The Housing Bubble

The Sacramento Bee reports from California. “CalPERS stands to lose a chunk of its $947 million investment in a Los Angeles land development that’s filed for bankruptcy protection. CalPERS and two partners spent $970 million in January 2007 to buy 68 percent of LandSource Communities Development LLC, a partnership developing Newhall Ranch master-planned community in the Santa Clarita Valley area of northern Los Angeles County. LandSource filed for Chapter 11 bankruptcy protection late Sunday, nearly two months after it defaulted on a $960 million bank loan.”

“Developing raw land can be one of the riskiest of real estate ventures because values can fluctuate dramatically. In its bankruptcy papers, LandSource said the value of its assets fell from $2.6 billion in late 2006 to about $1.8 billion last September. Pat Macht, spokeswoman for the $245.4 billion California Public Employees’ Retirement System, said it wasn’t clear how much CalPERS’ original $947 million investment is worth now.”

“Newhall Ranch is one of the final frontiers of Southern California real estate, a major tract that’s been eyed for development for years. Plans call for 20,000 houses and 5 million square feet of commercial development, according to papers filed in U.S. Bankruptcy Court.”

“‘Longer term, this (development) makes great sense,’ said Jack Kyser, chief economist at the Los Angeles County Economic Development Corp. ‘But right now, everything in terms of housing mega-development has come to a crashing halt.’”

“Kyser said CalPERS’ involvement was surprising because the pension fund ‘is astute in how they do their valuations.’”

“When CalPERS bought into the project, the housing market already was softening. But Macht said the severity of the downturn took everyone by surprise. ‘No one knew that the credit crunch and the housing crisis would get to what it was,’ she said.”

The Signal. “Newhall Land is not going out of business, despite a petition by its parent company last weekend to file for bankruptcy protection. ‘We’re a 125-year-old company and have been developing land for 40 years, and we will continue with our day-to-day operations,’ Marlee Lauffer, spokeswoman for Newhall Land and Farming Company, told The Signal on Monday.”

“Clark McKinley, spokesman for CalPERS, was asked if CalPERS, with all its money, would consider settling LandSource’s debts since CalPERS has already invested in the company. ‘We’re not a charity,’ said McKinley, adding LandSource chased good projects at a bad time.”

“‘It was good long-term investment but it came at a bad time,’ he said, referring to the recession-like turn in the housing market.”

“Marshall Ames, VP of Lennar Corporation explained the impact of LandSource’s Chapter 11 petition on Lennar. ‘The owners of LandSource had been negotiating for months in an effort to amend debt covenants with its lenders,’ he said. ‘Unfortunately, the parties were unable to agree on restructuring terms that were mutually acceptable.’”

“In an e-mail sent by Ames to The Signal, he explained: ‘Because LandSource is a completely stand-alone entity, yesterday’s court filing covers only this specific joint venture. Lennar and the other owners are not responsible for, nor a guarantor of, any of LandSource’s debt.’”

The Whittier Daily News. ” Things have been busy for Jon Halili. Last week, as the San Gabriel Valley Mosquito and Vector Control technician sprayed down a brownish-green backyard pool at a foreclosed home on Florence Avenue in West Covina, he scooped up and pointed out small, worm-like mosquito larvae.”

“‘Right at this time we’re having to deal with more vacant pools,’ he said. ‘If the pool is vacant and breeding for a couple of months before we find out about it, it can be a major problem.’”

“Foreclosures have hit eastern Los Angeles County hard: more than 13,000 homes are either in default or have been repossessed by banks, according to Realty. The data indicate that from Pasadena to Pomona and south to the Whittier area, nearly five times as many homes are at risk of foreclosure than in 2005, when the housing market was still booming in Los Angeles County.”

“According the Kelly Middleton, public information officer for San Gabriel Valley Mosquito and Vector Control, the percentage of pools posing a public health risk rose to 37 percent of those inspected, up from 36 percent in 2004 and 33 percent from 2005 to 2007. ‘Definitely we’ve seen an increase in the number of pools we’ve had to treat,’ she said. ‘It’s happening up and down the state.’”

The Chico Enterprise Record. “A government agency that tracks the price of housing and has flagged Butte County repeatedly for high appreciation again indicates falling prices in this market. That’s the ‘housing meltdown’ taking its toll, according to Chico Association of Realtors President Debbie Brodie.”

‘Some of those house price declines are still coming from foreclosures and bank sales, although there haven’t been that many in Chico, she noted. Home sellers have had to drop prices in order to get noticed, she said, or have taken their houses off the market to wait for a rising market.”

“Long-time appraiser Tom Fiscus of Chico has confirmed that his business is down. ‘I’ve seen this (slump) three or four times, but never this bad. I’ve seen the requests (for appraisals) dwindle.’”

“He said he’s also seen the disappearance of the one-person mortgage office as big companies cut costs. ‘Big companies send one rep out to a market to open up an office. That’s fine in good times, but in this market it doesn’t work.’”

“Of what he’s seen in the market, ‘Higher-dollar houses are taking a bigger discount, pricewise. Lower-priced homes — those under $300,000 — have dropped too, but there’s more buyers for that range of house.’”

The Press Democrat. “A national housing crisis was hardly evident in Rohnert Park on Sunday as 17 new homes moved off an auction block in just 52 minutes. About 70 bidders who gathered in the Doubletree Hotel ballroom quickly claimed the properties in what was the first bulk auction of new homes in Sonoma County. Sunday’s sales netted $4.5 million for Standard Pacific Homes, which had been struggling with sluggish sales in its Avondale subdivision in southeast Santa Rosa.”

“Minimum bids on the development’s remaining three-bedroom, two-bath homes just south of the fairgrounds started at about $200,000 — half off original asking prices. The majority of homes sold for about $240,000 to $260,000. The highest winning bid was $285,000 for a home original listed at $463,900.”

“Before the bidding started, the auctioneer asked audience members if they had ever been to an auction before. Only a third raised their hands.”

“Gregorio Edmisten of Petaluma sat nervously with his Realtor as he waited for the event to begin. He hoped to buy a new home for his wife. ‘It’s very hard for newlyweds to get their own homes in the lower price range,’ he said.”

“But his hand never made it in the air. The bids climbed so rapidly, he was overwhelmed. He said he didn’t expect prices to jump $20,000 to $25,000 in a blink of an eye. So Edmisten’s three-month housing search continues. ‘It was intimidating, and they went so fast,’ he said.”

The Press Enterprise. “Bargain hunters are fueling a resurgence of home sales in Riverside and San Bernardino counties and reducing the glut of listings, leading some real estate experts to hope the region’s battered housing market might finally be on the road to recovery.”

“The inventory of unsold homes fell 11 percent from March to April, then leveled off in May to about 33,000 active listings in the Inland Empire and San Gabriel Valley, according to the Multi-Regional MLS. Pending sales were up more than 16 percent in May to 4,650 compared to about 4,000 in April.”

“Rich Cosner, president of Prudential California Realty, with five offices in Inland Southern California, said that although his cumulative sales for the first five months of this year are still lower than for the same period a year ago, home buyers seem to be responding to sharply lower prices lenders are asking for homes they have foreclosed on.”

“‘What I am not sure about is if it is a sign of a stabilized market,’ Cosner said, noting that home sales normally improve in the spring.”

“Leslie Appleton-Young, chief economist for the California Association of Realtors, said that organization does not compile a pending sales index for the state.”

“But she said: ‘Certainly, anecdotally we are hearing from our members they have seen a good uptick in sales activity and that it is concentrated in the areas where you see the biggest decline in prices.’ The price declines, in turn, are most pronounced in the areas with the most foreclosures.”

“‘It is too soon to tell if this trend will be consistent throughout the rest of the year. But it is certainly a step in the right direction,’ she said.”

“Igor Dobroff, a 50-year-old truck driver, said he recently entered escrow on a $165,000 house in Colton, after waiting years to find something he could afford. ‘I am sick and tired of renting’ he said. He figures the monthly mortgage payment with insurance and taxes will be only $300 more than he is now paying for a one-bedroom apartment.”

The Modesto Bee . “The signs are painted over. The models are empty. All building has stopped at the three Falling Leaf subdivisions in Modesto’s Village I. With less than half of the planned 314 homes complete, developer William Lyon Homes has quit construction. Empty lots growing weeds remain.”

“When the development opened in spring 2006 in northeast Modesto, it was highly praised for its innovative use of space and alternative housing designs. Its small lots, garages with alley access, clustered driveways and “granny flats” were hailed as creative ways to provide more affordable housing in a higher-density setting. But it opened just after the region’s housing market peaked and the builder struggled to find buyers.”

“Falling Leaf repeatedly cut prices. Example: Its smallest house, a 1,620-square-foot plan, was priced at $379,000 in August 2006, then dropped to $329,990 by February 2007 and dropped again to $269,900 in April 2007.”

“By last month, the development drastically sliced prices on its remaining inventory to about $100 per square foot. One 3,545-square-foot house with six bedrooms, four bathrooms, granite counters, stainless steel appliances and maple cabinets was advertised for $359,681.”

“The three sets of Falling Leaf model homes — at The Groves, The Trails and The Meadows — are closed. There’s a note on one sales office door saying ‘We are temporarily sold out.’ The Web site for Falling Leaf, meanwhile, has disappeared.”

“Increased building fees can kill a development, warned builder Neil Grevemberg, who owns an eight-lot subdivision off Fine Avenue across from Falling Leaf. He said his Cambrooke Court subdivision lost its vesting rights, and the city wants more than $52,000 per house in fees.”

“With the higher fees and the dramatically slowed demand for housing, Grevemberg said his project is ‘losing big money.’ The lots cost him about $200,000 each, but he said they now are worth only about $50,000 each.”

“‘I don’t know what we’re going to do,’ said Grevemberg. ‘They might sit there for 100 years.’”