The Housing Bubble

The Mercury News reports from California. “John Gronley bought his dream home nine years ago for $625,000. Its paper value peaked at $1.6 million in 2005. Then, just like it did across the country, the money got funny — one foreclosure in the neighborhood, and asking prices for nearby homes were plummeting and pulling Gronley’s value down nearly a half-million bucks, with no end in sight. ‘It’s like play money, and I’m angry and disgusted by it,’ Gronley said last week. ‘There’s no accountability. And with all this creative financing, people who couldn’t afford to buy in the first place got in over their heads. Now they’re bringing everyone else down with them.”’

“People like Gronley’s foreclosed neighbor got mortgages through people such as a former loan agent at a small San Leandro brokerage.”

“‘We called them ‘foreclosure loans’ because they were doomed to fail,’ said the agent, who didn’t want to be identified because she’s still in the industry. ‘The lender expected the borrower to lose the house and the bank would resell it for its higher appreciated value. But the market dropped and they got caught with their pants down.’”

“She and her colleagues were taking mortgage applications from ‘Pak n Save clerks who could never afford a loan on a $400,000 house. At least once a month we’d all look at each other and say ‘When is this bubble going to burst?’ We all knew it wasn’t sustainable.”’

“Applications moved up the chain, pushed along by people like longtime Bay Area mortgage broker Jim Hitcher.”

“‘In 2003 and 2004, nobody thought home prices would ever fall,’ Hitcher said. ‘Everything was roaring along, appreciation was all around you, and rates were low. We wrote loans for a lot of people with no skin in the game. But you had the sellers pay closing costs, you did 100 percent financing, and the people qualified. It’s not up to me to decide whether someone should or shouldn’t buy a house. As long as they met the requirements, you’d move forward.”’

“As the lending machine cranked faster, the banking industry began packaging thousands of individual mortgages into a type of investment that could be sold to investors around the globe. ‘You’re not making loans’ anymore, said one former loan manager for a bank. ‘You’re making mortgage-backed securities.”’

“As Gonley watches his home equity evaporate while his neighbors’ homes sit on the market, unable to find buyers, he knows that any happy ending will be a long time coming. ‘We’ll stay,’ he said. ‘But I feel sorry for the people who have to sell.”’

The Sacramento Bee. “The provisions for struggling homeowners in the Wall Street rescue bill signed into law Friday are largely voluntary and not enough to curb foreclosures in regions such as Sacramento, some analysts say. Ianthia Turner of Lincoln, owes $75,000 more than her home is worth. Turner, who teaches at a beauty college, is current with her payments on her Lincoln home. But last month her husband lost his financial analyst job at an area bank. ‘We’re just holding our breath,’ she said.”

“Since January 2007, more than 21,000 area households have lost their homes to the banks, according to MDA DataQuick. In July, according to DataQuick, just 22 percent of borrowers who default – falling two or three payments behind – were able to save themselves from foreclosure.”

“Pam Canada, executive director of Sacramento’s NeighborWorks HomeOwnership Center, fears Friday’s rescue might now make banks less likely to help borrowers. If lenders can, ‘in one fell swoop, get rid of a couple hundred deals rather than negotiating each one, I’m afraid that could make it easier for them, again leaving the homeowner with no rescue,’ she said.”

The North County Times. “Three of four Republicans in the region’s congressional delegation on Friday voted against the revised economic bailout plan, standing by votes they took earlier in the week. The region’s two Democrats split their votes on the new measure.”

“U.S. Rep. Brian Bilbray, R-Solana Beach, said the bill was ‘loaded up with egregious pork-barrel spending.l ‘It is absolutely mind-boggling that people in Washington who claim to care about stabilizing our financial markets believe the best way to do that is to load up an already bad proposal,’ he said.

“‘There is no way you can tell me that providing $148 million for wool fabric producers, $128 million for auto racing tracks or $192 million for Puerto Rican and Virgin Island rum producers is responsible action to address our economic crisis,’ he said.”

“U.S. Rep. Darrell Issa, R-Vista, a leading critic of the original measure, said the Senate version approved Wednesday was worse than the original. ‘This is the bailout to nowhere,’ he said in a telephone interview. ‘This does not fix the underlying problems for loans and liquidity in the markets.’”

“Federal regulators, the Bush administration and congressional leaders have failed the country, said Issa, whose district includes North County and portions of Southwest Riverside County. ‘With a manufactured sense of urgency, they spread panic through the markets, shattered Americans’ confidence in the banking system and ignored the American people.’”

The Contra Costa Times. “Likening the push for Friday’s bailout bill to that which preceded Congress’ authorization of the Iraq war, Rep. Pete Stark was the only Bay Area House member to vote against the revised Wall Street rescue bill Friday. ‘It’s the same pressure we had when we voted for the Iraq war, this constant threat of disaster if you didn’t vote the way the administration suggested, and that’s what concerns me,’ Stark said.”

“And telling people they’ll not be able to get cash out of their ATM is ‘patently rubbish,’ he said, a scare tactic.”

The Daily Pilot. “In the 46th Congressional District, it was the Republican incumbent who slammed the bill and his Democratic Challenger who reluctantly supported it. U.S. Rep. Dana Rohrabacher, who voted against the package in both its original and final forms, released a statement excoriating its passage and saying the bill had been railroaded through Congress.”

“Rohrabacher’s Democratic challenger, Huntington Beach Mayor Debbie Cook, had been skeptical of some of the features of the proposed bailout and said she was further angered by some of the additions to it in the Senate. But she ultimately said she would have reluctantly voted yes if she were in Congress.”

“Cook said, a provision added to the bill in the Senate that cut taxes on children’s archery supplies enraged her nearly enough to change her mind. ‘It made me angry that they would mix somebody’s bow and arrow business into this huge crisis that we face,’ Cook said.”

The Gilroy Dispatch. “Just three months into the fiscal year and the city’s $325,000 loan program for first-time home buyers is broke. A dozen buyers have taken advantage of the city’s deferred loan program as market rate homes continue to decline in price. ‘What appears to be happening is because market prices have gone down so much, the subsidy that the city offers is now enough for people to be able to afford those houses. In the past, that subsidy was not high enough to buy most houses on market, so buyers had to come up with other sources of assistance,’ said Housing and Community Development Grants Coordinator Marilyn Roaf.”

“Only four people borrowed from the city last year, and according to the program’s guidelines, the home sales price cannot not exceed 120 percent of the monthly median home sales price for Gilroy, which was $425,000 in August. That means no homes more than $510,000.”

The Ventura County Star. “A housing developer could be required to pay a half-million dollar bond if it fails to comply with required improvements in the Meridian Hills residential development in Moorpark by the end of the year. William Lyon Homes originally had planned to build 265 homes but finished only 65 and sold the remaining 200 lots in the Ashford and Marquis housing developments to Resmark.”

“Meridian Hills resident Phil Frank said a neighbor of his recently tripped and fell over an unpaved curb, one of many things he said have been ignored. ‘None of the homeowners signed up to be part of this, and it should not be like this. With these delays, it has turned our neighborhood into a place with a lot of pent-up feelings of being shafted,’ said Frank.”

The Desert Sun. “A ‘bargain supply’ of existing homes in the Coachella Valley led to a 29.3 percent jump in sales in August, adding to a whopping 143 percent sales increase in Riverside/San Bernardino counties, the California Desert Association of REALTORS reported. ‘A large portion of those sales may be REO’s, short sales, and foreclosures in process. However, a sale is a sale and the buyers are back in the market taking advantage of the ‘bargain supply,’ said Greg Berkemer, executive VP of the California Desert Association of REALTORS.”

“‘When sales rise faster than prices fall, it could be an indication that recovery is underway and the window of opportunity is right now,’ he said.”

“The median price of an existing home in Coachella Valley in August was $221,940, down 41.3 percent from $377,920 in August 2007, according to the Desert MLS.”

“Indio’s median price per square foot was $114, down 43.7 percent from August 2007. Valleywide, the median price per square foot was $142. The city’s median price during August hit $197,000 — even more affordable than the valley’s $250,000 median price. The city’s median is down 6.1 percent from July and down 40.6 percent from last year.”

“Indio was one of five Coachella Valley ZIP codes whose sales were more than double what they were in August 2007. A big reason is the lower-priced entry-level market, driven by the rising number of foreclosures and short sales valleywide.”

“‘People who couldn’t afford these homes (before) are now in the market,’ said Berkemer.”

The Hesperia Star. “This year’s race for the Hesperia City Council is not Russ Blewett’s first political campaign, not by a long shot. Blewett served on the city council. In 1971, he was the youngest mayor in America. ‘I got into it because I have a passion for problem-solving,’ he said. ‘The politics of it are a necessary evil and sometimes it gets in the way.’”

“His lone development in the High Desert was an anti-masterpiece of timing: Blewett built a housing tract in Adelanto just in time for the closing of George Air Force Base.”

“He also has a prescription for the city’s ghost town’s worth of foreclosed homes. ‘Right now, there’s 1,000 [foreclosed] homes and there’s probably going to be another 1,000. We need to get those cleaned up and in the hands of owners, not renters,’ he said. ‘Nothing good is going to happen in this economy, for anyone, until we’ve solved this foreclosure problem.’”

“Blewett would have the city get into the business of second mortgages for buyers, paying for 15 percent of the cost of a home. The second mortgage wouldn’t have to be repaid, if the buyers (all of low-to-moderate income) live in their new house for 11 years. (Buyers would also have to take a class on building and maintaining good credit to qualify for the loans.)”

“‘What have you done? You’ve created a stable neighborhood,’ he said.”

The Graphic. “In Malibu, it is difficult to determine whether increasing housing costs are the result of the housing crash or the continuing prestige of coastal real estate. Although Malibu is fairing through the housing crisis with less damage than other markets, many students’ families were hurt by the housing slowdown. Dr. Robert Sexton, professor of economics, said the credit problems generated by the housing crisis has an affect on all sectors of the economy.”

“‘In retrospect, homeowners paid too much and lenders extended credit which tied them into homeowners’ losses,’ Sexton wrote in an e-mail. ‘We just are not as wealthy as we thought we were and this financial crisis has impacted everyone.’”

“Grant Harling, a junior at Seaver College, faced a similar loss when he and his family bought a condo in Malibu, which they hoped to resell in the future. However, they lost out on profit due to the housing slowdown.”

“‘We bought in Malibu hoping that the money made during the resale would help pay for school, but now all we can do is sell it back for the same price we bought it for,’ Harling said.”

The Red Bluff Daily News. “Bob Martin has been a local mortgage broker since 1991 at Summit Mortgage. He said he never issued teaser or sub-prime loans and saw the potential trouble being caused by those who did. ‘I’m one of the last mortgage brokers that are even out there anymore,’ Martin said.”

“The blame, according to Martin, can be distributed both to mortgage brokers looking to make a quick buck and homeowners who signed balloon mortgages. Martin said the terms of the mortgages were clearly outlined in the paperwork, but overconfidence in the housing market and the belief a refinancing opportunity would present itself later led people to sign anyway.”

“The overconfidence is nothing new in American history according to David Gallo, economics professor at California State University, Chico, who compared the housing craze to the agricultural boom of the 1920s and the dot-coms in the late 1990s. ‘Any banker with a brain who could have thought the housing market was going to go up indefinitely was just a fool,’ he said.”