but at some point it’s got to happen,’ said Charles Himes, director of REO services for Pacific Union International Real Estate in Santa Rosa. ‘They need to unload these properties for the market to recover.’”
The Merced Sun Star. “Tears and hugs. Both emerged in waves Friday evening at the foreclosure forum co-sponsored by the Sun-Star and Merced College. Susan Ramos said she didn’t know, when she returned from the meeting, whether her home would still be hers. Despite declaring personal bankruptcy last year, she and her family were told their house would be auctioned off at 3 p.m. Friday.
Frances J. Ward and her son Ernest King recalled the hundreds of pages of faxed material they’d been forced to send and resend to banks to try to fix their foreclosure problem. Ward said she and her husband have both suffered heart attacks during the ordeal.”
“Cristina Robles repeated the complaint that she had to ‘resend, resend, resend’ the same documents, time after time, after bank employees told her some of the pages had been lost. Melissa Franks held up a foreclosure notice she’d gotten earlier that day and how it affected her two children, one with Down syndrome. ‘I don’t want to lose our house,’ she said, beginning to cry.”
“Realtor Andy Krotik noted that the number of loan modifications has risen at one major bank to 80,000 now in process from only 1,100 in December. ‘The dirty little secret is that sometimes foreclosure is in (the banks’) interest,’ he said. Krotik, who’s been a Realtor here since 1989 and writes a real estate column for the Sun-Star, also advocated ‘putting pressure on our elected officials — that seems to be the only way.’”
“Carole McCoy, also in the audience, generated applause when she stood and said that in 33 years as a Realtor, ‘I’ve never seen anything like this — it’s criminal until we get these banks under control.’”
The Record Searchlight. “In a July 2005 Record Searchlight story headlined ‘Equity euphoria - Homeowner caution urged before cashing in windfall,’ Redding accountant Bruce Hirst warned people that treating gains in property values as added wealth can be dangerous. ‘My general piece of advice to keep in mind is just because your house has gone up in value doesn’t necessarily mean you are wealthier. The only thing that’s really happened is you got an easy way to borrow more money,’ Hirst, a CPA, said five years ago.”
“Hirst’s words proved prophetic. The housing crash has certainly tested the notion that home values can go only up and real estate is a can’t-miss investment. The boom and bust of the housing market has ripped apart communities across the country, evident in the number of foreclosures and the spike in personal bankruptcy filings. ‘I am not necessarily happy that I was proven right,’ Hirst said last week. ‘But when I think back on that, I like to have my clients have their home paid off by the time they retire, so borrowing on your home is doing the opposite.’”
“If you must tap into home equity, do it for the right reasons, noted Redding financial planner Jeff Avery. ‘Don’t use that increase in equity in that home to finance a higher standard living along the way. That is where people really got in trouble,’ Avery added.”
“Avery explains most people wouldn’t think twice about raiding their 401(k) to buy a boat or take a European vacation. ‘So why would you do that with what is in most cases the biggest investment of your life?’ Avery said.”
“Redding financial planner Vince D’Amato chuckled when he recalled at the height of the boom one client told him that real estate never goes down. ‘I wouldn’t say it’s an investment as much as it’s a place to live,’ D’Amato said of your primary residence. ‘In a sense, your house is a long-term investment.’”
“Homeowners might use the equity in their home to add an extra room, but to speculate with that money is a horrible idea, D’Amato said. ‘Leveraging your house for unnecessary things is a bad idea,’ D’Amato said.”
The Los Angeles Business Journal. “The median price of a home in Los Angeles County fell for the second consecutive month in February. The price slipped to $327,000, a drop of $15,000 from January – putting prices right back where they were in summer 2008, according to data supplied to the Business Journal by HomeData. Median condo prices fell $10,000 to $295,000. It’s the first time condos have been priced under $300,000 since May.”
“A wide swath of neighborhoods across Los Angeles County saw price drops when compared with a year ago. ‘We usually expect quiet Januaries, it’s just the way our business operates – but February is beginning to be a trend, and that could be a concern,’ said Betty Graham, president of Coldwell Banker Residential Brokerage in Los Angeles.”
“Economists believe that the government’s decision to extend an $8,000 credit for first-time homebuyers – supposed to end in November – through April 30 is having little effect. The thinking is that the credit has largely been taken advantage of by those buyers who could, though there likely will be a rush of home sales in April as the deadline nears.”
“A bigger factor influencing the market is the weak economic recovery that has failed to generate jobs, as well as housing prices many think are still too high.”
“‘If you sit back and look at it, the name of the game is still jobs,’ said Paul Habibi, who lectures at the UCLA Ziman Center for Real Estate. ‘The government intervention we’re seeing is simply giving us a softer landing; ultimately we’re all going to get to the same bottom line. We are going to hit realistic pricing, regardless of what the government does.’”
