The Housing Bubble

The Times Standard reports from California. “A new housing affordability index, released this month by the Humboldt Association of Realtors, shows Humboldt housing prices — recently overvalued countywide — have begun to dip. Fortuna showed the largest net increase in affordability, rising 19 percent between August and September of this year, and 26 percent between October 2007 and September 2008. In September, according to HAR data, 30 percent of households in Fortuna were able to purchase a home in Fortuna. That percentage is still significantly less than in April of 1999, however, when 60 percent of Fortuna households could afford a home in the city.”

“According to the index data, in September, the median sold home price in Humboldt County was $291,000. ‘Countywide, it’s not a staggering difference,” said Tom Hiller, president of HAR. ‘Each market is slightly different. We’re starting to see attractive deals throughout the county.’”

“Of course for sellers, the prospect of falling property values may not be as appealing. But Hiller said property values had been inflated to unrealistic highs, and the dip is a natural adjustment in the market. ‘In the short term, there’s been a reduction in equity,’ Hiller said. ‘But if people hang onto those homes, the prices will catch up with them.’”

“Thomas Bruner, an associate professor of economics at Humboldt State University, said he believes HAR’s findings are reasonable, and he expects affordability to continue trending in buyers’ favor through the winter. ‘I think January and February might be some of the best times historically, at least in the last 10 years, to buy,’ Bruner said. ‘If you have the money, this is the time to invest.’”

The Press Democrat. “Help is building to assist homeowners redo mortgages and avoid foreclosure, but questions remain about how far lenders will go as the toll of people losing homes mounts. Joan and Angela Ricci, a mother and daughter who own a Sonoma home, needed 14 months before their lender agreed to lower their monthly mortgage payment.”

“‘Everyday, I thought I was going to lose the house. I was a nervous wreck. Your life changes,’ said Joan Ricci. ‘We’ve been crying a lot.’”

“The problems for Joan Ricci began when she refinanced her home of 43 years in January 2007. Ricci was put into a subprime loan with a high interest rate — not the 30-year mortgage she expected — by an out-of-town mortgage broker who solicited her by phone. Daughter Angela Ricci stepped in, but couldn’t get the original lender, Argent Mortgage, to undo the loan. Citimortgage later purchased the mortgage.”

“They made the monthly payments, with Joan returning to work at age 70 and Angela taking on side jobs as a respiratory therapist. Family and friends also provided financial help. But by December, they could no longer afford the house payment. ‘We depleted every penny we had,’ Angela Ricci said.”

“The lender didn’t agree to specific terms until this month, lowering the interest rate to get the monthly payment from $4,600 down to $2,900. ‘It means we get to keep our home, which is what we wanted all along. But I have the burden of working everyday of my life to make the payment,’ Angela Ricci said.”

“Sandra and Octavio Lara weren’t as successful working with the lender on their Rohnert Park home. They defaulted on the loan and now their only hope to avoid foreclosure is to sell short, where a buyer pays less than what is owed on a home. The couple had an adjustable rate mortgage with Carrington Mortgage on their Rohnert Park home. The payments had risen from $3,000 to $5,100 when the couple stopped making the mortgage in October. The lender began talks over loan terms the end of December. Carrington Mortgage eventually agreed to lower the payment, but only by $800, leaving the family with a $4,300 monthly payment.”

“‘We asked them to lower the loan amount, if they were willing to finance it for what it was now worth. But they basically want their money,’ she said. ‘We couldn’t afford it anymore.’”

“Reducing loan balances to bring them closer to current home values could be an incentive for homeowners to struggle and make mortgage payments, said Kevin Stein, executive director for a San Francisco-based low income housing advocate. ‘If their debt is more in line with their home’s value, it reduces the number of people supposedly walking away from their homes,’ Stein said.”

The Sacramento Bee. “Sacramento County’s lowest-income neighborhoods continue to take the toughest, most destabilizing punches of the region’s two-year foreclosure crisis, says a new report from the Sacramento Housing and Redevelopment Agency. And it’s getting worse.”

“‘Foreclosures are continuing to increase,’ said Joel Riphagen, SHRA redevelopment analyst. ‘The common denominator of the hardest-hit areas is they are low-income.’”

“Sacramento County has seen banks repossess 14,054 homes the first nine months of this year – 5,643 in July, August and September alone, according to MDA DataQuick. That’s 73.5 percent of the capital region’s total. SHRA, which doesn’t count homes bought at auction, showed 4,670 third-quarter foreclosures.”

“Investors are snapping up homes formerly occupied by owners with intent of renting them. More than one-third of Sacramento home sales in October were priced below $160,000. Three-fourths of county sales were of foreclosed homes repossessed by banks, the Sacramento Association of Realtors reported Friday.”

The Manteca Bulletin. “Closing schools to weather the deepening budget crisis is among 100 ideas being scrutinized by Manteca Unified. The double whammy of declining enrollment due to the foreclosure crisis coupled with the state’s mid-year deficit projection that has ballooned to $28 billion has opened the door to such a move.”

“Serious talk about closing schools is ironic considering Manteca Unified leaders are dedicating the $89 million Lathrop High campus today at 4 p.m.”

The Westside Connect. “With its enrollment continuing to dwindle and the uncertainty of how hard the state budget crisis will hit public education, the Gustine Unified School District has implemented a hiring and spending freeze. Superintendent Gail McWilliams said the district received a double dose of worrisome news recently.”

“The October count by which enrollment is measured for the state showed a decline of 140 students from last October, McWilliams said, a steeper drop than anticipated. ‘We had thought that the decline would be right around 100 students, but our enrollment dropped more than that,’ McWilliams said.”

“She attributes the exodus of students to the collapse of the housing market and tough economic times. ‘Our hope would be that as gas prices and housing prices fall that people start coming in, but we don’t have any indication of that happening at this time,’ the superintendent commented.”

The Voice of San Diego. “The town of Julian, an hour east of San Diego, is a destination for harried city-dwellers who escape on weekends. Named a couple of years ago by Sunset Magazine as one of 10 places in the western states to buy a cabin, the mountain town attracts second home buyers.”

“But three years after the San Diego County housing market reached its price peak, the number of second-home buyers — and buyers in general — has ceased to be buoyed by housing frenzy. Julian’s market closely tracks the county’s housing macro-trends of falling prices, increased foreclosures and weak sales compared to the boom.”

“Twenty-seven homes sold in the first nine months of 2008 in Julian’s 92036 ZIP code. That was half as many as sold in the same period in 2007. The decline in sales is even starker compared to the same nine months in 2005, when 78 homes sold, and 2004, with 89 sales, according to MDA DataQuick.”

“There are about 75 homes and lots on the market in Julian, of about 1,650 total homes in the 92036 ZIP code. Fifteen of those listings are bank-owned. Another 11 are in an earlier stage of foreclosure, according to public records. Many others are short sales. And the rest, if they want to sell, must price their homes close to the distressed property prices to compete.”

“That means homes that were selling in the high $300,000s now sell for about $250,000, said Dennis Frieden, the broker and owner of Julian Realty. One house that was originally listed for about $1 million a couple of years ago has now dropped in price to about $600,000.”

“On a few of the lots where homes burned in 2003, buyers tried their hand at building homes in order to sell them. But by the time they obtained the permits, and built and finished the houses, the market had peaked and fallen. Now there are four or five listed for less than the owners owe on their construction loans.”

“On a drive through Julian’s winding roads with a visitor, Frieden stops to point through the trees at a 3,000 square foot house that fits that description. Its builders bought the lot and built a house that they hoped and expected to sell for $1 million. Now Frieden estimates they could get $550,000.”

“He points out another, a large brown farm-style house that was foreclosed on in this downturn. Its previous owners had mortgages up $600,000 and contacted Frieden to sell it for $700,000. It ultimately went to foreclosure, and the buyer who lives there now paid $489,000.”

“Frieden’s own journey to Julian matches some common reasons for moving there. He ran a real estate agency and employed 65 agents in Mission Hills for a couple of decades before selling his office and moving east.”

“‘Everything was getting redundant,’ Frieden said of his former metropolitan life. ‘I sold the same houses three or four times.’”

The Union Tribune. “Greed and naivete collided on Little Lake Street in the fall of 2004. It produced easy money for speculators and mortgage brokers and short-lived happiness for families who bought houses they couldn’t afford to keep. Few streets in the county have witnessed as dramatic a turnaround as Little Lake.”

“Prices on one block peaked in 2005, a few months after homes hit the market. Since then, 13 of the 23 houses – 57 percent – have fallen into fore-closure. Subprime loans were rampant in the census tract surrounding Little Lake Street. Of the 3,600 loans sold in that tract in the past three years, more than 1,000 were subprime.”

“But the problem wasn’t confined to subprime mortgages. Many home buyers gorged on easy credit. About 12 percent of foreclosed properties likely belonged to investors who walked away from at least two houses in the past three years, the Union-Tribune found.”

“During the overheated market, thousands swarmed the South Bay and took out risky mortgages. ‘All people did it,’ said JesÚs Muñoz, a construction worker who lost his Little Lake Street house in March. ‘They were investing and selling. If other people can do it, why not me?’”

“Many buyers on Little Lake Street, including Terry Louise Washington, said they were bombarded with messages from family, friends and co-workers to invest in property before theprices climbed out of reach. Washington, a community college instructor, heard that message repeatedly at church and even by a speaker at her high school reunion.”

“‘I thought I did the right thing’ in buying the house as an investment, said Washington, who used an inheritance from her grandmother for her $118,000 down payment. ‘People told me it’s the way to make it in life.’”

Philip and Perlita Bautista bought eight houses in the past five years, mostly in southeast San Diego, Otay Mesa and Chula Vista, according to county deeds. Because some had adjustable and negative-amortizing mortgages, it didn’t take long for the couple to fall behind in their payments. ‘The payment is increasing and the bank is squeezing,’ said Philip Bautista, who works as an electrician. ‘It’s pretty horrible. Ten years we worked. All the money we saved, it’s gone.’”

“In addition to his Little Lake house, which was rented out, Bautista said he has lost ‘two or three’ others. He walked away from the Little Lake house when his mortgage payments adjusted upward, and his loans surpassed what the house was worth. In his eyes, he already had paid the bank considerable money — $28,000 down and two years of mortgage payments.”

“‘That’s a lot of money. The bank already has that money,’ Bautista said. ‘Now that the house is only worth $300,000, are you still going to pay?’”

“County records show Bautista refinanced his original mortgage and recovered his down payment 17 months after his purchase.”

“Longtime community members say the South Bay’s housing bust has been a deflating experience, prompting many to work multiple jobs and placing strains on marriages. ‘People are just trying to hang on,’ said Aguirre, the National City community development specialist. ‘It used to be Hummer City. Now it’s Toyota Tercel Town.’”

“Maria Alvarez made decisions to minimize her losses. Alvarez bought her house on Little Lake Street as an investment property with a 20 percent down payment. Six months after buying the house, Alvarez refinanced and took out a $95,000 line-of-credit, according to county records. ‘We put $100,000 down. We didn’t want to lose that,’ said Alvarez, who defaulted on another house in May. ‘A lot of people are losing their down payments. Now they don’t have anything. My husband and I put it into our business. We survived with that money.’”

“Like Alvarez, several people who pulled equity out of their Little Lake properties say they spent it on business expenses or mortgage payments. Only when prodded, and in one case reminded, did they acknowledge using the money to buy a timeshare, new cars and jewelry. The most common response to the question of how the money was spent was: ‘To pay bills.’ Many could not remember what those bills were for.”

“Bankruptcy specialists say…lenders set themselves up for problems by not requiring buyers to prove they could afford the loans, or to provide traditional down payments. That stripped buyers of a tangible incentive to stay in their homes. The stigma of foreclosure and damaged credit are real, but temporary.”

“‘Twenty years ago, individuals were doing everything in their power to save their houses,’ said Radmila Fulton, a bankruptcy attorney. ‘Now they’re more willing to walk away. Why pay now when they can rent for less than their mortgage payment?’”