The Housing Bubble

The Desert Sun reports from California. “There could be one silver lining to the Coachella Valley’s transitional home real estate market: though some prices have fallen, property taxes in some cases may do so, as well. Riverside County Assessor Larry Ward’s office receives 100 to 150 inquiries a day from people interested in re-evaluating home values. Last year, the assessor’s office reduced about 10,000 property values across Riverside County.”

“The average reduction has been about $40,000 a home, Ward said. ‘We made a number of reductions last year and we’ll be making substantially more this year,’ he said.”

“Ward said another 235,000 homes in the county sold after Jan. 1, 2004, are going to be reassessed this year. What he’s noticed so far, is that the average sale price is down to under $300,000 - what it was about mid-2004.”

“‘We are actively reviewing property across the county,’ he said.”

“That could help Indio resident Lena Eylicio, who paid $497,000 for her Sonora Wells home in 2006. Comparable homes now sell for $270,000 to $300,000. It frustrates her knowing her new neighbors likely are paying much less in annual property taxes.”

“‘It’s scary to look at a $9,000 bill,’ she said. ‘If they’re going to be paying less, why shouldn’t we be paying less?’”

The Santa Cruz Sentinel. “Through sheer determination, Metro bus driver Eduardo Montesiro managed to avoid being one of the 250-plus homeowners who lost their homes in Santa Cruz County during the sweeping foreclosure crisis that struck last year.”

“But as he straddles two mortgages in Watsonville — trying to keep his income in line with rising payments while still helping his wife provide for their two children — he acknowledged, ‘By the end of the year, something is going to have to give.’”

“Throughout California, the nationwide mortgage crisis hit Latino families especially hard due to language barriers, unfamiliarity with the mortgage process, unforeseeable income changes and subprime lenders who didn’t verify income.”

“Being a Latina, Maria Enomoto, a Consumer Credit Counseling Services counselor who led the Spanish-speaking workshop, said she understands that in Latino culture, ‘It means a lot to own our own home. If you have your own property, you are successful.’”

“But some families she has worked with, from office professionals to fieldworkers, report spending nearly all of their income paying a mortgage, then buying groceries, gas and other everyday living expenses on credit cards. She said that formula is not sustainable, because debt far exceeds the ability to repay.”

“Of the families who have bought houses they couldn’t afford in recent years, most ‘probably never knew what kind of loan they were getting,’ Enomoto said.”

“Karl Skow of Hollister, who is president of the Greater Monterey Bay Chapter of the California Association of Mortgage Brokers, said homebuyers from all economic and cultural backgrounds have to also take responsibility for their missteps and be realistic about their income.”

“‘I think everyone was feeling like they were living the American dream,’ he said, adding that many homeowners who actually understood loan terms thought they could refinance or sell within the first couple years to avoid skyrocketing payments.”

“‘I don’t think there is anyone who is without fault,’ he said.”

“Montesiro’s story is a perfect example of what Skow is talking about. Montesiro said he understood his adjustable-rate mortgage would increase, but thought he could leverage the rising value of the smaller home he bought in 2000, which he is now renting out, to pay for the larger one he bought in 2005 to accommodate his family. But he didn’t count on the tanking housing market.”

“After spending most of last year worrying about how to crawl out from under the mounting payments, he said he made a vow this year to find a more manageable approach. He said he left Saturday’s workshop with a plan in mind, which may involve selling the big house and moving back into the smaller place until he can catch up.”

“‘I’ve learned tremendously,’ he said.”

The Tribune. “Mike Melvin remembers the thrill of moving into his Atascadero home. Three years ago, he and his then-girlfriend had fallen in love with the cozy three-bedroom and its wood-burning stove and weatherbeaten white picket fence.”

“‘It was our first home purchase,’ said Melvin, who bought the house with no money down on an interest-only, fixed-rate mortgage that switched to a variable rate two months ago. ‘It’s like my life suddenly had meaning. It wasn’t the answer to all of my dreams, but it was a step in the right direction.’”

“Today, Melvin is behind on his loan payments and on the brink of losing the house. He said he’s contacted his lender for help, but so far the efforts have not been fruitful.”

“‘They’ve sent me a notice in the mail saying they’ve started the foreclosure process,’ he said.”

“The sting is still being felt by homeowners from Paso Robles to Nipomo. Overall, foreclosure activity is up 20 percent in the county from March 2007, according to RealtyTrac.”

“There were 490 notices of default sent to homeowners from March 2007 to March 2008, RealtyTrac figures show. A total of 329 real estate owned properties — in which the lender takes ownership of the property — was recorded during that time period. Foreclosure activity is greatest in the North County—Paso Robles and Atascadero.”

“Kirk Lesh, real estate economist with the UCSB Economic Forecast Project, also believes that several factors contributed to the increase in foreclosure activity. Some people, he said, had taken the creative financing options, hoping to refinance later on, while others bought homes as investments with the goal of soon selling them for a profit. Some were given loans without any down payments or income verification.”

“‘I think the interest rates got so low that it just created some greed in the market,’ he said. ‘The zero-money-down loan was a good example of the lowering of loan standards.’”

“Three years ago, Kim Missamore bought a three-bedroom, two-bath home on an acre in Shandon for her children with an interest-only loan. When her adult children moved out and stopped helping pay the mortgage, Missamore said she was left with the payments, which are $1,400 a month.”

“Even with a renter in the Shandon home, Missamore said it’s difficult to keep up with the interest payments. So, she’s living with her daughter in Atascadero and paying what she can to avoid going into foreclosure and damaging her credit.”

“‘I’d love to sell it, but I’m stuck,’ she said. ‘It’s scary. If I don’t get a loan modification, I may have to let it go.’”

“Melvin was paying about $1,600 a month at 6.25 percent, but then his mortgage reset, and now the payments are $2,200 with an interest rate of 7.25 percent.”

“‘I was completely naïve,’ Melvin said. ‘Everyone was telling me that in three years, when the equity in the house increased, I could refinance and get a better loan. That’s where I am now, but the market crashed and the value of the house went down.’”

“Melvin said he’s tried to work with his lender for the past six months. ‘All I can do is hope that the mortgage company comes around,’ he said. ‘I’ve sacrificed a lot in three years to hang on to it.’”

“Even so, Melvin said he’s not sour on home ownership. ‘I don’t think we can make too much of it,’ he said. ‘It’s a critical part of our life to take responsibility for something.’”

“With the economy’s growth slowed and oil above $100 a barrel, auto dealers in San Luis Obispo County are finding that selling cars is more difficult than it has been in years.”

“‘It is gas prices and the housing crunch,’ said John Cole, an owner of San Luis Obispo’s Cole Chrysler Dodge and Cole Mazda. ‘When (the value of) your house goes down, people don’t have the equity, and they don’t want to spend money. Those two things have really started to have an effect.’”

The Press Democrat. “The steaks at Cattlemens are a little smaller. The pizzas at Mary’s Pizza Shack are a little pricier. The pastas at Flavor have less cheese and more vegetables. And the busboys at Checkers also wash windows.”

“Soaring food prices and a slumping economy are gobbling up Sonoma County restaurants’ profits, forcing them to find creative ways to cut costs and draw in diners. ‘In the 12 years I’ve been here, I’ve never seen anything like it,’ said Katherine Castillo, owner of Checkers Bistro & Wine Bar in downtown Santa Rosa.”

“She’s far from the only one feeling the pinch. From fancy white tablecloth joints in Healdsburg to family-friendly pizza parlors, restaurants across Wine Country are feeling pummeled like pieces of veal.”

“‘If people can’t afford their house payments, they’re obviously going to go out to restaurants less,’ said John Frenzel, director of marketing for Cattlemens, the Santa Rosa-based chain of nine steakhouses.”

“Not only is the number of diners down, but when people do treat themselves to a night out, they’re spending less. They’re ordering less-expensive entrees, drinking less alcohol and skipping dessert. ‘We have noticed over the last year more people going from higher priced items to lower priced items,’ Frenzel said.”

“Castillo’s cut back on fresh flowers. She’s stopped using a window-washing service, asking the busboys to do it instead. ‘They’ve got nothing but time,’ she says.”

The Pasadena Star News. “At the peak of the housing boom, home builders had no trouble getting customers to line up and buy their new homes. Demand was high, home values were rapidly rising and many lenders were offering loans to virtually anyone who could fog a mirror. But those days are gone.”

“Home prices and sales have plummeted and financial institutions have tightened their lending standards, edging many prospective buyers out of the market. As a result, many builders are offering incentives to bring buyers in. MBK Homes is no exception.”

“‘It’s a different market we’re in today,’ said Julie Tlilayatzi, MBK’s director of marketing. ‘It’s a buyer’s market. But we’re not cutting the quality of the homes.’”

“Standard Pacific Homes in Irvine offers a ‘Spotlight Allowance’ of $80,000 on selected luxury homes in Walnut…provided that the home closes escrow within 30 days. The money can be used for a rate buydown, closing costs, homeowner dues or property taxes, or to customize final touches of the home.”

“Los Angeles-based KB Home also has two programs that are advantageous for buyers, although company spokesman Keith Jajko hesitates to call them incentives.”

“KB’s price protection feature allows buyers to purchase a new home with the assurance that if the base price of their home at the time of closing is less than the original purchase price, KB Home will honor the lower price.”

“If the base price increases, buyers will still pay the original price.”

“Jajko acknowledged that the housing market has changed dramatically. ‘We’re seeing more of a market where people are actually out to buy a home,’ he said. ‘During the height of the market there were a lot of investment flippers. But a lot of that has gone away. Now we’re seeing families that really want to buy a home … and that’s refreshing.’”

The Record Searchlight. “It’s been nearly a year since an east Redding home was auctioned off for $375,000, then taken back by the seller after the deal was voided, the result of a legal dispute. Now the nearly 3,000-square-foot home with a pool on Vermeer Place is on the brink of being lost to foreclosure.”

“A notice was posted last week for a May 13 public sale, at which time the three-bedroom, three-bath home will be auctioned off on the Shasta County Courthouse steps. Balance due on the note is $333,373.”

“The home was built in 2003 on a lot that sold for $75,000. At one time, owner Don Shearing asked $719,000 for the house. But that was September 2005 — the housing balloon had not popped.”

“So with much fanfare, Shearing and Pacific Auction Exchange, a Redding franchise that he owns, hosted a June 15 auction — it wasn’t a foreclosure sale — that saw Ken and Jason Jones nab the home for $375,000.”

“But Shearing hired a lawyer and ultimately took the house back about a month later after both sides came to an agreement. Shearing immediately listed the house again for $590,000.”

“The home languished until it was taken off the market April 11. The list price had been dropped to $559,000. For the record, Jason Jones doesn’t think he will make a bid next month.”