The Housing Bubble

The Bay Area News Group reports from California. “Personal and small-business bankruptcy filings are soaring in the Bay Area as more people lose their jobs and homes and as the profile of those facing bankruptcy extends deeper into the middle class. Norma Hammes, a San Jose attorney, said she’s seeing more clients who had incomes of $150,000 to $200,000 before the recession hit. ‘I am now getting people in my office regularly who never would have filed a bankruptcy before. Their income was pretty good a year or two ago. But property values dropped like a rock and they had a bad loan they thought they could get refinanced because they thought house values would remain stable. They can’t refinance and their loan has exploded so their payments went way up, and then one of them got laid off. Now they are in my office.’”

“Hammes said the Obama administration’s loan modification program has provided little relief. ‘It is clearly not even beginning to address the foreclosure problem,’ Hammes said.”

“When Gregg Felice’s parents deeded their home to their two children five years ago, he borrowed money to buy out his sister’s share of the house. It seemed like a good idea at the time, he said. But what was a good idea in 2004 turned sour with the recession that hit Silicon Valley in 2009. Last year brought a record wave of nearly 11,500 personal and business bankruptcies — one of them Felice’s — the most in at least 20 years.”

Felice and his spouse, Suzanna Jones, said they fell behind on mortgage payments for the South San Jose home early last year. Despite much effort, they were unable to modify the mortgage, which was from the now defunct IndyMac bank. Jones said she lost her job as a buyer for an electronics firm a year ago. She and Felice, who works part-time as a cook for the city of San Jose, depleted their savings and ultimately ran out of funds to continue paying down the adjustable loan, which leaped in early 2009 from $1,400 a month to $2,700 just as Jones lost her job.’

“‘That’s what really killed us,’ Jones said.”

The Press Democrat. “The total sales of single-family homes in 2009 reached the highest level in four years, but prices fell to the lowest point in nearly a decade. The inventory of available homes for sale fell to 1,138, slightly more than than a three-month supply. That was down almost 19 percent from November and 45 percent from December 2008.”

“Nationally a drop in pending home sales in November sparked talk among analysts that the U.S. housing market might see another dip in prices this winter. But agents and brokers here maintain that the county likely will avoid such a downturn because lenders for months seem to have held back large numbers of distressed and foreclosed properties in order to keep prices up.”

“Shirley Mallin, president of the North Bay Association of Realtors, said plenty of such properties exist, but the lenders likely will release them in small batches in the coming months.”

“‘Otherwise,’ she said, ‘the pricing would plummet.’”

“Some agents said the market this year also may see more distressed properties selling for between $500,000 and $1 million. The owners find themselves ‘underwater,’ and they are increasingly tempted to accept a black mark on their credit report in order to escape a large monthly payment. ‘It’s by choice,’ said Toni D’Angelo, a broker in Santa Rosa. ‘They’re figuring they can walk.’”

The Anderson Valley Post. “Just days after the City of Anderson issued a conditional occupancy permit for two homes in The Vineyards at Anderson subdivision, prospective buyers like Frankie Crouse of Redding - one of 17 names on a waiting list - had a chance for a walk-through with Realtor Debbie Morgan.”

“Originally priced at $500,000, the 1,822 square foot house that the Crouses finally made an offer on currently is listed at $314,900 after it was purchased out of foreclosure and completed by a different builder. ‘These homes are coming out of a foreclosure, so they are being sold at a huge discount,’ Morgan noted. Several of the other houses are being offered unfinished and ‘as is’ by the seller, she added.”

“Originally designed and priced for the top end of the real estate bubble in 2007, the 12 houses that were originally intended as showcase model homes have all been finished with first-class amenities and details, said Jordan Taylor, a local developer who represents a private equity company based in Denver, Colo. Community amenities that prospective buyer Mrs. Crouse most appreciates are the long-range plans for walking trails and open space, as well as a planned community center when other phases of the 2,500-home subdivision eventually are constructed.”

“‘I’m not as worried about the future up here as I would be in other areas of Redding or Shasta County because this project is going to go. Call it experience or a gut instinct or a woman’s intuition, but I know this project will happen. It just depends upon when,’ Mrs. Crouse said.”

The Hollister Freelance. “The company looking to develop the 6,400-acre Sargent Ranch just south of Gilroy filed for Chapter 11 bankruptcy, owing more than $71 million on the property at the time. The FBI, the Internal Revenue Service, the U.S. Securities and Exchange Commission, and a host of state authorities have targeted David Fitzgerald - the man Pierce recruited to orchestrate a Contra Costa land development deal known as Roddy Ranch - for securities fraud. Authorities estimate that Fitzgerald’s schemes throughout the state have cost investors more than $250 million.”

” Santa Clara County Supervisor Don Gage said he has seen cattle ranches that are about the same size as the Sargent property sell for as low as $12 million to $15 million, and he felt project owners owed far more than the property actually was worth. He did not expect any future development there, noting that it could only legally contain about 200 homes.”

“‘There’s been talk about harvesting sand and gravel there,’ he said. ‘That’s something that’s realistic.’”

The Sacramento Bee. “Two Fair Oaks investors and their children sued Roseville developers Jeremy and Sidney D. Dunmore on Monday, saying they were duped out of millions of dollars in part through forged documents. The $9.5 million lawsuit by Harold J. Smith, 80, and his wife, Irwina Smith, 83, represents the latest salvo against the Dunmore brothers, the third generation of a prominent area home-building family.”

“During the housing boom, the Smiths, who had previously earned millions of dollars on regional land investments, personally invested $4.5 million with the Dunmores for new development ventures in Sacramento, Yolo, Butte and Madera counties. The couple’s sons and a son-in-law invested $1.6 million more, according to the lawsuit. A family friend also invested $1.1 million.”

“‘I spent a year and a half trying to work it out,’ Harold Smith said in an interview. ‘I decided I wasn’t getting anyplace.’”

The Bakersfield Californian. “The father- and mother-in-law of disgraced former Bakersfield Realtor David Crisp have signed plea agreements with federal prosecutors admitting they are guilty of felony wire fraud and other charges, court documents show. Kevin Sluga signed a plea agreement Dec. 22; his wife signed one Monday. Federal prosecutors signed both memos Thursday. Both are charged with felony wire fraud and aiding and abetting.”

“The Slugas are now the second and third defendants in a federal case related to operations of the former Crisp, Cole & Associates, better known to locals as Crisp & Cole Real Estate. Federal prosecutors allege Kevin Sluga, through his Bakersfield firm, knowingly created fraudulent letters verifying employment in mortgage applications related to Crisp & Cole. The letters were used by Crisp, Cole and their employees at the real estate firm and at Tower Lending, the loan arm of Crisp & Cole, to buy properties through ’straw buyers and other illegal means,’ Kevin Sluga’s plea agreement says.”

“The fake CPA letters, issued between January 2005 and January 2007, were used to buy more than $12.6 million worth of property that defrauded lenders of nearly $4 million.”

“Bankruptcy filings in the Central Valley soared to an all-time high in 2009, up nearly 50 percent from 2008, figures from the U.S. Bankruptcy Court show. In a region battered by recession, plunging home values, foreclosures, state government furloughs and double-digit unemployment, ‘we’re busier than we’ve ever been,’ said Richard Heltzel, clerk of the Sacramento-based U.S. Bankruptcy Court for the Eastern District of California.”

“Attorney Jonathan G. Stein also cites foreclosures as a main factor among filers seeking his help. ‘It’s a combination of things: The cases are foreclosure-related; they’re frustrated with their lack of ability to pay their bills,’ Stein said. ‘The banks are promising that they will stop foreclosure sales, but they’re not. One way to stop a foreclosure is to file for bankruptcy.’”

The Union Tribune. “A 66,010-square-foot office building in the normally robust Del Mar Heights area of Carmel Valley has sold for half its previous value in what could be the first in a wave of high-profile, foreclosed commercial properties on the market this year, according to Cushman & Wakefield commercial brokerage services.”

“Davlyn Investments, a local owner and operator of apartment complexes, condominium converter and office-building investor, bought the 23-year-old Hacienda Del Mar building for $15.6 million from Chinatrust Bank of California. The previous sale, three years ago, was for $27.5 million.”

“Stath Karras, executive managing director of the local Cushman office, said the transaction represents the first of a ‘burgeoning trend’ of foreclosed commercial properties coming up for sale, following last year’s handful of relatively small apartment, retail and office properties.”

“The previous owner of Hacienda Del Mar, Cardinal Investments, lost it to foreclosure after having spent about $2 million improvements and trying to sell the space as condominium offices, said John Hale, Davlyn’s director of office acquisitions. Tenant occupancy has fallen to 53 percent.”

From Bloomberg. “The ability to relocate for employment, which helped the U.S. recover quickly after previous deep recessions, is the latest victim of the housing bust. Raul Lopez, laid off from three construction jobs since October 2007, is focusing his search for work near Antioch, Calif., because his $392,000 mortgage is almost triple the price his home there would sell for today.”

“‘If it wasn’t for the house, I’d probably move closer to Oakland, Hayward, San Leandro, places where there are jobs,’ said Lopez, who is married with four daughters.”

The Press Telegram. “Longshoremen continue struggling to find work as container volumes in Long Beach and Los Angeles remain at levels far below their 2007 peak. Said one worker, Shaun Cibel, it’s been a meager existence for much of the past year. ‘Week by week, living check by check,’ Cibel said.”

“International Longshore and Warehouse Union Local 13 President George Lujan said the economic recession has been especially hard on West Coast workers, who have been slammed by the deep decline in international trade since 2007. Volumes are down as much as 25 percent since that time. ‘People are losing homes, losing income, marriages have broken up,’ Lujan said.”

The Santa Maria Times. “Gov. Arnold Schwarzenegger declared last week that ‘the worst is over for California’s economy’ and predicted happy days ahead, saying, ‘Our economy is well-positioned to take advantage of the future.’ Not so fast. Schwarzenegger once again has allowed his characteristic optimism — or hubris — to cloud what should be his better judgment.”

“Not only is the worst not over, but we could see even worse economic times in 2010 as new waves of home foreclosures hit and as commercial real state takes a similar hit. Not only was the housing meltdown centered in California, but also we seem to have made ourselves less competitive in what is now a global economy. Our transportation network has the worst traffic congestion and the second worst pavement conditions in the country. Our taxes are among the nation’s highest and our academic achievement scores are among its lowest. We have achieved a dubious global reputation for regulatory complexity.”

“Schwarzenegger and other Capitol politicians have driven our credit rating to the lowest of any state, thanks to their irresponsibility on the deficit-ridden state budget and on approving more bonds than the market can absorb.”

“While our universities remain a stellar plus and Silicon Valley continues to lead in technological innovation, we are ill positioned to attract good-paying middle-class jobs. Almost all aspects of the agricultural segment are hurting, largely due to competition from abroad. The housing industry is an economic disaster area.”

“‘Well positioned to take advantage of the future?’ Not by a long shot. Unless we get our act together quickly, we’ll be only well positioned to become the next Michigan.”