February 26, 2014

Three-Years Of Exuberance Jammed Into One

The Union Tribune reports from California. “Housing, which zoomed up 18.4 percent in price last year, faces “uncertain” prospects this year, according to Tim Sullivan, newly named local chairman of the Urban Land Institute. Sullivan, a real estate industry consultant, said last year’s housing market was one of ‘exuberance.’ ‘Now I’d characterize the 2014 outlook as one of optimism but still with a level of uncertainty,’ Sullivan said, ‘because we had such a nutty 2012 and ‘13 with home prices moving up quickly and a little bit of land selling — maybe a three-year period of exuberance jammed into one. The market is now reeling again and there’s concern and uncertainty.’”

“‘From a residential side, it’s very solid — prices are up — but now we have a concern, after a year of affordability,’ he said. ‘We can’t win for losing and we can’t lose for winning.’”

The Los Angeles Times. “Across a large swath of Southern California, owning a house has become less attractive financially in the wake of rapid home price gains last year. The mortgage payment on a median-priced, three-bedroom would exceed the rent on a comparable property in Los Angeles, Orange and Ventura counties, according to a RealtyTrac analysis, based on prices from the fourth quarter of 2013. Nationwide, there were only 29 large counties in that situation, including the Northern California counties of Santa Clara, Alameda and San Francisco. A year earlier, nowhere in Southern California was rent cheaper than monthly house payments.”

“The median price for a three-bedroom L.A. County house was $417,333 in the fourth quarter. The monthly house payment for such a home rose 40% compared with the fourth quarter of 2012. To qualify to purchase such a house, a buyer would now need to make at least $95,389 annually, according to RealtyTrac. That’s about $42,000 more than the median-household income and $27,000 more than the income needed to buy the median house a year earlier.”

“‘The widening disparity between rent and home prices underscores a growing affordability crunch across the region. Real estate experts say the high costs, without corresponding income growth, have depressed sales. ‘The cost of financed homeownership is becoming dangerously disconnected with still-stagnant median incomes,’ RealtyTrac VP Daren Blomquist said in a statement.”

The San Francisco Business Times. “The Bay Area’s luxury home market is signaling a slowdown ahead even as prices late last year were still showing year-over-year double-digit increases. First Republic Bank’s Home Prestige Index found that luxury home prices in the Bay Area are near records amid tight supplies of homes selling for $1 million and often more.”

“But it’s the commentary from real estate agents that set off alarms for careful followers of the luxury housing market.” In discussing First Republic’s latest quarterly figures, real estate agents in California’s luxury housing market are using telltale language of trouble ahead, with such phrases as ’supply is plentiful’ and the ‘market is solid,’ while others see ‘buyer resistance’ and ‘expect the market to level off.’”

“That type of talk that could prompt home owners to put their properties on the market before prices fall. Real estate agents say that pricing and demand for the limited supply of homes on the market is approaching levels last seen just before the housing market began to crater in 2007. Earlier this month, Christopher Stafford and Terry Wright, both of Paragon Real Estate Group, sent an email to clients alerting them to ’shifts in the San Francisco real estate market.’”

“‘It is far too early in the year to reach definitive conclusions regarding substantive changes in the market, but there are indications of a number of shifts,’ the Paragon agents said. ‘From the hurly burly on the street, the word is that the quantity of offers coming in on new listings is declining. Where a new listing might have attracted 10 or 12 offers last spring, three or four are coming in now; where three or four offers would have arrived, the seller is getting one.’”

The Merced Sun Star. “Merced County home sales prices dipped in January. Merced’s median-priced homes sold for $149,330 in January, which was about $11,000 less than during December but about $12,000 more than January 2013, according to the California Association of Realtors. Across the state, home prices dipped an average $28,000 last month. The state’s median sales price was $410,990 in January, 22 percent more than a year ago.”

“Retired aerospace engineer Owen Klasen was rejected last year when he sought a second mortgage to paint and re-roof his house. Home prices hadn’t risen enough, the loan officer told him. But last month, the same loan officer offered him more than double the credit he needed. ‘I told him I needed $25,000′ on a home equity line of credit, said Klasen, who lives in Fillmore in Ventura County. ‘He said we were qualified to go up to $60,000.’”

“Klasen is among a wave of homeowners in California and nationally who are again putting their homes in hock — despite the costly lessons of the housing meltdown. Homeowners in the six-county Southern California region took out 47,542 home equity lines of credit last year — 48% more than in 2012, according to research firm DataQuick. The median credit line was $100,000.”

“The same trend is taking hold nationwide. Bank of America, for instance, saw its home equity business surge 75% last year compared with 2012, said Matthew Potere, who oversees home equity lending. In the fourth quarter, BofA issued $1.9 billion in new home equity credit lines, up from $1 billion a year earlier. In Southern California, the heaviest borrowing is in the wealthiest neighborhoods, where prices are closer to their peaks during the bubble, DataQuick figures show. Orange County’s Villa Park, with a median home price topping $1 million, had the highest rate of equity credit approvals last year.”

“But homeowners in the affordable Inland Empire also took out more equity credit lines. ‘You are seeing national home prices rising,’ said Kelly Kockos, Wells Fargo’s senior VP of home equity. ‘It’s no longer just the coastal markets.’”

“In high-end markets, which recovered first, some borrowers are using home equity credit lines of $100,000 to $250,000 ‘as a financial tool’ to buy more real estate, said mortgage broker Richard T. Cirelli in Laguna Beach.”

“Adam and Kimberly Smith work at high-tech firms in San Francisco, where prices skyrocketed last year. They recently obtained a credit line on their two-bedroom North Beach condominium. The couple, in their early 30s, plan to rent out the condo and buy a home in the high-end East Bay suburbs. Three-bedroom homes there start at $1 million. Borrowing $50,000 to $100,000, combined with their savings, will give them a 20% down payment on the suburban home they crave. ‘We know we can make an offer this weekend,’ Adam Smith said.”

The Bakersfield Californian. “His son received leniency, but disgraced real estate executive Carlyle ‘Carl’ Lee Cole was sentenced Monday to 17 1/2 years behind bars — the full term recommended by prosecutors — for participating in Bakersfield’s most notorious mortgage fraud conspiracy. The sentences reflected what U.S. District Judge Lawrence J. O’Neill called a ‘tragedy at all levels.’ He described the situation as a hard-working son being lured into his father’s ‘egregious, planned, white-collar heist.’”

“On Monday, Carl Cole was ordered to pay $28.5 million in restitution, and Caleb $663,950. Asked how he would repay the restitution, Caleb told reporters, ‘that’s a good question.’”

“Carl Cole’s business partner, David Marshall Crisp, pleaded guilty Dec. 16 to the same set of crimes. Crisp and his wife, Jennifer Anne Crisp, who has pleaded guilty to one count each of mail and wire fraud, are scheduled to be sentenced March 31. Prosecutors essentially accused David Crisp and Carl Cole of setting up and carrying out a $30 million mortgage fraud scheme that shocked Bakersfield and forced foreclosures throughout the city.”

“A total of 15 defendants are alleged to have participated in the conspiracy to defraud mortgage lenders by using ’straw buyers’ — including Caleb Cole — to buy homes at inflated prices using almost entirely borrowed money. Prosecutors say the homes were resold to new straw buyers at ever-higher prices in order to extract the equity that had built up on paper. Ultimately, most of the properties entered foreclosure as the group was unable to keep up with loan payments.”

Bits Bucket for February 26, 2014

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