The Housing Bubble

To commemorate the 10 year anniversary of 2007, my post from December 31 of that year. The San Francisco Chronicle reports from California. “Beaming with pride, Johnnie Pitts stacked up piles of legal documents on his living room floor the Wednesday before Christmas. The San Francisco Muni driver had just returned from having his signature notarized on agreements that permanently modify his once-exorbitant mortgage to a reasonable interest rate, allowing him to keep the three-bedroom bungalow on Oakland’s MacArthur Boulevard.”

“Pitts started off financially unsophisticated, but he now shows a shrewd grasp of how the system works. ‘If you think your house is all yours, just miss a payment or property tax bill, and you’ll find out who it really belongs to,’ he said. ‘We’re not homeowners; we’re renting from the banks and investors.’”

“Earlier this year when he realized his mortgage was slated to reset to well over $4,000 a month - the same as his take-home pay - Pitts started speed-dialing his loan servicer, banking giant Chase, asking for a loan modification.”

“At the same time, he boosted his income by racking up overtime - an extra 10-hour day every week - to catch up on some missed mortgage payments and property taxes. ‘My family and co-workers said, ‘Why don’t you just do a short sale?’ but this is my house. This is the major purchase of my life,’ he said.”

“Pitts’ monthly mortgage will now be just shy of $2,800. Property taxes and insurance add another $700 a month. The $3,500 monthly total is still quite steep for a man whose base income is about $4,000 a month, although he can earn another $1,000 or so through overtime.”

“Does Pitt really want to continue working six days a week to keep a house that is now valued at about $330,000 - $100,000 less than he paid for it? He insists that he does.”

“‘When it comes to renting, it’s just cash in the trash,’ he said. ‘You can’t win no way when you’re renting.’”

“‘I’m going to modify my lifestyle,’ he said. ‘I shop at the dollar store; I buy in bulk and on sale. If push comes to shove, I may have to get a roommate.’”

“How will he celebrate his birthday this year? ‘I’ll be working, the same as on Christmas,’ he said. ‘It’s time and a half on the holidays. I’ll take the money. Renters have a different mentality; they can party.’”

“Jeff Hahn let out a small sigh when a reporter called to tell him that his Fairfield house had been sold at a foreclosure auction two days earlier. ‘So that’s it,’ he said.”

“Hahn and his wife walked away from the house this summer because the $5,000 monthly payments were as much as their take-home pay. They put it on the market and moved to Los Angeles, where Hahn had a good job lined up.”

“They started off listing it for sale at $575,000, then dropped the price steadily over several months without attracting any buyers.”

“‘The last time I talked to our Realtor, her best advice was to try to sell it for around $350,000 to $400,000,’ Hahn said. ‘I’ve talked to friends who still live up there; there are six or seven houses just like mine for sale in my neighborhood from people in foreclosure.’”

“Hahn bought the four-bedroom Colonial in 2004 for $495,000. He later took out a home equity loan to help finance his business of importing high-end auto parts. His adjustable-rate mortgage jumped from $2,200 a month to $3,700 last September.”

“The couple used credit cards to make the mortgage payments while they tried to refinance. In March, the Hahns finally were approved for a refinance at $570,000 with an interest rate of 10.5 percent. But they never made a payment.”

“Jeff Hahn said they accepted the pricey loan because they were desperate to salvage their credit rating and hoped to sell the house quickly. As they rebuild their lives in Southern California, the financial reverberations of losing the house linger, through credit-card debt and lower credit scores.”

“‘We literally are living paycheck to paycheck,’ Hahn said.”

“During the months of struggling to keep up with their mortgage payments, they ran up more than $16,000 in credit-card debt, Hahn said. Once they stopped paying the mortgage, his credit score plummeted from 710 to 490.”

“Tom Kelly, a spokesman for Chase, which was the servicer on Hahn’s loan, said the property reverted to Chase at the Dec. 17 foreclosure auction for $474,750 - far less than the $570,000 loan balance and the unpaid fees and penalties.”

“Lenders generally set minimum bids at foreclosure auctions equal to the amount of outstanding debt. Kelly said he was not certain why it went for a lesser amount, but said he could speculate that ‘given the problems with home prices, now the bank is happy to get less than (is owed) and walk away.’”

“Kelly said the Hahns’ case was straightforward because they made no payments after refinancing and had only minimal contacts with Chase. ‘If a person has never made a mortgage payment, that’s very clear-cut that we’ve seen no good faith effort from that person,’ he said.”

“After his story was told in The Chronicle, Jeff Hahn said he briefly became a ‘poster child’ for foreclosures - appearing on radio shows, getting a call from People magazine. But the couple also was the target of some vitriol by readers on The Chronicle’s Web site. For that reason, they declined to be photographed.”

“‘The number of hate comments we got just floored me,’ Jeff Hahn said. ‘This wasn’t something we chose to have happen to us. I just don’t get how these people can judge me like this and think we completely took advantage of the system. The system took advantage of us. We’re the ones losing our house; we won’t be able to rebound from this.’”

The Lompoc Record. “Arguably the most talked-about issue in 2007 on the Central Coast - indeed, throughout the state and the nation - was housing, particularly the downward spiral of prices and sales.”

“A complex mixture of factors squeezed local real estate, driving home prices down and leaving a glut of new and existing homes on the market as foreclosures rose amid the subprime mortgage debacle.”

“In San Luis Obispo County, a median-priced home cost $454,840 in November. That was down 17.1 percent from the median price in October and 14.6 percent from November 2006, when the price was $532,890, and well below the record $605,158 set in November 2005.”

“The association said November 2007 sales in San Luis Obispo County fell 17.7 percent from October’s level and 28.7 percent from November 2006.”

“In mid-October, a total of 756 existing single-family homes and condominiums were on the market in the Santa Maria-Orcutt area, according to the Santa Maria Association of Realtors. Particularly troubling was the fact that nearly 16 percent of those - or 118 homes - had been lost to foreclosure.”

The Tribune. “The North County median declined to $469,000 from $490,000, a 4.3 percent decrease. In December, the county median was $472,500, down from $529,000 the same month a year ago.”

“‘If you stand back and look at the market, there’s still job growth, attractive interest rates and unemployment is low,’ said Jim Liptak of Country Real Estate in Paso Robles and president-elect of the California Association of Realtors. ‘But you’re still seeing great difficulty in the market, a lot of it caused by the (subprime) mortgage crisis.’”

“Liptak said the housing slump actually started in 2005, the same time record numbers of people jumped into real estate. The oversupply of housing and agents were two things that ‘created almost the perfect storm.’”

“‘Right now, the number of (annual) transactions an agent is doing in California is on average under four. In 2004-05, that figure was 12 to 14,’ Liptak said.”

“There will be winners and losers in the next year, said Kirk Lesh, real estate economist with the UCSB Economic Forecast Project.”

“Renters, for instance, may find that it’s just as costly to rent than to buy, spurring some people to jump into the market, he said. ‘Of course, on the other side of the coin, if you wanted to sell a home now and move, you may not get as much money as you wanted.’”

“Some San Luis Obispo County lenders found that the steady business they enjoyed during the real estate boom had slowed.”

“‘Lenders couldn’t keep doing 100 percent financing and assume that one day (home) values are not going to come down,’ said Leslie VandeWalle, a mortgage broker in San Luis Obispo.”

“‘There are certain people who are doing well, but no one is doing really well in this market,’ said Kyle Allen, a mortgage loan consultant.”

“In November, for example, there were 1,023 trust deeds recorded (includes sales, refinances, home equity loans and construction loans), down from more than an average of 2,000 during the year-earlier period, according to county records.”

“VandeWalle’s firm, which specializes in more traditional loans, started noticing a change when fewer clients sought her services in the latter half of the year. La Casa had been doing about 10 loans every month. Now, they have about four or five, she said.”

“‘We were totally dead for a while,’ she said. ‘We had three months with no escrow closings. Now, now we’re back working again, but loans are harder to make.’”

“In a recent California Association of Mortgage Brokers survey, 41 percent of members said they expected lending standards to further constrict in 2008. In today’s market, potential borrowers with credit scores of less than 680 may find that it’s more difficult or expensive than for borrowers with scores greater than 680.”

“It’s becoming more common for borrowers to provide paychecks, tax returns and bank statements to qualify for a loan. With jumbo loans, potential buyers are asked for 10 percent or more.”

“‘People come to us for loans now that there’s not necessarily a loan product for,’ said Michael Hahlbeck, VP of Mariner Mortgage in Arroyo Grande. ‘I had a client six months ago who could have easily gotten a loan and deserves one. She has good credit and adequate income, but she’s young and has no money for a down payment. She wanted 100 percent financing and would be a success story with it. It bothers me because it would have been a good opportunity for her.’”

The Voice of San Diego. “Where 2006 launched with some optimists downplaying signs of trouble in the county’s housing market, the tenor of real estate shifted to leave such voices in the minority by last New Year’s Eve. And then 2007 proved, from start to finish, a year of slump.”

“‘The problem with the market is, prices got bid up to exceptionally high levels, and this is the back end of that,’ said Chris Thornberg, an economist with Beacon Economics. ‘What we’re seeing is a market in the painful throes of a downturn.’”

“‘I think that basically, this snapshot in time — it’s a real period of unknown,’ said Gary London, a local real estate analyst. ‘We can speculate — ‘this was worse, that was worse’ — but this is just in real uncharted territory.’”

“In 2007, buyers were scared, scarce or both. The number of homes sold each month hit decade lows, month after month. ‘If you look at two houses for sale in the same neighborhood, they’re in competition for the same buyer,’ said Mark Goldman, a local mortgage consultant and broker.”

“When sales activity picked up, it was usually due to an increase in the number of homes sold as repossessed properties or as short sales. And where there were buyers, they paid less for homes than they did last year.”

“Local market consultant Dan Holbrook…recently switched his business from focusing mostly on making mortgages to negotiating short sales and bank-owned deals.”

“‘We, in order to get through this, need to get creative,’ he said. ‘The distressed market is the market. And I’m focused on the distress. I’m almost a distressed real estate evangelist.’”