The Housing Bubble

The Mercury News reports from California. “Dave Cullinane and Karen Beeson, mortgage loan officers with EverBank in Campbell, discussed the type of clientele they are serving these days. The California Association of Realtors’ 2011 survey of California home buyers shared by Cullinane and Beeson, both affiliates with the Silicon Valley Association of Realtors, shows the median age of today’s buyer is 35 years old. Cullinane said although the share of first-time home buyers has dropped from previous years, it still remains high at 43 percent. Beeson noted the survey shows buyers are motivated by price decreases, mortgage interest and property tax deductions. In fact, 82 percent said they were motivated to buy because they believed ‘prices can’t get any lower.’”

“Buyers continue to report having difficulty obtaining financing. On a scale of 1 to 10, with one 1 being easy and 10 being very difficult, the median answer among buyers was 9, unchanged from the previous year. Additionally, 76 percent reported they did not close escrow on time. The mortgage officers then shared other studies indicating that despite the recent housing market crisis, a majority of Americans still consider buying a home as the best investment. Research conducted by Pew Research Center showed eight out of 10 Americans agree buying a home is the best long-term investment a person can make.”

The Herald.net. “Question: I saw your column on the subject of novice real estate investors. There is one issue I am interested in just as a public issue. This is the idea people seem to believe in that anyone who invests in real estate is somehow entitled to a rental income that is at least equal to their expenses. The idea that one can, by spending a tiny amount, end up owning a property worth hundreds of thousands without investing any further amount of one’s own money just isn’t very plausible.”

“I lived in Merced County in California at the height of the real estate bubble. Bay Area investors came in thinking they could put $5,000 down on a $400,000 property in an economically depressed area and get someone to pay $1,800 a month in rent. Never worked, and I knew from day one it wouldn’t.”

“Answer: You raise a good point, and I agree with you. The no-money-down craze was popular when home prices were appreciating rapidly. The idea was that the rising home price would more than make up for any short-term negative cash flow you might have while holding the property. But as we all know now, home prices don’t always go up. For the past six years home prices have dropped throughout the Puget Sound region. If you bought a home with no money down near the peak of the housing market, not only have you been losing money every month with negative rental income, but you have also lost the value of your home, so it’s a double whammy.”

The Ashland Daily Tidings. “The voice on the other end of Terry Rasmussen’s phone stirred memories of a time when Californians routinely called to inquire about how soon they could get into a house. ‘California real estate is starting to wake up again, and people are getting out if they can,’ said Rasmussen, a John L. Scott real estate agent who talked twice Friday to a business owner in the Golden State’s Central Valley who had Oregon on his mind.”

“‘The caller wants to transfer his mom-and-pop business up here,’ Rasmussen said. ‘The tax-debt load for every Californian, based on state government debt, is too much, and they don’t want to be part of that.’”

“SOMLS spokesman Colin Mullane said consumer confidence is building. ‘We’re starting to see more consistent gains in median prices, and not just hit-and-miss results,’ Mullane said. “Buyers no longer fear future losses, or at least don’t think they will be as significant.’”

The Orange County Register. “As a postindustrial economy of technology, services and trade took root, California drew new waves of immigrants, mostly from other countries, and fecund young immigrants ignited a new baby boom. Its population exploded again in the 1980s, with growth averaging well over 2 percent a year, increasing the total from 24 million in 1980 to 30 million in 1990.”

“A new report from California’s Department of Finance estimates that growth was only 0.7 percent in 2011 – just a third of the 1980s rate. A massive new study by demographers at the University of Southern California concludes that California will see sub-1 percent growth rates for decades to come, due to sharply lower immigration and birthrates, with 6 million fewer residents by 2040 than previously thought.”

“The potential impacts – positive and negative – are immense. It would lessen demand for public infrastructure and services, thus easing the backlog of unmet needs. But it would also lower demand for housing and dampen retail sales and employment, which would mean less economic activity and tax revenue.”

Your Houston News. “Joel Kotkin probably knows more than anyone about the paradise California once was and the dysfunctional place it has become. Kotkin, one of the country’s top demographers, pointed out the other day that almost 4 million people have left California in the last 20 years. That’s 4 million above and beyond the people who have moved in from other states. He says most of those fleeing are young, middle-class families seeking lower taxes and affordable living costs. Kotkin, who calls himself a ‘Truman Democrat,’ says the regime in Sacramento and its ‘progressive war on the middle-class lifestyle’ is responsible for the destruction of the California dream.”

“I’m no demographer. But as far as I can tell, there’s only one sure way to reverse California’s death spiral — vote the Democrats out of power in Sacramento. That means Republicans — conservative Republicans allied with sensible Truman Democrats — need to stand up and take back their state from the crazies. The trouble is, the Republican Party of California is almost as much of a mess as the state. It has no leadership, no heroes, little money and no clear message. The state GOP has another big problem — Republicans have run out of courage.”

From Politico. “As home prices have plummeted in areas hit hardest by the real estate bust, so have political contributions from rich Republican donors, a POLITICO analysis of campaign finance data shows. Four years after a presidential race that flooded American politics with more than $800 million in itemized contributions, high-dollar donations in the Republican presidential primary are down 25 percent through March, most visibly at the epicenters of the housing crash.”

“Primary giving is down 55 percent around Phoenix, where homes have lost half their pre-recession values. It has dropped almost 40 percent in Las Vegas, where Zillow showed in February that home prices have plummeted nearly 60 percent since December 2007. And it’s fallen 60 percent in California’s Inland Empire, where homes have given back half their boom-time values.’

“‘Look, the Inland Empire is ground zero for the foreclosure crisis,’ said Jim Brulte, a former Republican state senator from San Bernardino County. ‘A lot of the political money on both sides, Republicans and Democrats, came from homebuilders. Some players who were significant donors as early as six, seven years ago are no longer in existence.’”

The Santa Maria Times. “David Altig, director of research for the Federal Reserve Bank of Atlanta, and Peter Rupert, executive director of the UCSB Economic Forecast Project, said economic prospects both nationwide and on the Central Coast are slowly improving. But whether the recovery will continue long enough to dig the nation’s economy out of its post-recession morass remains to be seen.”

“According to the California Employment Development Department, farm labor, food service and retail sales will be the top job-growth markets over the next 10 years. Because those are such low paying jobs — approximately $20,000 per year — the potential to sustain consumer spending isn’t very high. According to the UCSB forecast, personal income has not risen in Santa Maria, Lompoc or Guadalupe since 2006. Altig said he didn’t hold out a great deal of hope the recovery would continue because ‘consumer spending is growing faster than personal disposable income.’”

“Both economists said the struggling housing market is affecting consumer spending and the job market. Altig said the good news is the housing market has nearly bottomed out. The bad news is there are more than 2.5 million homeowners around the country who are 90 days past due on payments, and the number of bank-owned properties hasn’t changed much since 2008, which could give rise to another round of foreclosures. ‘That looks like a situation poised for further price reductions,’ Altig said.”

The SF Weekly. “A crowd has gathered around Geary Brown and his letter. ‘Look what I got,’ he says, almost in a whisper. They see the Bank of America masthead and the curt, three-sentence paragraph saying that the bank is considering giving him a loan modification. It is the first communication from the bank in three months, since the eviction warning in December. ‘Congrats, Geary!’ says a woman.”

“Between 2008 and 2012, according to projections from real estate database RealtyTrac, nearly 1,500 homes in Bayview’s zip code will have been foreclosed on — a massive swath for an area with around 10,000 housing units. To many residents’ minds, the foreclosures serve to clear the path for the city’s plans to redevelop and gentrify Bayview-Hunters Point, the southeastern neighborhood that both locals and Realtors call the final patch of San Francisco not yet redeveloped. ‘It’s all about money,’ deadpans Brown. ‘They’re trying to get us out of here so they can develop.’”

“Geary and Shirley Brown bought their first home in June 1995. He had built up savings from his years as a trucker and was then making a solid wage as a Muni bus driver. Throw in Shirley’s income as a nursing assistant and they could afford the 30-year fixed-rate mortgage for the two-story, three-bedroom, two-bathroom, $194,500 hilltop house in Bayview.”

“Brown got back into trucking in 1998 when Pac Bell Park construction started up. Soon he was pulling in six figures. By 2005, he wanted to expand his business, so he took advantage of his rapidly appreciating property and refinanced his home for $300,000 with Wilmington Financial — he’d been getting pamphlets in the mail describing how smart and lucrative refinancing was, with Brown pocketing most of the $106,000 difference.”

“Seven months later, property values still rising, he replaced that loan with a $431,550 loan from Equifirst; and then again in January 2007 for $475,000 with Countrywide Home Loans. For all three mortgages, the lenders offered him their ‘pick-a-payment’ program, which allowed homeowners to select how they wanted to pay off the loan. Brown chose the option with the lowest monthly payment: an adjustable-rate mortgage, where monthly payments begin at a certain amount before increasing after a set number of years. For the $475,000 mortgage, he started paying $1,800 a month.”

“He used the new money to buy a 2000 Peterbilt truck. He hired drivers. The rest of the refinance cash paid off his bills. To Brown, who’d worked hard all his life to earn his house, the refinance felt like a well-deserved reward. He wasn’t the only one, of course. Many of the homeowners at that Saturday afternoon barbecue had reason to refinance. ”

“The story is familiar by now: The housing market collapsed, and property values tanked, meaning that many homeowners could no longer pay off the mortgage by selling the house. Compounding the problem for Brown, the adjustable-rate mortgage payments had increased after two years, from $1,800 to $2,800. ‘I should have read and understood what they were doing,’ he says. ‘I should have read the fine print about the percentage rate on the loan, and how long that was supposed to last. I didn’t think about the economy. I didn’t see that far ahead.’”

“By January the bank had put the house up for auction. The property was appraised at $252,191. In February, Brown’s wife died. ‘If you got money, you could stay here in San Francisco,’ he says. ‘If you don’t, don’t even think of coming back here, ’cause San Francisco is too expensive. You don’t like it, you can get with it or you don’t. That’s the way I see it. It’s not gonna change for me or you or anybody. Either you can handle it or you can’t. And me right now, I’m just tryna hold on ’cause I love this house, it’s me and my wife’s house, our first house and I can afford it.’”

“He looks up and smiles. ‘And I’m fittin’ to push it up a notch,’ he goes on. ‘Buy me a few more pieces of property. I’m a rent this out, probably six, seven, eight months down the road. Take up this carpet, do this floor, and probably rent it out, buy me another house.’”

“Since getting that letter a few weeks ago, Brown has heard again from Bank of America. ‘The bank made a judgment,’ Brown discloses, unprompted. ‘They said they’re not gonna modify.’ He must vacate his house by May 2.’