The Housing Bubble

The Sacramento Bee reports from California. “Robert Kleinhenz, deputy chief economist for the California Association of Realtors, gave an hour-long overview of the economy, the mortgage market and the housing outlook to the Sacramento Association of Realtors. His basic tone: big-time caution about the immediate future - and largely because the mortgage market is still cracking down and making it hard for many people to qualify for loans. But…like many others he is seeing a better second half of 2008 than this first half - and is using words like stabilizing.”

“More and more, even those like Kleinhenz who have proved overly optimistic in their previous forecasts, are offering some sense that - barring unforeseen events that bring big job losses - this year is going to see the worst of it for housing.”

“He predicted slight growth in Cailifornia’s economy during 2008 and cited the advantages that population growth brings to even a weak housing market. Especially the kind of growth that Sacramento will see by virtue of its growing affordability again and its inland California location.”

“Kleinhenz, representing an industry that resells existing homes, saw the near crash in building permits being taken out by home builders in the Sacramento region as a positive. He said: ‘This is a good thing because you don’t want more new-home production coming onto the market when there is so much for-sale inventory out there.’”

The Press Enterprise. “For five years more houses built meant more jobs in the Inland region, earning the area a spot in Forbes’ April roundup of best areas for job growth. Now, the jobs have stopped being created, and for the first time in the Inland region’s statistical history, the region’s job growth fell.”

“Riverside County hopes to secure a grant that would train residential construction workers in skills needed for commercial and redevelopment building, said Tom Freeman, spokesman for the Riverside County Economic Development Agency.”

“‘At a time when housing is slowing down, our sewer projects we’re doing, our roads projects were doing, our parks projects — all these create private sector jobs,’ Freeman said. ”

“Creating jobs to offset losses in home construction and related industries has posed a challenge, Freeman said.”

“Many colleages asked Bunker Rayner what he was thinking of when he bought Corona Mortgage Financial Corp. in March 2007, just when the real estate industry was collapsing and other mortgage brokers were closing their doors.”

“He concedes it was ‘the worst time you could buy a mortgage company’ and he embarked on the venture very nervously. During an interview last week, Rayner was optimistic. He pointed to a sign in his lobby that says ‘We’ve been invited to a recession. We respectfully decline.’”

“The mountain of bank-repossessed houses ultimately will evolve into sales because lenders will be forced to drop prices as far as necessary to unload those properties, Rayner said.”

“Q: Are you doing much refinancing for people who can no longer afford the rising interest rates on their adjustable mortgages? A: No. There are people who call and want to refinance their homes…but a lot are upside down on their homes and there is nothing I can do.”

“Q: How do you retain employees when business is so tough? A: It is hard. I have lost loan officers on commission who have gone back to regular 9 to 5 jobs.”

“Q: Are you having difficulty getting people to qualify under the tighter lending standards? A: Probably one of every five people I talk to qualify for a loan. It is all a numbers game.”

The San Bernardino Sun. “A bank employee stumbled upon a foreclosed house used to grow marijuana, leading to the seizure of an estimated $4.5 million in drugs in two houses and an arrest Saturday.”

“Police began investigating the case Thursday when the bank employee inspecting a foreclosed house found pot plants inside. Evidence there led police to another house used to grow marijuana in Fontana.”

“The five-bedroom houses sit in upscale neighborhoods. Angel Wayhang Kou, 30, of Rancho Cucamonga was booked into jail on suspicion of cultivating marijuana, maintaining a residence for drugs, theft of utilities and conspiracy. Police Sgt. Jeff Decker said Kou owned both homes, but both were in foreclosure.”

The Reporter. “Vallejo is set to become the largest California city to declare bankruptcy after leaders voted in favor of the solution to the city’s spiraling budget crisis. The city council voted unanimously Tuesday night following hours of public comment.”

“Vallejo has been slammed by increasing costs of its public safety contracts, the housing crisis, lower property values and state raids on local coffers.”

“Former Chamber of Commerce chairwoman Verna Mustico warned that if the city files for bankruptcy it could make the current housing crisis worse. But numerous residents agreed with the city manager’s office that at the end of the fiscal year, Vallejo will run out of money and had no other option but Chapter 9 protection.”

The Contra Costa Times. “A day of tough decisions for Contra Costa supervisors ended Tuesday with unanimous approval of a county budget that will slash nearly $51.7 million from programs.”

“For the first time in a decade, county spending will drop next year. It had been rising by 7 percent annually. But as the economy falters and the housing market implodes, revenue and expenses will dip by 4 percent. All told, that represents an 11 percent shift from a typical budget year.”

“The supervisors…also noted that these cuts are just the beginning. The county is bracing for millions of dollars more in losses when lawmakers complete the state budget this summer.”

“The budget shortfall ‘has forced us to look at new ways of doing things,’ Supervisor Gayle Uilkema said. ‘Right now, this is discouraging. … But the reality is, the world is going to be brighter from Contra Costa’s view if we stop digging a (financial) hole.’”

From ABC 7 News. “The combination of foreclosures and declining property values are putting a squeeze on local governments throughout the Bay Area. Marin County will probably have to lower the assessed value of at least 1,000 homes. Contra Costa County is re-assessing about 65,000 properties, and expects to lose at least $40 million in taxes as a result.”

“Alameda County will reassess about 40,000 homes and business at a cost of at least $20 million in property taxes and the South Bay may take the biggest hit of all.”

“‘We proactively reduced the assessed value on 43,000 residential properties this year,’ says Clara County Assessor Larry Stone.”

“Santa Clara County’s reassessment of 43,000 properties has resulted in $6 to $7 billion of property tax value to disappear. The county’s share of those revenues is one percent which is a loss of $60 to $70 million.”

“Santa Clara County is facing a $172 million deficit this year according to county executive Peter Kutras. ‘We’re struggling and there is no way we can get enough revenue to keep us going,’ says Kutras.”

Bay Area Newsgroup “The slide in residential real estate prices and sales has yet to abate, and could hound the economy for two more years, according to an ominous assessment presented Tuesday at a realty conference.”

“What’s more, when the housing market manages to stagger back on its feet, don’t expect it to come roaring back, according to Kenneth Rosen, chairman of the Berkeley-based Fisher Center for Real Estate and Urban Economics, which sponsored the conference in San Francisco.”

“‘To think that we will have a big recovery in housing is a mistake,’ Rosen told the conference.”

“The big unknown is the state of the economy generally. The housing market slump also could imperil the overall economy, especially consumer spending. That’s because home owners in recent years had tapped the equity in their homes through residence-backed lines of credit.”

“The jump in home equity bolstered the income of a typical family with two wage earners. ‘People also had a third earner in the family,’ Rosen said. ‘That was the house.’”

“In the housing industry builders and buyers have been at a stalemate. Who wants to buy when the price might go down? And while builders need to sell their homes, they also needed a way to convince buyers. So in this game of chicken, builders have pulled off the road and are offering price guarantees to sweeten the deal.”

“Signature Properties, based in Pleasanton, has a few communities with a two-year price guarantee, including two in Livermore and others in Concord, San Pablo, Richmond and San Francisco. There are some restrictions to the deal.”

“‘We believe the homes will hold the value pretty well and after the next two years, I think we will find some recovery in the marketplace,’ said Linda Kime, vice president of sales and marketing for Signature Properties.”

“Homes prices have also gone down, more than 18 percent year-over-year in Alameda County, DataQuick Information Services Inc. reported. Prices have gone down from 4.4 percent in Marin to 26.9 percent in Contra Costa counties.”

“‘We know the market sucks. The questions is what are you going to do about it?’ Pacific West, a Reno, Nev. builder writes on its Web site. The builder, which has homes in El Dorado Hills and the Central Valley, is guaranteeing if the price drops before the last home sells in the community, it will issue a check to the buyer for the difference — even if it’s two or three years later.”

“Jed Kolko, a research fellow at the San Francisco-based Public Policy Institute of California, said that while the price guarantees could encourage sales, the risk to builders is low. At best it’s an insurance against a small or modest drop in prices and not a big fall.”

“‘If prices fall significantly, then the developer might not be selling homes in the community anymore or even go out of business,’ he said. ‘Then the guarantee would be worthless.’”

From CNBC. “I’m no expert on, well, anything. That’s why I report what other people say. Increasingly, experts are saying we are at the bottom of the housing cycle.”

“Exhibit A: I interviewed ‘golden boy’ developer Rick Caruso last week. He said that while it’s difficult to predict a bottom, he’s investing now. I’ve never known him to be wrong.”

“Exhibit B: Hedge fund manager Cyrill Moulle-Berteaux writes in the Wall Street Journal that home sales are bottoming and that price declines will quickly slow. Soon, people will start buying again, owners underwater in mortgages will be more willing to tough it out, and mortgage-backed securities will stabilize.”

“Exhibit C: A friend who runs a homebuilder in foreclosure-heavy Stockton says appraisers are using foreclosures as comps, driving down prices. This is forcing him to match those prices or risk losing loans for his buyers because his new homes are too ‘expensive.’ The race to the bottom is picking up speed.”