The Housing Bubble

The Orange County Business Journal reports from California. “Sitting on a seaside cliff near Corona del Mar’s Inspiration Point, 3729 Ocean Blvd. counts 7,000 square feet of spectacular views, an elevator, library, gym and wine tasting room with design flourishes courtesy of a noted area architect. The three-story home, dubbed Crown of the Sea, also has a sizeable $25 million price tag, making it the third-most expensive existing home for sale in the Newport Beach area. But Crown of the Sea’s asking price is $5 million cheaper than it was in January, when it first was put up for sale. ‘We (lowered the price) to show the owner is motivated,’ said Jason Morrison, a broker with Windermere Real Estate who is listing the home. ‘He realizes the market conditions.’”

“For more expensive homes, it’s still ‘a buyers market,’ said Steven Thomas, president of Aliso Viejo-based brokerage Altera Real Estate, in a monthly housing report. For the most expensive homes, it’s even more of a buyer’s market. Through mid-March, there were about 330 homes priced more than $4 million up for sale in the county. Only 12 of those homes had sales pending, giving prospective wealthy buyers plenty of local options, according to Altera’s data.”

“At Dana Point’s Headlands at the Strand development, sellers are trying new ways to draw wealthy buyers, including a pair of auctions slated for this week. An auction set for Saturday lists two homes previously offered at $15 million. The homes have a minimum bid of $6.9 million and are set to be sold to the highest bidder above that, according to auctioneer Concierge Auctions LLC of West Palm Beach, Fla.”

“Not all prospective sellers of trophy homes are rushing to discount their properties. A few notable owners, such as software executive Frank Pritt—owner of the $75 million-valued Portabello estate in Corona del Mar—appear to have taken their homes off the market rather than cut their prices.”

The Voice of Orange County. “The federal government has funneled millions to the city of Santa Ana since the beginning of last year hoping to save neighborhoods from the blighting effects of mass foreclosures. The city has used that money to buy, rebuild and put families into a total of eight previously foreclosed homes. ‘Most of the impacts of this program are anecdotal,’ said Paul Habibi, lecturer at the UCLA Anderson School of Management.”

“To date, exactly two borrowers in San Diego have been given down payment assistance. Then there’s the city of Los Angeles. Of the 32,000 foreclosed homes that have blighted the city, only four have been rehabilitated. The program simply doesn’t have the kind of money needed to stabilize the grantees’ housing markets, Habibi said. The real impact, according to Habibi, is the image boost politicians get when they announce these kinds of rescues. ‘It’s politically favorable to do something like this in the community,’ Habibi said.”

“Then there’s the looming threat of what Habibi calls ‘moral hazard’ - when a homeowner defaults and is then rescued, it discourages neighbors from keeping up with their own payments, Habibi said. That could end with the cycle repeating itself until government intervention stops.”

“Donald Booth, Economist at Chapman University, also thinks the program does more harm than good. NSP can actually drive neighborhood home values down by selling homes at under market value, Booth said. Phil Schaeffer, a local realtor and member of California Association of Realtors, was shocked when he saw a home that ANR rehabilitated sold for $400,000 that could have easily gone for $500,000.”

“‘That home sold way under market,’ Schaeffer said. ‘Way, way under market.’”

The San Gabriel Valley Tribune. “For Realtor Chris Vigil and his peers in the business, life as a broker of homes is different these days - and constantly changing. ‘Now, if you don’t treat what you are doing as a serious business, you will not survive,’ he said.”

“That’s very much in contrast to the good old days for sellers, buyers, banks and brokers. That’s when a home would go on the market and balloon in value. Everyone got a piece of the pie. ‘Everyone was eating high on the hog … now the hog is a lot smaller,’ Vigil said.”

“Now, home inventories are low. Values are still down. Defaulting sellers are trying to squeeze every last penny out of their value-dwindling property. And first-time homebuyers continue to buy.In the meantime, Realtors have had to adjust to a rapidly changing real estate market. First off, there’s a lot less of them. At the end of 2007, the California Association of Realtors had 199,168 members. By the end of the first quarter of 2010, that number had dropped by 46,175 to 152,993.”

“Many simply weren’t in it for the long haul, said Monrovia Realtor Tom Adams. Before the recession, ‘It was a matter of sticking a sign out in the front yard to count the offers, watch the price go up and sell it,’ he said.”

“For many Realtors in the San Gabriel Valley and Whittier areas, short sales now comprise 50 to 70 percent of their business. Realtors sometimes take on another role, Vigil said: counselor. ‘You’re with clients with three, four, five months, preparing them for the transition from living in a house they thought was their home for life. And slowly, it’s being taken away from them. There’s a lot of tears in the beginning.’”

The Press Enterprise. “The opportunity to buy or lease a big-box property in Inland Southern California apparently got better in the first quarter. Veteran commercial real estate executives are reporting heavy activity in the first three months of 2010, with an unusually high number of deals at prices that would have been considered absurd a couple of years ago.”

“Some say the lease rates for distribution centers in Riverside and San Bernardino counties roll back the clock way farther than that. ‘It’s unprecedented. You’ve recalibrated pricing in the industrial sector back maybe 15 years,’ said Dave Burback, managing director for Grubb & Ellis’ Ontario office. ‘We never see that. We only see prices go up.’”

The Recordnet. “Short sales are the latest real estate trend. With a record number of homeowners looking to get out from under upside-down mortgages, short sales have begun to overtake foreclosure listings as the preferred sales method in the ailing housing industry. President Barack Obama on Monday added an incentive to the practice, announcing a $3,000 federal payment to short sellers who have failed to meet loan-modification requirements.”

“‘This is another way of saying the loan modification program failed,’ PMZ Real Estate manager Ben Balsbaugh said.”

“Homeowners must qualify for a short sale, which traditionally includes a hardship letter for why they can no longer afford the mortgage. Even hardship letters are beginning to fall by the wayside for some banks. ‘Some banks are great; others still are not,’ Manteca short sale expert Christine Papworth said, noting that she has 73 short sales in escrow. ‘Wachovia doesn’t even require a hardship letter anymore to get approval.’”

The Fresno Bee. “The developer of a beleaguered Clovis subdivision has filed for bankruptcy protection, leaving the neighborhood of large homes without finished streets and other improvements that were part of the original project. Los Angeles developer David Schwartzman, owner of…Patriot Homes, recently filed for Chapter 11 bankruptcy protection in U.S. Bankruptcy Court in Fresno.”

“About a dozen homes are in varying stages of construction. Some are so damaged by weather and vandalism that they will need to be knocked down to their foundations, while others must have pieces removed and replaced, city officials said. In addition, the community also is not gated or enclosed and a homeowners association has not been established as originally planned. The project’s new homes likely will be smaller than those now in the tract to meet market demands.”

“But residents say they are not concerned about smaller homes, gates or a residents’ association. ‘I just want to see the neighborhood done,’ said Steven Rosa.”

“He said he is tiring of the overgrown weeds and would like built-out streets and other basic elements of a nice neighborhood. Neighbor Caroline Barsamian said getting the development finished will reduce vandalism. ‘Even bringing in smaller homes … as long as this gets developed,’ she said.”

The Salinas Californian. “In the course of four years and one Great Recession, an affordable housing plan north of Salinas went from model program to short sale. Back then, only 8 percent of Monterey County residents could afford to buy a median-priced home in the area, according to the California Realtors Association. That median price? $636,500.”

“Families with incomes between $76,080 and $114,000 a year for four people would be eligible to buy the houses, which were to sell between $300,000 and $500,000. But by the time the first 40 or so houses went onto the market in 2008, median home prices in the Salinas area had dropped more than 41 percent. That meant the ‘affordable’ homes weren’t much cheaper than the area’s $372,500 median price -and came with restrictions on the profits a buyer could earn when he or she moved and sold the house.”

“By February 2010, the median home price in the Salinas area hit $264,750, a 58 percent drop from the year the project was approved. In February, the company was forced to sell 78 parcels at a loss of millions of dollars to cover its loans, a Salinas Californian review of property title transfers in the county revealed.”

“‘Everyone is going to take a big bath on this one,’ said William Silva, owner of Monterey-based Woodman Development Co., the developer of the project. ‘We are selling homes at 40 percent less than we thought,’ said Silva ruefully adding, ‘We have provided homes that are even more affordable than we imagined.’”

The Santa Cruz Sentinel. “The house is not large. It’s only 890 square feet. Vonda McCray-Hodges spent most of last year trying to hang onto it. The Hodges bought their home in 1998 for $265,000. They got an adjustable-rate mortgage from Merrill Lynch with interest at 6.625 percent for seven years. Their business was doing well, and Vonda opened a shop in Corralitos selling china, jewelry, art and vintage furniture. In 2004, Vonda, who handles the household finances, saw an opportunity to invest in her business and get a better deal on the mortgage. She made arrangements on the phone for a $460,000 adjustable-rate loan.”

“The required payment covered interest only for the first 10 years, with nothing toward the loan balance. The interest rate would change after two years, and there was a penalty if the loan were paid off early. To find a new loan, McCray-Hodges would turn to her nephew-in-law, who worked in the mortgage business. Before Christmas 2005, the papers were signed. Downey Savings and Loan in Newport Beach approved a $581,000 mortgage at 6.724 percent after the house on Casserly Road was appraised at $960,000.”

“The initial payment was an affordable $1,936 per month but after 15 months, the interest rate could change. It did, and the monthly payment exceeded $4,000. That meant the mortgage debt could increase instead of decrease. ‘I didn’t know it was in there,’ said McCray-Hodges. ‘I was not jetting to Paris. I was trying to make my financial future better.’”

“She tried selling on eBay after her landlord raised the rent on her collectibles shop. Her husband who had retired went back to work. But they couldn’t afford the higher mortgage payment. After exchanging letters and phone calls, the bank shifted $400,000 of the balance to the back of the loan, a balloon payment to be repaid when the home is sold. The interest rate was reduced to 3 percent, and the payment is a reasonable $1,350 a month.”

“McCray-Hodges went back to work aiming to make $1,200 a month. She works a couple nights a week at Macy’s in Capitola in the fine jewelry department and cares for her grandchildren while her daughter works. ‘It’s a miracle I got a job,’ she said, adding that she has also accepted a temporary position as a census-taker paying $22 an hour.”

“Her current payment will stay the same for five years. By then, she hopes the economy will be up and running. ‘You can’t quit,’ she said. ‘The door will open to something. I just have to keep the faith.’”

The Press Democrat. “A 45-year-old divorced mother of two, Connie Garrison hasn’t missed a single mortgage payment on her town house in Santa Rosa since she purchased the home in 2006. She usually writes the monthly check for more than the minimum due of $1,900 so that she’s paying more than just interest. As a manager for Kaiser Permanente Medical Group, Garrison also enjoys job security.”

“Nevertheless, she’s hoping to take advantage of President Barack Obama’s expanded program to help homeowners who owe more on their houses than what they are worth. Garrison remains hopeful that she can refinance her loan, which has an interest rate of 6.25 percent and is fixed for 10 years, before adjusting in 2016. Garrison said she didn’t realize she had such a loan when she bought her three-bedroom, two-bath town house in 2006 for $420,000, after she put 20 percent down with her own money and contributions from family members.”

“She described the lending process as ’sleazy,’ saying she felt overwhelmed by the paperwork and pressure to get into a home in what turned out to be the waning days of bidding wars and overinflated house prices.”

“‘I have a master’s degree, for the love of God,’ she said. ‘I had excellent credit, and I somehow walked away with the idea that my mortgage was a fixed rate. I was shocked to find it wasn’t. It makes me believe there are a lot more people who have adjustable-rate mortgages who don’t realize it.’”

“Ian Burns and his wife, Sonya Randrup, are hoping to refinance their Bennett Valley home, which they purchased in 2003 for $390,000 and is now worth about $40,000 less. After a previous refinancing, the couple owes about $410,000. ‘We’re not looking at getting out of paying our principal, but we sure would like it if they (their lender) talked to us,’ said Burns. ‘We have dynamite credit. We’ve never missed a payment. We work our asses off. At night, we look at each other and say, ‘What are we getting out of paying on this house?’”