The Housing Bubble

The North County Times reports from California. “On the 3400 block of Hollencrest Road, the real estate bust has turned this neighborhood of 1970s, single-story houses into a checkerboard of browned lawns and plywood-covered windows. Every other house entered foreclosure over the last year. Francisco Lopez will soon join the growing number of former homeowners.”

“Lopez purchased his house for $379,000 with no money down in November 2005, the exact month real estate prices in the county peaked, according to Standard & Poor’s Case-Shiller Home Price Index. He calls it his ‘lucky month,’ with a wry smile. He missed his first payment in March after his loan payment jumped beyond what he could afford.”

“Nearby houses of the same size are listed for as little as $149,900, a drop in value of 60 percent, according to a real estate listing Web site.”

“‘Even if you don’t have a bad loan, you’re upside down on your equity. If you are $50,000 underwater, you could ride that out. But when you’re $180,000 upside down, you’re not going to see that come back in your lifetime,’ said Donna Steward, a real estate agent in San Marcos.”

“But last week, Lopez looked on the brighter side. ‘Before, whenever you looked for a parking spot, you couldn’t find one. Now, there are spaces everywhere,’ he said.”

The Union Tribune. “Those waiting for the lagging housing market to rebound were disappointed yesterday, as MDA DataQuick reported that 2,004 San Diego County homes went into foreclosure in July, a 9 percent increase over the previous month and a spike of nearly 213 percent over last year.”

“The July tally of mortgage failures was a record since DataQuick began tracking foreclosures in 1988. It was the county’s 40th consecutive month of year-over-year increases in both foreclosures and notices of default.”

“‘Prices are going down. A lot of people find it easier to walk away from their mortgages than fighting to stay in the house,’ said Alan Gin, economist for the Burnham-Moores Center for Real Estate at the University of San Diego.”

The Voice of San Diego. “If the rate of new condo sales in downtown San Diego continues the way it did in the first half of 2008, it would take five years and three months to sell all of the new units in the city core, according to recent sales counts from MarketPointe Realty Advisors. That’s about five times as long as the absorption rate for all of the new homes constructed around the county.”

“The years’ supply combined with developers’ inability to find construction financing for projects in downtown San Diego means the boom time gleam of a new condo project has lost its luster. Even the region’s real estate optimists acknowledge the city core is a hard place to do business right now.”

“‘If anything I’m sort of a downtown booster,’ said local real estate analyst Gary London. ‘But let’s face it: the cycle is over.’”

The Glendale News Press. “A round-table gathering of seven business and economic leaders from Los Angeles County and the region gathered Wednesday in Pasadena to address concerns about the economy, energy prices and the recent closure of 33 IndyMac banks throughout California.”

“John Bovenzi, CEO of IndyMac Federal Bank, participated in the forum and answered many of the concerns expressed by constituents. Brenda Cox was one of about a dozen people in the audience who sought advice from Bovenzi after she lost more than $100,000 after her accounts in IndyMac were seized by federal regulators.”

“‘What would you do in my situation?’ she asked Bovenzi.”

The Friday Flyer. “The Canyon Lake Chamber of Commerce held its regular monthly meeting Wednesday. The keynote speaker was Riverside County Tax Assessor Larry Ward, who said his office has reviewed property values in the County and is offering a reprieve for local homeowners whose homes have decreased in value below their original property tax base.”

“Citywide he said it reflects a 2.82 percentage decrease and countywide the property value assessment rolls were reduced by six billion dollars.”

“As many local real estate appraisers have already discovered, the Assessor said Canyon Lake is a challenge when it comes to determining values. Because his office does mass appraisals, they are faced with the challenges of the area having homes in the million-dollar range as well as homes in the $300,000 or even lower price range, with factors such as waterfront property and location within the community contributing to the value.”

“‘The problem right now is no fair market sales,’ he said. The fair market value he explained, is a property offered for sale with a willing seller and buyer who are under no undue stress. Since so many properties are either foreclosures or short sales, he said they don’t fall into the category of fair market sales.”

The Daily Press. “On Thursday, about 800 people were registered to attend an auction at the San Bernardino County Fair grounds to bid on the 163 foreclosed homes that were on the market. Rob Friedman, conducted the auction and said the banks are very motivated to get rid of the properties and are taking some big losses.”

“‘We are liquidating foreclosures for numerous banks. A lot of major national banks have decided they need these properties off their books,’ Friedman said.”

“One example is a large home that was valued at over $300,000 and the winning bid was $70,000.”

“Locally at least 41 percent of homes - or 1,600 to 1,700 homes - currently listed for sale are foreclosures, said Carol Yule, President of the Victor Valley Board of Realtors. Yule said most of the foreclosures didn’t happen overnight and in many cases it is a combination of factors that lead to a family losing their home with the biggest issue being equity.”

“‘People got this gift of equity. We went up 130 percent in home values between 2000 and 2005, so people got this imaginary gift and people borrowed it all,’ said Yule.”

“An illegal alien with previous criminal convictions, pleaded guilty Thursday to forgery in connection with identity theft and buying a home under someone else’s name, prosecutors said.”

“The investigation began in October 2006 after a woman tried to buy a home in Victorville. She was denied credit because she was told she already owned a Victorville home. After checking the report, she discovered it showed her having two mortgage loans in her name, totaling some $177,000, for which she never applied, officials from the San Bernardino County District Attorney’s office said.”

The Bakersfield Californian. “Two major builders have abandoned housing projects near northeast Bakersfield’s City in the Hills development. A third is halting construction at an Arvin site it recently said was going forward.”

“Such moves appear to be snowballing as deflation of the region’s housing bubble continues. Developers have lost entire tracts to foreclosure, sold holdings at fire-sale prices and, more recently, pulled out of sinking projects and markets altogether.”

“Two incomplete model homes baked in the sun Thursday on the south side of Paladino Drive, west of Vineland Road. No markings indicated this was the Castellina tract of Dallas-based Centex, which announced the new neighborhood’s opening in October.”

“Unfinished tract walls, utility hookups and tiers of graded lots stretched into the distance south and west of the unpainted model units.”

“Lupe Chavez, the on-site sales agent for Azul and Brisa, said a blowout sale held over the weekend was in preparation for shutting down the office by the end of September. About 128 of the tract’s planned 325 homes have been built.”

“‘I’ll be out of a job,’ Chavez said with apparent good humor, adding she was ready for a short break after 12 years of selling houses.”

The Monterey County Herald. “Cedar Funding Inc. bankruptcy trustee Todd Neilson can’t be accused of sugarcoating his assessment of the Monterey real estate lender Thursday.”

“In front of a Monterey Conference Center crowd of about 600 people, many of whom sank money into Ceder Funding’s $183 million loan portfolio expecting double-digit returns, Neilson described the company’s finances as a ‘mess’ and a ‘disaster.’”

“About 1,400 people, many of them Central Coast residents, sank millions of dollars into individual property loans and a mortgage investment pool managed by Cedar Funding. But trouble started this spring, when the state real estate market slumped and Cedar Funding reduced and then eliminated monthly investor payments.”

“During a 90-minute presentation, Neilson detailed three of Cedar Funding’s heaviest real estate investments - a golf course and RV park in Los Angeles County, a 78,000-square-foot residence in Carmel Valley, and a house in Pebble Beach - that face potentially staggering losses.”

“‘It was like a boat sinking,’ he said.”

“Cedar Funding owner David Nilsen sat in the front row of the large meeting room. Nilsen declined the trustee’s invitation to answer questions under oath. Barbara Briley, a Salinas investor, approached Nilsen during a break and told him he should be in jail ‘with the door closed.’ ‘I am very angry and disappointed,’ she said.”

“Paul Capos, a Carmel Valley investor, said the trustee’s report was depressing. He said he expects to get back 20 percent to 30 percent of the money he put in the company.”

“Paul Forgette, an investor from Prunedale, said, ‘It’s just a dose of reality.’ He said he is fortunate that he doesn’t have to rely on Cedar Funding interest payments to get by. ‘What can you do? I could get ulcers, but this isn’t … my whole life,’ he said.”

The Mercury News. “Cupertino accountant Richard Smith wants to buy a few bank-repossessed houses in Antioch and Brentwood priced at about $200,000 and rent them out. He can make down payments of about 30 percent, and can afford the mortgage payments. But he can’t find a bank who will make him the loans.”

“‘I’m a very active investor, I’m self-employed with a solid income, and every one of my properties have positive cash flow,’ said Smith, who has been buying rentals in California and Texas for 30 years. ‘I’ve never had a problem getting a loan. All of a sudden I’ve just run into a solid wall.’”

“‘If we can’t participate, we can’t burn through these inventories and help the market correct,’ said Geraldine Barry, president of the San Jose Real Estate Investment Association. ‘What I’m hearing from our members now is, ‘I have a deal; I can’t get money’.'”

“Barry and her husband recently bought a foreclosed house in Sacramento for $114,000; the previous owner owed about $250,000 on the property when the bank repossessed it. Even with a 25 percent down payment, they were unable to find a loan because they have more than four outstanding mortgages, so they paid in cash.”

“Barry said she wants to buy more bank-owned California properties in coming months, but has yet to figure out exactly how she will finance deals, if lender restrictions remain in place.”

“‘There are only so many houses I can buy in cash,’ she said.”

The Fresno Bee. “A slowing economy and falling gas prices could stem the skyrocketing cost of construction materials, which are helping squeeze the profit out of home building.”

“William Lyles, president of a diversified construction company in Fresno, said price declines will become more obvious. ‘This break in commodity prices is only a few weeks old,’ he said. ‘I think you will see a lot of commodity prices drop in the near future.’”

“Home builders also are getting relief in the form of lower labor costs. The slump in construction has flooded the marketplace with workers. But housing prices have fallen 16% in just the past year in Fresno County, which puts builders in a tough spot.”

“Going forward, developers will see lower land prices. But many builders, especially those who entered the Fresno area at the peak of the real estate boom, are sitting on land they paid top dollar for and can’t sell.”

“‘They have existing houses they are trying to sell and are faced with a choice going forward: They can exit the business or try to charge prices people are willing to pay,’ said Bernard Markstein, senior economist at the National Association of Home Builders.”

“That means lowering prices. To do that, builders are constructing smaller homes, including fewer frills and accepting little or no profit.”

The Ventura County Star. “A bigger home is not always better, according to a survey by Coldwell Banker, which asked consumers what influences their buying decisions.”

“When economic times get tough, homebuyers crave security. They are more apt to choose comfortable, cozy and warm homes over airy spaces and lofty views, said Ruth Peters, a clinical psychologist in Clearwater, Fla. ‘Lofty views don’t keep people together,’ Peters said.”

“Today’s buyers don’t necessarily need granite tops and new stainless steel appliances that people were demanding three years ago, said Temple Schneider, a Realtor in Camarillo. It’s partly because the market is dominated by short sales and foreclosures, and most of the homes on the market are not as nice as they were a few years ago, she said.”

“‘It seems like buyers’ attitudes are falling into alignment with what’s available,’ Schneider said.”

“While just a few years ago, some buyers were eager to get as much house as they could afford, now they have grown more cautious. Many buyers are more willing to trade square footage and fancy upgrades for a lower, more comfortable mortgage.”

“‘People are beginning to realize what’s important,’ Peters said. ‘In this topsy-turvy, everything-going-so-quickly, divorce-laden world, we want our home to not necessarily be a castle, but we want it to be a safe, secure and comfortable refuge.’”