The Housing Bubble

The Press Enterprise reports from California. “The midyear forecast update from the Los Angeles County Economic Development Corp. predicts Riverside and San Bernardino counties will lose about 3,100 jobs in 2011. If the forecast holds up it would be the fourth consecutive year of lost jobs for Inland residents. The forecast, which goes against many of the predictions made by economists earlier in the year — including the LAEDC’s — is traced back to the region’s beleaguered housing market and the slow pace of recovery for construction jobs.”

“‘That’s one of the reasons I believe it could be a couple of years” before the Inland area sees any significant job growth,’ said Nancy D. Sidhu, the LAEDC’s chief economist. ‘A lot has to happen before the residential housing market becomes truly healthy.’”

“Sidhu said the disposition of distressed homes on the market is taking a long time, and other areas of California are in the same boat. Sacramento now has an economy that is considered weaker than the Inland area’s. In the Antelope Valley in northern Los Angeles County, which saw a housing boom similar to the Inland Empire’s a few years ago, 80 percent of all the homes sold are either foreclosures or short sales.”

The Press Democrat. “Foreclosures and short sales made up nearly nine of every 10 single-family homes sales last month in Lake County. For Sonoma County, the distressed sales rate was 51 percent, compared to 43 in June 2010. The rate for Mendocino County was 63 percent, compared to 32 percent a year earlier. Here is a sampling of the June distressed sales rates for other counties: Marin, 26 percent; Napa, 51 percent; Humboldt, 29 percent; Solano, 72 percent; Sacramento, 65 percent; and Madera, 83 percent.”

“A federal grand jury is sifting through the collapse of Sonoma Valley Bank and its use of taxpayer bailout money, part of a criminal probe examining loans the bank made to one of its largest borrowers. The bank repeatedly broke standard lending rules in its dealings with Marin County developer Bijan Madjlessi, his companies, his employees and his business associates, The Press Democrat discovered.”

“In 2009, the bank approved a $436,500 home loan for one of Madjlessi’s employees who had just defaulted on another real estate loan. Jennifer Irvine, who worked for Madjlessi at his condo development in west Santa Rosa, received a loan to purchase one of the units on Sebastopol Road just two months after she lost her Cloverdale home to foreclosure for defaulting on a $600,000 loan. The loan from Sonoma Valley Bank has not fallen into default, according to public records.”

From KFSN. “California realtors are calling on lenders to do more to prevent families from going into foreclosure. This after a recent survey found more than half of Central Valley realtors characterized closing short sale transactions as ‘difficult’ or ‘extremely difficult.’”

“Sal Valencia has been trying to short sell his Central Fresno home since August of 2009. Valencia said, ‘You can’t do anything if they aren’t willing to talk, not willing to respond, even acknowledge you. At the time there was a lot of things that changed in our lives that we couldn’t afford our home anymore,’ said Valencia.”

“Don Faught, California Association of Realtors said, ‘Californian’s are being victimized by a process that should be helping them.’ At a news conference outside Valencia’s home - a group of Central Valley realtors said he’s not alone - calling the short sale process ‘broken.’”

The North County Times. “With home values about equal to where they were in 2002, according to the Case-Shiller House Price Index, many borrowers find themselves wondering if they still want to make payments on a house worth 60 percent of what it was when they bought it. These borrowers can consider a short sale.”

“But often there’s a second lender, sometimes a down-payment loan or sometimes a home equity line of credit. If it was a purchase money loan, the second lender is hoping the first will give it a few thousand dollars in a short sale, because it will get nothing in a foreclosure. If the second is a recourse loan, then the foreclosure actually liberates the lender from having to accept the house in lieu of payment. They’re free to seek a judgement against the borrower for repayment of debt.”

“‘If I’m a second, I might say, ‘I’m not going to take 5 percent of the outstanding balance if I think the first is going to wipe me out. I can record that judgement, and 10 years down the road, we may be able to collect,’ said Escondido real estate attorney Eric Ginder.”

“There’s another open question when it comes to doing a short sale, which is whether or not it’s a good idea to stop making payments. No financial adviser, attorney, or real estate agent will advise someone to stop making payments because it violates ethical guidelines. But many will say —- and did say in interviews —- ‘If it were me, I’d stop making payments.’”

“Part of the problem is that lenders don’t always take hardship claims seriously if the borrower is still making payments, so they aren’t willing to do a short sale, said Joe Marcarelli, a San Diego bankruptcy attorney. But Marcarelli also said those trying to preserve a credit score and making payments needs to reconsider their priorities. ‘I don’t think you should let the credit tail wag the emergency finances dog,’ Marcarelli said. ‘Look: You’re upside down, you’re strapped, you have a noose around your neck.’”

“A Realtors group said Tuesday that North San Diego County house sales jumped by 5.8 percent in June when compared with the June 2010 figure ‘Buyers can only hold out so long before they ultimately buy,’ said Nathan Moeder, a real estate economist with The London Group, in an email.”

The Signal. “Excuse me while I dispense cigars like the proud father of a newborn, jitterbug down the sidewalk like the proverbial drunken sailor and disappear dancing over the horizon, clicking my heels while busting my lungs yelling, ‘Finally!’ Finally, consumers got the picture about local housing. Finally, buyers understood that this once-in-a-lifetime opportunity to buy a home will not linger long.”

“The median price of single-family homes sold locally during June came in at $370,000. That’s up nearly 7 percent from the record low for this cycle, but it’s 42.5-percent below the record-high median of $643,000 set in April 2006. It’s questionable if we’ll ever see prices like that again, so for those who need a home and have adjusted to today’s reality, waiting to buy no longer makes sense. Not only has the price-bottom passed, but resale prices also are trending higher while interest rates on home loans have nowhere to go but up.”

The LA Times. “It is a small house on a small lot in Highland Park. I bought it in 2005 for $503,000, most of it borrowed, and lived there six years. The house was meant to be my refuge, a place where I could plant perennials and know I’d see them flower year after year, an investment for my daughter and me after many years of renting.”

“I made improvements. To help pay for the work, I refinanced in 2007 at $511,000 with a five-year fixed-interest first lien and a variable-rate equity loan. With the real estate market continuing to rise, a Wells Fargo Bank loan officer assured me, it would be easy to refinance to a fixed-rate loan before my rate went up in 2012.”

“By mid-2008, some neighbors on my short hillside street had started defaulting on their loans. One eventually negotiated a short sale; two others went into foreclosure. Worried, I called Wells Fargo in March 2009 to see about refinancing in advance of my adjustable-rate mortgage payments rising significantly. The house was already underwater, the banker told me. My equity was gone, so there was no way I could refinance. He suggested that I wait it out and hope things improved before the rate rise in 2012.”

“By October 2009, it was clear that the real estate market was only getting worse. On June 1, 2010, I acknowledged defeat. I declined to make my mortgage payment and two weeks later hired a short-sale expert and listed the house. Finally, in April, it agreed to an offer of $325,000 for the house. The sale closed less than 48 hours before the bank’s scheduled foreclosure sale.”

“I can’t find a life’s lesson here; no insight into why this has happened to so many people. The banks could help us, but they don’t. I will recover, but it’s unlikely I will ever own another house.”

The Half Moon Bay Review. “First-half sales results from the local real estate market seem like a Clint Eastwood movie with some good news, some bad news and some ugly news. Your interpretation will depend on whether you are a buyer, seller, Realtor, lender or tax collector. Summarizing the results: prices, inventory and mortgage rates are down. Volume, distressed sales and selling time are up.’

“The average home price for the coast now stands at $676,000, down 11 percent from the first half of last year and down 7 percent from full year 2010. Prices range from $93,500 for a cottage at Martin’s Beach to $1.95 million for horse property in Montara on five acres. Prices peaked in 2007 at $1,031,000 and are down 34 percent since then.”

The Voice of San Diego. “With $500,000, you could buy a house in many parts of San Diego. Or developers armed with taxpayer money could build a single affordable-housing apartment for poor people to live in, like a studio or a little one-bedroom. When it comes to wondering how much these apartments each cost, ‘people don’t even ask that question in San Diego,’ acknowledged Tony Young, the president of the City Council. ‘It’s not even an afterthought. The dynamic’s got to change.’”

“Many of our commenters are appalled. Writes one: ‘Only an insane person would say that a housing unit that costs in excess of $400,000.00 is AFFORDABLE HOUSING!’”