The Housing Bubble

The Korea Times reports on California. “Yoo Mi-rae says her three-bedroom condo in downtown Los Angeles looked better in June when it fared easily above $550,000. Her new second home an ocean away isn’t looking so great four months later, with its value down nearly 5 percent already. Yoo, who spoke to The Korea Times before the purchase this summer, indicated then that she was buying the condo as a five-year investment for her son starting college in California. ‘I didn’t want him to throw money away on rent,’ she says, ‘but now I’m thinking that maybe waiting it out would’ve been a smarter choice.”’

“Lim Chae-kwang, an agent at a Seoul-based brokerage specializing in overseas properties, says investors who made purchases without knowing the depth of the financial problem are being kept on their toes due the endless fall. ‘Long-term investors should be fine, but those looking to sell homes in the U.S. within five years might come home with a loss,’ said Lim, who said property values have dropped at least 20 percent over the past year there.”

“‘We used to get about 30 calls a day, but now we get 15 at most,’ he said, explaining that investor confidence will remain weak until popular states like California and Florida start to recover. The hard-hit Pacific region has seen the steepest drop in the country, with California home prices tumbling a record 41 percent in August from a year earlier.”

The Mercury News. “Lupe Parga and her family must find a house to rent, and soon. In late June, the fo ur-bedroom home she and her husband owned in San Jose’s Evergreen neighborhood was foreclosed upon. Parga, her husband, their four kids and Parga’s sister’s family are all still living there while seeking a rental that can hold both families. Meanwhile, they’re trying to stave off eviction from their former property.

“‘It’s really hard. Things are just getting rented right away,’ said Parga, an accountant who was recently laid off from her job.”

“Record numbers of Silicon Valley homeowners have been foreclosed upon this year, and most must seek rental housing once they leave their homes. But rent increases in the third quarter were not as steep as in the second quarter, a sign of the softening economy. And RealFacts said apartment complexes were 95.6 percent full in the July-to-September quarter, down from 96.7 percent a year earlier.”

“One reason apartment occupancy rates are slipping is that more single-family houses are coming onto the market as rentals, said Joshua Howard, executive director of the local division of the California Apartment Association. Some of those houses are previous foreclosures that were purchased by investors.”

“‘That’s providing competition to multi-unit buildings,’ Howard said. ‘The rental housing economy has more options available right now.’”

“Parga said she will keep searching for a rental house in the Evergreen area, so her children can stay at the schools they now attend. She said she’ll be sorry to leave her house, which she and her husband bought from her grandmother for nearly $800,000 in early 2006. Its value has fallen to about $600,000 this year. Even with family members’ help, they couldn’t afford the payments on their adjustable-rate mortgage, and they fell into foreclosure. They have stalled eviction by trying to find family members who would buy the house back from their lender. But eviction could occur anytime now.”

“Having foreclosure on her credit record has been ‘a huge setback’ when seeking to rent, she said. ‘Seeing the way things are, you’d think people would be a little more lenient… I’m sure there’s a lot of people in this situation.’”

The Press Democrat. “Lenders have been foreclosing on about 62 homes a week in Sonoma County. From real estate agents to police officers to neighbors, those reporting on the status of foreclosed homes say vandalism and vacant properties go hand in hand. ‘It’s getting toward winter, and people may be making fires to stay warm or using candles for light,’ said Santa Rosa Fire Division Chief Mike Jones.”

“Foreclosed homes sitting vacant are becoming heavy burdens for some neighborhoods as vandals break windows, dump trash, deal drugs, spray-paint graffiti and commit arson, said Georgia Pedgrift, graffiti-abatement officer with the Santa Rosa Police Department and one of the primary observer of vacant properties.”

“A little farther north, near Coffey Park, broken and boarded-up windows and the remnants of spray paint greet potential buyers at a home on Skyview Drive, listed at $248,900.”

“The few neighbors remaining on Shawnee Street said they cope by keeping to themselves. That means not confronting the people they see trespassing or squatting in the empty homes and not calling police about crime. ‘It has nothing to do with me,’ said a Shawnee Street resident who, with his own financial difficulties, is worried about losing his home.”

“With one house already gutted by fire — suspicious because gas and electricity to the vacant house had been turned off — neighbors anticipate more flames. ‘That one’s empty, that one’s empty, that one’s empty, but you can tell people are there,’ said one woman who feared retaliation if her name was used. ‘I’m just waiting for this one next door to catch on fire.’”

“Real estate agents said neighbors can help protect vacant properties by being observant and active before fire danger begins. First, said agent James Madison, appliances are typically taken from vacant houses. Next, trash is dumped in the yard. Then windows are broken and graffiti starts appearing, and squatters, from overnight partiers to longer-term occupants, move in. ‘It goes in stages,’ Madison said.”

The Manteca Bulletin. “Manteca’s median housing prices will hit $237,892 by Thanksgiving - what they sold for in 2002 - even if another deal doesn’t go pending and even if only half of the homes now in escrow actually close before the end of the year.”

“There were 836 closed deals of existing homes in Manteca as of last Tuesday with a median price of $243,783. There are another 240 deals pending with a median price of $219,378 with foreclosures - 160 of them - having a median of $192,097. Manteca housing prices have been dropping since the end of 2005 when they reached a historic peak of $429,000.”

“Three years ago not a single existing home that closed escrow in Manteca sold for under $320,000 in October. This October it is a drastically different story. Of the last 43 homes to close escrow through Tuesday in Manteca all but three ended up changing hands for less than $320,000.”

“The real tailspin didn’t start until mid-July. Since then home prices of closed deals have been dropping $3,315 a week reflecting the aggressive pricing that banks have taken. It is a strategy that isn’t letting up. ‘Banks are now looking at comparables when they get ready to list a foreclosure,’ Jim Muthart of Coldwell Crossroads Real Estate said. ‘They want to put their listing on new as the lowest.’”

The Sacramento Bee. “National banks, which handle most of the region’s consumer banking, also are the biggest business lenders. But local banks are important sources of funding, particularly to smaller firms. While some local banks are lending, the nation’s credit crisis remains severe. Fewer lenders are competing, and it’s getting tougher for borrowers to qualify.”

“‘I’m being told that the credit quality for loans now has to be pristine,’ said Clarence Williams, president of Sacramento-based California Capital Financial Development Corp.”

“Williams, whose company helps broker loans for small businesses around Northern California, usually averages two new loans a week. As of Thursday, he hadn’t closed a new deal in a month.”

The Salinas Californian. “Two California suicides in the past two weeks made national headlines - the first involved a family in financial distress and the second a woman about to lose her home to foreclosure. ‘Last month we had nine suicides in Monterey County,’ said Carly Galarneau, community outreach coordinator at Suicide Prevention Service of the Central Coast. ‘That’s the most we’ve seen in one month in a very long time.’”

“For Salinas marriage and family therapist Brenda Lang, more stress in the community has led to a spike in calls from new patients. ‘More than I can fit,’ said Lang, who specializes in financial crises. ‘The financial situation, the election, foreclosures - everything seems to be creating a lot more tension and anxiety, ‘ Lang said.”

“We felt we had made a good decision moving to Salinas. It wasn’t until a mortally violent crime occurred in our neighborhood that I took notice of the changes that were occurring…More and more undesirable activities were drawn to our neighborhood. Property values were dropping, homes were being foreclosed, and people were abandoning their homes, because they owed more on their houses than they could recover by selling.”

“On a recent neighborhood walk, I observed nearly 30 homes, abandoned, in our local, 300-home area. Most of these homes have had their utilities disconnected. This has resulted in a degraded appearance around these homes. Landscaping has become extremely dry, weeds are growing wild; and in some houses there is evidence of ’squatters.’”

“My next-door neighbor, Rodrigo…is a native of the Philippines. He immigrated to California and has worked for The Monterey Bay Aquarium for 14 years. Three years ago, with the help of his brothers and sister, he was able to buy a home. He brought his wife and children from the Philippines. Lorena, his young daughter, became involved in our neighborhood summer activities, eagerly appearing and participating at each event.”

“They lost their home in August. Rodrigo was devastated, returning to care for the landscaping, even though, as he said, ‘The bank owns my house.’”

The Modesto Bee. “Anna Cohen, 25, squinted and frowned at the 2001 Honda Civic before settling. ‘I wanted a Volvo, but I guess I can’t afford it,’ the Turlock woman said Sunday. ‘They told me it was ‘out of my budget.’ But somehow it was within my little brother’s budget last year.’”

“A year ago, Cohen’s brother drove off a lot in a 2002 Volvo S40. But a year ago, credit was much easier to obtain and the country wasn’t in a financial crisis. Everywhere Cohen looked, she was told she’d have to come up with 10 percent to 20 percent of the sale price to get the car she wanted. She did — after scaling back her expectations to a seven-year-old Civic.’

“She probably would have gotten a loan for it if she had shopped around a few months ago, said Abraham Tarverdi of Metric Motors Modesto. ‘It’s a lot harder to find financing now,’ he said. ‘The days of easy credit and people buying a car just because they want it are over.’”

“‘You basically have to be the perfect customer. You have to have long-term credit, no past-due payments and a 10 to 20 percent down payment,’ said George Ismail of Modesto Toyota. ‘It used to be a person with a pulse could get a lease. That’s not so anymore.’”

“The portion of disposable income that U.S. families devote to debt hit an all-time high in the second half of last year, topping 14 percent, figures from the Federal Reserve show. When other fixed obligations — car lease payments and homeowner’s insurance — are added in, about one in every five household dollars is claimed by bills.”

“The credit card industry lobbied heavily in 2005 to tighten bankruptcy laws to make it more difficult for consumers to seek court protection and shed responsibility for paying off debt. But in a sign of just how much households have become dependent on borrowing, the average amount of credit card debt discharged in Chapter 7 bankruptcy filings has tripled — to $61,000 per person — from what it was before the law was passed.”

“‘We are going to have to cut back,’ said Dean Baker of the Center for Economic and Policy Research, a Washington, D.C., think tank. ‘We’ve really been living beyond our means.’”

The North County Times. “North County’s population dropped last year —- a development that economists said last week was both a symptom of the region’s sluggish economy and a potential cause for severe regional recession. ‘The unemployment rate locally started surging in June 2007, so I think that was when the economy officially started weakening,’ said Alan Gin, an economics professor with the University of San Diego.”

“Economists said weak jobs reports mean the region’s population might have decreased even more this year. Further, another reason people leave cities —- foreclosure —- has doubled in North County during 2008 from a year ago, according to data from ForeclosureRadar.”

“Fewer people mean fewer house buyers, which could further depress real estate prices that have already declined by 30 percent from a 2005 peak, according to Standard & Poor’s Case-Shiller Home Price Index. Fewer consumers could further hurt retail sales, meaning less opportunity for businesses and more job losses, analysts said.”

“‘That’s definitely the worry right now —- that the weak economy is just going to reinforce itself through even lower economic activity,’ Gin said.”

“‘If you lose your job, it’s a heckuva lot more expensive to live here than elsewhere,’ said Marney Cox, economist for the San Diego Association of Governments. ‘Things like your unemployment benefits, your savings can take you a lot further elsewhere than it would in San Diego.’”

“Cost of living was a factor in Melanie Powell’s decision to move from Oceanside to Billings, Mont. She packed up her things Friday. Though she had a stable job as an accountant with no employment lined up in Montana, she was confident in finding work and wanted to relocate to be closer to her family and find a house she could afford.”

“‘I love it in San Diego,’ Powell said. ‘Just the thought of ever being able to afford a place by myself, it just doesn’t seem like that is going to be possible in the near future, if ever.’”

The County Sun. “Government and business leaders from San Bernardino and Riverside counties decided at a Wednesday meeting to keep pursuing a proposal that would open the door for Los Angeles-area investors and Inland Empire cities to buy up thousands of troubled mortgages behind the region’s economic problems.”

“The region’s hammered real-estate market could spiral downward even further if the concept doesn’t come together, which could slide the local economy into a deeper recession than expected, proponents say. ‘It could devastate our economy for the next decade,’ said Steve PonTell, president of Upland-based La Jolla Institute, a nonprofit economic research organization.”

“But the proposal’s advocates are also looking out for themselves. If their plan doesn’t work, and if home prices fall even more, they might see millions of dollars in losses.”

“They’re proposing a public- private partnership between cities and investors, which would buy distressed Inland Empire mortgages and shut out investors from outside the Los Angeles region. Real-estate developers, auto- dealership owners and some other entrepreneurs across the two-county region are tentatively on board with the concept. But envisioning the dream and realizing it are two different things.”

“Lance Larson, legislative director for San Bernardino County, said the Inland Empire has 100,000 homes in default or foreclosure - a $30 billion problem that doesn’t include thousands of previous and future foreclosures. ‘We’re also trying to increase demand,’ Larson said about drawing out buyers and propping up the region’s devastated real-estate values.”

“Montclair Councilman Bill Ruh, a strong advocate for affordable housing, questions whether a public-private partnership is a good thing for the region. He thinks it might usher in an artificial price floor on real-estate values, which would keep local blue-collar workers from finally being able to afford the American dream.”

“‘When homes were running up in price, we never said, ‘They can only go this high’ - so why stop prices from dropping?’ Ruh said. ‘What’s wrong if a home’s price drops low enough for a janitor to own one? There’s nothing wrong with that.’”

“‘If a janitor who makes $35,000 a year can finally afford a home at Sierra Lakes (in Fontana), so be it,’ Ruh added. ‘If a retail sales clerk who works at Banana Republic can finally afford a home, so be it. It seems that cities are more afraid of rentals than actually dealing with the problem.’”