The Housing Bubble

The Union Tribune reports from California. “If the past is prologue, today’s three-year housing slump should have one year to go before prices flatten out and begin to move up smartly once again. This time, the region is almost three years into a slump that followed a market peak at $515,000 in late 2005, according to MDA DataQuick. But the 2000s aren’t behaving like the 1990s – or the 1970s, ’50s or ’20s, for that matter. The present cycle has seen prices fall much farther, and faster, with the median down so far by 32.4 percent to $348,000 for the third quarter of 2008, according to MDA DataQuick.”

“‘“It’s not so much of a cycle but a collapse,’ said Kelly Cunningham, chief economist at the San Diego Institute for Policy Research. ‘We’re coming back to reality, probably where prices should have been if things had gone along at a more normal pace.’”

“In the current cycle, the community formerly known as East San Diego rose to a new peak of $400,000 in the third quarter of 2003 and has since fallen back to $190,000, a 52.5 percent turnaround.”

“‘It’s just going to get really bad before it gets better,” said agent Herlinda Ryan in La Mesa, who lives in Eastlake. ‘They’re going to keep going down – you’re going to have to practically give them away.’”

The San Diego Metropolitan. “Local banks lent heavily to residential builders and the commercial real estate industry, which now is experiencing high vacancy rates. ‘Most of the banks in the region have a significant concentration of construction and commercial real estate loans in their portfolios and a significant percentage of these loans are not performing as anticipated due to the downturn in the economy,’ says Dan Yates, president of Regents Bank. ‘Particularly problematic are loans to developers of single-family residences.’”

“‘Anything that is real estate related has to be scrutinized very carefully,’ says Ron Carlson, interim president of 1st Pacific Bank of California. ‘You probably wouldn’t make a land loan today, because how are you going to get paid?’”

“San Diego’s economy was slowed by the 1990s decline of home prices and post-Cold War departure of some defense businesses. This, Carlson says, is worse. ‘That downturn was caused primarily by an oversupply of housing. There was more product than demand. This goes beyond that. This is a more severe recession.’”

“Mike Perry, (president of) San Diego Trust Bank, says his bank saw the economy beginning to turn sour in April 2007. Four months earlier it had made the decision to exit lending markets that were vulnerable to a housing contraction. When underwriting new loans, he says the bank considers the ‘new set of dynamics facing the economy. You have to evaluate credit under a new set of circumstances. You have to analyze the environment under which you are making the loan and understand what can happen if this downturn is contracted or deepens considerably. Every lender has learned that cash flow is king.’”

The Ventira County Star. “To get an idea of how the American credit crisis has affected a community, visit a pawnbroker such as Jenifer Russell, manager of the Pawn Shop of Ventura. Russell began noticing new faces coming through the door near the end of 2007. One of the first was a man who came in with his fiancée. He explained that he’d been in the mortgage business but had fallen on hard times. They were on the verge of losing their house. He couldn’t put his mortgage payment on his credit card, so he used it to buy new goods that he wanted to use as collateral for a loan.”

“Russell tried to talk him out of it. ‘He was telling me about this,” she said, ‘and I was like, that’s not a good idea because you’re double-whammying yourself, because if you charge all this stuff, not only do you have to pay interest with us, you have to pay interest on that credit card.’”

“But there was no other way he could save his house, she said, so he took the loan. ‘He defaulted on almost everything and we haven’t seen him since,’ she said, adding that she doesn’t know if he saved his home.”

The Tribune. “San Luis Obispo County is seeing real estate values play out much as they are at the state level. The sharp drop-off in the local housing market can be seen in tax roll statistics put together by county Assessor Tom Bordonaro, and in a report from county Auditor-Controller Gere Sibbach. Bordonaro’s office has lowered the assessed valuations this year on 12,700 homes by a total of $730 million to reflect the changing values.”

“Jim Liptak, a broker-associate with Country Real Estate in Paso and 2009 president of the California Association of Realtors, is one who believes Paso Robles was insulated from dropping more in value because it has so much more commercial development than Atascadero. ‘But we also had a tremendous amount of housing growth in Paso Robles,’ he said. ‘That is also why it has more foreclosures than any other city in the county,’ he said.”

“Vacancies for homes are stable, although in the North County, more would-be sellers waiting for a rebound are creating a surge in properties for rent, said Curtis Mortenson, owner of Turn-Key Property Management in Paso Robles. ‘The lists are getting so high because the huge inventory from the sales market is entering the rental market,’ said Mortenson, who has four vacancies now out of 20 properties.”

“Rental prices are dropping somewhat in the North County as a result, he said, noting that they’ve already declined about 10 percent from a year ago. ‘If there are 100 houses out there for rent, and there are 60 people looking for rentals, we all have to compete with price,’ he said.”

“Jack Franklin, owner and broker of Liberty Management in Morro Bay, said…rents have also dipped some in coastal towns, making it attractive for many people. One recent client, he said, turned to the rental market after a foreclosure. ”

“‘He walked away from the house and rented a home for $1,700 a month,’ he said. ‘His mortgage payment had been around $4,000 a month; it was no longer affordable.’”

The Monterey County Herald. “Of the 940 homes that sold during last quarter, 76 percent were foreclosures sales, according to data compiled from MLSListings, Inc. Pending transactions range from an $89,499 single-family home listing in East Salinas to a $599,000 property along Monterey-Salinas Highway, Haney said, and 28 of those 84 pending sales were listings under $200,000.”

“‘If the prices go low enough, people will buy, and why wouldn’t they?’ said Sandy Haney, CEO of the Monterey County Association of Realtors. ‘It was always the adage: Once a buyer can buy cheaper than he can rent, the decision’s been made — providing they qualify for the loan.’”

“For now, inventory remains high — 2,747 properties were listed for sale at the end of September, up from 2,480 in January — and no small portion of those are foreclosures. ‘Until that inventory is reduced, that’s when we’ll start seeing what the market’s really made of,’ said Haney. ‘Right now, it’s still a fire sale.’”

The Santa Cruz Sentinel. “For 17 years, mortgage broker Ty Ebright made a living by matching lenders with longtime homeowners who encountered financial difficulties and couldn’t get bank loans. Now Ebright, and his company, Monterey Bay Resources, are caught in the economic tailspin that grips the nation. His loan volume is down 90 percent compared to last year.”

“To survive the financial distress, Ebright is recommending his lenders cut interest rates on existing loans from 11-12 percent to 8 percent. If the value of the property is less than the amount of the loan, he proposes a rate of 1 percent. He recommends 1 percent interest for a home in Fresno appraised at $262,000 when the homeowner borrowed $170,000. Today, the home is appraised at $150,000.”

“Already he’s seen borrowers give up and walk away from their homes. ‘We’ve taken back 37 houses in the past 12 months,’ he said. ‘In the previous 15 years, it was six.’”

“Ebright said the system no longer works because banks have stopped loaning money to all but the most credit-worthy borrowers. ‘There is no way any of the borrowers in our loan portfolio can refinance their property,’ he said, noting that even people with a credit score of 800 have been turned away.”

“When a property in foreclosure is sold on the courthouse steps in California, 97 percent of the time, it goes back to the lender, according to ForeclosureRadar. ‘There are no bidders,’ Ebright said. ‘Investors know that if they wait until the property has reverted to the lender, they can usually purchase the reverted property for much less than the initial bid.’”

The Record Searchlight. “Burned investors across the nation compare the Redding-based Asset Real Estate & Investment Co. (AREI) collapse to Enron and other infamous financial scandals. Lynn Raadik, 75, of Santa Cruz said she and her 80-year-old husband, Karl, lost $1 million when their investments in three AREI-controlled senior living centers evaporated last year. Doug Deskin, 59, of Sonoma County lost $500,000 in retirement income to soured investments through AREI in two East Coast senior living centers.”

“From May 1999 through April 2007, AREI made 56 offerings totaling $259.4 million. The offerings included 40 properties and one corporate note, documents show. Among the properties offered are the now-shuttered Mountain House golf course near Tracy, a Brentwood business park, two Redding senior care homes and AREI’s former headquarters on Redcliff Drive above the Sacramento River.”

“‘We don’t have a lot of hope in getting our money back,’ said Lynn Raadik. ‘I’ve finally gotten to the point where I can accept it for what it is, because otherwise, it can kill you.’”

The Eureka Reporter. “‘We’ll have to rewrite the textbooks,’ economics professor Erick Eschker said Wednesday. The problem: Nobody knows what to write about the lessons to be learned from the October upheaval of the global economy.”

“Professor emeritus Ted Ruprecht believes renters may get a break in the years ahead as foreclosures increase supply the same way they did when he lived through the Great Depression. ‘We rented houses foreclosed by banks, lived in them until they sold and then moved to another,’ he said.”

“Eschker predicts home values will decline at least another 10 percent as rents continue to be more favorable than house payments. ‘In California and nationally, they’re predicting 20 to 30 percent,’ he said. ‘Ours still have a ways to go.’”

“That’s bad news for homeowners who treated residences like credit cards. ‘We consumed based on growing equity,’ said John Dalby, president of Redwood Capital Bank. ‘Home equity was the fastest, easiest, cheapest way for expansion and capital to start a business. That is gone.’”

The Recordnet. “September existing home sales climbed to the highest monthly total so far this year in San Joaquin County while the median sales price continued to fall, this time to under $200,000, according to figures from the latest Grupe Real Estate-TrendGraphix monthly sales report, based on MLS data.”

“‘We’ve had more transactions through September this year than I’ve had in the prior 10 years,’ said Jerry Abbott, president of Grupe Real Estate, Stockton. ‘We’re having a boom year, but the prices are 60 percent or less what they were at the peak of the market’ several years ago.”

The Sierra Sun. “While the Truckee branch of Intero Real Estate was merged with Keller Williams Friday, the second such transaction this week, it did provide relief for Intero owner Anita Noble. With local real estate volatility in mind, Noble decided to sell off her lease. ‘I woke up with the weight of the world lifted off my shoulders,’ said Noble.”

“Statewide home financing also saw changes this week, according to the Associate Press. California temporarily suspended two of its long-term loan programs and removed two other down payment assistance programs. ‘The banks are getting all this money and we don’t have access to anything,’ said Ken Giebel, spokesman for the California Housing Finance Agency.”

The Daily Breeze. “Donald Trump’s name may grace a proposed condo resort on the Baja California coast, but the New York developer’s cachet may be worthless to Californians who made down payments for condos at what looks like another Mexican real estate scheme gone bust, it was reported Saturday. A construction loan of $150 million from a German bank to the Trump Ocean Resort in Baja California fell through in late summer, and a new lender has not been found, a shareholder told The San Diego Union-Tribune.”

“‘It kind of feels like we have been set up,’ said Hamed Hoshyarsar, who raised $165,000 in cash with his brother and two friends as a down payment for a vacation unit to share. ‘With a name like Trump, we figured it was good,’ the Los Angeles-based accountant told the newspaper.”