The Housing Bubble

The Marin Independent Journal reports from California. “Marin’s median price for the 2,153 homes sold in 2008 was $767,000, a 13 percent drop from the $879,450 median based on 2,724 sales in 2007, according to the county assessor’s office. Last year was the county’s first median price reduction in more than a decade. In 2004, Marin’s median price for all homes was $718,000, and it shot up to $819,000 a year later. Last year’s median was more than double the $375,000 median for 4,359 homes sold in 1998.”

“Four years ago, San Rafael resident Christopher Kautz paid $1.025 million for his three-bedroom Spanish-style home in the city’s Dominican neighborhood. Last week, he dropped the price for the third time, to $849,000, since putting the two-level house up for sale in November to finalize divorce proceedings. ‘Here you find yourself in a market like this where you have to sell the house for other reasons, and you’re stuck with a house that has significantly less value than when you bought it four years ago,’ said Kautz.”

The Press Democrat. “Bankruptcies are ripping through the Sonoma County economy. ‘I don’t see any end in sight,” said Judge Alan Jaroslovsky, who presides over the U.S. Bankruptcy Court in Santa Rosa. ‘I’ve never seen anything last this long that still appears to be going strong.’”

“Unlike the wave of foreclosures he witnessed from his bench in the early 1990s, homeowners are not even showing up to court to fight for their homes now. ‘This time they just don’t care. They’re walking away from their homes,’ he said.”

The Orange County Register. “Even as the housing market began to crack, investment bank Bear Stearns increased its bets on mortgages to Orange County homeowners. John Hazen is a customer of Bear and EMC whose income falls short of his mortgage payments. In 2005, the peak of the housing boom, he paid $725,000 for a four-bedroom house in Huntington Beach, using 100% borrowed money.”

“Soon after buying, Hazen began dipping into his savings to pay two mortgages, including a $579,920 first mortgage with EMC. Hazen said he has a good job as a vice president in the tech department of Costa Mesa-based apparel company Hurley, but he worries eventually he will run out of savings to pay his mortgages. ‘My plan was to re-fi at some point or sell the house and move if things kept getting better,’ Hazen said.”

“Hazen said an EMC employee first told him he qualified for a loan modification to better afford his payments. Later the employee told Hazen investors in the securitization that included his loan did not approve modifying its terms. Taken aback, Hazen reminded the employee that JPMorgan announced in January it is expanding loan modification efforts to include $1.1 trillion in investor-owned mortgages. The EMC employee was unaware of the expansion and unable to help Hazen.”

“In another local case, Kim Jensen, a real estate agent, and a domestic partner paid $800,000 for a house in Laguna Beach. EMC quickly bought their $640,000 first mortgage, which allows them to select a payment that defers interest and principal owed to the future. Such loans are dubbed option ARMs. They have been making the minimum payment, and now owe $22,000 more to EMC, Jensen said.”

“The partners split up, and Jensen, now unable to afford the loan, has lobbied EMC for a modification. EMC ignored the pleas for help and did not send modification paperwork until a Register reporter inquired about the case, Jensen said. Instead of helping, EMC has pressured the partners to give up rights to the property, Jensen said.”

“‘They are just the biggest mortgage nightmare in the world,’ Jensen said of EMC. ‘I didn’t choose them. They bought our loan before escrow even closed. I would have never chosen them, never.’”

The Tribune. “The annual median price of all county homes, including new and resale single-family homes and condominiums, stood at $440,000 in 2008, a level not seen since 2004, when the annual median was $440,500. It’s almost a 20 percent drop from the peak in 2006.”

“Homes around the $200,000 range are becoming more common, most notably in the North County and some South County cities, which have a greater supply of homes and where foreclosures are more prevalent. ‘I didn’t think we’d see prices below $300,000, and here we are below $200,000,’ said Linda Midkiff, a Realtor in Paso Robles. ‘I certainly expected us to have some kind of a drop, but not like this. This has been huge.’”

“Even the higher-priced coastal communities with fewer foreclosures are seeing a few reductions and a slowdown in sales activity, said Richard Watkins of Gilligan Realty in Cayucos. ‘One worrisome thing is that people that had the financial means to buy already bought last year,’ he said. ‘And because of the continuing slide in prices, those people won’t be buying again for a while.’”

“‘California went into a down market earlier than other parts of the country, and we will come out of it earlier than other parts of the country,’ said Jim Liptak, president of the California Association of Realtors and broker-associate with Country Real Estate in Paso Robles. ‘But I cannot predict what will happen with the national economy. If it continues to falter, we’re all going to be in the same boat, and that’s scary.’”

The Merced Sun Star. “Merced lost much more than a financial institution Friday when Westamerica Bank agreed to take over County Bank. Besides the employees who will inevitably lose their jobs and the stockholders who now own worthless paper, County Bank stood as a pillar of support for the area’s charities since its 1977 founding.”

“Thomas Hawker, who served as County Bank’s CEO for 17 years, guided the bank through its meteoric rise and left just as it began to fall. Hawker said its demise can be blamed on being based in Merced, often pegged as the foreclosure capital of the nation. Many of the bank’s loans were for commercial and residential projects. The land values have been battered in the last couple years, forcing the company to count them as losses.”

“While serving as CEO, he recalled seeing Merced County land values set at a third of what they’d be worth in Stanislaus and Fresno counties. ‘How do you get around that?’ he asked. ‘There are just some things you can’t overcome.’”

“Leading the bank as its fortunes dwindled was ’sickening,’ he added, though he didn’t think its condition was terminal until the $96 million annual loss was released last week. ‘We had a lot of good years,’ he said, ‘but one bad year really took it down.’”

The Union Tribune. “California Bank & Trust is taking over a five-branch Culver City financial institution that regulators seized yesterday. Like many community banks, Alliance failed when loans to real estate developers went bad amid the housing meltdown. According to FDIC documents, it posted a net loss of $65 million in the fourth quarter – largely because it set aside money in loan-loss reserves.”

The Daily Breeze. “As scores of South Bay residents stopped by the Department of Motor Vehicles office in Torrance on Friday, a lone security guard broke the bad news: They wouldn’t be able to register their cars or replace their missing drivers’ licenses. All DMVs in California were closed for the day under an employee furlough ordered by Gov. Arnold Schwarzenegger in January.”

“‘It’s another Schwarzenegger blunder,’ said Gina Sweeney of Torrance, who had planned to register her car.”

The Toronto Star. “In the U.S. West, a nightmare has been realized. California’s state machinery has ground to a halt. Construction projects have been suspended. The government is issuing IOU’s in place of cash. Tax refunds have been postponed. State workers are forced to stay home. These measures are barely keeping the Golden State from drowning in $42 billion (U.S.) of debt. California’s schools may lose $9 billion(U.S.) in funding this year; prisons and social services will also be hit.”

“A downloadable Arnoldbuck that has appeared on the Internet – ‘IOU Real Money,’ it says, under a picture of Governor Arnold Schwarzenegger – is a joke, but virtual reality too.”

The Desert Sun. “The median price of Coachella Valley real estate fell to $194,900 in December, its lowest level since 2001. The December sales, while reflecting an 8.3 percent gain compared to 2007, also tracked at low levels not seen since 1996. ‘We beat a crummy December 2007 in sales,’ said Andrew LePage, a DataQuick analyst.”

“The number of sales — 746 — was the second lowest since 1996. ‘That was not a great year. It was the peak of the last wave of foreclosures’ in the state, he said. The median price also was lower than the $410,000 peak reached in February 2006.”

“‘The last time the median was lower was in December 2001,’ LePage said. ‘Depreciation has swept through the region and the state,’ LePage said, so the greater share of the sales are in the low-cost areas, where housing prices are affordable and foreclosure activity has been occurring. ‘That’s driving the median down.’”

The North County Times. “In the good old days of 2003 and ‘04, golfers lined up for tee times at the Golf Club of California and the course restaurant was flush with customers. But lately, as a small group of individual members try to keep the troubled golf course open, a good day is anything more than a dozen foursomes while a young entrepreneur barbecues hamburgers and hot dogs outside the empty 17,000-square-foot clubhouse.”

“There is reason for optimism, say those who have stuck out a recent string of bad luck: New owners may be on the way, and the golf is as good as ever. When the course opened in 2002, membership deposits ran $20,000. The status of dozens of unreturned deposits is still in question. For now, the club is offering $500-per-month family memberships with no deposits until the club is back on its feet and fully functioning.”

“Former member Jay Featherstone said many of those…dropped as members ‘were active, current on their dues,’ and wanted to stay at the club. ‘A great place turned into a very unfortunate situation,’ he said. ‘The membership dwindled down to almost nothing.’”

“Golf has suffered along with the tattered housing market, said John McNair, vice president of operations for JC Golf, which runs eight public courses in Southern California. ‘Most courses do not have a waiting list, meaning they need members,’ said McNair, adding that private courses are at a disadvantage because the upfront deposits are a major deterrent for most local residents who have taken a hit in property values.”

“‘I don’t think we’ve seen the worst of it,’ he added. ‘No one’s doing great. Pretty much everyone I talk to says that they’re down versus a year or two ago.’”

“Featherstone and others who left but were never refunded their $20,000 deposits are now worried that their money isn’t around to be returned. ‘A lot of the people who are in the same position I’m in assumed that our money was being held in an escrow account,’ he said. ‘That account exists today, but doesn’t have near the money in it that we all anticipated.’”

The San Francisco Chronicle. “Nearly 1,600 people showed up in downtown San Jose on Saturday morning, hoping for a chance to buy one of over 190 foreclosed homes being sold off at bargain-basement prices. Frequently, homes sold at auctions like the one in San Jose have been abandoned or are in very poor condition, among other things.”

“People of all ages showed up in San Jose, pumped up by rock music that blared through the loudspeakers at the convention center - the song ‘Living in America’ means that an auction is about to start - and the tantalizing possibility of getting a deal. As the auctioneer rattled off prices, men dressed in black tuxedos roamed the crowd. Known as ‘ring men,’ they pantomimed their excitement at a new bid, and as the high bid jumped from one area to another, a ring man blew his whistle. Homes sold briskly, one after another.”

“‘It went so quickly!’ said Katherine Pensa, a secretary who got a Newark townhouse, valued at $412,000 and conveniently located around the corner from her sister, for $167,500. She said she’d been looking for property for 18 months and had bid as high as she was willing to go.”

“Still, buyers make mistakes. Suzann Bowman, a senior loan officer at Prospect Mortgage in Campbell, had a customer walk away from a property in Palo Alto after he won it at an auction, sight unseen, because he didn’t like the neighborhood or the property’s condition. He lost his deposit.”

“Bowman said buyers should use real estate agents, even at auctions, because ‘agents can help keep things in perspective.’”