The Housing Bubble

The San Francisco Chronicle reports from California. “As home values continue to plunge, the real estate valuation service Zillow said that 20.76 percent of all homes in the nine-county Bay Area are underwater. The rate is much higher than the national average of 1 in 7 homes, or 14.3 percent. That’s because the Bay Area - like most of California - was a classic bubble market. Dale Hirschkorn is among the almost 400,000 Bay Area homeowners with negative equity. He and his partner owe about $610,000 on their bungalow in Oakland’s Maxwell Park neighborhood; the home now is worth about $100,000 less. In their 94619 ZIP code, 23.8 percent of the homes are underwater, according to Zillow.”

“Hirschkorn had planned to retire next year, until the combination of his swooning equity and the stock market collapse that wiped out some of his retirement accounts. Now, he’ll wait until he’s 65 - but some other plans may be on hold, too. ‘When we retired, we wanted to run a bed & breakfast, maybe in San Luis Obispo,’ he said. ‘We were counting on the equity in the house to give us the down payment. Now that dream is on the very back burner.’”

“Stan Humphries, vice president of data and analytics for Zillow, said Zillow’s estimates are ‘definitely conservative’ because they looked only at original purchase mortgages compared with a home’s current value. These estimates did not consider cash-out refinances, which have become commonplace and would have made the underwater percentages higher.”

“‘Particularly in the past few years, there has been a tendency for people to use their homes as an ATM, pulling out money in a refinancing,’ he said. ‘For homeowners who did that, the amount of equity in their homes is even less than we calculated.’”

The Mercury News. “More Santa Clara County homeowners were dragged ‘underwater’ in the third quarter. Among those who purchased homes in the past five years in the county, 27 percent owed more mortgage debt than their homes were worth in the third quarter. That’s up from 24 percent in the second quarter of this year, according to Zillow.”

“In San Jose…about 14 percent of all homeowners had negative equity in their homes in the most recent quarter. Humphries noted that home values in Santa Clara County cities such as Cupertino and Mountain View finally began to slip in the third quarter. ‘Prior to this quarter we were thinking of those as oases,’ he said.”

“‘If things get really bad next year we might see more . . . people walking away because they owe more than their home is worth,’ said Anne Ramstetter Wenzel, principal at economic research firm Econosystems in Menlo Park. Wenzel said she’s less worried about large-scale ‘walk-aways’ in the valley than she is about the effect of mortgage rates and terms readjusting soon for the many valley residents who took out interest-only loans about five years ago.”

“A new plan to speed the rescue effort for those most in danger of losing their homes was unveiled at a Washington, D.C., news conference. The plan is intended to speed up the process of modifying mortgages to make them more affordable. But not everyone is convinced.”

“‘I’m disappointed,” said Doug Jones, who operates Mortgage Magic in San Jose. Jones said the problem is that many San Jose-area homeowners who got loans with little verification of their income won’t be able to make even the modified payments. Jones has been helping people modify their mortgages, but complained that it has been ‘a knock-down, drag-out struggle’ to get banks to do so. ‘If a customer is not past due, they encourage in a subtle way for the customer to get past due and then they’ll help them. That’s horrible.’”

“Some feel the ‘Streamlined Modification Plan’ won’t do enough to help distressed borrowers, particularly those caught in the sort of subprime or large loans that Fannie and Freddie don’t buy or back. Freddie and Fannie control only about 20 percent of the seriously delinquent mortgages, housing finance agency Director James Lockhart acknowledged. Home loans owned by multiple investors through private-label mortgage securities, which are not affected by the plan, represent 20 percent of all mortgages, but 60 percent of all serious delinquencies.”

“The plan ‘leaves out basically the entire realm of subprime mortgages, which are at the heart of the foreclosure crisis,’ said Tim Lilienthal, a spokesman with a faith-based organizing group advocating a systematic approach to preventing foreclosures.”

The Recordnet. “Existing home sales in San Joaquin County slipped last month from a record high in September. Still, that was the second-best sales month this year, which has been booming primarily because of foreclosure sales. The median monthly sales price rose slightly, moving from $192,000 in September to $194,000 last month. The median sales price for October 2007 stood at $319,000.”

“These days, most foreclosures involve homeowners who are so upside down on their homes - they owe far more than the homes are worth because of the long-term slide in home values - that they no longer want to keep making the monthly payments even though they can still afford to, said Mike Collins of Collins Realty, Stockton.”

“Jerry Abbott, president of Grupe Real Estate, Stockton blamed the drop in prices for causing the major part of the foreclosure market right now. ‘Prices have come down so far from what people paid for their property that they’ll just walk away,’ he said. ‘It’s only a two- or three-year hit on their credit score.’”

The North County Times. “House sales across the region strengthened significantly, increasing 98 percent from a year ago and reaching the highest level for October since 2005, according to…the North San Diego County Association of Realtors. However, housing prices locally were not on the rebound. The region was still mired in the worst real estate recession on record, with prices down 32 percent from a November 2005 peak and foreclosures dictating the market.”

“Further, recent stock market volatility might not have shown up yet in house sales because it typically takes 30 to 45 days to close on a mortgage.”

“‘I think the real guesswork is what’s going to happen to all those listings that aren’t selling. One hundred percent of the buyers are looking at 5 percent of the market,’ said Jim Klinge, a Carlsbad real estate agent. ‘It’ll be muddied waters for a long time to come.’”

The Union Tribune. “Zillow… found that values have fallen 17.9 percent in the past year in San Diego County, while the median price was off 27.2 percent over the same period, as measured by MDA DataQuick. The reason for such a gap: More than a third of homes sold over the past year previously went through foreclosure.”

“Zillow also found that 52.5 percent of San Diego homes sold at a loss in the past 12 months. It said 30.4 percent of all homes – and 51.3 percent of those bought since 2003 – are worth less than their original purchase price. Whether for sale or not, nearly all homes in the county, 92.5 percent, are worth less today than a year ago and 60.2 percent have lost value in the past five years.”

“‘Housing in San Diego has obviously fallen off a cliff,’ said Spencer Rascoff, Zillow’s chief operating officer. ‘San Diego’s home prices are now back where they were in the middle of 2003. You’ve rewound the clock five years in terms of home prices.’”

The Daily Bulletin. “First it was the housing industry, then the financial sector. The Inland Empire economy’s next nemesis: retail job losses. So where can these laid-off workers find new jobs?”

“‘Probably nowhere,’ said John Husing, economist and owner of Redlands-based Economics and Politics Inc. ‘The problem is, the retail sector is shrinking. It’s going to be difficult finding a place to go for somebody working for minimum wage.’”

“The Inland Empire’s battered retail sector will only get worse over the next year because the region’s ‘gold mine’ - the housing industry - is shut down for now. ‘When you shrink the gold mine that brings in money from the outside world, it has ramifications,’ Husing said.”

The Press Enterprise. “In another sign of current economic woes, building permits in Riverside and San Bernardino counties continue to drop. In some cases, it’s more like a plummet. Permit volume in Riverside County is down by more than a third from July through September, the first quarter in the fiscal year, and major planning cases are down by more than half.”

“So far this year, the county has issued 509 residential permits. In 2005, the county issued more than 2,300 and last year just 1,301, said Julie Rynerson Rock, San Bernardino County’s land use services director. George Johnson, director of the Riverside County Transportation and Land Management Department, said the department has seen significant cutbacks. In February, the county laid off more than three dozen engineers, building inspectors and supervisors because of a lack of work. Layoffs also hit the county’s planning staff in July, Johnson said.”

“Johnson said he does not know when the drop might end. ‘I don’t have a crystal ball, either,’ he said. ‘We don’t know when it is going to stabilize.’”

“Riverside County remains at the forefront of the national housing crisis. Four of the top 20 ZIP codes in the nation with the highest percentage of so-called upside-down mortgages are located in the county, according to new data.”

“More than three-quarters, or about 77 percent, of homeowners with mortgages in San Jacinto’s 92582 ZIP code are in a negative-equity position. In Lake Elsinore’s 92532 ZIP code, the figure is 71 percent, compared with 70 percent in Winchester’s 92596 ZIP code and 69 percent in Perris’ 92571 ZIP code.”

“John Marcell, president of the California Association of Mortgage Brokers Education and Research Foundation, said the high number of upside-down loans is troubling. ‘I have clients, past clients — four or five a day — who call and say, ‘John, I need to refinance, but I owe more than my house is worth,’ said Marcell, an Upland mortgage broker. ‘The solution? I don’t know what it is. You are going to have to lower these loans to the point where people can refinance. You are talking huge dollars.’”

The Desert Sun. “In a region suffering from a sluggish economy that has been hit hard by a real estate market downturn, the cadence at a massive real estate auction today and Thursday promises to be quick. Hundreds of homes, condos and vacant land parcels will be sold at roughly three-minute intervals.”

“The auctioneer’s bidding sheet includes never-lived-in or slightly used homes in neighborhoods from the Salton Sea through the Coachella Valley and high desert cities to Joshua Tree. Property in sought-after Indian Wells and Palm Desert, as well as posh coves in Rancho Mirage and Palm Springs. Three model homes with 67 finished lots valued at $20.5 million in La Quinta, with bidding opening at a fraction of the price: $7 million.”

“Starting bids for some homes are as low as a mid-sized car: $20,000 on up to $50,000 in some cases in key cities. Some houses in Palm Desert, for example, have starting bids lower than what it cost to build the house, meaning homes that had previously been listed for $440,000 could go as low as $250,000.”

“Indio resident Nestor Castillo, who lives across the street from a home that will be put on the auction block, said he’s glad the sales are going on. Castillo said the new, two-story home he and his wife just bought in the north Indio neighborhood was a foreclosure property. ‘We paid less than half of what it cost when it was built,’ he said. ‘I like the area. It’s quiet. Gated, and we believe this is the right time to buy a house.’”

“When Robert Watson of Palm Springs learned some of the starting bids for the sale, he said this would be a great time to have some extra cash laying around for investments. A house next to his had been repossessed by the bank six months ago. The multiple listing sheet for the property that was built in 1977 claims a $294,900 list price.”

“It, too, is headed for the auction block with a starting bid of $150,000. At one point, the auction house said the property was valued at up to $406,000. ‘I hate to see it,’ he said. “The neighbors were my friends, and it’s frightening to think what will happen to all our equity on the block.’”