March 30, 2010

The Artful Dodger In The Mix

The Mercury News reports from California. “Central Valley real estate agent Donny Piwowarski last year sold his four-bedroom, 3,500-square-foot house on a half-acre in Tracy for $387,000 — about half of what he paid for it in 2005. Under California tax law, Piwowarski owes tens of thousands of dollars in state income tax on the nearly $400,000 in mortgage debt that was ‘canceled’ when he sold his house for less than what he owed. ‘I paid a pretty penny, $765,000, for that house,’ he said. ‘Now I have nearly $400,000 in canceled debt sitting out there that ultimately I’m going to be taxed on by California” if the law doesn’t change.”

“Piwowarski was forced to short-sell his house when he could no longer afford the payments because his income had dwindled, and he and his wife were separating. If California law doesn’t change to mirror the federal rules, he said, he’d have to pay his huge tax bill in installments ‘for the rest of my life.’ ‘It would financially wreck me,’ he said.”

The Fresno Bee. “The number of building permits for new houses issued so far this year in the Fresno area is at its lowest level in years. Through February, about 153 permits were issued for new houses in the Fresno market, the California Building Industry Association reports. That’s a far cry from the region’s heyday a few years ago.”

“Home starts this year are off nearly 40% from early 2009, and Michael Prandini, CEO of the Building Industry Association of Fresno and Madera Counties is not sure why. ‘Maybe people are holding off or haven’t decided to jump in for a federal tax credit,’ Prandini said.”

The Pasadena Star News. ” California’s housing market may be headed for a slight recovery - but it’s not going to happen quickly, according to one industy expert. Michael Carney, a professor of finance and real estate at Cal Poly Pomona, said that Southern California home sales and prices may be stabilizing, but ‘I don’t think it’s going to continue. If it does continue, I think it’s going to be very slow.’”

“‘In California, you’ve got to look at the composition of the labor force,’ said John Silvia, considered one of the top 10 forecasters in the country - so named by Bloomberg - (and) the managing director and chief economist at Wells Fargo and Co. ‘It’s heavily weighted in construction. It’s not surprising the unemployment rate is as high as it and that it’s not turning around.’”

“He predicts unemployment in this area will stay above 9 percent through 2010 at least. His presentation indicated that California’s housing recovery is ’subpar compared to prior cycles’ and that improvement is relative. He doesn’t think last quarter’s increase in value and activity refutes that. He says there’s no doubt that those improvements were biased by government incentives and other factors, and we’ll be back at 1 percent increases when those influences end.”

“‘In my opinion, if there is a change, I think it’s going to get worse,’ said Carney. ‘I certainly don’t see any huge recovery. The financing is not coming back. A lot of foreclosures are in the wings. If unemployment stays the same, surely we’ll see more defaults and foreclosures.’”

The Desert Sun. “The Coachella Valley has begun its economic recovery, though job growth isn’t expected until the end of the year, The Desert Sun’s latest economic index report shows. The first quarter of the year should boast an 86.7 — the best rating since the middle of 2008, said economist Esmael Adibi, director of Chapman University’s A. Gary Anderson Center for Economic Research, who compiles the index. ‘It’s a big jump,’ he said, but it’s still 13.3 points from 100 — when job creation begins. ‘It means we’re still going to lose jobs, but at a slower rate.’”

“The streets of El Paseo in Palm Desert were filled with shoppers as Fashion Week was in full force. Downtown Palm Springs is bustling all week long. Realtors say they’re getting calls from investors who live in the valley or afar about what they can do as prospectors of distressed real estate. One Oregon investor who checked into a Courtyard hotel in the Palm Springs area, identifying herself only as Judy, said she spent a few days here while traveling to a short-sale property she bought in Arizona.”

“‘We got it on the first bid,’ she said, mostly because she agreed to let the sellers lease back the home. ‘It’s sad this is happening, but it was nice to get a good deal on the house,’ she said. ‘We let the sellers stay because we know what it feels like: We lost a home in Colorado in the recession of 1988.’”

“Chris Kasivalis, an owner of Yellow Basket, said hamburger platters have been flying out the door in recent weeks. ‘Things have really picked up,’ he said. But so have the legal notices for foreclosure activity. One day last week alone, listings for home and commercial property in some stage of foreclosure totaled $64.9 million.”

“Economists say ongoing foreclosure activity in 2010 is the other shoe that continues to drop. The shadow inventory is described as the artful dodger in the mix, so much so local real estate experts are checking tax records to try to predict how many properties are out there. Economists are also concerned about what will happen when the stimulus programs run out — and whether businesses will make hiring decisions based on emerging government policies.”

“‘There’s so much happening on the national level,’ Adibi said, that another element has been added to the predictability factor.”

“Irene Pilien, manager of Sparky’s Self Storage, has the pulse on tough times. She sees it in the faces of customers who store their valuables at Sparky’s Self Storage in Thousand Palms. Some have lost their homes, scaled back businesses or furnished rental properties purchased when houses could be had for zero interest and, by some accounts, 53 people a day clocked into the Coachella Valley.”

“Pilien and others say longstanding customers are checking out because they’re leaving the area all together, or are roving from spot to spot to capitalize on prices. Others can no longer afford the rent at any price. ‘It’s sad,’ she said. ‘One client told me he had to put all his stuff in the living room.’”

The Carmel Valley News. “As Solana Beach struggles to make up for a $600,000 loss in sales-tax revenue from two fiscal years ago, a more specific look reveals no area has been hit harder in generating business than the Cedros Avenue Design district. According to city financial documents, Cedros Avenue generated $126,947 in sales-tax revenue in the third quarter of 2006. In the same time period of 2009, it generated $75,685. The design-oriented shopping district includes, high-end jewelry and furniture stores, cafes and the Belly-up Tavern, among other establishments.”

“‘There’s a lot of discretionary spending there,’ said City Manager David Ott. ‘That’s what goes down in a recession.’”

The San Diego Reader. “For the past six years, a huge construction hole in the lower Cortez neighborhood has remained a collection of rusty rebar, weeds and dirt, and wooden shoring. Construction began on the project, a 74-unit condo development called the Atmosphere, with excavation for a three-level parking garage. But the project ran into problems. According to Centre City Development Corporation documents, ‘The owner(s) tried for several years to recommence construction but were unsuccessful, and the building permits expired.’”

“The developer’s website described the Atmosphere as ‘a sophisticated, spacious, creative urban living experience, perfectly positioned in the Heart of Downtown.’ As for the hole in the ground, which is 22 feet deep in places, As new construction may not begin ‘for a period of up to three or more years,’ Flores Lund Consultants recommended that the site ‘be backfilled and capped with asphalt.’”

The Press Telegram.”Downtown-based real estate firm DOMA Properties reported about $98 million in sales in 2009, said president Scott Hamilton. Unlike previous years when new home sales accounted for three times more than resales, DOMA in 2009 made half its sales in resales, Hamilton said. DOMA picked up more foreclosure and short sale accounts through Bank of America, Wells Fargo and several management companies.”

“Hamilton said DOMA also reported solid numbers in new home sales in 2009, thanks in large part to an aggressive sales strategy that enabled DOMA to quickly sell more than 300 units on an Orange County development. By putting together sales events, DOMA was able to sell 335 of Stadium Lofts’ 390-unit condominiums developed in Anaheim A ‘Final 40 EVENT’ led to a sold-out project.”

“If a prospective buyer is interested in a two-bedroom, two-bathroom home but can only afford to pay $190,000, DOMA keeps that information and alerts them of homes that come on the market that fit their needs and price point. ‘When prices actually came to a point where people were thinking that this is a really good value and now is the time to jump, they jumped,’ he said.”

“Hamilton said he’s hoping for slow and steady growth in the market by 2012, adding that he’s seeing prices stabilize in Long Beach. ‘As long as interest rates stay low, I think we’ll probably start to see a little bit of upwards pressure on prices,’ he said. ‘We’re already seeing anywhere from 10 to 20 offers on almost every home.’”

The Signal. “Just 140 single-family homes in the Santa Clarita Valley changed hands last month, a report stated. That’s 16 percent lower than last year’s 167 sales. There just aren’t a lot of homes available to be sold, said Jim Link, CEO of the Southland Regional Association of Realtors.”

“However, the median price of single-family homes sold in February was up half a percent from a year ago to $410,000. Prices for condominiums also jumped. Still, the low inventory makes an already sluggish month even slower for Realtors, Link said.”

“Link said two things are holding down the inventory: First, foreclosure rates are down. Second, on the other end of the spectrum, not a lot of home owners want to put a ‘For Sale’ sign on their lawn when home prices are still so much lower than they were before the Great Recession hit, Link said. ‘There’s intense competition for any property under $500,000,’ Link said in a statement. ‘Competition has grown more fierce as the inventory dries up.’”

From KPBS. “For the second year in a row, the County Assessor is predicting San Diego will collect less in property taxes because of the housing crash. ‘I hauled all these rocks from the mountain over there when I came home from work every night and every weekend,’ 82-year-old Frank Taylor says as he points to the retaining wall that surrounds his yard and describes how he built it rock by rock. In fact, nearly everything in this yard was built by Frank, a retired Sears repairman. He and his wife Cathy bought this house in 1962 for $13,000. ‘Of course I was only making $75 to $80 a week, so even then you wonder how you’re going to pay for it,’ Taylor says.”

“In the past four decades, the Taylors’ house has increased by more than 30 times in value. ‘I’ve heard that these houses around here go for $400,000. Can you imagine a house selling for $400,000,’ Taylor says.”

The Victor Valley Daily Press. “Realtors expect the number of short sale houses to rise in the Victor Valley over the next year. Meanwhile, they hope for a reduction in the confusion over short sales among buyers and sellers. But for some sellers, it may not be easy, said Don Jensen, a Realtor in Hesperia who routinely deals with short sales. Homeowners who want to make a short sell should first determine whether they have a recourse loan or non-recourse loan. Recourse loans give lenders more leeway in recovering the full loan amount, while the debt can be fully forgiven under non-recourse loan.”

“‘Under a non-recourse format it may give some relief,’ Jensen said. ‘It could be better than just walking away.’”

“Poor training and inexperience in making high-risk construction loans caused High Desert Federal Credit Union to fail, an internal audit by the National Credit Union Administration determined. ‘HDFCU failed primarily due to a high concentration of real estate construction loans coupled with the dramatic decline in nationwide real estate values caused by the credit crisis,’ the report stated, noting that the credit union grew its construction lending exposure to over 60 percent in 2005, 2006 and 2007.”

“High Desert FCU went into NCUA conservatorship in 2008, and was taken the following year by Alaska USA Federal Credit Union. The report noted that underwriting and monitoring of many of the construction loans made by High Desert FCU did not meet NCUA guidelines. Developers often failed to meet income and equity requirements, and sometimes made loans to non-members.”

The Los Angeles Business Journal. “It was a Wednesday afternoon in early December, and FirstFed executives, jet-lagged from cross-country flights, had descended on Washington, D.C., to plead for the survival of one of California’s oldest financial institutions. The holding company for First Federal Bank of California, a savings and loan with branches across Los Angeles, was up against the wall. Saddled with toxic adjustable rate mortgages, the thrift had endured more than a half-billion dollars in losses since the collapse of the housing market.”

“FirstFed’s failure seemed inevitable, but executives requested the emergency meeting with the FDIC and Office of Thrift Supervision to beg for a stay. The FirstFed contingent left that afternoon confident. They had nailed the presentation. Two weeks and two days later, regulators closed FirstFed.”

“The story of FirstFed’s decline and fall is inextricably linked with Babette Heimbuch, the thrift’s brash chief executive. During her tenure, she presided over the most aggressive expansion in the bank’s 80-year history. A year after her arrival, FirstFed began making adjustable rate mortgage loans, and within a few years they constituted 90 percent of its portfolio. The thrift specialized in option adjustable-rate mortgage loans, or option ARMs for short, which give borrowers choice in how much to pay each month.”

“New competitors, such as EMC Mortgage Corp., flooded into the option ARM market, given the willingness of investment banks to buy the loans, then bundle and sell them as mortgage-backed securities. The thrift felt it had little choice but to try to compete to protect its bread-and-butter loan business.”

“In an interview in June, Heimbuch admitted FirstFed began extending loans to borrowers with little or no documentation of income or assets. It even wrote increasingly popular negative amortization loans, in which a borrower’s monthly payments did not even cover the interest and the loan balance would rise. She thought the thrift could make it work. ‘In 2005, we started trying to compete, but we tried to compete smarter,’ she said. ‘We tried to do a better underwriting job. We didn’t do subprime loans.’”

“That year, FirstFed originated roughly $3 billion in option ARMs, nearly increasing by half the size of its mortgage loan portfolio to more than $9 billion. Quickly, though, executives began to get nervous, fearing that easy Wall Street money was creating a bubble in the housing market. In particular, they were dumbfounded by the risky loans EMC was willing to make. Then, executives discovered that EMC was owned by Bear Stearns, the investment banking giant that would suffer a spectacular collapse within a few years.”

“‘Oh, man,’ Chief Operating Officer James Giraldin said to Heimbuch one day in late 2005, ‘this is over.’”

The Associated Press. “The government’s bold new plan to stem the foreclosure crisis aims to succeed where previous efforts have fallen flat. Diana Farrell, a White House economic adviser, acknowledged the plan won’t prevent many of the expected 10 to 12 million foreclosures expected over the next three years. Doing so, she said, ‘wouldn’t be fair, it would be too expensive and we probably wouldn’t succeed in any case, because many people got into homes that they simply cannot afford.’”

“Joe Clarke, a police officer in Oxnard, Calif., welcomed word of the plan. He owes $390,000 on his home, which is only worth about $250,000, and he fears his adjustable-rate loan will reset to a higher rate in August. ‘I’ve made my payments,’ he said. ‘I didn’t walk away from my house. I’m just not being afforded the opportunity to refinance my home, even at the current value, without taking the principal off.’”

The Sun Herald. “Don’t expect any of them to admit it, but it turns out they were wrong — all those politicians who whined for many years that high taxes and lousy business conditions were pushing Californians to leave for other states. The tide of middle-class Californians leaving the state has never had much to do with taxes, the business climate or jobs. Rather, it was mostly about housing prices.”

“As long as residents of coastal California counties from San Diego to Ventura, San Mateo and Marin could sell their homes for enormous profits and then buy much larger properties in other states or inland counties with cash left over, they did it.”

“In 2004-05, for example, more than 47 percent of all moves within the United States were housing related, with the largest share motivated by a desire for bigger, better and cheaper homes, according to a new Brookings Institution study based on information from the U.S. Census Bureau and the Internal Revenue Service. By contrast, less than 18 percent of moves were related to jobs, and the majority of those involved transfers.”

“But last year, housing motivated only 17 percent of all moves, a drop of about two-thirds from five years earlier, while job-related moves accounted for 34 percent of moves. Meanwhile, the actual number of job-related moves was lower than it had been for the last decade. When the housing bubble popped, the game of musical chairs mostly ended.”