The Housing Bubble

The San Diego Business Journal reports from California. “The number of home sales in San Diego rose more than 56 percent in September, compared to September 2007, as median home prices fell by more than 30 percent in the same period, MDA DataQuick reported. The median price of a San Diego home or condo fell to $328,000 last month, compared to $470,000 in September 2007. MDA DataQuick President John Walsh cautioned that the housing market has yet to respond to the financial crisis that erupted last month.”

“‘You have to view last month’s sales in the proper context,’ Walsh said. ‘They represent escrow closings, which reflect purchase decisions made in mid- to late summer. That was before the dramatic worsening of the nation’s economic crisis in recent weeks. Over the next few weeks, our sales data will begin to show how the meltdown in financial markets this fall has impacted housing demand.’”

The Whittier Daily News. “The 20,497 homes and condominiums sold in the six-county Southern California region was up 5.8 percent from August and 64.6 percent from the 12,455 sold in September 2007, according to MDA DataQuick. Given the economic struggles and prolonged slump in the housing market, the bar compared to last year already had been set pretty low.”

“‘The pitifully low September 2007 sales numbers were not hard to beat,’ DataQuick President John Walsh said in a statement.”

“The resales were highest in areas with the highest foreclosure rates. Riverside County topped DataQuick’s list with the highest resale rate (68.9 percent of all sales), followed by San Bernardino County (63.1 percent); San Diego County (47.3 percent); Ventura County (44 percent); Los Angeles County (39.1 percent); and Orange County (36.8 percent).”

“That demand likely won’t remain as intense, said Steve Johnson, Southern California director of Metrostudy. ‘I’m not sure we can sustain that activity,’ he said.”

The Press Enterprise. “A flood of discounted foreclosed properties spurred record year-over-year increases in home sales last month in Riverside and San Bernardino counties, while the median price throughout the Inland region fell almost 37 percent. The median price of homes sold last month was $237,000 in Riverside County and $205,000 in San Bernardino County.”

“Bank-owned homes constituted almost two-thirds of sales of existing homes in Riverside and San Bernardino counties.”

“Steve Johnson, director of MetroStudy, a Riverside consultant to developers, said although builders have reined in construction and lowered their prices, at the current sales pace it would take another eight months to sell what they have if no more homes were built.”

The Associated Press. “John Husing, an economist with Economics & Politics Inc, said the ample supply of discounted, foreclosed homes has kept downward pressure on prices. Once foreclosures start drying up, prices will stabilize, but that could take another year, he said. ‘The flow of foreclosures is enough to meet demand,’ he said.”

“Andrew LePage, an analyst with MDA DataQuick, said it’s hard to estimate how many mortgage defaults were still in the pipeline. Some lenders are simply jammed with a backlog of paperwork, and the number of defaults by prime mortgage holders is increasing, he said.”

“The September sales figures largely reflect purchase decisions made during the summer. ‘The numbers don’t reflect the sheer terror of the last three weeks,’ Husing said.”

From WBIR. “Here’s a rare sight, a sold sign on an L.A. County house. In fact homes had their highest year to year sales gain ever. 65% increase. But the median price dropped to $308,500 dollars, much less than the over $500,000 last year. And homes in foreclosure counted for 39% of these home sales.”

“Realtor Denis Bolen says ‘it’s great news. A lot of people are taking advantage of wonderful sales right now. Admittedly a lot of them are foreclosures and then there’s a certain percentage that are short sales. But, the bottom line is that a lot of people are finding homes and it’s great news for the real estate industry.’”

“Elsewhere, Circuit City said it’s closing 150 stores. Thousands of jobs will be lost. All over LA, signs of recession and weak sales are everywhere. It’s too late for Shoe Pavilion. It’s closing down its chain. Thousands of employees losing their jobs. In fact sales of new shoes have fallen dramatically because many people are choosing to fix up their current shoes.”

“So, Victor’s Shoe Repair in Burbank, doing okay. Shoe repairman Isaac Goli says ‘there’re fixing them. They’re taking their shoes from their closets and saying ‘if I can fix this shoe for 20 bucks, 30 bucks, or go by a new shoe for 110 bucks’. So they’re just fixing them to get by for the mean time to see what’s happening.’”

The Press Democrat. “A study issued Monday by the construction industry estimates the Sonoma County economy lost $151 million in reduced spending and more than 900 building-related jobs last year as a direct result of the sharp drop in housing starts.”

“‘Home building is a big employer and a big economic engine that’s almost run out of gas. We’re at the lowest point we’ve been at since World War II. So it’s not too good,’ said Robert Rivinius, CEO for the California Building Industry Association.”

“Across California, more than 1 of every 4 workers in construction companies and affiliated firms lost their jobs last year, according to the study. The slump wiped out more than 74,000 construction and affiliated jobs last year. A quick turnaround is unlikely, Rivinius said. ‘We are off dramatically again in 2008, and prospects for 2009 really don’t look much better,’ Rivinius said.”

The Mercury News. “The report, quantifying the economic benefits of housing, was issued Monday by the California Building Industry Association, which called on lawmakers to make the housing recovery their top priority. ‘The declines are staggering,” said Ryan Sharp of the Sacramento Regional Research Institute, which prepared the report. ‘Some of the hardest hit areas include Southern California’s Inland Empire, where the output totals and employment impacts fell nearly 50 percent from 2006 to 2007.’”

“Economic output from new home construction in the state peaked at $68 billion in 2005, dropping to $55.2 billion in 2006 and $39.7 billion in 2007, the study found. Residential building permits, which exceeded 212,000 in 2005 in California, shrank to 161,000 in 2006 and 110,000 in 2007.”

The Record Searchlight. “The Redding Redevelopment Agency on Monday night unanimously endorsed the idea of granting $1.2 million in subsidies for affordable housing in a large new subdivision proposed for the north side of town by a private, for-profit developer. The agency also voted 4-1 to approve a $476,000 loan for three second-story affordable apartments in the Gateway Building, proposed at Market and Shasta streets downtown by another private, for-profit builder.”

“Some agency members had misgivings about the idea of subsidizing new homes in a large subdivision when Redding has built up nearly a year’s worth of housing inventory since the market downturn started in 2006. Agency board member Dick Dickerson said he wanted more information on where low-income household fit in today’s real estate market.”

“‘We need some strategies on how we can best use redevelopment money to meet the needs of today’s market, not what we were doing a few years ago,’ Dickerson said.”

The Merced Sun Star. “From an empty dusty field just outside of Livingston, the Diablo range and orchards take up most of the view. The only signs of the nearby town are the tan buildings of one of Livingston’s new developments. But if all goes according to plan, this piece of farmland could sprout houses instead of crops.”

“‘Now the tentative map and development agreements are moving forward for annexation and pre-zoning,’ said Donna Kenney, Livingston’s senior planner.”

“It may seem an ill-timed project, but it’s been in the works for several years, she said. Besides raising property values, said Kenney, the project would have several positive effects on the city.”

“Bill Nicholson, executive officer of LAFCO, says his organization has yet to see any application for the annexation. LAFCO, or the Local Agency Formation Commission, is a state body that has jurisdiction over cities’ annexations. Before the city moves forward, LAFCO would have to answer several questions: Does the city have a lot of empty land already? Does the land in question have adequate access to sewer and other utilities? And, finally, is there a need?”

“Because the market is so weak, a lot of land is being sold off whether they are involved the annexation process or not, said Andy Krotik, a local Realtor. Once owners start the process — the environmental impact reports, the planning documents — they don’t want to stop and then have to start all over, regardless of whether they’re selling the land, said Krotik. ‘Once you jump off the diving board, you can’t go back,’ he said.”

“In any case, the landowner has almost five years in which it can extend its plans before it must start over, said Krotik. If times are bad, the landowner can wait it out.”

‘Just down the road from the property is Doreva Produce. Aaron Silva, the manager at Doreva, said he’d heard the land was for sale. As for annexation, he said it seemed a little premature when there are clots of empty houses in town, and people being foreclosed across the county.”

“It will be a long time till anyone develops those lots, he said. Even so, ‘Everything is for sale that’s got dirt on it.’”

The San Francisco Chronicle. “A subdued and noticeably smaller group of mortgage bankers gathered at Moscone West this week for the Mortgage Bankers Association’s 95th annual convention and expo.”

“‘It’s dead,’ said Dean Williams, CEO of real estate auction company Williams & Williams, who was attending his fifth MBA conference amid a sea of black suits and somber faces. ‘These are the people who look good and smile and make loans. This is a very startling year for the mortgage industry and mortgage bankers. It’s questionable what their role will be in the future. The mood is shell shock.’”

“The new chief executives of Fannie and Freddie, along with their head regulator from HUD, talked about how they plan to improve liquidity in a frozen credit market and help stem a tidal wave of foreclosures. ‘There is no doubt the pendulum swung too wildly in the last couple of years on taking risk,’ said Jim Lockhart, director of the Federal Housing Finance Agency, which oversees Mac and Mae. ‘Underwriting standards fell. Risky mortgages were undertaken. Action needs to be taken to make sure the pendulum doesn’t go too far the other way.’”

“Kieran Quinn, the Mortgage Bankers Association’s chairman, addressed what went wrong with home lending, leading to the current crisis. ‘It was a golden age of finance. We thought we had solved everything,’ he said. ‘Everyone just believed that housing prices would just keep climbing. All this led many folks to belief that leverage was safe, so they became more highly leveraged. Guess what? It was not safe. Today we are going through the most painful de-leveraging in the history of finance.’”

“MBA members attending the conference said they’re still adjusting to new realities. ‘Mortgage money remains frozen,’ said Patricia Arvielo, VP of operations at a medium sized lender from Irvine. ‘Yes, there’s some out there, but it’s only a trickle and it’s only for the few.’”

“She said her company receives about 4,000 calls per month, and only about 40, or 1 percent, can qualify for a loan.”

“A noisy but contained protest greeted delegates to the Mortgage Bankers Association’s 95th annual convention, which began Monday at Moscone Center, as the real estate finance industry is tarred by association with a housing market that’s collapsed like a deck of cards along with the financial strife that followed.”

“Consumer anger was palpable Monday morning when about 40 protesters greeted some of the early attendees of the mortgage bankers’ gathering. Marching before the conference center, they carried signs saying ‘Jail them, don’t bail them’ and ‘Grand theft bailout.’ A steady stream of slogans and chanting accompanied the signs, laying blame at the gathered industry.”

“Around downtown, as the conference got under way, passers-by said they thought that greed is the root of the crisis, which has spread globally. ‘It was greed, arrogance, overconfidence,’ said Henrik Amneus, a tourist from Stockholm, Sweden, walking through Yerba Buena Gardens. ‘Incompetence also, basically, at the bottom of it.’”

“‘They were taking a chance - chancing that this would not be revealed,’ said his wife, Anne, referring to risky mortgage investments.”

“‘No one was watching the store,’ said Bob Stice of San Francisco and Malibu. ‘The trouble is these guys (in Congress) have been getting so much money from the banking institutions, so they have been very friendly,’ said Stice, who said his own considerable stock portfolio is down 35 percent. ‘To see a life’s work, 35 percent of it, just go away because of some really stupid investments on the part of people we relied on - the banks.’”

“Mike Detwiler of Denver, whose company writes software for mortgage bankers, said he agreed that the $700 million bailout was inappropriate.”

“‘The government should let the system work itself out,’ he said. ‘I don’t agree with the government intervention because I don’t know where it stops. When you are putting $700 billion in, then what? They say they have a plan now, but there is no empirical evidence that it is going to change anything. Once you start getting a handout, where does it stop?’”