The Housing Bubble

The San Diego Reader reports from California. “What’s the difference between National City and Rancho Santa Fe? Well - er, uh - money comes to mind. Last year, median household income in National City was $44,130, according to figures provided by the San Diego Association of Governments. That was far under the county median of $68,388. Another difference is that 70 percent of the homes currently listed for sale in National City are in distress.”

“The county’s problems ‘are mostly where entry-level housing is,’ says Brian Yui, chief executive of a discount real estate broker. The deceptive mortgages ‘gave people the ability to get in with nothing down, with payments artificially lowered for the first 12 to 18 months,’ says Carlos Aguilar, president of AXIA Real Estate, who specializes in foreclosures. ‘It was a house of cards that fell apart like a Ponzi scheme the minute [home price] appreciation stopped.’”

“Lemon Grove median family incomes are a subpar $60,050. Prices have plummeted 33.6 percent in the last 12 months. Yui’s figures indicate 70 percent of Lemon Grove homes now listed for sale are short sales or foreclosures. Nearby Spring Valley has incomes around $70,000. Prices there have plunged 38.3 percent over the past year.”

“A bit over 40 percent of homes on the market are short sales or foreclosures, about double the county average.”

“In Chula Vista, the higher-income areas are hurting more,” says Zulema Maldonado of Prudential Real Estate in EastLake. ‘They purchased big homes and started with loans that were interest-only’ or some other type in which the interest rate adjusted upward. ‘Otay Ranch is hurting the most. In 2003, prices were $400,000. They went up to $800,000 and are now back to $500,000.’”

“In the first quarter of this year, three times the number of San Diego County homeowners failed to pay their mortgages as during the first quarter of 2007. According to DataQuick, 8975 homeowners defaulted on their home loans, up from 3931 last year.”

“Saint Claire is a small subdivision at Otay Lakes Road and Saint Claire Drive, adjacent to EastLake. In late April, 21 homes in Saint Claire were in the early stages of foreclosure or had already been taken back by the bank.”

“A heavyset man doesn’t want to give his name responds in a thick Iraqi accent to a question as to why so many houses are for sale in his neighborhood.”

“‘Too many people buy houses when they have no money. We’ve never had this problem before, but now it’s all over…Nobody is buying because of the economy, you know. People are scared to buy a house now. Like that house,’ he says as he points across the street to a house for sale. ‘He bought for $800,000. Now he sells for $500,000. How’s he going to pay to the bank?’”

“The Saint Claire subdivision was built in the mid-’90s. Homes range in size from 1758-square-foot three-bedroom houses to 3100-square-foot houses with five bedrooms. Houses that once sold for $700,000 are now going for $400,000.”

“‘A lot of people are in the shit here,’ says 23-year-old Ryan Swierk. His family rents a house on Chateau Court that’s currently for sale. ‘I know our house isn’t one of them [a foreclosure], but the owner is in trouble, just like a lot of the other people in this neighborhood. This guy across the street, his house has been on and off the market for months.’”

“Doug Leeper, a code enforcement manager for the City of Chula Vista, says that he can easily tell which houses are in foreclosure.”

“‘Some of these homes sit vacant for 7 months, at least a minimum of 4 months, and in some cases as long as 12 months of sitting vacant before the lender even takes them back. Grass dies, the lenders let it overgrow; the pool goes green, because the lenders say, ‘It’s not our property yet.’ We call it the lender’s black hole,’ he said.”

The Tribune. “Paso Robles’ recently robust economy has slumped with the rest of the state and nation but seems likely to make an expeditious recovery, according to forecasters.”

“‘Paso Robles saw 810 home sales in 2004. We expect that the city will see 328 home sales in 2008. That about says it all,’ summarizes the forecast report, prepared by the UCSB Economic Forecast Project.”

“Steve Lohr, VP of planning and development for J. Lohr wines, said he believes the weakened U. S. dollar can have positive effects on Paso Robles’ wine industry.”

“‘We’re in a recession, but the good thing is that in a recession people don’t necessarily drink less wine. They just become more choosy about what wine they drink,’ Lohr said.”

The Daily Bulletin. “Troubled home builders hit hard by a busted Inland Empire housing market are looking for enormous breaks - 1990s recession-type breaks. And because sales incentives aren’t doing much to move inventory and cauterize developers’ bleeding balance sheets, it’s going to take some good ol’ fashion lawmaking to get those breaks.”

“Legislation that would let builders delay payment of local impact fees until their housing inventory is sold off is being considered by state legislators and touted by the California Building Industry Association.”

“‘The builders are trying to tie their impact to the payment of the impact service,’ said Barry Gross, president of an Irvine-based company hired by developers for financial evaluations.”

“Builders collectively shelled out millions of dollars into the framework behind these tentative maps during the real-estate rush. They’d lose almost every penny on their investments if the maps expire.”

“The death of either bill could force some home builders to go belly up, or at least bring them to their knees.”

The Press Enterprise. “Investors bought more foreclosed homes on the courthouse steps in California last month, reflecting a growing willingness of lenders to accept more deeply discounted bids, ForeclosureRadar reported Wednesday.”

“Despite more than 97 percent of the foreclosed properties being returned to the lender after auction, there was a 34.6 percent increase in properties purchased by third parties, which most likely were investors, the report said.”

“In Southern California, Riverside County saw the heftiest discounting, an average 27.5 percent, followed by San Bernardino County at 25 percent. Statewide, lenders discounted 86 percent of the foreclosed homes auctioned at an average 28 percent.”

“‘The increase in investor purchases at foreclosure auction is a welcome change,’ founder, Sean O’Toole said in a statement. ‘For too long, lenders were unrealistic about opening bids at auction. They finally seem to realize the magnitude of the problem and are beginning to discount accordingly.’”

‘Riverside County last month saw 3,564 foreclosed homes sold at auction, which was 269 percent more than in May 2007, while 2,648 homes were auctioned in San Bernardino County, up 322 percent from a year earlier.’

“In California, 25,523 foreclosed homes were auctioned in May, up 11.8 percent from April. Of those, 24,831 homes were retained by the lenders because they received no bid higher than the lender’s opening bid.”

The Modesto Bee Californian. “Finally there’s some good news on the foreclosure front: Northern San Joaquin Valley mortgage default rates seem to be stabilizing. During May, 3,333 mortgages went into default in the three counties, compared with 3,676 in April and 3,668 in March.”

“That would be welcome relief for the region’s depressed housing market, considering home values have plummeted more than 50 percent in some valley cities since 2005. New home construction has slowed to a trickle as foreclosed houses repossessed by banks have flooded the resale market.”

“‘It’s not just people with subprime loans losing their houses any more,’ said Martha Lucey, president of ByDesign Financial Solutions. Lucey said even homeowners with fixed-rate loans can face foreclosure if they encounter financial problems…because home values have declined so much they have no equity and can’t sell for what they owe.”

“Edward Parcaut, president of SourceOne Financial in Modesto, said many homeowners simply choose to walk away from their house, letting it fall into foreclosure.”

“‘They’re making a business decision. I’ve never seen so much detachment,’ Parcaut said about homeowners who accept foreclosure without shame. ‘The stigma is gone.’”

The San Mateo County Times. “The hotbeds for foreclosures statewide are the Central Valley and the Inland Empire in Southern California, but San Mateo County did not go unscathed.”

“Antonia Hernandez saw her monthly mortgage shoot up to $6,883 on a two-bedroom, one-bathroom house in Redwood City that she’s in danger of losing.”

“It went into foreclosure after the loan on the house reset. Hernandez, a housekeeper, and her husband, a refinery worker, originally paid $4,300 per month in mortgage payments when they purchased the house two years ago. Their combined monthly income is $5,400.”

“Hernandez and her husband live with six nephews in the house, and may have to walk away from it.”

“‘It was one of my biggest dreams to buy a house,’ said Hernandez. ‘It would be very hard to leave, but it makes me wake up at night thinking of the mortgage payment, and I don’t want to live in agony anymore.’”

“The family purchased the house for $775,000 with a subprime loan, and the interest rate adjusted upward. As of February, the Hernandezes stopped making payments because they could not afford them.”

“In San Mateo County, most of the foreclosures are in working-class neighborhoods in cities such as East Palo Alto, Daly City, South San Francisco and San Bruno. Parts of San Mateo, such as Shoreview, as well as portions of Redwood City and Menlo Park are also experiencing high rates of foreclosures.”

“Some 119 homes in San Mateo County were sold at foreclosure auctions in May. That was up from 35 in May 2007 and about the same as the 118 sold at auctions in April. Notices of default in the county climbed to 417 in May, up from 300 in April.”

“Around the Bay Area, Contra Costa County saw foreclosure auction sales jump fourfold, to 1,141. Santa Clara County foreclosure auction sales more than sixfold to 674, and auction sales tripled in Alameda County, to 754 in May.”

From Glamour. “In March 2005 Karla Hodges seemed to have her life impressively in order. Her nursing job paid $92,000 a year, and thanks to a liberal lending climate, her bank had preapproved her for a home mortgage of more than half a million dollars.”

“The then 32-year-old single mother, who’d struggled to put herself through school and raise a family in pricey Northern California, was feeling pretty good about things. She’d finally earned herself a piece of the American dream.”

“She settled on a 1924 Craftsman bungalow with a view of the water near the San Francisco Bay and a price tag of $432,000–a full $100,000 less than the amount she’d been approved for.”

“Along with the great view, Hodges says, the house also came with daunting monthly payments of $2,363, but she wasn’t worried. She’d been given the loan, she made a good living, her job was stable, and in the bubble economy of 2005, the common assumption was that all real estate investments were good ones. Moreover, her bank was making the purchase less onerous by allowing her to finance the entire house with no down payment required.”

“Two years later she had to tell her boys they were moving. “I called the lender and said, ‘This house is eating me alive. I want out,’ she says. Her credit was ruined and her savings account was empty. Her voice mail overflowed with messages from her mortgage lender, and she felt incredibly stressed and anxious.”

“Emotionally exhausted, Hodges let the bank take over the house.”

“Hodges found a rental that is far more luxuriously appointed than the house she owned. It has three bedrooms and a fireplace. And while she never was able to put her coveted swing set behind her old place, the rental house just happens to have a jungle gym on the fenced-in lawn.”

“‘This has always been my dream,’ says Hodges, standing in her kitchen and looking out into her backyard. ‘A sliding glass door leading out to a yard that my children could play in. I dreamed of opening the door and saying to the kids, ‘Why don’t you go outside for a little while?’ And look what I have here: a sliding glass door.’”

The Associated Press. “House Speaker Nancy Pelosi, asked Thursday about fellow California Democratic Rep. Laura Richardson’s multiple home defaults, said that ‘every member of Congress is responsible for living up to the highest ethical standards.’”

“Late last month reports emerged that Richardson, a former state Assemblywoman and member of the Long Beach City Council, had lost her Sacramento home to foreclosure and has two other homes in Southern California that have fallen into default six times.”

“Last week the Long Beach Press-Telegram reported that Richardson had also left car repair bills unpaid.”

“California Assembly Speaker Karen Bass also addressed the Richardson situation Thursday during a visit to Washington. Bass and other Assembly leaders had endorsed Richardson’s congressional bid but Bass told reporters she’d had no idea about Richardson’s financial issues.”

“‘Given the rapid pace of all of that I can understand the financial difficulties, but now more is coming out,’ Bass said.”

The Sacramento Union. “Rep. Richardson sees herself caught in the maws of voracious lenders and a cruel capitalistic system that have forced others like her out of their homes.”

“‘I think this is what many Americans are unfortunately facing right now,’ she told the Los Angeles area’s Daily Breeze. ‘…I can take what I have learned from this to help somebody else. Many people are one step away from issues that are life-changing moments. When a person moves across the country, that is a life-changing moment.’”

“Partly to blame, she says, is the measly salary she is forced to accept to serve there. Alas, $170,000 a year just does not go as far as it used to.”

“It did not go far enough, at least, to cover mortgage payments on three houses she held simultaneously. According to Richardson, that must have been someone else’s fault - probably yours and mine - for not seeing to it that she had an adequate salary. It must also have been someone else’s fault that she bought three houses instead of one.”

“The Daily Breeze reported that in March she had fallen behind by $12,400 on her San Pedro home payments and by $19,900 on her Long Beach home. She owed more than $570,000 on her Sacramento home when it went into foreclosure. She says she was unaware the house had been auctioned and contends that the sale was ‘improper.’”

“The truth is that the Congresswoman is a failed speculator. She flipped houses as the housing bubble was popping and her bets have come due. Now she wants some sympathy and, yes, a bailout.”