The Housing Bubble

The Times Herald reports from California. “Local Realtors are applauding a new statewide industry plan designed to nudge reluctant homebuyers over the edge. Like Ford and GM have vowed in recent days to make limited car payments for qualified buyers who lose their jobs because of the economy, California’s Realtors launched a similar program Thursday for qualified new home buyers, association officials said. ‘It’s intended to relieve the anxiety of trying to buy a home in this market,’ said George Oakes, president of the Solano Association of Realtors. ‘And selling homes is how Realtors make a living.’”

The Press Democrat. “A year ago Ronald Barnard, CEO of Norco-based Home Center Realty, thought his real estate brokerage could ride out an economic recession. Since then his plans have been crushed by plunging home prices. Barnard, who has been in the real estate business more than 25 years, said the housing collapse in Inland Southern California has cost him almost everything and he and his company may go bankrupt.”

“In a January 2008 interview, Barnard explained…he would sell bank repossessed houses and reverse mortgages. Little more than a year later, Barnard’s confidence is shaken. ‘Like a deer in the headlights, they just stopped,’ he said. Later some seniors had a change of heart and wanted a loan. But by then, he said, ‘their properties went down so much in value there was no equity left and we could not help them.’”

“Teri Boulanger, Barnard’s escrow manager, said…Barnard has been trying to persuade lenders to refinance mortgages for financially stressed clients by lowering the balances to current home values. It is a hard sell, she admits, with only one of 150 offers so far accepted by a lender. Barnard said in February he also quit paying the mortgages on five investment properties he bought in summer 2005 after the value of each had fallen about $200,000.”

“He said it is also likely he will stop payments on his five-bedroom, 3,500-square foot family home on a half acre in Corona, letting it go to foreclosure. ‘I have seen three downturns, but this absolutely is the backbreaker. I never expected it to fall this fast, never in a million years. Nobody did,’ he said.”

From CNN. “Nearly 23,000 homes in Riverside County alone are listed as ‘bank owned’ on RealtyTrac. ‘Riverside County is in the middle of the mortgage meltdown,’ says county assessor Larry Ward. ‘It’s really tough on people, the foreclosures and prices that dropped below $100 a square foot.’”

“Frank and Leslie Aceves are trying to ’short sell’ their house in order to avoid foreclosure and lose everything to the bank. The couple bought their 3,500 square-foot home for $620,000 a few years ago. A house about the same size across the street recently went for $267,000. ‘We just didn’t think it would happen,’ Leslie Aceves says of the massive drop in prices. ‘We just thought it would stop somewhere.’”

The Press Democrat. “Three years ago, Anton Selkowitz devised a creative plan to save an historic home and surround it with a small Petaluma subdivision. But ultimately he could not find a way to save the development. Last week, Westamerica Bank seized the half-finished Martin Farm project in foreclosure proceedings. Selkowitz built only seven of the 16 homes.”

“Timing was terrible for the East Bay home builder, who began selling homes at Martin Farm in late 2007 just as the housing downturn deepened and a wave of less expensive, foreclosure homes saturated the market. Selkowitz slashed prices on his homes — from $575,000 initially to $399,000 last fall — before halting construction. Both are familiar moves for builders struggling to stay in business in Sonoma County. Despite reducing prices 30 percent, Selkowitz sold only a single home.”

“‘We’re in the worst housing market in my lifetime, and as far as the bank is concerned, it’s business as usual. They wouldn’t cut me any slack at all,’ Selkowitz said. ‘Now they’re suing me and are going to put me and a 36-year-old company out of business because of their greed and stupidity. It’s not right.’”

The Santa Cruz Sentinel. “A pullback in mortgage activity in the last three months of 2008 resulted in Santa Cruz County’s 12.7 percent drop in consumer loan balances leading the nation. Tai Boutell of Santa Cruz Home Finance pointed to the change in the conforming loan limit back to $417,000. When the temporary loan limit of $729,750 was in place, rates were much higher and guidelines stricter, and loans needed to close by year end, so originations were down, he said. So many properties in Santa Cruz require loans for more than $417,000, but loans of that size are hard to qualify for, said Peter Ogilvie of First Residential Mortgage Corp. in Santa Cruz.”

“At the same time loans for more expensive homes got more costly, the median sales price for a single-family home plunged. The median, which is the midpoint of sales, fell to the mid-$400,000 range in Santa Cruz County after topping $700,000 the year before.”

“People are not spending like they used to. ‘They stopped charging on their credit cards,’ said Soquel mortgage broker Ty Ebright, noting slow sales resulting in the demise of retailers like Gottschalks, Mervyns and Circuit City.”

“‘Nobody has any money in Watsonville,’ said Emilio Martinez, a private investigator elected last year to the Watsonville City Council. He believes people working in Silicon Valley stopped buying homes in Santa Cruz County when venture capital fundraising dropped 240 percent in the fourth quarter.”

“His neighbors in the Brewington area of town are abuzz about a home at 34 Roosevelt St. for sale for $184,000 after fetching $447,000 in 2002. Such a drop in market value makes it difficult for nearby homeowners to get a loan or keep an equity line of credit.”

The Ventura County Star. “A Thousand Oaks couple pleaded guilty to bank fraud in connection with a scheme that prosecutors say involved fraudulent loan applications and bilking friends from church who invested with the pair. Terrance George Tucker and Sonya Tucker were arrested in Stillwater, Okla., where a relative ran the processing part of the mortgage business. They were found on the relative’s property ‘living out of their million dollar motor home, which is now the subject of forfeiture action,’ by federal agents, Prosecutor Mark Aveis said.”

“The Tuckers fled California, where they operated Tucker Mortgage in Thousand Oaks and San Diego. The two were accused of operating a ‘mill,’ a real estate finance scheme where two or more individuals broker numerous real estate loans made by banks or lenders by using fraudulent documents, according to court documents. The mill scheme generated more than $31 million.”

“A Hesperia man was convicted Wednesday of partaking in a $23 million mortgage fraud scheme. John Richard Varner is the 15th defendant convicted in the fraud of government-backed mortgages, a U.S. attorney’s office news release states. The group submitted fraudulent loan application documents to qualify for Federal Housing Administration insurance, according to the release. More than 1,000 of the 3,813 loans went into foreclosure, causing the government and private lenders to lose at least $23 million.”

The North County Times. “Once considered among the safest loans available, government-insured mortgages issued last year have performed worse than the subprime loans that kicked off the collapse of the nation’s housing market, according to data from a research firm. A huge level of defaults on loans insured by the Federal Housing Administration, which analysts called ’stunning.’”

“While most mortgages issued by private banks now require at least 10 percent down payments, FHA loans allow borrowers to buy a home who put up just 3.5 percent of the cost. In San Diego County, prices fell more than 2 percent each month from August through January, according to Standard & Poor’s Case-Shiller Home Price Index. In Riverside County, prices have tumbled even more.”

“That means within two months of purchasing an FHA-insured home, the borrower probably owed more than the value of the home. And as layoffs mount, a loss of employment typically leaves the borrower in foreclosure or short sale —- where the borrower resells and the lender settles for less than the amount of the loan.”

“By definition, FHA loans carry little equity. But the risk of failure was increased by the implementation of ‘down payment assistance’ programs implemented by home builders, said Ramsey Su, a San Diego housing analyst. Those programs often covered the rest of the down payment and sometimes even covered the closing costs, meaning a homebuyer could borrow more than the value of the home and pay no money whatsoever up front. The government has since discontinued the programs.”

“The main problem with the delinquent FHA loans was low down-payment requirements, said Sam Khater, senior economist for First American CoreLogic. ‘When you put out a (low down payment) product in the context of very high depreciation, it’s going to happen,’ Khater said about the high delinquency numbers.”

The Recordnet. “California is in a free fall. So starts the latest quarterly economic outlook report, released Thursday, from University of the Pacific’s Business Forecasting Center. San Joaquin County will see its jobless rate peak at around 18 percent, levels not seen since the early 1990s, predicted Jeff Michael, director of the Business Forecasting Center. ‘It is dark,’ he said simply.”

“Labor officials reported 663,000 U.S. jobs were lost in March and, for a while Friday morning, it seemed like a good portion of those people turned up at Morada Produce Co. to apply for a job during the coming cherry-packing season. Last year, the company processed roughly 2,000 applications over two hiring days. By noon Friday, they guessed they might go through many as 4,000 applications on the first day alone.”

“‘It’s a little overwhelming,’ said Skip Foppiano, the owner of Morada Produce. ‘This is quite a few more than we usually get.’”

“If you’re a homeowner hoping for an equity-swelling Boom II, fed by Bay Area residents swarming back over the Altamont Pass again to start snapping up cheaper Valley home prices, forget about it - at least anytime soon. Home sellers and builders report that few Bay Area buyers are out shopping for homes in San Joaquin County, even with prices having been cut by almost 44 percent year-to-year to a median of $155,000 in February.”

“Existing homes in Contra Costa County are moving at a median sales price of not much more than $200,000, for example, after prices shrank by 52.2 percent year to year in the foreclosure-hammered residential downturn. ‘I don’t see Bay Area buyers coming back yet, because the prices there are so affordable and the interest rates are so good,’ said Jerry Abbott, president and co-owner of Grupe Real Estate in Stockton.”

The Sacramento Bee. “In area conversations about real estate it’s often an act of faith that a widening gap between Sacramento and Bay Area home prices might soon spark a new migration east to buy houses cheap and put an end to free-falling prices here. Nice theory. But wrong.”

“The once-widening gap that seemed to promise help has already closed. While 17 months ago the median sales price in Santa Clara County was $388,000 higher than in Sacramento County, it’s now $248,000 higher, says researcher MDA DataQuick.”

“During the boom earlier this decade, 140,000 newcomers from the Bay Area and Los Angeles County gave a profound boost to real estate prices as they came in search of housing bargains in El Dorado, Placer, Sacramento and Yolo counties. Their cash buys and flush pockets after selling pricy coastal homes sent area prices skyrocketing until they began to collapse after 2005.”

“Sanjay Varshney, dean of the College of Business Administration at California State University, Sacramento, noting the current weakness of the Bay Area economy, said it can’t spin out a new migratory stream toward Sacramento until its economy roars back and drives up home prices again. By then, if Sacramento’s economy can offer jobs, they’ll come again for the less expensive places to live.”

“‘That migration is a ways off,’ confirms DataQuick analyst Andrew LePage. ‘In downturns people’s mind-set changes. It’s ‘maybe we can find something close to work. Let’s stay in the Bay Area.’”

The Weekly Calistogan. “Property values are expected to sink over the next four years in Napa County, with an unprecedented flat year anticipated in 2009 followed by three years of overall decline. Napa County Assessor John Tuteur said as many as 8,500 homes in Napa County could lose value this year as the economic downturn continues to haunt the housing market.”

“He compares the decline to the last housing downturn in the mid-1990s, which he called mild in comparison. From 1992 to 1997, 5,700 homes in Napa County declined in value — not quite as many as slipped in 2008 alone. Tuteur said he expects another 2,500 to 3,500 homes to lose value this year. The 5,000 homes already in decline will be worth even less after this year’s reassessment.”

“‘Even though homes are selling, they’re selling at these very low prices with more than 50 percent of the market (in Napa County) in foreclosure,’ Tuteur said. ‘That’s put a lot of properties on the market, which tends to drive down prices.’”

“All Napa and American Canyon homes purchased after 1999 are expected to decline in value relative to their purchase prices, Tuteur said. In Yountville, St. Helena and Calistoga, those who bought after 2001 should brace for a decline. ‘Now we’re finding homes that were purchased earlier than the bubble, (where) the decline has actually dropped below bubble prices,’ Tuteur said.”

The Desert Sun. “For the third consecutive month, sales of existing homes in the Coachella Valley rose sharply in February up 70 percent over February 2008, although the median selling price was slightly higher in February than in January, the California Desert Association of REALTORS reported.”

“There were 8,200 homes in inventory in February, down from 9,476 in February 2008, according to the Desert Area MLS, the real estate industry’s consumer-oriented standard for existing and some new home sales throughout the Coachella Valley. February’s median priced home was $156,000, down from $334,900 in February 2008.”

“By comparison statewide, the median price for an existing home in February 2009 was $247,590. Statewide, sales were up 83 percent in February compared to February 2008, although the median priced dropped 40 percent.”

“The typical (median) single family home for sale in the Desert MLS is three bedrooms, 2.75 baths, 2,235 square feet listed at $425,000 and has been on the market for 97 days, according to Greg Berkemer, executive director of the California Desert Association of REALTORS. ‘State and federal housing assistance programs are now available that offer valuable tax credits and mortgage assistance, particularly for first time homebuyers, that make this market opportunity of choices and prices almost unparalleled,’ he said.”

The Associated Press. “A major developer planned to announce a $1 billion high-rise office and hotel complex Friday, the first new downtown construction project since the real estate spiral largely scuttled dreams of a resurgent city center.”

“Thomas Property Group’s plans call for an 80-story glass-walled building with a slanted profile resembling a ship’s sail that would be built on property owned by development partner Korean Air Co. The design includes a 40-story hotel and condo tower.”

“The city Building and Safety Department’s list of high-rise buildings approved for the permitting process show dozens of downtown projects that have never broken ground. The stalled projects include Gehry’s $3-billion Grand Avenue housing and retail project and the 76-story Park 5th condo complex, which was billed as the tallest residential structure in the West.”

“The median price for new homes downtown has plummeted from $535,000 in the first quarter of 2008 to about $422,000 in the first quarter of this year, a 21 percent drop, according to MDA DataQuick. The median price for all new condos in Southern California dropped about 14 percent during that time. The slump has forced a growing number of landowners and developers into bankruptcy, including downtown’s largest landlord, Meruelo Maddux Properties Inc.”

“Lower condo prices have lured some bargain-hunting buyers, although overall sales remain sharply down. ‘Downtown is fairly small as urban downtowns go but with my income it was as close as I could get to something like London or New York and still stay in Los Angeles,’ said Hutton Cobb, who rented a home in a nearby suburb for about 25 years before buying a condo in the 24-story Evo building.”

“Some observers think early boosters’ vision of a Manhattan-like metropolis on the Southern California coast was destined to fail in a city where development sprawls and there are several major financial centers in the region. Downtown ‘will never be for Los Angeles what midtown Manhattan is for New York or the Loop is for Chicago, because it hasn’t been that since the 1920s,’ said urban scholar Joel Kotkin. ‘There’s something called history and it has an odd impact.’”