The Housing Bubble

The North County Times reports from California. “Residents in a neighborhood on the southeast border of the city said last week a financial agreement between a wireless company and several homeowners could drive down area property values. Not only will an ‘unsightly’ cell phone tower depress home values, but the Hillegeists devalued property values for the entire neighborhood when they sold their home for more than 20 percent less than what area homes were selling for at the time, said June Rady, a Park Hill Lane resident.”

“Paisley Hillegeist said she and her husband dropped the selling price of the property from $515,000 to $380,000 only because they couldn’t find a buyer after Cricket’s plans for the cell phone tower plan ran into a snag. Paisley Hillegeist said…she and her husband were just in a hurry to get out from under the mortgage.”

“‘There’s nothing underhanded going on here,’ she said.”

The Ventura County Star. “Oxnard is ground zero for foreclosures in Ventura County. About one-third of the 1,500 foreclosures last year were in Oxnard. The pace has quickened this year, with about 1,000 Oxnard homeowners in default on loans and about 432 in foreclosure since Jan. 1.”

“Even with the proposed laws and local codes, it will be a challenge to keep pace with the growing number of foreclosures in the city. Christina Galindo, an Oxnard Code Compliance officer, already has a caseload of more than 100 homes.”

“‘I can honestly say we’re staying on top of it,’ she said. ‘The banks and Realtors have been cooperative, but (the Realtors) are saying they’re overwhelmed.’”

The Bakersfield Californian. “Tim Fryer is stuck with $7,000 worth of useless letters for the entryway of a tract gone bust. The Bakersfield signmaker is among many local companies scorched by the bankruptcy of Sacramento developer Dunmore Homes Inc.”

“‘I paid out of pocket,’ said Fryer, owner of Victory Signs, about two cast-metal sets of logos, vowels and consonants spelling ‘Diamond Ridge’ that now gather dust in his shop attic.”

“The 319-home subdivision in southwest Bakersfield won’t go forward under the Dunmore name. The homebuilder’s assets are currently being liquidated in a federal district court in Sacramento.”

“From the outside, it looks like any other subdivision sprouted during the recent boom. A block wall rings the perimeter. Signs advertise homes from 1,457 to 3,596 square feet. Flags boasting the Dunmore name whip overhead on white poles.”

“A closer look shows telltale signs of the bust that’s broadsided buyers and builders alike. The wall? Chunks along McCutchen are knocked down, bricks laying in dirt next to open trenches tangled with wiring. The flags? Tattered. Roads with gem-based names — Aquamarine, Moonstone, Sapphire — carve through the tract but remain unpaved.”

“And it won’t be the last developer bankruptcy to touch Kern. ‘I think we’re going to see a lot more of these,’ said T. Scott Belden…one of several lawyers working on the Aleco case., as developers who bought land during the boom struggle. ‘They can only hold on for so long.’”

The Mercury News. “Here’s the latest fallout from the ever-widening housing crisis: The West Nile virus could be breeding in neglected swimming pools of foreclosed homes.”

“A survey plane will fly at an altitude of 5,000 feet over parts of San Jose, Campbell, Cupertino, Gilroy, Los Gatos, Morgan Hill, Monte Sereno and Saratoga.”

“‘It’s an unfortunate predicament that people are in,’ said Tim Mulligan, manager of Santa Clara County’s Vector Control District. ‘One of the first things to go bye-bye for a resident in foreclosure is pool maintenance. It’s a drain on their resources.’”

“Homeowners who fail to address a public health nuisance by not maintaining their pools could be fined $1,000 a day.”

From ABC 7 News. “With home prices dropping all over the Bay Area, how do you get gun-shy potential buyers back into the housing market? One homebuilder’s idea is to guarantee that you won’t lose any money if your home’s value drops after the purchase.”

“Lynne Herendeen is not only getting her dream home in Livermore, she’s also getting a promise: if she and her husband decide to sell in the next two years and the developer is selling similar homes in the neighborhood at a lower price - he’ll refund them the difference in cash.”

“If the deal had been in place two years ago, the developer would have lost in this gamble. When Herendeen first started looking at these homes two years ago, they were priced in the $600,000 range, now they’ve dropped into the $400,000 range. The deal is also good while they’re in escrow. If the developer drops his prices again, he has promised to make up the difference.”

“‘It’s a fabulous deal because of how bad the economy is now. We’re not going to close for six months so there’s a good chance that prices may drop by then,’ said Herendeen.”

“The president of Signature Properties says the company has never made an offer like this in its 25 year history. But he also says the company has never seen a market quite like this.”

“‘There are a lot of people that would like to buy something, but no one wants to make a ‘bad decision,’ and so we thought let’s put together a program that combats that fear,’ said Michael Ghielmetti, President, Signature Properties.”

“UC Berkeley Business School Professor Tom Davidoff of the Haas Real Estate Group predicts that we haven’t hit the bottom yet. ‘There’s no way prices fall 30-40 percent around Stockton and don’t fall at all in San Francisco, that just can’t happen,’ said Davidoff.”

Women’s Wear Daily. “The Golden State has lost its economic luster. California, the biggest U.S. market and a bellwether for the nation, is being especially hard hit by the implosion in housing, soaring gasoline and food prices, job cuts and tight credit.”

“Retail sales are down, some stores are scaling back expansion and vendors said customers are late with payments. Even a linchpin $3 billion downtown Los Angeles mixed-use development is being delayed because of financing difficulties.”

“The number of homes going into default in the state doubled in the first quarter, and the 6.2 percent unemployment rate in March was the third highest in the U.S. ‘We’re working hard for every dollar we get in the store today,’ said John Martens, general manager of Neiman Marcus’ Beverly Hills store. ‘It’s not business as usual; times have changed. It’s a very challenging time for us and for most retailers.’”

“‘Credit cards are getting declined like crazy,’ said Michelle Kim, president of a Los Angeles-based company that produces (a) young contemporary label. ‘We’re scared of producing 100 percent of the orders because they’ll cancel before shipment.’”

“Valerie Mamone, owner of Blush Boutique in Sacramento, Calif., which sells designer ready-to-wear, said sales are off about 20 percent compared with a year ago. ‘Our top-end customers are not buying as much because they are probably trying to budget their luxuries,’ Mamone said. ‘Before, that didn’t come into play.’”

“Los Angeles County led the state with 20,339 defaults in the first quarter, a 130 percent jump from last year. In the 12 months ended in February, the Case-Shiller home price index, which measures the value of single-family homes and was released last week, found that in 20 cities, home values decreased 12.7 percent. The declines in Los Angeles, 19.4 percent; San Diego, 19.2 percent, and San Francisco, 17.2 percent, ranked among the largest.”

“‘It’s definitely getting ugly out there,’ said David Solomon, president of NAI ReStore, referring to the vacancy rates. ‘Though there are national differences. California is not getting spared. California is probably among some of the worst, in particular areas of the state like the Inland Empire.’”

“When might the state begin to rebound? Traditionally, California has been slow to pull out of recessions because the source of success — such as the dot-com growth of the Nineties — is the factor that implodes. This time, it is the housing market.”

“‘California disproportionately enjoyed [in the Nineties] from high tech and recently from the construction and mortgage industry and is disproportionately hit harder because of that,’ said Chapman University’s Adibi. ‘Unfortunately, it is going to take us longer to come out of it because of that heavy dependency.’”

The Fresno Bee. “The sagging economy and the housing market collapse are taking down more than just overleveraged homeowners. Businesses in the Fresno area are calling it quits and filing for bankruptcy in escalating numbers.”

“Many bankruptcies are tied to the once high-flying housing market whose bottom fell out last year, leaving subcontractors, real estate agents and mortgage brokers scrambling for financial help. Others, including specialty retailers, suffered from soft sales.”

“With revenue lagging, many troubled business owners turned to their credit cards to keep them afloat, digging themselves deeper into debt and ultimately into bankruptcy, experts said.”

“One of those casualties was the Little Dreamers store that opened two years ago in the trendy Villaggio shopping center in north Fresno. Co-owner Sandy Tacchino said the store was doing well, selling its high-end baby clothing and furniture to customers who appreciated the boutique’s attention to quality and unique items such as an $1,800 dresser/changing table.”

“The store’s sales began to slide last June. To offset the loss, Tacchino cut back on inventory and reduced her employees’ hours. But the cost-cutting wasn’t enough, and Little Dreamers filed for Chapter 7 bankruptcy in January.”

“Tacchino said she is relieved to be out from under the financial burden. And she said she has learned there is life after bankruptcy. ‘I know that some people feel ashamed about having to do something like this,’ she said. ‘But I knew that I could not change the circumstances that we were in.’”

“Attorney Hilton Ryder said several of his clients waited too long before filing, eliminating any possibility of saving their businesses.”

“‘They come to me DOA,’ Ryder said. ‘They’ve tried everything they could possibly do to hang on, but the situation never got any better. When they hit my office, they have $30,000, $50,000 and $100,000 on their credit cards.’”

The Sacramento Bee. “California is facing a cash crisis this summer. A lack of cash reserves this year combined with lagging revenues has led officials to predict that the state will run out of cash as early as August, giving lawmakers a smaller-than-expected window to strike a budget deal.”

“California’s credit rating is already among the lowest of state governments.”

“Without a budget in place, the state would have to borrow money from banks at higher interest rates than those they can secure with internal borrowing. Such a move also could negatively affect the state’s credit rating, making future borrowing even more expensive.”

“‘In essence, it’s taking a subprime loan for the state, and it comes with greater costs,’ said state Controller John Chiang.”

“Even as housing prices doubled and the construction industry flourished, most Sacramento County residents saw their incomes effectively drop during the housing boom, according to new state tax figures.”

“Adjusting for inflation, the median income of Sacramento County families who filed joint tax returns fell about 1 percent from 2002 to 2006, according to California Franchise Tax Board figures released this week.”

“‘It’s crazy, man,’ said Anthony Richardson, a Sacramento resident who saw his tiny moving and hauling business suffer during the boom as new, big players crowded him out. ‘I used to go around making money. I was the only one who was doing it.’”

“Several economists said the apparent good times created by the boom masked problems in local sectors not related to housing. And many local residents were fooled into feeling flush by the abundant cash coming in from home equity loans – the same, nonrecurring funds that would later turn into high-interest debt.”

“‘The economic growth year to year was strong but not stellar,’ said Suzanne O’Keefe, an economist at California State University, Sacramento. For part of this period, especially 2003 and 2004, she said, state government was doing poorly because of the deficit.”

“Meanwhile, some of the big, local high-tech companies were downsizing, including Hewlett-Packard in South Placer and Intel in Folsom. ‘We were losing some of our higher-paying jobs,’ O’Keefe said. ‘Much of the job growth was in lower-paying jobs’ like service and retail.”

“The real estate boom may not have helped the Valley as much as other areas because ‘25 percent of the homes were being sold to speculators and non-resident owners. They weren’t reporting income in the region,’ said Carol Whiteside, president emeritus of a Modesto think tank.”

“The Valley also struggled to create jobs quickly enough to keep up with the population boom, Whiteside said. And the quality of the jobs being created wasn’t high end, for the most part.”

“Officials at the Franchise Tax Board cautioned that their income figures show adjusted gross income after exemptions, some of which are related to selling homes. Single filers, for example, get to exclude the first $250,000 in capital gains from a home sale; joint filers get to exclude the first $500,000.”

“But several economists said those real estate gains don’t really matter anyway because, in most cases, people plowed their big gains into another, bigger house. And for those who didn’t sell but borrowed against their ever-increasing equity to buy other things, such gains don’t represent steady income. People may have felt wealthier, but their incomes weren’t really rising.”

“During 2006, the last year of the boom, Sacramento households refinanced at a rate about twice the national average.”

“‘You might be feeling richer and you might be consuming more, but that isn’t taxable income, that isn’t earnings,’ said Deborah Reed, economist at the Public Policy Institute of California. ‘Unfortunately for some people, it wasn’t real in the sense that it’s not there now.’”

“Richardson, the local hauler, never made a huge amount of money to begin with, recalling wistfully that before the boom he earned $300 a day. Since the boom ended, he said, things have gotten worse. Much of the competition that smothered him during the boom is still around fighting for ever-dwindling business.”

“‘Ain’t nobody buying homes,’ Richardson said. ‘That’s a setback, too.’”