Sonoma Housing Bubble

Pulling the cork out of Sonoma's bubbly housing foolishness

Thursday, March 30, 2006

The Squeeze is On

"With interest rates on the rise, and the housing market showing signs of a downturn, homeowners are starting to feel the squeeze."

"For many, the trouble started when the market was booming, and buyers flocked to interest-only loans in order to find their way into a bigger home. These interest-only loans were an attractive option while rates were low, but once the fixed term ends, monthly payments are likely to jump up to twice the previous amount."

"In the worst case scenario, homeowners could end up owing more money than their home is worth. The Early Show co-anchor Harry Smith had the story of one family that is caught in the squeeze."

"Meghan and Vince Jordan recently moved in to their brand new dream home in Denver, but they have one big problem — they can't get rid of their old one."


'"A year ago, we don't think we would have been in this situation. We think our house probably would have sold," said Meghan Jordan. The Jordans are highly leveraged, they have two kids, two mortgages and daycare costs. And their quandary is not unusual."

"Their home has been on the market since August, and so far they have dropped the price by $35,000. Now, the Jordans have taken a bridge loan to cover the costs of owning two homes. Even more nerve racking, they've taken out an interest-only loan, so for five years they are only paying interest. With rates on the rise, they are worried they took a bad risk."

"Rates on 30-year mortgages rose this week after the Federal Reserve pushed a key short-term rate up for the 15th time and indicated that more rate increases were possible."

"Mortgage giant Freddie Mac reported Thursday that rates on 30-year, fixed-rate mortgages averaged 6.35 percent this week, up from 6.32 percent last week. The increase pushed rates to the highest level since they hit a 2 1/2-year high of 6.37 percent the week of March 9."

The market was a little surprised at the (Fed's) comments which implied more tightening in the future," said Frank Nothaft, chief economist for Freddie Mac.

"That raised the expectation that inflation may be more of a threat than was previously thought, and that kind of thinking promotes upward pressure on mortgage rates like we saw across the board this week," Nothaft said.

"Some of the riskiest of loans -- the subprime ARM loans -- showed an increase in delinquencies at the end of 2005. The U.S. averaged a 12.6 percent delinquency rate in subprime ARM mortgages as of December 2005, which was up from 10.7 percent the year before."

"The last year was tough on mortgage holders. Nationwide, borrowers faced higher interest rates and fuel costs and mortgage delinquencies rose 4.7 overall, hitting its highest point since the middle of 2003."

"It's what we have been expecting," a Mortgage Bankers representative said. "There are so many new loans out there that haven't been seasoned. Interest rates may play a role in the future, but right now, it is just the economy -- job loss and low (home) appreciation."

What? I thought real estate only goes up?

"Rising mortgage rates are expected to cool off the extended boom in housing that saw sales of both new and existing homes set records for five consecutive years. Analysts are looking for sales to drop by around 6 percent this year."

"Greg McBride from joined The Early Show Thursday to discuss ways for homeowners to protect their financial health. "

First, a look at the risk that comes with an interest-only loan. If, for example, a borrower took an interest only loan of $200,000 in 2003, their monthly payment would have been around $667. After the first adjustment, those monthly payments could jump to $1,415 in 2006.

"That's why (interest-only loans) are right for some but wrong for a lot of people. That payment increase is not something the average American household can handle."

"If you find yourself in this predicament, McBride says you should refinance out of harm's way."
McBride stresses the importance of cutting into the loan balance and starting to build up what he calls an equity cushion, something the Jordan family doesn't have."

"They were 100 percent leveraged," he said. "They don't have any wiggle room. They need to start chipping away at the loan balance, building up an equity," which is so important because "if you have to sell suddenly, that's what's going to absorb your transaction cost."

"Another important piece of advice from McBride: don't borrow against home equity."

"Finally, he recommends living in your home for the long haul. That means accepting the idea of your home as a long-term investment, not a vehicle to get rich quick."

Wednesday, March 29, 2006

Time to DisARM

"U.S. mortgage applications rose for the first time in three weeks, reflecting a modest increase in home purchasing loan requests before the Federal Reserve's widely expected interest-rate hike, an industry trade group said on Wednesday."

"The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity for the week ended March 24 rose 1.2 percent to 571.7 from the previous week's 565.0, its lowest level so far this year."

Read that again... mortgage applications rose for the first time in three weeks... but they didn't rise to previous year levels... they didn't rise implying an increase in demand... they simply rose 1.2% above the previous week. Remember, the week that was the third week of declining mortgage applications?

"Douglas Duncan, the MBA's chief economist, attributed the slight uptick in demand to this week's Fed meeting."

"An increase in applications is typical ahead of a Fed meeting," he said. "People are aware that rates are going to rise, so they lock in ahead of time."

"In the first meeting since Ben Bernanke took over as Fed chairman, the policy-setting
Federal Open Market Committee raised its federal funds rate by a quarter-percentage point to 4.75 percent on Tuesday, as expected. It was the U.S. central bank's 15th straight rate hike since June 2004."

"Historically low mortgage rates have fueled a five-year housing boom, helping support the U.S. economy's recovery from recession despite uncertain business investment. Most analysts contend that mortgage rates are on the rise. While they may differ on whether or not there is a housing bubble, most agree that the market is cooling off from its record run."

"The ARM share of activity rose to 28.7 percent of total applications from 28.3 percent the previous week. Refinancings fell as a percentage of all mortgage applications, falling to 37.3 percent from 38.1 percent, the MBA said."

"Bob Walters, chief economist at Quicken Loans, an online mortgage lender, said long-term fixed rates are still attractive.

"And while the Fed indicated it may raise rates the next time it meets, long-term rates will continue to appeal to those in the market to buy a home or homeowners looking to disARM," he said."

"The MBA data is seen as an indicator of latest trends, following what were mixed signals on housing tendencies from other sources earlier this month."

"Last Friday, the U.S. government reported that sales of new U.S. homes took their biggest plunge in February in nearly nine years, while prices fell and the number of homes for sale hit a high, signaling significant slowing in the housing market."

Fraud Files III

"Howard Brown and his family felt panicked and desperate. They were behind on their mortgage payments, and they had just learned that their three-bedroom house in Wilmington was being foreclosed on. They did not know where to turn. Then, a nice young man appeared in the driveway. Well-dressed and pleasant, he told Brown he was a Christian. He said he could help save Brown's home."

"All Brown had to do was sign documents that would allow Brown to arrange for someone to temporarily "share" title to his property. With someone else's name on the title along with his, Brown could refinance and also improve his credit. Then, once his credit was repaired, he would get sole title back. Brown signed. "He seemed like he was honest," the legally blind Korean War veteran said. And that's when his real troubles began."

"With mounting horror, he and his family came to realize that they had signed over title to their home to a man they had never heard of. It also became clear that they were now on the hook not only for their original loan of about $160,000 but also for about $150,000 in new debt borrowed against the house without their knowledge. Then the family began getting notices that the property was going to be put up for auction."

"Foreclosure fraud is a relatively simple crime. Once a property owner misses two or three monthly payments, a lender routinely files a notice of default with the county recorder's office. That public document is a precursor to formal foreclosure, and all a scam artist has to do to find victims is read the notices, descend on the homeowners and trick them into signing over title to their homes."

"It is a crime that consumer advocates fear could become increasingly common — especially in Southern California, where many homeowners have stretched themselves to their financial limits to afford the region's record high housing prices."

"While still considered low, indications are that the nation's foreclosure rate is on the rise, meaning the pool of potential victims is growing. At the same time, the steep rise in housing prices over the last few years has created a massive amount of equity in many properties — a tempting target for swindlers."

"There's so much equity in houses, if you're going to do white-collar crime, you only have to rip off 10 people to become a millionaire," said Debra Zimmerman, an attorney at Los Angeles' Bet Tzedek legal services who specializes in real estate fraud and elder abuse. She said she has seen a "dramatic" rise in victims of foreclosure fraud in Los Angeles County in the last few months. "I am getting three cases a week," she said. "I used to get none."

"Across the country, law enforcement officials also are grappling with the crime. Colorado's attorney general, John Suthers, is pushing a law that would tighten rules for brokers after a rash of scams in that state."

"Minnesota passed new rules in 2004, Maryland in 2005. California actually has some of the nation's strictest regulations, but advocates say that does not stop all scam artists. And homeowners in the state could be particularly vulnerable because so many have nontraditional loans such as adjustable rate mortgages that send payments spiraling upward with rising interest rates after a fixed period. Real estate experts said many of those payments are set to begin rising this year."

"Already, advocates say they are seeing a corresponding rise in fraud victims. "We are just seeing more and more of it," said Dan Grunfeld, president and chief executive of Public Counsel, a Los Angeles pro bono law office that tries to help victims —reclaim title to their houses or at least escape the crushing debt that many are left with after scam artists have drained the properties' equity."

Avoiding scams
"Here are some things consumers can do to prevent foreclosure fraud:
• Never sign a contract under pressure.
• Never sign away ownership of your property to anyone without advice from your lawyer.
• Don't make mortgage payments to someone other than your lender.
• Beware of any home sale contract in which you aren't formally released from liability for your mortgage.
• Never make an oral agreement; get all promises in writing.
• If you're not English-speaking, use your own translator; do not depend on translation offered by others."

There's a great mortgage fraud blog in the sphere... check it out.

Here's a snippet from their headlines today:

"In the following press release the Santa Clara County (CA) District Attorney announced that on February 21, 2006, San Jose Police Officers arrested Scott Andrew James Balestreri, 48, and Ruth Helen Welz, 61, for first-degree burglary and elder theft for conning an 84-year-old San Jose man out of over $6,000 after posing as potential buyers at an open house the victim was hosting in Sunnyvale. The defendants convinced the victim that they would buy the $879,000 home for cash once they sold their $3 million home in Los Altos. According to their story, Balestreri was going through a nasty divorce and his wife was holding everything up. Over a period of 5 months beginning in August 2005 the victim gave the defendants over $6,500 in cash, payments for hotel rooms, rental cars, and eventually an apartment – all in an effort to keep the deal alive."

(thank you MoonValley for sending this in)

"RIVERSIDE Six people accused of operating a $24 million scheme to steal Riverside County property owners' land will appear in Superior Court April 14 on felony fraud charges, officials said Wednesday."

"The six defendants are accused of hatching a scheme in October 2003 to cheat owners of 25 undeveloped properties in Perris, Murrieta and Menifee of their land."

"Galvez and his associates allegedly perpetrated the scheme by offering forged grant deeds on the 25 properties to the Riverside County Recorder's Office. The grant deeds fraudulently conveyed ownership of the victims' property to various straw buyers. Those straw buyers were allegedly promised large sums of money by Galvez to use their names on the grant deeds."

"State and local authorities have charged a 35-year-old metro Atlanta man with Dawson County's first case of residential mortgage fraud, Dawson County Detention Center records show."

'"Basically, the suspect was using a stolen identity to purchase a residence here in Dawson County," he said.Siddiqui has been charged with residential mortgage fraud, Dawson County Detention Center records show.Authorities declined to release the name of the mortgage lender assisting in the sting operation."

"SACRAMENTO, Calif.--(BUSINESS WIRE)--March 27,, a California based investment advisory firm and publisher of foreclosure property information, reported today that pending legislation cited as the Mortgage Rescue Fraud Act will seriously impact the rights of homeowners in financial distress as they attempt to sell their way out of foreclosure."

Tuesday, March 28, 2006

CA Bubble Needs a Hail Mary...

The housing slowdown "definitely will have an impact on the health of the economy," said Christopher Thornberg, senior economist at UCLA Anderson. He predicts a soft landing, in which housing "takes some of the 'oomph' out of the economy but doesn't collapse it."

You know, they keep using this "soft landing" so often that it is now cliche. Which is a bit silly if you think about it, market crashes don't get called crashes because they land softly. This is a market in the midst of a crash, and if this crash lands softly it will be the first time. So there is nothing cliche about it other than the tired, worn out, phrase itself.

"California's softening housing market will undermine the state's economy in the coming two years, but other industry sectors are strong enough to help cushion the impact, according to a report to be released today. But if there are other negative factors -- a surge in interest rates, for instance -- the downside could be more substantial. "Let's put it this way: We will be in a fragile economy," Thornberg said."

"Economists at the UCLA Anderson Forecast laid out a scenario of domino effects as the once-torrid market for residential real estate continues to cool."

"The labor market is likely to take a significant hit."

"California's unemployment rate, which was 5.4 percent last year, will inch up to 5.5 percent this year and then rise to 6 percent in 2007 and 6.3 percent in 2008, the report forecast. The pace of payroll job growth will slow from 1.8 percent in 2005 to 1.5 percent this year, then get even more sluggish, falling to 1 percent in 2007 and 1.1 percent in 2008, the report said."

"Job growth in both 2004 and 2005 was strongest in construction, retail trade, finance, professional and technical services, and administrative support positions, while manufacturing and company management lost jobs."

"Financial activities have helped fuel a fast-growing sector UCLA Anderson calls "informal jobs" -- people who work for themselves, such as real estate agents and mortgage brokers. California now has 1.6 million informal workers, up 500,000 since 2000, the report said."

"As residential building and remodeling slow markedly, about 200,000 construction jobs will disappear, the forecast said. Construction has contributed almost a quarter of all new payroll jobs in California in the past two years."

"Jobs in real estate and mortgage banking also will start to dry up. Like construction, this sector has boomed in sync with the housing market. Financial jobs, particularly those in the mortgage industry, have been a strong source of job growth in recent years."

"Consumer spending is also likely to slow as the housing market cools. Taxable sales have grown 7.5 percent a year for the past two fiscal years, even though salaries have been essentially flat. The reason is simple, Thornberg said: "People are feeling wealthy because their house is worth so much."'

"But now, between the slowdown in home appreciation and the continuing rise in interest rates, consumers are expected to rein in spending. Taxable sales growth is likely to slow to 4 percent, the report said."

"The fallout for state government coffers will be serious as both sales tax and income tax receipts fall, the report said."

'"The government budget for '06-'07, already tight, looks to go under water by the early part of next year, and with it, much of the infrastructure dreams of the current administration," the report said."

"California's general fund "will start feeling the pinch toward the end of this year when the numbers aren't coming in at what they expect. It will really feel it next year. The 2006-07 fiscal year will not be pretty."' (Thornberg)

"Rather than popping, the housing bubble will simply sag."

Name one thing that sags and is a sag supposed to be better than a pop? Besides popcorn, can you name anything that pops that is a good thing? Either way, if it pops or sags... it won't be pretty. Pick your verb they both have the same meaning... whatever is inside of the dang thing is emptying out.

"UCLA predicted that appreciation will slow to 6 percent by year-end and will be flat next year, and that sales of existing homes will fall 26 percent, from 530,000 units now to 390,000 in 2007 -- and even lower in 2008."

Bubble...I mean Butter on Your Toast?

Press Democrat

"Apparently in Sonoma County home builders are preparing for another busy summer after wrapping up their best year since 1999."

"Residential construction is expected to continue at a brisk pace this year, despite the recent slowdown that has put the brakes on sales of new and existing homes."

"Rising interest rates and soaring prices have pushed some buyers out of the housing market. But builders remain optimistic they will be able to sell their projects and are not planning price cuts."

"Prices up there are holding pretty well," said Cindy Siwecki, a longtime analyst of new home construction and sales in the Bay Area with the Reiser Group. "There's more people moving up there and commuting. As long as there's jobs being created there's going to be demand for new housing."

LOL Cindy! Did you not read the Sonoma County jobs outlook? Keep reading... its down below.

"Residential construction activity hit a six-year high in 2005, when builders started 1,530 homes and 1,303 apartment units in Sonoma County. Buyers in search of new homes have more choices than in recent years, when intense competition sucked up already dwindling inventories. Now it's home builders who must compete for sales."

"What's more true today than it was last year is you have to offer a competitive price and a competitive home," said Chris Peterson, co-owner of Rivendale Homes, a Santa Rosa home builder. "I don't think anybody's going to stop what's in the pipeline. It's just going to be competitive and that's good for the consumer."

Right, because now the current 5 month supply of homes is in competition with you for your new homes... and what are y'all competing for? Right, those 7% of Sonoma County households that can still afford to buy a house. Did you miss that part about the rising interest rates and the soaring prices that have pushed buyers out of the market? Keep reading...

"New home prices could flatten in some markets, but economists forecast a 5 percent to 8 percent increase statewide. Overall, residential construction in California is expected to drop in 2006 from near-record levels in 2004 and 2005. But the number of new homes and apartments could still top 200,000 for only the third year since 1989, according to the California Building Industry Association's forecast."

"The decline in construction activity will be centered in the state's high-cost coastal regions and urban centers, including Sonoma County, where builders are scaling back plans to build larger, pricey homes."

Scaling back? Did someone do a little demographic and income research for the county? Oh- or maybe they looked at the burgeoning MLS listings?

"But many of those same areas should get a boost from continued expansion of town home and condominium construction as builders put more housing on increasingly scarce developable land, according to industry economists. The county's home building resurgence is largely a result of more builders' catching up with demand after running out of homes to sell in the past couple of years."

"Another boost is the release of more land blocked by the endangered California tiger salamander. Federal officials last year approved a plan by builders, environmentalists and government agencies to set aside large areas of central Sonoma County for salamander habitat, to be largely paid for by residential and commercial construction."

Phew... glad they got that taken care of. They're not making any more land you know.

"Builders, though, don't anticipate a flood of new housing given city growth control ordinances and urban growth boundaries that have shaped the county's development for more than a decade. Still, the projects planned will give a significant boost to the supply of new homes in a county where resale housing has increasingly met buyer demand."

I agree with the part about the projects planned giving a significant boost to the supply of homes for sale... they will add to the number already hanging around on the market. I am not sure if the author just felt better adding that gratuitous demand statement, but since the unsold supply has grown and sales have dropped by BIG % in most of the county, it begs the question... Donde Esta the demand?

"Ryder Homes is completing its Vintana development in Windsor, which it began seven years ago, and will start construction this fall on Avila Ranch in Petaluma. Already this year, Ryder completed the final homes in its Main Street infill home development in Cotati."

"Phil Trowbridge plans to start construction this year on the 94-home Kawana Springs project in southeast Santa Rosa as the developer enters the final phase at Vintage Greens in Windsor. That subdivision opened five years ago and 100 more homes are planned there this year."We've been selling about four a week. That's very good," he said."

hmmm somehow these numbers aren't really showing up in the homes sold reports.

"The county's largest builder, Christopherson Homes, is working on six projects this year that will have 446 homes when completed. More than a third of the units will be town homes and live-work units."

"Thiessen Homes was at the forefront of thinking small in Sonoma County when it opened Town Green Village in Windsor four years ago. This year the company expects to near the 200-unit mark of the project's planned 250 condominiums and row houses."

But they don't expect a flood of new housing on the market...

"Town Green Village has gained acclaim for combining residential and commercial units in mostly three-story buildings. It is the model for three other mixed-use projects Thiessen is planning elsewhere in the county."

"Row houses are the latest addition and reflect the efficient land use at the center of the Town Green Village design. Thiessen said he can build very livable row houses with decks and garages off alleys at 25 units per acre, compared with the 5 to 10 houses per acre in a subdivision."

Ah, a home buyer's dream... a row house. By the sound of it they will be close enough together that you can ask your neighbor for a roll of toilet paper and he can probably just hand it right in the window to you. Nice. Very Nice.

"Another goal is building more affordable housing. The two- and three-bedroom row houses sell in the $449,000 to $498,000 range, well below the county's median home price of $556,000."

"Apartments can be the only affordable option for many. Construction of new apartments has slowed in Sonoma County, in part because rents have been flat for several years."

"Residential construction is resurgent across Sonoma County.Economists forecast a 5 percent to 8 percent increase in new home prices statewide."

hmmm... but what do they say about home prices in Sonoma County? Last time I checked, the economists watching the Sonoma County market called it over-valued somewhere between 30% and 50% and predicting price declines. Speaking of overvalued and price corrections... lets look at creative lending in Sonoma County...

"Rising interest rates are cooling the housing market this year, hitting hardest buyers who relied on adjustable-rate loans to stretch financially and get into ever more expensive homes."

Oh NO! Say it isn't so... but what about all those new houses that were so in demand?

"The lending industry has been creative in coming up with loan programs to help buyers stay in expensive housing markets such as Sonoma County. Adjustable-rate mortgages accounted for nearly 70 percent of all new purchase loans in the county last year, compared with 15 percent in 2001."

"Interest-only loans accounted for about half of all home purchase loans last year, compared with 2 percent in 2001, according to LoanPerformance, a mortgage information company."

'"Now it's getting harder to qualify buyers. We had to figure out a way to get them into that property," said Joan Picard, senior loan officer for Cal-Bay Mortgage in Santa Rosa and president of the Redwood Empire Mortgage Lenders Association.'

"Most popular have been interest-only loans featuring lower, adjustable rates that are fixed for an initial period, often 3 or 5 years. Buyers get lower monthly payments and count on rising home values to build equity rather than paying down mortgages. Before the interest rates become adjustable, they plan to sell or refinance into a longer-term loan with a better, fixed rate. But those initial rates are no longer a great deal."

"A year ago, such an interest-only loan would feature rates 1.5 to 2 percent under that for a 30-year, fixed-rate loan. That spread has disappeared. Buyers could find it increasingly difficult to qualify for a loan with a rate in the low 6 percent range, compared with rates in the low 5 percent range a year ago."

"Federal money managers have been raising short-term interest rates to keep inflation in check. Lenders report a resurgent refinance market as more homeowners get out of various adjustable-rate mortgages to lock in today's rates long term."

"While there has been a slowing in purchase lending, Martinez said it's not dramatic. To help more people get into homes, Redwood Credit Union is offering two new adjustable-rate mortgages promoted by the credit union industry. One resets the interest rate every two years. Another is fixed for three years at 1 percent below the national rate for similar loans."

"Loans offering monthly payment options have soared in popularity in the past year when buyers faced double-digit annual home price increases. The main attraction is a minimum payment option that doesn't even cover the monthly interest due, also known as negative amortization. This loan's other options range from interest-only and 30-year principal and interest payments to a 15-year principal and interest payment. But buyers must be comfortable with a loan, particularly if they are making minimum or interest-only payments or face sticker shock when interest rates rise, lenders said."

"Does the buyer fully understand the loan they're getting? That's my job," Picard said.

The latest addition to the menu of loan choices is the 40-year loan. It reduces monthly payments by amortizing a loan over an even longer period than the traditional 30-year loan."The 40-year loan reduces their short-term monthly payments. The benefit over interest-only loans is that it enables the borrower to pay down principle, avoiding deferred interest," said Scott Sheldon, a mortgage advisor with Financial Company of America.

Are they really pimping these mortgages in this article? For a reality check and to avoid the temptation to become another housing bubble casualty see the Expert.

The truth about the 40 yr. mortgage

Just a snippet for you:

$400,000 at 5% 30yr fix = $2147.28 . . .total pmt = $773,023
$400,000 at 5% 40yr fix = $1928.78 . . total pmt = $925,817
$400,000 at 5% 100yr fix = $1678.09 total pmt = $2,013,709

$400,000 at 6% 30yr fix = $2398.20 . .total pmt = $863,352
$400,000 at 6% 40yr fix = $2200.85 . .total pmt = $1,056,408
$400,000 at 6% 100yr fix = $2005.04 .total pmt = $2,406,048

$400,000 at 7% 30yr fix = $2661.21 . . .total pmt = $958,035
$400,000 at 7% 40yr fix = $2485.72 . . .total pmt = $1,193145
$400,000 at 7% 100yr fix = $2335.50 . total pmt = $2,802,600

"Whew, lots of things we can learn from these numbers."

Check out these ARMs or perhaps ARM adjustments...

Or maybe with all those new jobs in Sonoma County we won't have to worry about those 70% of buyers who used ARMs last year to finance a house. Maybe rising salaries will compensate and there will be a soft landing after all? Lets read the Press Democrat news and find out....

"Jobs are much easier to come by now than they were two or three years ago. But with little job growth in wealthy sectors of the economy such as high-tech manufacturing, workers are having a hard time finding salaries that match what they made during the dot-com boom years. Instead, many workers previously employed by high-tech companies have switched to careers in health care, hospitality or retail, which are stable but not nearly as well-paying."

"As the North Bay economy continues to muddle through a sluggish recovery from the high-tech recession, employees have yet to see any significant increase in wages -- and they likely won't in the coming year."

"You would see maybe good job growth, but not as strong wage growth, because those are historically lower-paid sectors that are growing," said Jean Ross, executive director of the California Budget Project, a Sacramento advocacy group for poor and middle-income families.

"I think we're looking at probably a modest year in terms of the overall health of the economy, which likely translates into a modest year for wages. And I would probably say I see more downside risk than upside risk at this point."

Downside risk? Not a good sign.

"Adjusted for inflation, per capita wages will increase 1.9 percent in 2006, after an estimated drop of 2.6 percent last year, according to research by the Center for Regional Economic Analysis at Sonoma State University."

"The per capita income in Sonoma County last year was about $37,384, down slightly from the previous year and less than $1,000 higher than 2000, according to the Sonoma State report."

No wonder people can't afford the home prices. So why were prices rising when wages were falling? Oh, right... I remember, because those thoughtful mortgage brokers just had to do something to get these poor people (and I mean that literally) into a house. Thank goodness they had risky mortgage products to serve the need of 70% of the buyers last year, or those homes would still be sitting there on the MLS. What do-gooders!

"In 2006, economists are estimating per capita wages to rise to $39,247."

Yippee... that extra 2k a year is going to come in handy when the ARM adjusts.

"In the boom years of the late 1990s wages were growing more than 3.5 percent every year, and in 2000 they climbed 8.2 percent. But when the dot-com bubble burst, wages began a decline and have only recently started to recover again."

"Obviously, high-tech jobs are important. But you have to look at the mix of jobs," said Nari Rhee, a doctoral student and wage analyst at UC Berkeley. "We need to look at the service jobs there and make sure that people who have those jobs can afford to live here. It's important to look at attracting high-wage jobs in dynamic industries, but you have to look at what we've got to work with and improve what we have."

"Analysts aren't optimistic that wages will see much improvement in the coming year, especially with employers reluctant to boost pay while the economy is still slow to recover. The high-tech sector is still doling out layoffs, and the jobs replacing those lost often don't pay as well."

"Job counselors throughout Sonoma County said they deal with many clients who could find work -- but are unemployed because they can't find a job that pays the salary needed to support the lifestyle they're accustomed to."

'"We have some candidates who cannot be placed because their pay rates are too high," said Tara Kellett, a staffing manager at Professional Staffing Resources in Santa Rosa.'

"Some people just cannot live on a $12-an-hour salary, and that's getting your foot in the door at a lot of places."

"Martin Bennett, executive director of New Economy, Working Solutions, a Sonoma County advocacy group that deals with labor and employment issues, said even with the local economy a year out of recession, he still regularly sees former high-tech workers who are re-training for jobs in fields that pay less than half of what they made at the height of the dot-com boom."

"The shrinking jobs, particularly in manufacturing, paid significantly more than the new jobs being created, specifically in the service sector," Bennett said. "I see more and more folks that were laid off from what I think are good manufacturing jobs in the high-tech sector, and they're going into nursing and all sorts of unrelated fields, and these are jobs that pay $15 to $20 an hour."

"It's a problem the county has been dealing with for five years, since the economy dropped into recession. But economists had hoped that wages would have started climbing again by now."

"Sonoma State economist Robert Eyler said it's somewhat distressing that wages aren't keeping up with job growth. Such stagnation can only go on for so long before it starts affecting people's spending habits, Eyler said, noting that he's forecasting only marginal increases in retail sales over the next year as wages remain stubbornly low."

Somewhat distressing?

"Especially when taken into account alongside increasing energy prices and what could be a faltering housing market, wages could have a significant impact on the health of the overall economy."

You think? But those low wages didn't stop them from getting mortgages...

"What's driving them (retail sales) if personal incomes are pretty much flat and jobs are pretty flat and interest rates are rising?"

Eyler said. "People are eating their wealth to continue consuming."

I think he meant they are refinancing their houses and taking out HELOCs to keep that lifestyle they are accustomed to living... what do you think?
Remember this from the previous Sonoma article?
"With appreciation slowing, foreclosure activity is on the rise because households facing financial trouble may have more difficulty selling homes.The number of default notices sent by lenders to California homeowners increased more than 15 percent at the end of last year compared with a year earlier. The number of foreclosure notices in Sonoma County increased 32 percent, according to DataQuick Information Systems."
But don't worry, you can get a second job...

"Steve Cuevas was working for Catholic Charities last June when he got a phone call about a new job on a Thursday, went in for an interview the next day, and by Monday had an offer."

"From his perspective, the job market's looking pretty bright."If you really want a job, you're going to find one, even if you have to start out with low pay," said Cuevas, who makes about $13 an hour as an outreach worker at Southwest Community Health Center and still works weekends for Catholic Charities."

"North Bay employment analysts say Cuevas' experience is typical in the current job market, where relatively low-paying positions are dominating job growth and keeping unemployment below 4.5 percent, well below the national average of 5 percent."

'Robert Eyler, director of the SSU economic center said,"The wine industry has no incentive to see any major increases. Tourism is the same."'

"Banking and real estate are going to, in fact, lose jobs this year, I would say." (Eyler)
"Forecasts for the construction industry are a mixed bag. Eyler's report points to an expected drop in housing prices that could lead to a significant loss of jobs in construction and the real estate industry as a whole."

"With local high-tech employers still doling out layoffs late last year, job analysts said they don't expect much growth in 2006 as companies continue to stabilize."There still are some high-tech layoffs," said Young."

"Job growth has, in fact, been unimpressive -- Sonoma County added only 1,000 jobs in 2005, according to a report from the Center for Regional Economic Analysis at Sonoma State University."

"The county lost 800 manufacturing jobs over the 12-month period ending in November, mostly in high-tech, according to the state Employment Development Department."

Monday, March 27, 2006

Don't Count on Your Equity...

...It's just paper

"When talk turns to housing bubbles, remember: We don't live in one big homogenous area, but many little communities."

"It's very uneven," says Nicolas Retsinas, director of the Joint Center for Housing Studies at Harvard University.

"Nationally, home prices nominally haven't fallen in 50 years. That doesn't mean they won't fall in a particular area. Don't be swayed by the national number. Look at what's happening in your area."

Unlike other investments, your house is more than just a place to let your money grow.

Someone buying a home "primarily for investment purposes in 2006 may be disappointed," says Retsinas.

"Housing prices are going to do what they're going to do," says Eric Tyson, author of "Mind Over Money: Your Path to Wealth and Happiness."

"It doesn't matter. It shouldn't make or break your ability to do things, unless you were counting on that equity to do something. It's really a paper thing."

"An investment home is a totally different proposition. This time, you want to look strictly at the dollars and cents. Can you afford to make the loan payments if rates increase? Do you have fixed-rate financing or will you have to try to predict how rate increases could affect your payments?"

"How long have you had the house? Can you make the payments comfortably or are you stretched to the max? Were you able to get a conventional loan or a product that could leave you vulnerable if the value of the property decreases?

Do you have a lot of equity to act as a cushion against possible decreases in value? Can you afford to keep making payments if the house stands empty for a few months or if a tenant gets behind on rent?"

"Investor-prospectors are the ones that will be more susceptible to a drop," says Retsinas.

Guttentag agrees that devaluated home prices could be a real problem for speculators, especially if they are financing a large portion of the purchase price with an adjustable-rate mortgage or an interest-only loan and counting on turning the property fairly quickly. "They're the ones who are going to get hurt, and the lenders who financed them are going to be hurt," he says.

"The more leveraged you are, the worse your position," says Mike Schenk, vice president of economics and statistics for the Credit Union National Association.

'Ric Edelman, a financial planner and author of "The Truth About Money," agrees. "A bubble is irrelevant unless you're selling," he says. "If you can make the monthly payment, who cares what the house is worth?"'

"He compares the situation to owning a car, which almost always goes down in value. But you don't buy it as an investment. Instead, you keep it "because you can afford it, and it's serving," he says."

"Can you afford your mortgage payments? If you're barely making it now and might have trouble if rates went up, you might simply want to refinance to a fixed rate. You may also want to rethink your mortgage if you've got an interest-only or reverse-amortization loan.

Your ability to ride out a bursting bubble or a bad economy "has to do with the mortgage product you're carrying," says Retsinas.'

"With a fixed-rate mortgage, you have some insulation from interest rate increases."

"Recent estimates put one-quarter of all mortgages underwritten last year in the subprime, or riskiest, category. That’s well above the 13 percent average share for the decade through 2005. One in 10 homeowners has zero-to-negative home equity.”

“Mortgage delinquencies ended last year at 4.55 percent, an 18-month high. And subprime delinquencies are pushing 12 percent. Despite historically low borrowing costs, households spent a record amount of after-tax income at year-end to pay required principal and interest payments. In the next two years, about a quarter of all outstanding mortgages, or more than $2 trillion worth, will reset at higher rates."

"Garth Turner thinks that is significant. “The real estate boom is over. You may or may not like that news, but it is now official. I am calling the eight-year-long housing lovefest, finito. Done like dinner. Toast."'

"If you bought when market prices were the highest, leveraged every cent to get into the house, have only been there a short time, and prices are headed south, then you're much more vulnerable. If you have to sell, you may not get what you owe."

"With the cost of a sale, transfer tax, moving expenses, borrowing 90 percent could mean you end up walking away with nothing in your pocket."

"Equity provides a cushion if your home goes down in value. If you bought at $200,000, you've been living in it for a number of years, and it's now worth $300,000 on paper, you've got a little breathing room."

"Are you banking on making money from equity or rent? And if the numbers no longer work, what's your exit strategy?"

Sunday, March 26, 2006

Sliding Sales for Sonoma

Recent Home Sales
(Sonoma Valley)

Week ending:
Sunday, March 26, 2006 = 6
Sunday, March 27, 2005 = 9

Down 33%

350 East Watmaugh Road
$1,400,000, 3 bdrms, 3598 sq. ft., 1986

19165 Junipero Serra Drive
$575,000, 2 bdrms, 1408 sq. ft., 1983

400 Schuman Court
$697,000, 4 bdrms, 2154 sq. ft., 1980

46 Sunnyside Avenue
$455,000, 2 bdrms, 923 sq. ft., 1949

53 Vineyard Circle
$365,000, 2 bdrms, 1320 sq. ft., 1974

759 West Spain Street
$416,000, 2 bdrms, 989 sq. ft., 1980

New Price Reductions: (newly added to the reduced listings)

17350 MALLARD DR, Sonoma, CA 95476
Price Reduced: 03/24/06 -- $1,439,000 to $1,399,000
Days on Market: 23
Total Reduction: $40k

Zillow sez: $995,614
Value Range: $856,228 - $1,085,219
97 value $370k
No Sale History Available
Tax $5,705
Tax Value $521,822

492 LA QUINTA LN, Sonoma, CA 95476
Price Reduced: 03/21/06 -- $649,000 to $629,000
Days on Market: 33
Total Reduction: $20k

Zillow sez: (wow is Zillow ever off by MILES on this one)
ummm...zillow sez this is a know, the things that had a big fat 0 for sales last month? If people are believing this valuation, I think I found the problem.
Value Range: $706,751 - $895,766
97 value $290k
Sale History
07/08/2002: $439,000
Tax $5,527
Tax Value $456,152

402 VERANO AVE, Sonoma, CA 95476
Price Reduced: 03/20/06 -- $585,000 to $570,000
Days on Market: 52
Total Reduction: $15k

Zillow sez: $610,886
Value Range: $525,362 - $665,866
Sales History
07/03/1997: $153,000
Tax $2,469
Tax value $175,266

315 BAINES AVE, Sonoma, CA 95476
Price Reduced: 03/15/06 -- $519,000 to $495,000
Days on Market: 57 (this house has been on the market much longer than this. An obvious relisting. This is a manufactured home that has the look of a double wide mobile home and they still want round about a half a million dollars.)

zillow sez: $478,829
Value Range: $411,793 - $521,924
Sale History
06/15/1999: $179,000
03/26/1999: $130,000
01/23/1996: $112,000

(now this is probably more appropriate pricing)
Tax $2,749
Tax value $201,323

16799 ESTRELLA DR, Sonoma, CA 95476
Price Reduced: 03/14/06 -- $1,095,000 to $1,049,000
Days on Market: 61 (I am pretty sure this is a re-list as well. I could have sworn this house was for sale back on Halloween and we were trick or treating and discussing why they thought their tract home should sell for over a million dollars? we all agreed that it was probably because they thought people think they should pay a million dollars if there are grape vines nearby.)
Total Reduction: $46k

zillow sez: $905,349
Value Range: $778,600 - $986,830
No Sale History Available
97 value $200k
Tax $3,582
Tax value $272,308

18681 MANZANITA RD, Sonoma, CA 95476
Price Reduced: 03/16/06 -- $499,000 to $449,000
Days on Market: 192
Total Reduction: $50k

zillow sez: $503,776
Value Range: $433,247 - $549,116
97 value $96k
No Sale History Available
Tax $1,645
Tax value $98,607

and now presenting... the only property in Sonoma priced under $300k. It is a condo, and of course it has been sitting and languishing on the market for 248 days and even priced just above 300k it wasn't selling. hmmm... something tells me this market must be changing. Ya think?

132 W AGUA CALIENTE RD, Sonoma, CA 95476
Price Reduced: 03/21/06 -- $309,500 to $299,900
Days on Market: 284
Total Reduction: $9,600 Did you see this...? On the market for 284 days and it only warrants a reduction amounting to less than 10k? oh brother....

zillow sez: (zillow hasn't caught on to the changing market yet) $311,416
Value Range: $267,818 - $339,443
Sale History
05/01/1996: $70,000
Tax $1,511
Tax value $79,038

Sonoma County MLS listings: 1766

Sonoma Valley MLS listings: 238
(gmac mls)

Ready, Set, Grab Your Magic 8 Ball

"With all the economic reports that the government and private agencies produce, sometimes it seems a Magic 8 Ball would do just as good a job in helping investors predict the Federal Reserve's next move."

"Just take the data seen over the past few weeks in the housing sector, which is particularly rate-sensitive. Overall home prices are up and existing home sales are strong, yet sales of new homes are substantially lower."

Actually, the national median is down a bit... currently it is $209,000 down from $220,000 in August 2005. In the west it’s $306,000, down from $327,000 last August. The northeast had an increase though and was at a high of $263,000 from $250,000 this month last year. Not only was the median price in the west down, sales were also down by 10.6% over all for the region. That didn't stop headlines making silly claims about sales surging though...

"Sales of existing homes surged surprisingly in February after falling for five months in a row, the National Association of Realtors reported."

"Sales climbed 5.2 percent last month, to an annual pace of 6.91 million homes, after falling 8.9 percent in the prior five months."

The NAR loves to release statistics, but since they switch data more often than they change clothes their data is nothing if not highly suspect. First of all, 5.2% did not portend an increase in demand, sales were simply up 5.2% over the previous month- and the previous month was the 4th month in a row of declining sales.

NAR had a pattern of using YOY numbers but now that it no longer suits their goal of keeping the housing market afloat on a great big lie enticing bigger fools into the market... they have switched to monthly comparisons and proclaim a 5% increase in sales... um... that was 5% higher than the month they just restated DOWNWARD which was already down month over month for 4 months.

There are 700,000 more houses for sale than a year ago, and prices have been falling for months. What also is rising like a foul odor from the NAR data is they are now using monthly comparisons for the very months they described as notoriously unreliable. Better get your hip waders and shovels, the chit is getting deep.

In the West, existing-home sales increased 5.1 percent from January's number that turned out to be lower than stated upon close inspection, but sales were actually 10.6 percent below February 2005.

Everything that was stated in the articles about the recent sales points to a drop in demand. There may still be some sales, but only because some sellers are reducing their prices and some may think they are getting a better deal than they are, but there has not been an increase in demand.

"Sales of new U.S. homes plunged 10.5 percent in February, the biggest drop in nearly nine years, while prices fell and the number of homes on the market hit a record high, the government said on Friday in a report signaling significant slowing in the housing market."

"While sales slowed, supply surged. The number of new homes available for sale climbed to a record 548,000 by the end of the month. At the current sales pace, that represents 6.3 months' supply -- the largest inventory of new homes since January 1996, the government report showed."

"The slowdown was driven by weak buying in the U.S. West and South -- regions that have posted some of the biggest gains in home prices over the five-year rally in the housing sector. Sales fell 29.4 percent in the West, the sharpest decline in more than 24 years. Sales in the South fell 6.4 percent, the report said."

"The new home market looks like it is starting to stagger," said Joel Naroff, chief economist at Naroff Economic Advisers, a Pennsylvania forecasting firm. "Bubbles do burst, they really do."

"Analysts believe that the growing backlog of unsold homes will add to downward pressure on prices in the months ahead."

"The housing market is fading fast and the prospect is it will weaken further as rates move higher," said Mark Zandi, chief economist at Moody's

Meanwhile houses may have been bought and sold in record numbers in recent years, but home ownership in California is still one of the lowest in the country.

"California has a 57 percent homeownership rate -- the second lowest behind New York -- lags far behind the national average of nearly 70 percent. In the 1950s and 1960s, California's homeownership rate was equal to the United States' as a whole."

"We may be producing some of America's best college graduates, but we're exporting them to states where owning a home is more than just a fantasy," said Alan Nevin, chief economist at the California Building Industry Association in Sacramento.

In Sonoma County

"A year ago, the county's housing market was hot with bidding battles that pushed prices to new highs, reaching $619,000 in August.Then rising mortgage rates and already sinking affordability triggered a slowdown.Prices have flattened. Sales so far this year have dropped off more than expected."

"Buyers face fewer bidding battles and can negotiate price cuts and other concessions. But they still face near-record prices and rising interest rates, which are driving up monthly mortgage payments. Sales could fall as much as 8 percent or more this year, analysts and economists forecast."

The reporter actually claims that prices are still expected to rise though... just not in the double digits like recent years. We will see...

"Inventories have built back to a four- to five-month supply of homes for sale for the first time since 1997."

The reporter claims this is a balanced market- due to the inventory numbers, and quotes his local real estate industry sources to back up such claims. I challenge that it will be a balanced market when the prices are closer to those in 1997. This reporter quoted real estate industry people and the clients they represent for this entire article (I use the term article loosely)

"Slowing price gains also have buyers more cautious about stretching their finances to get into a home. In the past, they could count on soaring prices to build up equity. But increasingly, they should prepare to pay down their mortgages to build the value of their investment.For their part, sellers must price more competitively or risk having homes languish on the market. Sellers also must be ready to negotiate over repairs, closing costs and other concessions."

"Things have softened a little. There's more competition," said Chuck Begun, who listed his Santa Rosa home for sale more than two months ago.

"Affordability has long been a hurdle to homeownership in Sonoma County and the Bay Area. With the run-up in home prices, only 7 to 10 percent of county households are able to afford the median home price here, according to the latest studies.The combination of high prices and rising interest rates has pushed buyers out of the market."

"With appreciation slowing, foreclosure activity is on the rise because households facing financial trouble may have more difficulty selling homes.The number of default notices sent by lenders to California homeowners increased more than 15 percent at the end of last year compared with a year earlier. The number of foreclosure notices in Sonoma County increased 32 percent, according to DataQuick Information Systems."

Thursday, March 23, 2006

Fraud Files II

The Sun News
"An investigation by the S.C. Manufactured Housing Board's staff has led to charges that three Grand Strand home sellers violated state laws by including fraudulent information on loan applications to help buyers get mortgages for which they otherwise might not have qualified."

"The investigation led to charges that the home sellers falsified down payments and misrepresented financial information on loan documents for two buyers of homes in the Laurel Woods subdivision off S.C. 707 in the Burgess community."

"The housing board's staff investigation was prompted by The Sun News' ongoing investigation of mortgage fraud allegations in this area's manufactured home industry, according to housing board documents."

"Including false information on loan documents violates state and federal bank fraud and mail fraud laws, which carry penalties of up to 20 years in prison and a $250,000 fine for each occurrence."

"Charges stem from home sales in 2004 to buyers Ed and Hanna Hudzik and Bill and Susan Watts."

"Both couples bought from Beach Homes, which used to be on S.C. 707 across from Laurel Woods. Conner closed the location last year and has been operating the business from his home, according to the housing board."

"The housing board's staff investigation says Conner and Roy deposited $30,000 into the Hudziks' bank account, thus making it appear to a mortgage company that the Hudziks had enough money for a down payment and other loan fees."

"The staff investigation also says Conner and Curtiss deposited $6,500 into the Wattses' bank account for the same purpose."

"In both cases, the board's staff said in the complaints, Conner and his salesmen created false "gift letters" that claimed the money deposited into the bank accounts was from a relative or friend of the buyers."

"Beach Homes reclaimed the $30,000 and $6,500 deposits days after they were made by cashing personal checks the Hudziks and Wattses had written to the manufactured home dealer, according to the complaints."

"Money from those deposits was reflected on loan settlement statements required by the federal government, according to the complaints."

"The Hudziks say they did not make a down payment on their home, which they purchased for $120,000. The Wattses say they made a $500 down payment on their home, which they purchased for $100,000."

"In addition, the housing board's staff investigation says the Wattses signed a promissory note in the amount of $15,000 to New Century Ventures - which owned the house - as part of the transaction for the home, which was sold through the Beach Homes dealership. That promissory note "purportedly was satisfied on July 28, 2005," according to the complaint."

"The Wattses say they never made and were not asked to make payments on the promissory note. The housing board's staff, in its complaint, also says Conner failed to transfer the titles for the manufactured homes from the sellers to the buyers."

"After the Watts [sic] closed on the manufactured home, they were informed by Horry County that the home was still in the name of the previous owners, and that there were delinquent taxes and delinquent water and sewer bills," the board's complaint states.

"Horry County property records show the Hudziks' manufactured home still is titled to previous owners George and Tessa Magyar. The Wattses say they have lost their home to foreclosure. They recently moved to Granite Falls, N.C."

"The Hudziks say they have not made a house payment since April, when they learned the home was not titled in their name. The Hudziks say their mortgage company has threatened to foreclose but problems with the home's title have delayed legal action."

The Kansas City Star

"More first-time and lower-income homebuyers are losing the American dream to foreclosures on the courthouse steps."

"The warning signs are everywhere:
■ The Mortgage Bankers Association reports that the number of home-loan delinquencies nationwide in the last quarter of 2005 grew to a 2½-year high.
■ The association also noted a growing inventory of foreclosed homes, suggesting that banks are getting stuck with repossessed homes they can’t resell.
■ recently reported that the total number of foreclosures listed for sale in December rose 12.7 percent, reversing a recent trend of declining foreclosures. The online foreclosure-tracking firm estimated that about 92,000 foreclosed homes were on the U.S. market."

"Myra Batchelder, who heads the economic opportunity program at Demos, a New York think-tank on consumer issues, sees an ominous future for many Americans."

“The recent jump in foreclosures is a sign of a much larger problem: The American household economy is at a breaking point,” Batchelder said.

"She noted that Americans have withdrawn about $500 billion in home equity since 2001, often to pay credit card debts and medical bills. Indeed, consumers responding to low-interest rates and flexible terms expanded their total mortgage debt by $2 trillion in 2004 and 2005 alone."

"■ Mortgage indebtedness grew by $2 trillion in 2004 and 2005 alone.
■ Subprime lending grew 25 percent annually from 1994 to 2003, accounting for one of 10 home loans.
■ Qualifying debt-to-income ratios for subprime loans have risen from 28 percent to more than 55 percent.
■ U.S. average 30-day past due rates for subprime loans rose from 5.4 percent to 7.1 percent in 2005."

"Real estate experts in Kansas City and nationwide say they are seeing a trend in which homeowners — often using adjustable-rate mortgages — have been unable to keep up with fast-rising interest rates, forcing them to balance higher monthly payments against already soaring energy costs and living expenses."

"Last year, foreclosures rose 25 percent, according to RealtyTrac of California. Nationally, bank regulators worry that mortgage delinquencies and resulting foreclosures will continue to increase this year."

“Rising mortgage delinquencies in 2005 apparently mark the end of a period of generally improving mortgage loan performance between 2002 and 2005,” said Richard A. Brown, chief economist for the Federal Deposit Insurance Corp., which insures banks.

"According to FDIC statistics, the average 30-day past-due rate for subprime mortgages — those made to borrowers with limited or less than perfect credit — rose from 5.4 percent at the beginning of 2005 to 7.1 percent at year’s end, reversing an eight-year decline."

"Making matters worse, experts say a cooling real estate market makes it less likely that financially strapped consumers can count on rising home values and equity to bail them out."

“Many people are living on the razor’s edge,” said Kansas City mortgage attorney Berry S. Laws III. “When their interest rates go up, they automatically have to pay more for the mortgage. People are betting their homes will appreciate, but if the value of their homes flattens out, they face a deficit.”

'Now, unable to make house payments and having cashed out their equity, many consumers have seen their retirement nest eggs vanish. Some families, Batchelder said, “are losing everything.”'

"Some experts say lenders only have themselves to blame for the increase in foreclosures. Lulled by appreciating values and the lowest interest rates in a generation, they made riskier loans. Loans to subprime borrowers increased from $35 billion to about $332 billion between 1994 and 2003, according to one study."

"Researchers also blame delinquencies and foreclosures on predatory tactics by aggressive lenders, who offer low rates initially but hide other costs from consumers, such as balloon payments and prepayment penalties."

"A recent study by the Kenan Institute for Private Enterprise at the University of North Carolina at Chapel Hill found that a predatory loan can increase the chances of a foreclosure by as much as 50 percent."

Lenders faulted

"The lure for many Americans has been creative adjustable-rate mortgage plans that have made it all-too-easy for some people to buy homes that were too expensive for them. Many loans begin with low, teaser rates or only charge interest. But interest and payments increase over time."

"Scelloquzle E. France, 83, lost her Kansas City home this past week. France and her husband had bought the house in 1960. After he died, she refinanced in 2002 to pay off family debts. Late last year, however, she no longer could make the monthly payments, which had risen from an affordable $500 to an out-of-reach $900."

"Though her house was appraised for more than $110,000, she couldn’t sell it for that amount. In fact, her loan raised her total debt beyond the value of her house. Now she lives in a nursing home and is on state aid."

"Her experience is not unusual. Local housing experts are seeing many new foreclosures on loans less than two or three years old."

“Many of these are like brand new home loans being foreclosed on,” real estate investor Lorrie Robison said, while attending a recent foreclosure sale at the Jackson County Courthouse.

"Robison and others who track home sales locally say people get in financial trouble for many unexpected reasons: A spouse dies or a couple divorces, and the person who ends up with the house can’t make the payments. In other cases, people suffer a job loss."

"But they say consumers also lose their homes for preventable reasons. They refinance loans and take out equity to pay off high-cost debts, but don’t limit their spending."

“They don’t correct their spending behavior, and jump right back into credit cards,” said Bruce Morgan, chairman, president and CEO of Valley State Bank.

"A decade ago, few lenders would have accepted a borrower whose monthly debts amounted to more than 28 percent of their monthly income. But in the last two years, many lenders allowed debt-to-income ratios to climb as high as 60 percent."

"As a result, troubled loans exceeded expectations. Now, the FDIC says, the number of delinquencies has grown and spread to financial institutions on the secondary mortgage market, such as Fannie Mae and Freddie Mac."

"Kansas City housing experts say that mortgage fraud and inflated appraisals also can lead to foreclosures on homes valued far more than they were worth."

"But even as lenders clamp down, some experts are predicting that the bankruptcy reform law that was adopted last year threatens to fuel an additional round of foreclosures."

"In the past, consumers who couldn’t pay their debts could go to a bankruptcy lawyer and immediately stop a foreclosure and at least keep a portion of their home’s value.
Not anymore, said Laws, the Kansas City mortgage attorney."

If homeowners can’t make house payments during the 180-day period before being approved to file for bankruptcy, Laws predicted, “they won’t be able to save their house. It’s a mess.”

Advice for FBs

"■ If you’re having trouble paying bills, always pay your mortgage first.
Make sure you can afford the payments on a home before you buy it.
Keep a budget that takes into account all of your monthly expenses.
Avoid borrowing large sums from your home’s equity.
Don’t run up huge credit card and other high-interest debts.
Stick with a conventional loan from an established lender."

Morning News

"The FBI is warning Pee Dee Realtors and consumers to be wary of mortgage fraud. South Carolina has the second highest incidence of mortgage fraud in the nation, according to FBI Special Agent in Charge Brian Lamkin."

“It is a really big problem,” Lamkin said. “The impact on the financial institutions is one thing, but it has a huge impact on the community.”

"Lamkin said unscrupulous mortgage brokers can end up driving up the cost of housing in an area, then cause a slump in the market when fraudulent loans are defaulted."

"Lamkin said often home buyers will be conned into going along with a mortgage broker in falsifying their financial statements. They’ll inflate their reported salary, or a devious home appraiser will inflate the price of the home."

"Jean Leatherman, president of the Realtors Association, said there have been several cases of mortgage fraud in Florence in which no monthly payment was ever made by the home buyer.
“It takes 12 to 18 months for a foreclosure to go through, and you’ll have someone get into a house with no intentions of making the first month’s payment,” Leatherman said."

"Lamkin said home buyers are often “backed into a mortgage,” a situation where the mortgage broker will find out what the criteria to buy a particular home is, then falsify a buyer’s application to fit that criteria. Then the buyer can’t afford to make the payments, and foreclosure results."

Wednesday, March 22, 2006

Bubble Tracker's Got the Goods

Lets all do the new dance... "The Mortgage Slide" over at BubbleTracker's place.

If you think that a world without charts and graphs would be too terrible to contemplate, you can get your fix with these guys.

The latest graph shows that the MBA Purchase Index has been sliding steeply for the last 2 quarters.

OMG! What does this data mean? Could it be a harbinger of things to come?

Is it enough that inventory of unsold houses have soared?
Is it enough that clear and present mortgage/appraisal fraud and abuse exists?
Is it enough that prices have risen well above wage increases and affordability?
Is it enough that we have numbers telling us of the massive number of people in debt, and the massive number of people who cannot afford to buy a house?
Is it now enough that we have evidence that indeed many people are now not getting mortgages?

Can we interpret real data as a marker of broader trends?

Sugar Coating Sonoma County

"Sonoma County home sales hit a five-year low for the month of February while the number of houses on the market reached a nine-year high, the latest evidence the local real estate market is slowing."

"February sales were down 13 percent from a year ago, sinking to the lowest total for the month since 2001, when the economy was heading into a recession."

"Brokers say the market is going through a transition after an unprecedented run of rapid sales and double-digit price gains. "It's way off from last year. This is getting more toward a normal market," said Sandy Geary, broker and owner of Remax North Bay Realty in Rohnert Park."

ummm... a normal market looks like what happens when the economy goes into a recession? If sales are down to the levels that haven't been seen since the economy was circling the bowl... Is it really intelligent to say recession type numbers are representative of a "normal market?"

"The inventory of homes for sale has soared."

"There was a 4.4-month supply of homes on the market in February, more than twice as much as a year ago and the highest since 1997, when it was 4.6 months."

Now take into account that not only is there a 4.4 month supply of homes on the market, but they also are staying on the market longer. 90+ days at last count. So what exactly is selling then?

In fact, days on the market averages 92 days for the County.

Guerneville has the highest with 131 days

Cloverdale comes in 2nd with 104 days

Windsor = 103 days

Sonoma = 99 days

Sebastopol = 96 days

Forestville = 92 days

Santa Rosa = 90 days

Rohnert Park = 85 days

Healdsburg = 86 days

Petaluma = 70 days

"February's median resale price was $556,000. While down significantly from $619,000 in January, the median price has swung up and down over the past six months."

"Experts said light sales volume in February allowed a relatively large number of transactions at the lower end of the market to pull down the median price."

Help me out here. Anyone else see a contradiction here? So what happened? Was there light sales volume or a relatively large number of transactions. Get real now... it can't be both.

"The decline may not reflect broader trends in the market, which will become more visible when sales activity grows this spring."

Or it just may be reflective of a broader need to keep on with the sugar coating. Face it. Interest rates have risen... while they still may be at an historical low compared to 16% interest rates, we are talking about a county where less than 7% of the HOUSEHOLDS can afford to buy a median priced home.

We are talking about a county with a service sector economy, that lost many high paying jobs to the and outsourcing and only replaced them with menial worker positions.

We are talking about a county where 69% of buyers LAST year used some version of Interest Only, No Doc, Negative amortization loans... Remember, they had to use risky products and shoehorn themselves into houses because they could not afford them in the first place?

Remember? So these numbers MAY actually be reflective of a broader trend, because you should be asking yourself... who are your buyers now that you priced out your population?

"The market is moving in fits and starts. It hasn't really settled down and people haven't figured out what to do," said Rick Laws, Santa Rosa manager for Coldwell Banker, which prepares the monthly Press Democrat home sales report.

"Buyers looking for homes around the median price, where demand typically is highest, increasingly are concerned about paying too much. They also face rising interest rates that make monthly mortgage payments more expensive, said agents and brokers."

"Many sellers, on the other hand, remain reluctant to lower expectations of how much their home might sell for despite intensifying competition and more homes languishing on the market."

"A Windsor seller Geary is representing has attempted to sell the home since November. The price was reduced once and Geary said another reduction could be necessary to get it sold."

"Real estate forecasts called for sales to drop across California and prices to rise 10 percent this year. Record high prices and rising interest rates were expected to push out more buyers."

Oh come on now! How many more buyers can be pushed out? Oh... wait... I know the answer to that one. Somewhere around 7%.

But the market should remain strong barring a recession, economists have said. Another factor is the slowdown has taken hold during winter when sales traditionally are at their lowest. Spring and summer is when the market typically picks up, beginning with the March totals, and that should indicate where the market is heading, analysts said.

Ah, praying for the dead cat bounce I see. Y'all just go on ahead and hold your breath waiting for the market to pick up ok?

A little news about Healdsburg

"Healdsburg is a quintessential Wine Country town that draws a steady stream of wealthy home buyers from the Bay Area looking for weekend retreats - many ready to pay cash."

"A small town's monthly median price can fluctuate widely depending on prices and numbers of homes sold. Healdsburg's home sales tracked the region's record run the past three years. The median price has doubled in just five years to $719,000 through the end of last year."

"Healdsburg, median resale house price was $1.1 million in January - the first time a Sonoma County city topped the million-dollar mark."

"Everything's over a million in Healdsburg, except for the bungalows that are selling for $700,000 or $800,000," said Fred Ehman, owner of Windermere Wine Country Properties, based in Santa Rosa.

Note... "everything" is over a million except for the ones that aren't over a million.

For the love of Pete! If everything is over a million, that means by definition nothing is under a million. Sheesh. Oh right, was this a real estate agent talking? Well, then in that case carry on, of course both statements must be true, they came from a real estate expert. Shhh... no questions.

Eyes front. Eyes front.

"The county's other high-priced cities are Sebastopol, with a $740,000 median, and Sonoma, with a $690,000 median. Petaluma's west side is in the same neighborhood, with a $685,000 median."

"The county's housing market has slowed in recent months from a combination of high prices and rising interest rates, which make mortgages more expensive."

"But the small towns remain a strong draw and the million-dollar market so far appears to be weathering the slowdown, said Rick Laws, Santa Rosa manager for Coldwell Banker. "It shouldn't be too shocking. There's more people that want to be here than there are available properties," he said."

Don't forget, they aren't making any more land you know. Good grief. The operative word in his quote is "appears" as in optical illusion. Maybe he doesn't actually look at the numbers of sales and the rising inventory?

The rest of the article was uninteresting. I use the word article loosely as it really is just the Press Democrat's version of the Infomercial for local Real Estate Agents pimping their properties that aren't selling.

So hey... great idea... do a little piece on the latest and greatest "millionaire haven" in Healdsburg and drum up some of those Jones' and tell them they aren't making any more land... better hurry.

Just for kicks lets take a look at the real sales for Healdsburg.

January 2006 (5 weeks of sales)

Homes sold = 24

Home prices:

300k; 338.5k; 255k; 525k; 430k; 1,300,00; 602k; 265k; 425k; 660k; 725k; 1 million; 1,025,000; 400k; 729.5k; 610k; 495k; 555k; 590k; 638.5k; 775k; 500k; 720k; 1,025,000

Where this claim of million dollar median price is coming from I have no clue... sure doesn't look that way from these numbers. Also... you can see that everything is not over a million dollars in Healdsburg.

February 2006

Homes sold = 10

Median Price: $532k (according to county data) but according to actual sales data it should be $735k

Actual prices: 364k; 532k; 550k; 570k; 700k; 735k; $1,000,000; $1,500,000 $2,295,000; $2,625,000;

ah.. this must be where they got the "everything is a million dollars" from- since there were 4 properties sold in February that were a million or more.

My Zimbio
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