The Housing Bubble

The Sacramento Bee reports from California. “California’s unemployment rate rose to 9.3 percent in December, slightly above the 8.7 percent recorded for the greater Sacramento area. Andrea Hawkins said she was doing well financially, running a mortgage business out of her Elk Grove home until the housing downturn. Now she’s struggling to pay her own mortgage each month. ‘It’s scary trying to make ends meet,’ she said.”

“Now the single mother of four has joined the ranks of those needing assistance. She visits food banks, clothes closets, churches and other charities looking for aid to pay bills and to feed and clothe her children. ‘I had to humble myself and put my pride aside,’ Hawkins said. ‘… It really doesn’t feel good.’”

The Daily Breeze. “Frank Torres climbed through a window, emerged from his Carson house and put his hands up. Slowly, he walked backward toward sheriff’s deputies, who detained him briefly but then let him go. Torres’ last stand Tuesday to save his foreclosed house was over. When Torres went to work Tuesday, the 28-year-old had no idea he would later find himself barricaded inside his former home for about three hours as deputies tried to talk him out.”

“He and his family were forced out of the house last month, but when he landed a better job paying more money, he figured he could resume making the mortgage payments. He just needed someone to listen, to let him show he and his wife could reclaim their house of seven years and raise their two daughters there. The bank, he said, didn’t need to sell it. But it was too late. He no longer owned the house. A couple of banks did.”

“Workers arrived Tuesday morning to clear out the Torres family’s last belongings. Notified at work, Torres raced home, shooed them away, locked himself inside about 10 a.m., and scrawled ‘I just want 2 be heard’ in large white letters on the roof.”

“Torres and his wife purchased the 980-square-foot, three-bedroom home in 2002 for about $210,000. He refinanced a year later, upping the loan to $254,000. He did it again in 2006, pushing his mortgage up to $316,000.”

“Then, in 2007, he got laid off from his job at Westways Terminal in San Pedro. Torres found temporary jobs at South Bay refineries, but fell six months behind on his mortgage payments of $2,650 a month. They filed for bankruptcy, but a judge later dismissed the case, she said, when Torres failed to arrive on time for a hearing. The couple stopped making payments in August.”

“In an interview, Torres said he wasn’t crazy. ‘Without our families we got nothing,’ he said. ‘Some good is going to come out of this. I know it. - I just wanted to make a statement, not just for myself, but for all Americans. That’s why I did this.’”

Time Magazine. “Suicide experts say there is a strong correlation between acute financial strains and depression, often a prelude to substance abuse and suicides. Warning signs are already erupting in parts of the U.S. hard hit by the housing crisis. In Los Angeles, calls into the suicide prevention call center run by the Didi Hirsch Community Mental Health Center spiked 65% in the second half of 2008 over the previous year.”

“There has also been a surge of training requests from fire and police departments from throughout Los Angeles County — even from a mortgage counseling company — to help deal with an upsurge in suicide risk. ‘The reality is we are already overwhelmed,’ says Dr. Kita S. Curry, the center’s executive director. With any publicity about her center, calls spike, suggesting unmet need.”

The Modesto Bee. “Last year was dismal for new home builders, and this year is expected to be worse. The construction industry has collapsed throughout the Northern San Joaquin Valley, with builders going bankrupt, delaying developments or simply quitting. The reason: virtually no new home sales.”

“Only 97 residential building permits were issued in Modesto last year, which was about 7 percent of normal. At the current sales rate, there are enough developed lots to last nine years. Stanislaus, Merced and San Joaquin county builders have spent millions on streets, curbs, gutters and grading for 13,000 lots that are sitting empty in unfinished subdivisions.”

“About 820 completed new houses were vacant and waiting for buyers in the three counties as of December, and about 500 others were under construction. Back during the boom, builders had 5,500 homes under construction at once and practically everything they finished sold immediately.”

“New home sale prices fell to a median $245,500 for those that closed escrow in Stanislaus during December. That was nearly 44 percent below the $435,250 median new home sales price in December 2006. ‘You can’t lose that kind of revenue and still have a profit,’ said Joseph Anfuso, who runs Florsheim Homes, which has been building in the valley for 25 years. ‘Now we’re just working to pay our bills and stay cash-flow neutral. Profit is out the window.’”

“Pam Franco opened her luxury Heirloom Collection development on one-acre lots south of Atwater in 2006 with a base price of $640,000. Now her 2,400-square-foot houses can be had for less than $369,900. ‘We sold just three houses last year,’ said Franco, who is starting her second year as president of the Building Industry Association of Central California. ‘It’s tough. We all of a sudden became a no-growth market.’”

“‘Would-be home buyers have taken a wait-and-see attitude,’ said Greg Gross, director of Metrostudy’s Central Valley division. ‘Others have lost interest or the ability to purchase a home. With regulation in the mortgage industry, buyers now have to prove their ability to repay their mortgages. Higher credit scores and more stringent documentation are required.’”

“Builders suggest that with the government’s help, increased new home construction could lead the country out of recession. Some experts think there are too many homes already. ‘There doesn’t need to be any new construction (in the Northern San Joaquin Valley). Migration is leaving and the bank-owned properties can be purchased for well below the builder’s cost,’ said Bruce Norris, a real estate investor and lender who leads California investment seminars.”

“‘This silly notion that builders are not building enough new homes to keep pace with demand is absolutely wrong and very harmful to the reputation to those who keep saying it,’ Norris said.”

The Recordnet. “The degrading economy and the ongoing credit crunch hammered commercial and multifamily mortgage loan originations in the fourth quarter of last year across the country, according to a new quarterly survey by the Mortgage Bankers Association. The group’s survey of commercial and multifamily mortgage bankers originations indicated that fourth-quarter numbers were down 80 percent year to year across all property types and investor groups. Loan originations for all of 2008 were down approximately 60 percent from 2007 levels. Commercial brokers in San Joaquin County reported that local loan activity was down similarly.”

“Randy Thomas, a Sperry Van Ness commercial real estate broker in Stockton, said commercial real estate deals these days are ’somewhat scarce.’ ‘The reason the drop-off was so great is that there were so many inferior loans made, and now banks are looking only for those who have gold-plated balance sheets,’ he said. ‘The doors have been shut for the marginal purchaser or investor.’”

“Gregory O’Leary, senior vice president with Colliers International’s Central Valley Industrial Group, said the slowdown in the industrial sector is the proverbial shoe that dropped after a downturn in residential led to another downturn in finance and then another in retail. ‘All of this is interrelated,’ he said.”

“The slowdown in retail sales will cut demand for the big industrial space in San Joaquin County, he said. ‘When you look ahead, no one knows how long this downturn will last or when we will hit bottom,’ he said.”

The Desert Sun. “The National Association of Realtors’ chief economist…Lawrence Yun…told more than 400 Realtors on Tuesday that the federal economic stimulus plan could help them sell homes…That could help in the Coachella Valley, where home sales are at their lowest levels since 1996. In December, the valley’s median home price dropped to $194,000, its lowest since early 2001.”

“John Young, a team leader for Keller Williams Realty and president of the California Desert Association of Realtors, said the credit would come at a crucial time. ‘Our bottom in unit sales was March of last year,’ Young said. ‘Most of us realize the marketplace we’re in, and (that) our median price is now below the national average.”’

“Yun, in his report, described the housing market as fragile for these reasons: Mortgage lending rates are at 50-year lows, but buyers aren’t responding in large enough numbers to keep up with foreclosures and the growing inventory. Buyers are on the fence over speculation the rate will drop to 4.5 percent. Because middle-income buyers can buy a median-priced home — and have a mortgage obligation that’s equates to what it was in 1998 — any further adjustment in price would be an overcorrection and will lead to economic damage.”

“With home prices tumbling, concern is mounting that current homeowners who are ‘under-water’ with their equity — its value is less than the mortgage — will abandon making payments all together. ‘Hypothetically, this is what keeps me up at night,’ Yun said. ‘If home prices keep shooting downward, it will hit us with another credit crisis.’”

“Jon Glanz, president of Sandhills Mortgage, said Yun’s address to the gathering in Rancho Mirage validated what he’s seeing in the marketplace. ‘We have to figure out a way to make folks want to get re-engaged in owning real estate,’ Glanz said.The real estate industry is the engine that makes our economy hot, he said. ‘With so much supply, we have to work on the demand side of the equation,’ he said.”

“Things such as the tax advantages for ownership of real estate across the board, not just for first-time homeowners, is a very proactive stimulant for this economy, Glanz said. As soon as the market comes back, those who have kept their homes off the market will find their way to Multiple Listing Services again. ‘And we won’t have runaway prices like we experienced in the past,’ Glanz said.”

The Press Telegram. “Despite the media’s ‘hammering’ of the industry, real estate in California, especially locally, shows strong sales and affordability numbers, an economist said Monday. California Association of Realtors Deputy Chief Economist Robert Kleinhenz said that the housing market will be ‘in a critical period’ in the next couple of months.”

“He predicts an uptick in activity in the first and second quarters of this year and rising home prices as the market takes off.”

“Kleinhenz said the economic slowdown began when the credit crunch in August 2007 stymied business and consumer spending. ‘It got worse and worse as we moved through the end of 2007 and into 2008,’ he said. ‘That has ultimately driven the economy into recession.’”

“California median home prices are down 41.5 percent year over year. The state’s peak price was $594,530 in May 2007 and it fell to $281,100 in December 2008, which was a drop of 52.7 percent, according to CAR figures. The Los Angeles County median home price decline was 32.6 percent, to $475,000 in December 2007 to $320,000 in December 2008.”

“‘We’ve never seen a price decline in one year the likes of which we saw last year,’ he said. ‘Totally unprecedented. The worst year-over-year decline we saw ever.’”

“On the bright side, affordability is much improved compared with the last few years, especially for first-time homebuyers to get a loan, where the median home price has rolled back to 2002-2003 levels, he said.”