Different Day... Same Bubble

"When John R. Talbott gazes into his crystal ball to discern the future of America's housing market, it isn't a pretty picture he sees. The gory details of that threat can be found within the pages of Talbott's latest book, "Sell Now! The End of the Housing Bubble," published in January by St. Martin's Press."

"A financial consultant and former visiting scholar at UCLA's prestigious Anderson School, Talbott views the housing market as a house of cards on the verge of collapse. He predicts rising interest rates and plummeting property values, followed by widespread foreclosures that will not only affect the real estate industry, but almost every aspect of the economy."

"It's already started," says Talbott. "We've had 20 years of up, up, up with real estate. This spring will be brutal."

"The problem, he says, is that home prices are way overvalued -- just as Internet stocks were during the 1990s before that sky collapsed."

"To buy these overvalued homes, he says, many consumers overextend themselves financially by borrowing more from banks. They end up paying an inordinately high percentage of their monthly income on mortgages."

"The banks are using the same stupid formula. They convince these young couples to borrow a million-dollar note that they're never gonna get out from under."

"To make matters worse, Talbott says, an increasing number of borrowers are taking out variable-rate and interest-only loans. According to San Francisco's LoanPerformance.com, half of all Bay Area home buyers used interest-only loans to make their purchases last year. With so much of their income already relegated to their mortgage payment, says Talbott, even a small rise in interest rates will push many to -- and beyond -- their limit. For others, a divorce or job loss will spell financial ruin."

"Talbott regards the latest data on the Bay Area housing market as mounting evidence for his prediction: rising interest rates, decreasing appreciation, 10 straight months of declining sales and, in January, the lowest number of sales in five years."

"Talbott predicts a wave of loan defaults and foreclosures. Bank presidents will be fired for making so many risky loans. The new presidents, wanting to clean up the mess, will unload the properties at a loss, perhaps for 40 to 60 cents on the dollar. This will flood the market and deflate home prices further."

"And then, according to Talbott's prediction, the financial impact will, like an especially vicious virus, spread. First, the real estate industry will falter. Then, industries tied to real estate -- including banking, construction, home supply stores -- will be hurt."

"And then you've got a real recession," he says, "that will wash across the middle of the country."

"And after this mess," he says, "cash will be king."

"The supply of new homes for sale, based on the latest sales rate, was 5.2 months in January 2006, compared to 4.4 months in January 2005, the Census Bureau reported. And the National Association of Realtors reported that the supply of existing homes for sale jumped 43.2 percent -- from 3.7 months in January 2005 to 5.3 months in January 2006.

Existing-home sales have dropped each month from September 2005 through January 2006, according to NAR."

"Housing is going to slow but how it's going to slow remains to be seen," said Phillip Neuhart, a Wachovia economic analyst.

"People have been calling for housing to slow for sometime now."

"There is anecdotal evidence, too, of the changing market for home builders. Some builders have been offering more incentives to buyers to keep sales rolling, and real estate agents in some markets have reported that builders and developers have been more willing to offer co-broke commissions to agents who bring buyers into transactions."


In Northern California

"McKinleyville Realtor Art Nellessen said he has noticed that fewer homes are selling now and homes are staying on the market longer."

”Buyers are stepping back and going whoa,” he said. “There is more available, and buyers are stepping back and watching what's happening.”

Realtor Linda Disiere said that she thinks the motivation to buy a home is in a slump because of interest rates, but also because “people's expendable income has been hit by things like the cost of gas and electricity.”

“Most real estate experts agree the market is slowing."

"I think it’s indisputable that demand in the housing market has declined in the past few months,’ says (economist) Richard DeKayser. ‘It’s very clear that rising interest rates figure very large in that decline.’ As rates rise, homebuyers who were already stretched need to demanding lower prices. ‘Low rates had offset unaffordability in past years,’ said DeKayser.”

"Mortgage rates have hit their highest level in nearly four years, and that has a direct impact on home affordability…and home prices.The average adjustable rate mortgage is now 6.03 percent, and Prather believes that rate is on its way to 7 percent. That means those with ARMs, adjustable-rate mortgages, may be doling out some extra cash.”

“Foreclosure activity in California rose in the fourth quarter of 2005. Lenders sent almost 15,000 default notices to California homeowners between October and December, up 19 percent from the third quarter, according to DataQuick Information Systems."

'We’re running into more clients who are headed down that path right now,’ said (mortgage broker) Mark Prather in Cerritos. ‘The foreclosure rate is starting to grow.’

"If you’re one of those who stretched your resources or perhaps the truth to get into the market, your bubble may be about to burst.”

Sonoma County MLS Listings: 2085

Foreclosures/Pre-Foreclosures = 856

Sonoma Valley

MLS Listings: 230 (GMAC MLS)

Foreclosures/Pre-Foreclosures = 58

(Houses sold week ending 3/13/05 = 14)

Week Ending 3/12/06
Recent Home Sales = 10 (down 28.7%)

18360 Arnold Drive
$480,000,
2 bdrms, 940 sq. ft., 1958

18483 Arnold Drive
$592,000,
2 bdrms, 1481 sq. ft., 1956

18395 Barrett Avenue
$570,000,
2 bdrms, 1338 sq. ft., 1991
(previously on the price reduced list- was on the market 190 days, originally listed at $579k reduced to $569,900 and sold for $570k)

405 Brockman Lane
$966,500

682 Parthenon Way
$619,000,
3 bdrms, 1248 sq. ft., 1980

154 Robles Serano Court
$869,000,
4 bdrms, 2324 sq. ft., 1981

18842 Serpilio Drive
$570,000,
3 bdrms, 1040 sq. ft., 1983

19330 Solano Court
$835,000

135 Temelec Circle
$529,000,
2 bdrms, 1296 sq. ft., 1965

137 Temelec Circle
$580,500,
2 bdrms, 1296 sq. ft., 1965