September 6, 2011

The Hole Was Deeper Than We Thought

The Mercury News reports from California. “This Labor Day finds one out of eight Californians out of work and politicians everywhere promising plans for creating more jobs. Many economists say a key to quickly curing California’s malaise is to target one of its chief causes: the housing market crash. But economists acknowledge turning around the severely depressed housing market could take years. Until then, many economists say that only renewed federal spending and other policies that put money in consumers’ pockets can make a dent in the jobless rate.”

“But if that’s such a good idea, why is unemployment still 9.1 percent nationally, despite the hundreds of billions in tax cuts and federal handouts Congress passed two years ago? ‘The hole was deeper than we thought,’ replied Stephen Levy, director of the Center for Continuing Study of the California Economy in Palo Alto, who along with many other economists suggests another round of targeted tax cuts. ‘Who knows? It might work this time.’”

The Union. “People in western Nevada County’s real estate industry are worried that efforts to reduce the national debt could result in a change to a pillar of American home ownership: The mortgage interest deduction. ‘It will affect us all across the nation,” said Executive Director Kathleen Hinman of the Nevada County Association of Realtors. ‘Many of us buying our homes expect that interest deduction’ when it comes time to fill out income tax returns.”

“In western Nevada County, 50 residences costing more than $500,000 were sold from January through July — out of 673 total sales to date, according to figures compiled by the local realty association. Those high-end homes are few in number, but are significant for their dollar volume: $31.7 million out of a total volume of $167.1 million in sales from January through July, according to MLS. ‘This is the last thing we need right now, to take the stimulus away from our industry,’ Hinman added.”

The San Francisco Chronicle. “One of the biggest tax breaks of all is heavily skewed to wealthy residents of San Francisco, San Jose and California’s other upscale coastal cities. It’s the mortgage interest deduction. Just three metro areas - greater New York, Los Angeles and San Francisco - receive more than 75 percent of the subsidy, according to a 2004 study by economists Todd Sinai and Joseph Gyourko. Mortgaged homeowners in the San Francisco and San Jose region receive $4.6 billion a year from a tax break for what are known as McMansions, according to a study this year by John Burns Real Estate Consulting in Irvine.”

“The tax break is available to anyone who borrows up to $1 million for a mortgage - including for a vacation home - or takes as much as $100,000 in a home equity loan. The chief recipients are younger, well-off households that receive ‘a big incentive to increase the size of their mortgage or house,’ said Eric Toder, co-director of the Tax Policy Center, a joint research group of the Urban Institute and Brookings Institution. ‘In areas like San Francisco, where it’s not easy to build more housing, it drives up housing prices by a substantial amount.’”

“San Francisco real estate agent Eric Geleynse with Frank Howard Allen Realtors said in an e-mail that he understands the arguments for ending the deduction, which he concedes is ‘inherently unfair to renters.’ But with California home prices down more than half from their 2007 peak, he said that tampering with the deduction now ‘would be a very big mistake because it would be kicking the entire industry while it is down and struggling to get back up.’”

The Ventura County Star. “Janet Dorsey, president of the Ventura County Coastal Association of Realtors, said data from the county MLS showed the median selling price of residential homes and condos is trending downward. Dorsey said she expects to see more pricing pressure on homes above $600,000, as the Ventura County conforming loan limit is expected to be reduced in September to about $598,000 from its current level of $729,950.”

“‘Loans above the conforming loan limit will have higher interest rates, which affects a buyer’s ability to purchase a higher-priced home at an affordable rate,’ Dorsey said. ‘For those who can qualify and are well-positioned to purchase a home, interest rates are phenomenal and affordability for a home on the Gold Coast of California has never been better.’”

The Contra Costa Times. “An auctioneer stood behind the microphone at the dais. Two tuxedoed spotters were positioned on the bidding floor, all in preparation Friday for a trustee sale, the final leg in the California foreclosure process, which has had a real workout the past three years.”

“Properties were available in Antioch, Brentwood, Bay Point, Discovery Bay, El Sobrante, Hercules, Martinez, Oakley, Pittsburg, Richmond, San Pablo and Walnut Creek. The minimum opening bid for any property was $30,000; the highest $325,000.The bidding is conducted for each property just as it was for a three-bedroom, 2,026-square-foot single family residence in Antioch.”

“‘I have been authorized by the beneficiary to open the bidding for lot No. 517 at $145,000,’ the auctioneer said. ‘Now $150,000 … now $160,000 … now $165,000,’ he chattered until the fervor began to wane. ‘Anybody gonna bid $186,000? Does anybody else want in?’ The winning bid was $187,000. The same house had once been listed for $485,000. That was a long time ago, back when it still was somebody’s dream home.”

“Since the real estate bust, many people have complained that they couldn’t buy, sell or refinance a home because an appraiser used bank-owned or short-sold homes as comparables in the valuation process. Now I’m hearing from people upset that they can’t get their property taxes reduced because their county assessor will not use a short-sale or bank-owned property as a comp.”

“James Reece of San Francisco says that when he refinanced his condo in November, it was appraised for $660,000. But when Reece got his property tax assessment for 2011-12, his condo was assessed at $700,000 - the same as the previous year.”

“Santa Clara County Assessor Larry Stone says ‘in normal times, a foreclosure was an aberration … and we would ignore it.’ Today, ‘in areas where we don’t have a lot of foreclosures (such as Palo Alto or Los Altos Hills), we still ignore it.’ In areas with a lot of foreclosures, such as the southern and eastern parts of the county, ‘it can’t be ignored.’”

The Business Journal. “A short sale can be a practical alternative to foreclosure that allows the homeowner to avoid the chains of bankruptcy. Trankie Tiscareno, sales manager at Greatland Mortgage in Fresno, said the lender might be procrastinating because they simply don’t want to agree to a short sale. ‘They feel it’s just not in their best interests to take the loss,’ he said.”

“‘More often than not, there are multiple loans on a single property,’ said Fresno attorney Matt Dildine. Dildine said, because if the financial institutions did not agree to the terms of the sale, they could obtain a deficiency judgment for the outstanding amount, which might result in one or more lenders targeting the seller’s remaining assets. ‘Dealing with two major financial institutions is tough,’ said Joseph Hollak, a Fresno Realtor. ‘You’re asking both lenders to take a loss.’”

From 10 News. “The state is offering a program that could help residents avoid foreclosure in San Diego and other cities across the state. In 2005, Michelle Vera bought a one-bedroom condo in the College Grove area for $250,000. With an interest-only loan, she paid only on the interest for four years. This year, her monthly payments went from $1,350 to almost $1,600.”

“After she found out that she qualified, she learned that if she keeps up her payments, $50,000 will be shaved off her principal amount over the next three years. That would reduce her monthly payment from $1,600 to $1,200. The reduced payments began in June. Vera is not the only one. Since February, the state has helped almost 6,900 homeowners to the tune of $114 million.”

“Critics – including real estate economist Nathan Moeder of the London Group – do not believe enough people will be helped to make a major impact. He is also skeptical about the long-term impact. ‘The question is even if you save everyone in the same neighborhood, will they default in the future?’ asked Moeder. ‘This is a temporary solution to their situation, not a permanent solution.’”

From KPCC. “Dowell Myers, a University of Southern California professor and urban growth specialist has long chronicled home ownership among immigrants, most recently among Latinos, and what comes of it. M-A: Your research has been cited in several reports pertaining to immigrants, real estate and household wealth. But the wealth that is referred to, is it mostly real estate equity? Myers: Just over 80 percent of wealth for all groups was from home equity before the crash.”

“M-A: Some immigrant families were on their way there, having pooled savings and invested in real estate, when the housing market collapsed. With the losses that have occurred, how are these people who lost money and/or equity going to get back on their feet, if at all? Myers: They need one good decade to catch up again. But it is not likely to happen again like prior booms. In any event, immigrants who are not homeowners (recent arrivals or younger households) stand to profit by buying at lower prices. They will surely build wealth in the future.”

“M-A: So is this a good time for current have-nots who want to repeat the cycle – at least, to the best of their ability in this climate – to jump into the real estate market? Myers: Yes, now is a great time to become a first-time home buyer, given the much lower house prices and the record-low mortgage rates. Its just that the banks are going to make it much harder to qualify.”

The Adobe Press. “A notice of default is a precursor to foreclosure. It puts a homeowner on notice that if the mortgage — or, in California, the trust deed — payments are not brought current by a certain time, the lender can foreclose. The figures for how many default notices have been issued vary from source to source and depending on how the numbers are computed.”

“According to DataQuick, the number of notices issued in San Luis Obispo County fell from 359 in the second quarter of 2010 to 345 in the same quarter of 2011, a 3.9 percent drop. In Santa Barbara County, the second-quarter notices fell from 499 in 2010 to 489 in 2011, a drop of 2.4 percent. A decline in foreclosures would be good for the building industry, but developers aren’t optimistic over a one-quarter drop, said Jerry Bunin, government affairs director for the Home Builders Association of the Central Coast.”

“Developers have been unable to build because there are so many ‘distressed’ homes for sale — about 50 percent of the market. Fewer distressed homes for sale would increase the demand for new homes, although he noted even if builders have buyers, they can’t obtain land-acquisition and construction loans.”

“‘If this (decline) is a trend, or the start of a trend, that’s really good news,’ Bunin said. ‘But if this is more of a ‘blip,’ which I suspect it is, we’re really not anticipating anything normal (for the industry) until 2014.’”




Bits Bucket for September 6, 2011

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