The Housing Bubble

The LA Daily News reports form California. “In March, sales of previously owned single-family houses jumped 64 percent statewide, while the median price fell 39 percent to $253,050, the California Association of Realtors said. The median price was 2.2 percent higher than February’s $247,590 median - the first monthly price increase since August 2007, the association said. Sales in Los Angeles County increased 66 percent. The median of $295,100 was 32 percent below the comparable figure in March 2008 and 4 percent below February’s median of $308,540. Foreclosures, job losses and the recession are still problems and could muddle the price picture for months to come. ‘It’s nice to finally see at least a couple months where home prices appear to be stabilizing. The question is, is that really the sign of hitting bottom,’ said Robert Kleinhenz, the Realtors’ association’s deputy chief economist.”

“There are also signs it could be reversed. ‘Let’s face it. If our observations about (mortgage) defaults and foreclosures down the road are pretty close to correct we still have a lot of foreclosures to (go) through the pipeline,’ he said.”

The LA Times. “Immigrants have been hit harder than native-born Americans by the recession, with larger increases in joblessness among both educated and uneducated workers, according to a study released today. Steven Camarota, the study’s coauthor, said many of the immigrant job losses came in low-skill occupations hit hard by the recession. In construction, for instance, the immigrant jobless rate climbed to 20% in the first quarter of 2009 from 4.7% 18 months earlier. Sergio Rascon of the Laborers’ International Union of North America Local 300, said the recession’s fallout is the worst he’s ever seen. He said more than 1,000 workers are currently listed on the union’s out-of-work list; at the height of the housing boom a few years ago, he said, there were none.”

“Humara Ahmed, a 42-year-old Pakistan native who lives in Palos Verdes, was a millionaire with a college degree, a monthly income as high as $25,000, a six-bedroom home, investment property and her own home-loan and restaurant businesses a few years ago. But as the recession deepened, she lost everything last year. Months of feverish job hunts — applying for up to 12 jobs a day — produced nothing.”

“She trained to become a taxi driver, which didn’t pan out. Now she is training to become a food service manager at $10 an hour. ‘I couldn’t eat or sleep, and cried every day,’ she said. ‘I lost confidence in myself.’”

The Mountain News. “Just three years after opening amid the enthusiasm of a burgeoning market, Windermere Fine Properties closed its Blue Jay real estate office today, citing downturns in the economy and weakened home sales as the reasons. ‘We have invested a great amount of funds into making this office work, but due to economic conditions and (the) real estate market, we have made the decision to close the physical office,’ Windermere’s President, Kelli Ross, said in a press release.”

“Lake Arrowhead-area realties continue to share a drastically shrinking pie, recent sales statistics show. From a nine-year peak in 2004 of 799 homes sold in Arrowhead Woods, sales have steadily plummeted each year, to 679 in 2005, 391 in 2006, 322 in 2007 and 258 in 2008.”

“Lynne B. Wilson, owner of Lynne Wilson and Associates Realty, said she is striving to keep upbeat about mountain property despite ‘the most hideous market we’ve experienced in years.’ Wilson stressed the need for committees of real estate professionals to band together ‘to make sure we’re known. People down the hill don’t know how unique our area is.’”

“Jeff Perlis, owner of Prime Properties in Blue Jay said, ‘I think that adapting to current market conditions is important. There are people making money on foreclosures and short sales. It’s a different market.’”

“Perlis said ‘aggressively pricing properties you’re listing for people so they’re more in line with the current market’ is also key, adding that ‘a lot of agents are overpricing properties, and they can’t compete with REOs (foreclosures). The people who own Windermere are very talented real estate people,’ Perlis said. ‘They came into a flourishing market a few years back and maybe got overzealous and overextended themselves, and the market changed.’”

“A couple whose lavish 15-room home was featured on the 2007 Lake Arrowhead Home Tour is facing up to 30 years in prison after pleading guilty to bank fraud in a scheme in which they reportedly preyed on trusting members of their church, The Mountain News has learned. According to stories published earlier this month in the Ventura County Star and the Thousand Oaks Acorn, the Tuckers, who operated Tucker Mortgage offices in Thousand Oaks and San Diego, fled California when their scheme began unraveling last year.”

“The couple, who reportedly also sold real estate in the San Diego area, was accused of operating a ‘mill,’ a real-estate financing scheme in which they brokered real-estate loans by banks or other lenders, using fraudulent documents. The victims were primarily friends the couple had made at Mormon churches in the communities where they maintained homes, sources said.”

“The personal toll on the Tuckers’ victims is described dramatically in the comments section that follows the Ventura County Star’s article concerning the guilty pleas. ‘This is just the tip of the iceberg,’ a blogger wrote. ‘They’re a West Coast version of Bernard Madoff, and we were one of their many victims…I don’t know if we’ll ever recover from the damage they’ve done to our credit and our life’s savings.’”

The Bakersfield Californian. “Barcelona II LLC, Bakersfield developer Terry Moreland’s 40-acre Wasco residential development, has filed for Chapter 11 bankruptcy protection. Documents filed in bankruptcy court last week indicate that the company has debts of $10 to $50 million and assets of $1 to $10 million.”

“Moreland said Tuesday that the partially built project is ‘coming along fine,’ and that the bankruptcy will not affect his other development projects. ‘It speaks for itself,’ he said of the filing. ‘”It’s a workout.’”

The Novato Advance. “Tax season is over, and the filings of many small businesses throughout Novato and Marin County show how entrepreneurs are adapting to deal with a stagnant economy, tight credit, and new state rules on taxes and fees. Several local certified public accountants reported revenues for their small business clients were down. Aldo Gigliotti of Novato, who is president of the Society of California Accountants, said retail and contracting businesses were notable victims of the recession.”

“‘Certainly main-street businesses, restaurants and retail, and services businesses were down,’ he said. ‘It was a tough year for contractors all across the board, whether they were general contractors, or roofers or electricians…anyone heavily dependent on the housing market.’”

“That thought was echoed by Jerry Ghirardo, CPA, of Novato’s Ghirardo CPA. ‘A lot of businesses are struggling, especially businesses (involved with) real estate,’ he said.”

The Press Democrat. “Sonoma County builders are hoping a small increase in sales may signal the area’s battered construction sector has finally hit bottom. Developers are only selling about four homes a month and construction is expected to remain near record lows this year because houses are still selling for less than they cost to build, according to industry reports and builders.”

“Builders must vie for buyers with a resale market dominated by foreclosures and deeply discounted prices. To compete, builders in the handful of active subdivisions have cut prices 30 percent or more over the past three years. Rivendale Homes has stopped cutting prices in its Santa Rosa projects and recently raised the price in its Woodbridge subdivision by $5,000, said Chris Peterson, co-owner of the company. Despite the increase in demand, Rivendale won’t accelerate its construction schedule and undercut prices.”

“‘You have to build at a slower pace. Hopefully we will be able to capture some price increases,’ Peterson said. ‘Otherwise we may just stop. We need prices to come up before you can build a house and make a profit.’”

“Exchange Bank’s earnings woes continued in the first quarter, when the Santa Rosa bank reported a $10.3 million loss after putting aside more money to cover problem loans. Posting its fifth loss in the past six quarters, Sonoma County’s largest community bank continued to grapple with losses concentrated in construction and development loans.”

“The string of losses is rooted in residential building, where developers have struggled to stay in business and pay off loans in the face of poor sales and falling home prices. About 90 percent of the bank’s problem loans are in construction and development, officials said. The troubles became apparent at the end of 2007. Those problems were pegged to housing developments in the Sacramento region.”

“The bank was forced to set aside more money for loan losses than expected during the first quarter, said Fred Ptucha, a Santa Rosa financial adviser who tracks community banks. ‘They thought and I thought too that they put so much into loan loss reserves in the fourth quarter that they didn’t have to put much more in, but they did,’ Ptucha said. ‘It just shows the deterioration of value in properties, including their foreclosed pieces of property.’”

The Vallejo Herald. “A special program to help first-time homebuyers purchase foreclosed homes has been expanded to include Solano County, the California Housing Finance Agency has announced. First-time homebuyers are eligible for a low fixed-rate loan — 5.5 percent earlier this week — with no down payment through the Community Stabilization Home Loan Program.”

“The program encourages the sale of foreclosed homes in areas with some of the state’s highest foreclosure rates. The number of people this will help is limited to the number of qualified homes available, said Mitchell Chernock of Benicia’s Sky Valley Financial. ‘The interest rate is good and no down payment is really good,’ he said.”

The Record Searchlight. “For Shane and Janell Parker, evidence that Shasta County’s housing market would never be affordable to them came two years ago - a rainbow-colored fixer-upper in Shasta Lake. The 1,400-square-footer was listed for about $200,000. ‘It was three different colors - the front was blue, one side was green, and they had just the painted another side gray. I guess they were undecided on what color to paint the house,’ chuckled Shane Parker.”

“Parker, 26, recalls being demoralized, thinking if this is what $200,000 buys, then forget it. ‘You were putting a $200,000 price tag on something that was just junk,’ Parker said. ‘We were told you had to work your way into a dream house.’”

“Of course, the market has changed dramatically. The median sales price for a home in Shasta County in March sunk to $177,000, nearly $22,000 below where it stood in February. Factor in record low interest and Shasta’s real estate market is falling back to folks like the Parkers, who bought their dream home in March. The approximately 2-year-old, 1,900-square-foot move-in-ready house in the Cerro Vista neighborhood has a landscaped front and backyard, a walk-in master closet, a master bathroom with a jacuzzi tub and tiled shower, and a fireplace.”

‘Parker, a salesman at Crown Motors, quips that they got a good deal - they paid $250,000 - because the home’s off Radio Lane, near juvenile hall in south Redding. Maybe, but it’s also a house that sold for $359,950 two years ago before it was foreclosed on.”

“The bank originally listed the house for $286,000 and later dropped the price to $264,000 before the Parkers scooped it up. ‘What’s really great for a lot of my buyers is they’re starting new families and they have bought a house they will be able to stay in for a long time,’ said Kori Cadorin of Real Estate 1 in Redding, who helped the Parkers find their new house.”

From Bloomberg. “Ron Grassi says he thought he had retired five years ago after a 35-year career as a trial lawyer. Now Grassi has set up a war room in his Tahoe City, California, home to single-handedly take on Standard & Poor’s, Moody’s Investors Service and Fitch Ratings. He’s sued the three credit rating firms for negligence, fraud and deceit.”

“Grassi says the companies’ faulty debt analyses have been at the core of the global financial meltdown and the firms should be held accountable. Exhibit One is his own investment. He and his wife, Sally, held $40,000 in Lehman Brothers Holdings Inc. bonds because all three credit raters gave them at least an A rating — meaning they were a safe investment — right until Sept. 15, the day Lehman filed for bankruptcy.”

“‘They’re supposed to spot time bombs,’ Grassi says. ‘The bombs exploded before the credit companies acted.’”

“They helped banks create $3.2 trillion of subprime mortgage securities. Typically, the firms awarded triple-A ratings to 75 percent of those debt packages. ‘Ratings agencies just abjectly failed in serving the interests of investors,’ SEC Commissioner Kathleen Casey says.”

“The rating companies reaped a bonanza in fees earlier this decade as they worked with financial firms to manufacture collateralized debt obligations. S&P, Moody’s and Fitch won as much as three times more in fees for grading structured securities than they charged for rating ordinary bonds. Financial firms around the world have reported about $1.3 trillion in writedowns and losses in the past two years.”

“Alex Pollock was president of the Federal Home Loan Bank in Chicago from 1991 to 2004. The bank was rated triple-A by both Moody’s and S&P. He says he recalls an annual ritual as he visited with representatives of each company. ‘They’d say, ‘Here’s what it’s going to cost,’ he says. ‘I’d say, ‘That’s outrageous.’ They’d repeat, ‘This is what it’s going to cost.’ Finally, I’d say, ‘OK.’ With no ratings, you can’t sell your debt.’”

“Congress has held hearings on credit raters routinely this decade, first in 2002 after Enron and then again each year through 2008. In 2006, Congress passed the Credit Rating Agency Reform Act, which gave the SEC limited authority to regulate raters’ business practices. The SEC adopted rules under the law in December 2008 banning rating firms from grading debt structures they designed themselves. The law forbids the SEC from ordering the firms to change their analytical methods.”

“Only Congress has the power to overhaul the rating system. So far, nobody has introduced legislation that would do that.”

“Grassi, the retired California lawyer…filed his lawsuit against the rating companies on Jan. 26 in state superior court in Placer County. Grassi says in his complaint that the raters were negligent for failing to downgrade Lehman Brothers debt as the bank’s finances were deteriorating. The day Lehman filed for bankruptcy, S&P rated the investment bank’s debt as A. Moody’s rated Lehman A2 that day. Fitch gave Lehman a grade of A+. ‘We’d like to have a jury hear this,’ Grassi says. ‘This wouldn’t be six economists, just six normal people. That would scare the rating agencies to death.’”