Sonoma Housing Bubble

Pulling the cork out of Sonoma's bubbly housing foolishness

Tuesday, May 30, 2006

Its Different Here... But Is It Different In Napa?

"Napa County's housing market seems to be slowing down, with fewer sales and a slight drop in the value of the median priced home, new statistics reveal."

"The median sale price decreased 5 percent between March and April to $609,000, while the number of units sold plunged 39 percent, according to DataQuick Information Systems."

"However, April's median price remains 6 percent above a year ago and the market managed to set a record high of $641,000 in March, making future predictions difficult, said DataQuick president Marshall Prentice."

'"These are strange times for forecasters and analysts. Are we heading into a market lull? Or are we seeing the beginning of a significant downturn? Many of the fundamentals for housing are at a crossroads: inflation, interest rates, demand, household incomes, prices and whether homes are a good investment compared to other investments. Summer is going to be interesting to say the least," said Prentice."

"Napa Valley Realtors and brokers have an informed perspective on what's happening in county real estate and the market's direction."

"Coldwell Banker Realtor Robin Rose said, "One question everyone is looking at is how much the weather has affected our market. We're about to find out if the rain prolonged our seasonal slowdown."'

"Rose anticipates good choices for clients. "There is very strong demand for property in move-in condition, a good location, and priced reasonably. There are plenty of buyers out there."'

Are there now? 39% drop in sales and there are plenty of buyers? If you say so. You are the expert. Pay no attention to the math.

"ReMax's Jensen noted the current market is "complicated." Whereas the last dip began with homes in the middle ranges, this market is softest in the lower reaches. Jensen said first-time home buyers who worked their way into the market with creative financing have been squeezed as interest rates have risen."

"Overall, though, she says the shift is healthy. Buyers and sellers are no longer in "impulse" mode when it comes to transactions, and are making more rational economic decisions."

"DataQuick reports the "typical" Bay Area buyer has an eye popping $3,048 per month mortgage payment. That tops March's $2,948 figure and the $2,659 payment reported in April 2005."

Those figures don't unnecessarily alarm Mike Bolen of Intero Real Estate Services. Bolen said Napa Valley remains a draw.

But its different in Napa. Everyone wants to live there...

"There's always going to be a demand here for housing that you won't see in other areas. It's one of those areas that has everything great for real estate: location, tight supply, pricing power and demand," Bolen said"

'"We're still at extremely low interest rates. I don't see any cause for panic."'

'"A slight increase in mortgage rates and housing prices means buyers are spending a little more money and becoming more careful about what they are buying," said Rose."

'"Buyers are being more discriminating on every level -- price, amenities, and location. They have the luxury of time and availability of more product to make their decision," said Morgan Lane's Silvas."

"Not only are homeowners taking on higher monthly payments, the days of hosting a "mortgage burning party" seem to be dwindling, said Silvas."

"Different generations have different home ownership goals, she added. "I don't think most buyers today are looking at that as a goal," said Silvas."

What IS the goal then of today's buyer? They actually aspire to spend two to three times the cost to rent the same property just to have the privilege of renting from the bank?

Better hurry up before you are priced out of the new american dream forever! Renting from the bank won't always be this cheap! Prices will rise and soon you will have to pay 4 and 5 times the rental market cost to even get in the game! Hurry I tell you! What are you waiting for??!!

Don't be foolish. No longer is ownership the goal. The real goal is to rent forever and give your realtor and mortgage broker a nice fat reliable income.

Did I not tell you this whole real estate bubble was nothing more than a big fat PYRAMID SCHEME designed to benefit the real estate and lending industries?

Silvas doesn't believe the market is in a bubble. "Baby boomers remain in their peak earning years and stand to inherit a tremendous amount of wealth from their parents over the next decade or two," said Silvas.

OMG! Total hyena!!!

You are Cordially Invited...

The New York Times Blog, The Walk-Through & Calculated Risk invite you to pay attention to information coming from the Office of Federal Housing Enterprise Oversight this Thursday.

"On Thursday, the Office of Federal Housing Enterprise Oversight releases its figures on house appreciation. Think of it as the official scorecard for the real estate game.

Why would you pay attention? As the blog Calculated Risk points out, it could be the first time that we see something very rare — real estate prices falling."

"The US hasn’t seen negative annual home price appreciation since the
Depression, however nationwide annual appreciation was close to zero in the
early ’90s....

1995 Sonoma in the Tank

Thank you MoonValley for taking us back in time and showing us a little glimpse of history. History is on the verge of repeating itself, and you know what they say... Those who refuse to learn from history are doomed to repeat it.

Don't forget to check out the weekend's: Open Mouthed @ Open House

Monday, May 29, 2006

Air Whooshing Out of 2nd Home Market

(Baron's) "The market for second homes could use a second wind. After a long string of double-digit annual price increases, a number of second-home meccas across the country are suddenly suffering from plunging sales volume and burgeoning inventories of unsold homes."

"Though the official figures on sales prices have yet to reflect the current round of cuts, interviews with real- estate pros and others strongly suggest that the averages are deteriorating in a number of key markets."

"IT'S ALL A BIG CHANGE from the seemingly endless rises in prices. For more than a decade, baby boomers have been flocking to the second-homes market and lifting prices, just as they'd earlier lifted the market for primary residences. But first, the market has some correcting to tend to."

"While pundits debate when the bubble might burst in the primary-housing market, the air already is whooshing out of parts of the second-homes market."

"The price runups of the past several years are reason enough for concern. A report from Cleveland-based National City, a top banking and mortgage concern, points to serious overvaluation in a number of second-home hot spots in Florida, California and elsewhere."

"For starters, many second homes have been sold not to serious vacationers but to speculative investors hoping to cash on the national real-estate craze. How else to explain why six out of 10 second-home owners surveyed by the Realtors group own two or more homes in addition to their main residences?"

"The danger is that if enough of those investors decide the market has peaked, they could trigger a selling frenzy throughout the second-homes market. That, in turn, could add to the pressures in the main housing market. After all, second homes now account for a full 40% of all homes sold in America."

"Statistics compiled for Barron's by The Local Market Monitor, a Wellesley, Mass.-based consulting firm, show just how big a role can be played by investors."

"Behind all this is a fervor eerily reminiscent of the late 1990s on Wall Street. Some 65% of second-home owners surveyed by the National Association of Realtors said they considered their second homes better investments than stocks, and 29% said they planned to buy additional properties within two years. An eye-popping 64% of investors with four or more properties planned to buy another property within two years."

"Ingo Winzer, president of The Local Market Monitor: "This makes me very worried because it implies that the price increases have been driven more by speculators than by people who are going to hold onto these properties, and indicates to me that there's a speculative boom."'

"Realtors' chief economist, David Lereah, expects the volume of second-home sales to decline at least somewhat this year. And there's every reason to think that some markets could be hit hard."

"Naples, on the sun-drenched edge of the Gulf of Mexico in Southwest Florida, is perhaps the most striking example."

"Vacationers long have been attracted to Naples' proximity to water, the Everglades and shopping at the likes of Saks Fifth Avenue. Last year alone, buyers bid up the area's median price by 30%, to $482,400. Charles Ashby, president of Naples' VIP Realtors, recalls that one of his sales associates was able to go down to a local bar and sell 26 units in a nearby Fort Myers high-rise the first night contracts were being accepted."

"Today, about the most visible activity in that area is the 400 or so daily additions on the multiple listing service -- and price reductions by the dozens. In the 35 years that Ashby has been in the business, this is the first downturn he's seen, even counting recessions. "The mule died," he says."

"With mortgage rates rising and home-price appreciation slowing or vanishing, buyers in Naples have pulled back in a big way. The area's sales of homes costing less than $1 million declined 45% in unit volume in the first four months of this year. More expensive homes fared somewhat better, falling 34%. But pressures at the higher end clearly are mounting. All along the pricey Gulf shore, builders still are tearing down old ranch houses and replacing them with two-story mansions, pushing the market toward a classic glut."

"The Naples experience is being repeated, to one degree or another, in a variety of other vacation hot spots."

'"People don't believe in the laws of supply and demand anymore," says Alan Skrainka, chief market strategist at Edward Jones. "We're not saying it's a bubble, but we're saying prices are overstated and will likely correct 20% to 25% over four or five years."'

"He rejects a notion advanced by housing bulls that shore communities in Florida and California will be protected because of the limited supply of coastline. "Japanese real estate and land prices went down for 15 years and Japan is an island," Skrainka says."

"The tough conditions in the second-home market are no small matter for the people who own the homes. And the so-called mass affluent -- folks with investable assets of $100,000 to $1 million -- will probably take the brunt of any price declines. Spectrem Group, a Chicago-based consulting firm, says this group has more than one-third of its assets tied up in real estate."

"In general, these home owners are more vulnerable than the ultra-wealthy, both because they can ill afford to wait out a prolonged downturn and their losses can hurt if they're forced to sell into a glut."

"There's little doubt, however, that the market is starting to run out of buyers."

'"The homeowner that absolutely has to sell will take a hit," says Paul Boomsma, executive vice president of Chicago-based Luxury Portfolio Fine Property, a unit of Leading Real Estate Cos. of the World. The problems are worsened, he points out, by the continued acceleration of development in overheated areas."

"Investors hoping to sell luxury condos that they bought over the past couple of years could be in for some special trouble."

'"It's a very spotty market in all of the U.S.," says Robert Toll, CEO of luxury homebuilder Toll Brothers. In some of the markets where Toll builds golf-course and lake communities, like Palm Springs, Calif., Delaware and southwest Florida, demand has softened."

"Mike Messenger, the Scottsdale, Ariz., broker, sounds considerably more glum. He says this is the first time in 16 years that the lower end of the market -- always the driver -- has weakened. The culprits? Mainly the flippers; Messenger figures investors account for 35% to 40% of the market."

Fraud Files VII

"Like termites, criminals have burrowed into America's housing finance system."

"They chewed away about $1.2 billion of its worth last year, FBI officials told a Mortgage Bankers Association conference audience here last week."

'"That's a conservative estimate," said John M. Robbins, the association's chairman-elect. Only federally regulated lenders - about a third of the industry - must report fraud, he noted.
"In many cases, losses are kept within the company. They pay the claims, book the losses and on they go," Robbins said. "The consumer ultimately picks up the price tag."'

"Crooks latched onto the U.S. housing boom's incredible cash flow - $2 trillion in mortgage originations this year alone, law enforcement experts told the crowd. Schemes capitalized on lenders' aversion to admit being duped and the failure of law enforcement to grasp the enormity of the offenses."

'"The problem is increasing exponentially," warned Georgia Attorney General Thurbert E. Baker. "Entire neighborhoods are being jeopardized. If unchecked, this could undermine the financial integrity of the nation's real estate market."'

"It's time to fight back, with a concerted public-private effort, Baker said. His state, until this spring the nation's biggest mortgage fraud hotspot, is leading the way. The weapons: the 2005 Georgia Residential Mortgage Fraud Act, a team of specially trained prosecutors and a raft of assertive victims."

'"We've taken on more than 100 cases in less than a year," Baker said. "Our law makes it a felony to misstate, misrepresent or have omissions in a real estate transaction for the purpose of fraud. The penalty for one offense is 1 to 10 years in jail (plus) $10,000 to $100,000 in fines."'

"Experts advised other states to put safeguards in place or this crime wave won't abate."

'"In the last five years, there have been $12 trillion in mortgage originations. If only a small fraction of that gets infected, it's huge sums," said John B. Arterberry, executive deputy chief of the U.S. Department of Justice's fraud section."

You do know the DOJ reads this blog right?

"The scams take varied forms, involving different configurations of industry insiders and outsiders, McLaughlin said. They share a common feature: an inflated property appraisal, he said."

'"Once you start looking for it, you'll find it -- everywhere," he predicted. "And it's morphing, getting more disciplined. As we chase them, the fraudsters change and change again."'

'"The classic scam is double papers," usually to downplay the risks of an iffy deal or to create hidden profits, the prosecutor said."

'"But with the housing boom over, we're going to see a lot more seller fraud," as the cash-strapped seek to unload properties any way they can, McLaughlin said."

"Arthur J. Prieston, chairman of The Prieston Group, a fraud indemnification company in Novato, Calif., was among those advocating U.S. Senate Bill 2280. Called "The Stop Fraud Act" and sponsored by Sen. Barack Obama (D-Ill.), this proposal requires all mortgage lenders to report fraud, establishes a national database of censured mortgage professionals and authorizes criminal charges when fraud is proposed - not just committed."

'"It will act as a deterrent, encourage settlements and allow consumers a private right of action," Prieston said. "It will also exclude from liability the most common victim - us."'

• "Scrutinize the details of real estate transactions, including the reputations of the professionals involved."

• "Don't allow loan originators or underwriters to choose the appraiser for their property deal.
The nation's appraisers have been pleading for such independence for years, said James R. Blaydes, a Peru, Ill., appraiser and instructor for the national Appraisal Institute."

"There's a lot of pressure by the lending side for an appraiser to make the numbers," needed to justify loan size, Blaydes said. "That increases the likelihood of loan failure and foreclosure."

The Feds Are on a Roll

While the federal government has garnered its biggest victory from the business scandals of recent years with the conviction of former Enron Corp. chiefs Kenneth Lay and Jeffrey Skilling, prosecutors may have their sights on a new crop of potential targets.

This week’s revelations concerning Fannie Mae — regulators said the mortgage giant manipulated accounting so that senior executives could collect millions in bonuses — were a reminder that there’s more out there.“Corporate corruption is not over,” Sen. Carl Levin, D-Mich., who investigated many facets of the Enron tangle, declared Friday.

“The victory, and the visibility of the victory, is going to encourage prosecutors to take on more cases that involve very complex financial dealings,” said James Cox, a professor at Duke University who specializes in securities law.

For individual executives, there could be more handcuffs and perp walks on the horizon. “Your risks of facing serious criminal and civil sanctions are going up with every successful prosecution by the government,” Cox said.

Regarding Fannie Mae, the Securities and Exchange Commission and the Office of Federal Housing Enterprise Oversight are looking at the roles of several current and former executives — including ousted Chairman Franklin Raines — in the accounting failures and whether they should be forced to return millions in compensation. A criminal investigation of the company by the Justice Department is continuing.

At least 15 companies have received subpoenas. “I would not be surprised to see it double or even triple in the coming months,” said Bruce Vanyo, a securities lawyer at Katten Muchin Rosenman in Los Angeles.

Bad Boys, Bad Boys, Whatcha Gonna Do?
Whatcha Gonna Do When They Come For You?

"Thieves skimmed at least $1 billion from America's mortgage market last year, law enforcement officials said Monday."

"Karen Spangenberg, chief of the FBI's financial crimes section, called mortgage fraud "the fastest growing white-collar crime in the United States." Losses topped $1 billion last year, her agency's records show."

'"Dollar losses almost doubled from 2004 to 2005," she said. Bank allegations of fraud, known in the industry as suspicious activity reports, are running 33% higher this year than last year, she said."

"This year, officials warned, crooks will work overtime and exploit the panicky and overeager as the nation's housing sales slow."

'"We're arresting people left and right," David McLaughlin, assistant attorney general of Georgia, said at a Mortgage Bankers Association fraud conference. "But the problem is still growing off the charts -- and it's morphing."

"Schemes vary widely, as do the participants, McLaughlin told a crowd of more than 300 at the meeting sponsored by the Washington D.C.-based trade group. He said he sees deceptive sellers, overtaxed buyers, builders desperate to unload inventory, greedy loan officers and other housing professionals pushing iffy sales deals to get their commission, plus an assortment of criminals seeking quick and easy profits."

"The losers from the fraud include home buyers, mortgage lenders and financiers, plus neighborhoods skewed by inflated values and hurt from foreclosures, McLaughlin said."

'"The attraction is enormous: a $2 trillion, fast-moving mortgage business, rife with consumers who don't fully understand the paperwork they sign, said John Robbins, chairman and chief executive officer of American Mortgage Network."'

'"Our concern is, as residential mortgage debt grows from $8 trillion to $20 trillion over the next 15 years, many more opportunities will be available."'

"Lenders must stop hiding their insider scandals and report wrongdoing to law enforcement agencies and internal industry databanks, said John Arterberry, executive deputy chief of the U.S. Department of Justice's fraud section. That means filing a suspicious activity report."

"It's going to take the FBI, state efforts, state attorneys general, neighborhood activists -- all of us -- to help us prevail," Robbins said.

A Few Examples...

PLATTSBURGH — A local real-estate agent recently pleaded guilty to falsifying business records and possessing forged real-estate documents in an attempt to secure financing for a man to purchase a home he had no intention of buying.

April Mesec, 26, of 279 Brand Hollow Road in Peru, falsified business records of National City Mortgage and New Millennium Properties in September 2004 in order to secure financing for a home to be purchased by Richard Bola, according to a Clinton County grand jury indictment.

The home was valued at $30,658.From July to September 2004, Mesec also possessed five real-estate documents that were forged with Bola's signature. Those documents included a contract from New Millennium Properties to construct and sell the home, a deposit statement and a bill of sale.

Clinton County Chief Assistant District Attorney Kristy Sprague said Bola was not aware that Mesec, then an employee of New Millennium Properties, was attempting to secure financing for the home.

An accountant accused of defrauding clients out of more than $7.2 million in a phony investment scheme was sentenced to more than seven years in federal prison Friday.

Barry Korcan, 50, of Chippewa Township, Beaver County, pleaded guilty in January to one count each of mail fraud and tax evasion in a scheme that prosecutors said involved dozens of clients from 1994 to 2004.

Prosecutors said Korcan promised clients returns of 7 percent to 8 percent if they put their money in something he called Guardian Investments, a company authorities said did not exist.
Instead, prosecutors said, Korcan laundered the money through real estate deals and used it to fund a lavish lifestyle - and failed to pay federal taxes on the ill-gotten income.

In addition to serving 87 months in prison, U.S. District Judge Gary L. Lancaster ordered Korcan to repay 28 investors who lost millions in the scheme, said Margaret Philbin, spokeswoman for U.S. Attorney Mary Buchanan. Korcan took $11.3 million from a total of 39 clients, but previously paid back about $4 million, prosecutors said.

Hillsborough, CA
"A former officer of Seaborne Airlines was arrested in California earlier this month, accused of swindling millions of dollars from senior citizens there in a complex real estate scam."

"Michael Schneider had stepped down from his position as interim chief executive officer at Seaborne in March."

"Schneider is currently being held in Santa Clara County Jail on $5 million bond, said Dale Lohman, a deputy district attorney with the Santa Clara County District Attorney's Office."

"The dealings that led to the charges involved a real estate loan business that police say Schneider operated in Santa Clara, Calif., and have nothing to do with Seaborne Airlines."

"Schneider currently is facing 27 felony counts of grand theft, elder financial abuse and forgery in connection with a scam that prosecutors believe he had been operating for years."

'"That's just the tip of the iceberg," Lohman said, noting that investigators expect more charges to be filed and believe total losses from the scam could top $50 million."

"Prosecutors say that with California Plan, Schneider acted as a middle man, linking investors looking for a higher rate of return on their savings with people who wanted to buy real estate.
The investors would act as private lenders and were promised deeds of trust on the property, so that if the borrower defaulted and did not pay back the loan, they could foreclose on the property, Lohman said."

"Prosecutors charge, however, that Schneider would sell the same mortgage to two or three investors - and record the deed of trust for only one of them in the county recorder's office.
They say that he pocketed the rest of the money and forged the other deeds of trust - even going as far as cutting and pasting deed numbers - so that they appeared valid."

Prices Unhinged from Income Reality....

...Will Fall

(MONEY Magazine) - "Home sales are slowing. Condo prices are slipping. Sellers can't get their asking prices. And even real estate bulls are now waving the caution flag."

"If you're expecting a short-term gain, "you should be looking elsewhere," says Christopher Mayer, a Columbia University economics professor who not long ago argued that land shortages and rising populations would translate into ever-rising prices in "superstar" cities like New York and San Francisco."

"Clearly, it's time for a re-think, whether you're mulling over buying, selling, refinancing or remodeling a home or investment property. Or if you're just wondering, Is our house still worth what we think it is?"

"If you reside in one of the past decade's boom markets along the coasts or in the Southwest, brace yourself. Prices there were powered by two kinds of fuel: low interest rates and the willingness of buyers to pay up for the American dream."

That tank is almost empty.

"In Los Angeles today, the median dream goes for 10 times the median income. That's unsustainable no matter how creative banks are in coming up with new hybrid loans."

"Prices will flatten in most ex-boomtowns this year, and next year will be worse, says David Stiff, Fiserv's chief economist. "A lot of markets - particularly those where prices have increased dramatically compared with income - will see drops by late 2007," he says."

"The more unhinged prices are from local incomes, the more likely a fall."

"Since World War II, notes Stiff, the housing market and the economy have moved largely in sync. The caveat, of course, is that if the economy falters, housing will really start to look overvalued."

"So what do you do? If you've got a place you like, a mortgage you can handle and no plans to move or build a new wing, relax. But if you're active in the market, or you soon might be, rethinking is indeed in order."

Neighborly News

The following is an article about Fairfield, CA and comments from Sonoma Housing Bubble Reader, Ali in Cali.

Thank you Ali! (Ali's comments in purple)

"The following appeared in an article in the Fairfield Daily Republic in the Business section on Sunday, May 21, 2006.

Their website is for registered users only, which I doubt is worth the subscription fee, so I have included the excerpt that I think is most relevant below. Enjoy!"

Slowing Housing Market Requires Attitude (Adjustment?)
By Nathan Halverson“

…Look at the numbers.

"In May 2005, 335 homes were listed for sale in the area of Cordelia, Fairfield, Green Valley, Suisun City, and Vacaville. This month, that number jumped to 1,231 homes for sale, an increase of 267 percent, according to Multiple Listing Service."

"Meanwhile, the number of properties sold declined 30 percent in the last year according to Bay area Real Estate Information Services. In April 2005, 373 properties sold in the northern part of the county. This April, sales were down to 260 properties."

"Why to still buy ...Nathan Fitzgerald, an 18 year veteran with Prudential Realty in Fairfield who monthly provides his clients with numbers like the ones above, said he thinks home prices will be flat to slightly decreasing in the coming months."

"And he doesn’t hesitate to tell that to his clients.“They look at me like “why would a Realtor tell me that?” Fitzgerald said. But Fitzgerald points out that just because prices are declining, doesn’t mean that potential buyers should wait."

"Here’s and example why: Say you could buy a house today for $465,000, which is the current median home price in Solano County, or wait two years after it’s price has declined 10 percent to $418, 500."

"But, during those two years interest rates for a 30-year fixed mortgage increase from 6.55 percent to 8.55 percent. Is it worth it to wait? In this scenario, you should buy the house now."

"Here’s why: The monthly mortgage payment for the more expensive house at today’s prices would be $2,954."

"The payment for the less expensive house, but at the higher interest rate, would be $3,232."

"Both payments assume a $30,000 down payment."

"The house you waited two years to buy for a 10 percent discount would end up costing you $278 more a month, or $8,340 during the course of the loan."

Keep in mind that this is only an example.

My questions are:

1. When I do the math, an extra $278 a month times 360 payments (30 years x 12 months/year) = $100,080.

At 12 payments (one year’s worth) the figure comes out to be $3336.

Thus, I have no idea where this person is getting this figure of $8,340. If the intention is to scare the buyer into hurrying up, wouldn’t the $100,080 figure be more effective?

The arithmetic alone here makes me wonder about the accuracy of any of this.

2. This example assumes that prices will only fall 10% in the next two years. What if they fall more? And what if they fall faster? If the sales prices drop more than 10% in two years, or drop 10% much sooner than this projection, does the example still work?

As long as the sales drop faster than the rates increase, I think this example is rendered useless. Am I correct?

3. I guess the figure is assuming a 10% drop from today’s prices, but have they taken into account that prices in many markets have already dropped since last August’s peak?

4. What about the money that the owner will be saving on the property taxes over the lifetime of living in the home? I know it is minimal, but I think it is unfair to disregard that the person who waited until the price dropped from $465,000 to $418,500 would be saving an additional $500+ a year in property taxes.

To me this is just more Realtor propaganda. Is it possible that this reporter’s source is baised? Is it possible that Mr. Fitzgerald would say this to his clients since he needs them to still buy otherwise he is out of a job?

Is it possible that I am going to see right through this pile of BS, but others will use it to run out and make a bad decision in this very tentative market? God, I hope not.

Buyers of the world: UNITE! Or, at least use your heads…

Sunday, May 28, 2006

Industry Insiders Behind 80% of RE Fraud

"The FBI says 80 percent of all reported fraud losses involve collaboration or collusion by industry insiders."

"Mortgage fraud is rampant in the United States and not only are the illegal activities an immediate threat to home owners and local communities, the scourge could ultimately cause the kind of economic conditions associated with so-called "housing bubbles."'

"Nationwide, mortgage fraud is estimated to have cost businesses nearly $48 billion and consumers about $5 billion in the past five years, according to a recent study by the Federal Trade Commission."

"The FBI's report says mortgage fraud can have a domino effect on the local housing market and the economy at large."

"Mortgage fraud also can spawn an insidious housing bubble-like effect that can ruin households and neighborhoods."

"Overvalued property can falsely inflate nearby home values while also raising property taxes. When the scam is uncovered or homeowners default or both, values can just as quickly plummet leaving other owners with over-valued homes and upside down mortgages -- conditions that simulate or exacerbate a so-called housing bubble."

"Methods vary, but the run up in home prices is attracting an underworld that often uses inflated appraisals on properties distant lending companies never see. Often a conspiring group of insiders -- lawyers, appraisers, mortgage lenders, title and escrow workers, mortgage brokers, and real estate agents -- get a mortgage for more than the actual value of the property and then walk off with the difference."

'"Each mortgage fraud scheme contains some type of 'material misstatement, misrepresentation or omission relied upon by an underwriter or lender to fund, purchase or insure a loan'," said FBI assistant director Chris Swecker, testifying before the U.S. House of Representative's Financial Services Subcommittee on Housing and Community Opportunity."

'"The FBI continues to be the primary law enforcement agency in protecting our nation's financial institutions and the investigation of major fraud is a high priority...Operation Continued Action. fraud in the secondary market is often under reported. Therefore, the true level of mortgage fraud is largely unknown."

"The mortgage industry itself does not provide estimates on total industry fraud. The industry provides incomplete or inconsistent fraud data. Based on various industry reports and FBI analysis, mortgage fraud is pervasive and growing," Swecker testified."

"When loans sold in the secondary market default and have fraudulent or material misrepresentation, loans are repurchased by the lending financial institution based on a 'repurchase agreement.' As a result, these loans become a non-performing asset. In extreme fraud cases, the mortgage backed security is worthless. Mortgage fraud losses adversely affect loan loss reserves, profits, liquidity levels and capitalization ratios, ultimately affecting the soundness of the financial institution," Swecker testified.

More Information
"The FBI is currently cooperating with many local municipalities nationwide to stop what Assistant FBI Director Chris Swecker says “could become an epidemic.” Mortgage fraud encompasses a wide range of knowing and unknowing accomplices and is putting the mortgage industry in jeopardy. Should this fraud go unabated we could see another crisis similar to the $130 billion plus dollars that was spent to bail out the S&L failures of the 80’s."

"Mortgage fraud is most often found in areas with large scale neighborhood gentrification and mostly involves those people flipping homes."

"While there is nothing inherently illegal or unethical in purchasing a property at a discount and fixing it up over several months for resale, many criminal elements and even organized crime have entered what is a relatively unregulated activity in order to dupe banks out of millions of dollars."

"Some schemes involving mortgage fraud have snared unknowing, well meaning people who were duped into becoming a straw buyer or worse yet, duped into buying an overpriced home that they are now stuck with."

"Legal or illegal flipping aside, mortgage fraud comes in many shapes and forms. It can involve a single individual or an entire team of conspirators. From the buyer to the seller to the closing attorney and everyone in between, the perpetrators generally commit one simple act that turns a transaction into fraud: they fail to disclose some material fact about the transaction or the financial elements involved in the deal. In many cases, mortgage fraud can be simply defined as a lack of disclosure."

"If documents are altered from their true form, if appraisals have values that are “pushed” or downright wrong, or if answers are given in an effort to hide or alter the true facts, a crime has been committed. Full and honest disclosure has not been given and fraud has occurred."

"Some mortgage fraud goes even deeper than fudging an income number on a W2 form or failing to disclose a loan that was received in order to make a down-payment for the purchase of a new property. Stolen identities are used to make application for loans, properties are sold on forged titles where the seller is not the owner and helpless families in financial dire straits are convinced to give up titles to predators who then sell their homes leaving them with no home and a huge debt to repay."

Some Additional Caveats for the Emptor:

watch out for....

Complicity of the Realtor

"In the world of real estate there is an individual professional that will strive to get your business. They will do almost anything to obtain your loyalty and to get you, as a real estate investor, to do business with them on a regular basis. That person is a Realtor."

"In order to capture you and convince you of their worth, some Realtors will push the edges of ethical behavior in order to meet investors’ demands and prove they can be of value to an investor’s business. The problem is when the ethical and moral boundaries become blurred by money, rapid closings and the promise of quick riches."

"The entrepreneurial spirit that is imbued in the real estate investing profession drives those within the profession to get the deal done at all costs. This will lead many to justify unethical actions for the sake of closing. The problems caused by unethical behavior can be devastating to well meaning investors and harmful to the real estate investing community as a whole."

"Whether the situation is a Realtor in collusion with a loan officer and an investor or whether each acts independently to create fraudulent documents, when the fraud is discovered, everyone is injured. Even in what appear to be seemingly innocent acts, (such as recommending a ‘soft’ second or requesting value conclusions to be pushed to the top of the market even though it appears the market is declining) people and companies can sustain huge losses."

"In situations where Realtors have colluded with unethical investors, unscrupulous attorneys and scurrilous appraisers, unsuspecting mortgage companies and home buyers can lose tens of thousands of dollars in unserviceable loans or by owning properties that are worth less than the loan balances against them. To avoid fraud with these individuals, watch for these warning signs."

Warning Signs
1. The Realtor shows you an appraisal on a prospective property and encourages you to use the appraisal when you make application for a loan.

2. The Realtor encourages you to use lenders that have large application fees or insist that you use a ‘preferred’ lender in order to receive certain benefits, like closing costs paid by the seller or a discount on the purchase price. They are more concerned with receiving a commission than insuring you receive the best financing.

3. The Realtor states that the comps in the neighborhood are not really comparable to the home you are purchasing so the appraiser will have to go outside the neighborhood to find comparables to value the home. They will act as if this action is completely normal and an acceptable appraisal practice.

4. The Realtor does not disclose that they are a representative of the seller. In many states if you do not sign a specific agreement with the Realtor making them a buyer’s agent, they are required by law to represent the seller even if they are not the listing agent. This fact should be disclosed to you if you do not have a signed buyer’s agency agreement.

5. The Realtor suggests that the seller can hold a second mortgage, however, the seller doesn’t intend to collect on the debt and will not record the deed. This is sometimes referred to as a soft second and is done in an effort to dupe the first mortgage lien holder to accept a lower down payment under the guise that the rest of the risk investment required by the buyer is being met by taking out a second mortgage on the home.

"There are many other warning signs that you should look for when dealing with Realtors. Mostly you should look for disclosure. Any attempt to hide or alter facts is a lack of disclosure that could point to mortgage fraud. Realtors should be honest and forthright in their disclosures to you and in their disclosure of transaction details to the mortgage company that will fund your loan."

"Know your rights. Learn who represents you and how those you have dealings with represent others. Through agency representation and disclosure you should be able to steer clear of fraudulent deals put together by Realtors who choose to push the boundaries of moral and ethical behavior."

Lenders and Loan Officers

"Lenders and their loan officers want to do business with investors more than Realtors. Just look around any real estate investor’s association meeting and you will see mortgage companies clamoring for investors to do business with them. The claims and loan product offerings are mind boggling."

"Claims of quick cash, easy closings, no cost loans, 100% financing, all kinds of claims designed with one thing in mind, to develop you as a return client. As stated in previous articles in this series, in the world of real estate investing there is an entrepreneurial spirit that is in imbued in the profession which drives those within the business to get the deal done at all costs and often times, this drive will lead many to justify unethical actions."

"Of all the professions discussed thus far in this series, the ethical mortgage professional can be one of the most beneficial resources for the real estate investing professional. However an unethical lender can be extremely detrimental."

"Lending professionals that use bait and switch programs, who are willing to alter documents and that withhold important information in loan transaction can cost investors thousands of dollars at the table and leave them holding a mortgage on a property that is worth less than they owe on it. Watch for these tell, tell signs when dealing with loan officers and you may spot someone willing to commit fraud."

Warning Signs
1. The loan officer encourages you to sign documents that you know are false.

2. The loan officer has appraisal software on his computer.

3. The loan officer alters or encourages you to alter income or asset documents in order to receive loan approval.

4. The loan officer does not issue a Good Faith Estimate or, when he does, he will not guarantee the cost and rate will be the same at the closing table.

"Some mortgage professionals have found creative ways to cover their duplicity in fraudulent mortgages for the short term; however, in the long term, they and their cooperative cohorts are always discovered. More than any other professional in the real estate industry, the lending professional’s main focus should be on truthful and honest disclosure. Disclosure is what the lending process is all about."

"The disclosure process starts when the application is made and continues until the loan is closed and this entire process is designed to allow the lender to make a solid lending decision that mitigates their risk in the transaction. By making sure that your lender properly discloses information and by avoiding being enticed to provide false or partially true information, you can avoid mortgage fraud and stay clear of fraudulent lenders."

Boom or Bust Video

Are Things Really Different This Time?

Google has a great video about the housing market. Video is done by Christopher Thornberg, an Economist from UCLA Anderson School of Business. Very informative. Great Data.

Links and brief commentary can also be found at Marin Real Estate Bubble and BubbleMeter.

(video is 50 minutes long... I wouldn't try it on a dial up line. If you are on a dial up line.... Get broadband! Yahoo DSL is only $12.99 a month.)

Builders Can't Profit Without Illegal Immigrants

(SFGATE) "The National Association of Home Builders estimates that 20 percent of the construction workforce -- about 2.4 million people -- is foreign-born. While it's impossible to know how many are undocumented, some estimates put the number at 50 percent or more."

"Whatever the true count, builders across the country say illegal immigrants play an important role in a construction labor market that is already stretched thin."

"The states with the largest share of immigrant construction workers -- and those likely to be hit hardest under the long-term/short-term proposal -- are those with some of the country's hottest housing markets."

"California tops the list, followed by Nevada, Texas, the District of Columbia and Arizona. In all of those places, immigrants, mostly from the Americas, make up more than one-third of the workforce."

However, note that not a single builder in California was used as a source in this article, nor quoted. The quoted sources come from Washington and Virginia...

Note also those on the top of the list for benefitting from cheap, illegal labor, yet these same suspects are the states with the biggest bubbles in housing.

Biggest bubbles, highest price increases, most speculation, largest % of soon to be F'd Borrowers in risky loan products all for the sake of renting an illegal immigrant built house from the bank.

"By contrast, immigrants are less than 1 percent of the construction workforce in West Virginia."

'"According to estimates by the Pew Hispanic Center, a nonpartisan research organization in Washington, the construction industry employs the largest share of nation's estimated 7.2 million undocumented workers'

"Overall, the research group says, 1.4 million illegals are at work in the various construction trades, accounting for 12 percent of the industry's workforce. By contrast, 1.2 million are employed in the leisure and hospitality sector, the next-largest employer of undocumented workers, making up 10 percent of that's industry workforce."

"But Chuck Russell of Westhill Inc., a remodeler and custom home builder in Everett, Wash., suggests the percentage of undocumented workers on construction sites in his Seattle-area market is much higher."

"Whatever your opinion regarding immigrants who have entered the United States illegally, realize that if you are in the market for a new house, it's likely to take longer to build -- and cost more to buy -- if they are forced to leave the country."

'"I have no proof, one way or another, but my gut feeling is that half or more are illegals," says Russell, who carries 35 people on his payroll. "That's just a shot in the dark, but from my experience, half or better of the immigrants who apply for a job with my company can't provide the necessary documentation, or something is wrong with the papers and we can't hire them."'

"According to the home builders association, the majority of immigrant construction workers -- 54 percent -- comes from Mexico, and an additional 25 percent come from Central and South America. Only 12 percent are Europeans and 8 percent are Asians."

"Basing its estimates on Census Bureau data, the builders association also says that 15 percent of Mexican-born immigrants who arrived after 2000 work in construction, as do 9 percent of those from the Americas. Almost 4 percent of the most recent European immigrants work in the field."

"Craig Havenner of the Christopher Cos., a builder in Virginia, has no idea how many of the carpenters, brick masons, roofers and other craftsmen who work for the subcontractors he hires are here illegally. Nor does Michael Fink of the Leewood Real Estate Group in Trenton, N.J.
But both builders say they'd be hard-pressed to deliver their products on time or at the same price if "illegals" were ordered to leave the country, as some federal legislators have demanded."

'"We're already straining to fulfill demand," agrees Fink, an inner-city builder who concentrates on workforce housing for people who make 35 to 120 percent of the median income where they live. "If (construction workers who are here illegally) are removed from the workforce, the housing business will suffer tremendously."'

"Nationally, one-third of all construction laborers and 22 percent of all carpenters are immigrants. These are the two most prevalent construction-trade occupations. But immigrants also make up a significant portion of the country's drywall installers (40 percent), roofers (33 percent), painters and masons (32 percent), and carpet, floor and tile installers and finishers (29 percent)."

"Northern Virginia builder Havenner says he can almost categorize the trades by their country of origin. Koreans do the siding, roofing, windows and gutters, he says. Portuguese do the concrete work, and Hispanics do a little bit of everything."

'"One of my best carpenters is a Salvadorian who went out on his own three years ago and now employs his brothers and cousins."'

"Only two trades among Havenner's jobs -- heating/air-conditioning mechanics and tile installers -- are largely native born. The rest are mostly immigrants. "I go back to the early 1980s, when it was primarily Korean and Vietnamese immigrants. For the past 10 years, it's been Hispanic," he says. "On any number of construction sites, I'd say 75 percent (of the workforce) are fairly recent immigrants. They represent a huge part of what we do."'

"Immigrants "have always been" a large component of the home-building workforce, agrees Fink, the New Jersey builder. "All you have to do is walk on a construction site and listen to the languages."'

"Both builders say they couldn't get along without them. "We're already maxed out," said Fink, adding that forcing undocumented workers to leave the country "would have a devastating effect on our ability to produce housing. Do you think people are going to want to wait two years to get their house?"'

"Fink and Havenner also say the argument that native-born Americans would replace illegals if the job paid more just doesn't hold water, at least not in the construction sector."

'"These are not bottom-rung jobs, and we still have trouble filling them with people from any country," Fink says. "But in my experience, native-born Americans are not willing to gain the skills necessary to get them."'

Saturday, May 27, 2006

It's All Fun & Games...Till Someone Loses Money

Thoughts from Paul B. Farrell

"What does an addict do just before going into rehab? Yep, party time! Every addict. Every addiction. The closer the rehab, the wilder the parties."

"Like now with America the oil addict, the debt addict. It's party time. Government cannot stop spending. Consumers can't stop buying. We're partying! Spend what's left of your savings, have a great time before you're forced to stop living high on the hog. Before rehab. Yes, we all know we'll have to cut back. Just not now. It's coming, we just want one last fling!"

"Yes, America's in a party mood. Spend now, load up the credit cards, forget the hangover."

Real estate drumbeat getting louder, stronger.

"The noise is sounding like thunder. Even the elite Harper's magazine has added to the cacophony by publishing this cover story: "An Illustrated Guide to the Coming Real Estate Collapse."'

"I might have dismissed it but the Harper's "Guide" is not alone in my increasingly bloated file of real estate articles."

"Fortune published a cover story titled "Real Estate Survival Guide."'

"An article in AARP Magazine was titled "Is the Real Estate Bubble About to Burst?"'

"BusinessWeek published a story "Mortgage Lenders: Who's Most at Risk?"'

"CNNMoney and other are warning that "Homeowners with ARMs Face Big Bill Jumps."'

"Even Business 2.0 was playing the guessing game recently with an article about how speculators are exiting America's rapidly cooling domestic market to buy in hot spots such as Argentina, Vietnam and Montenegro."

"Yes, real estate addicts are like other addicts. They won't stop, not till forced into rehab."

"Yes, there are some columns (not many lately) by bulls. Most notable is a recent piece in BusinessWeek: "Why The Bubble Won't Burst"'

"This upbeat piece speaks in a language reminiscent of Greenspan's speculative "regional froth" theory. The article also included some fascinating predictions of rebounds for some of the biggest-bubble regions currently overwhelmed by froth. Now that's truly contrarian."

New message in old real estate cycle

"The confusion reminded me of my favorite classic on the science and research of cycles. Written by Edward R. Dewey, the former chief economist in FDR's Department of Commerce. When Dewey left government he founded the Foundation for the Study of Cycles."

"His book, "Cycles: The Mysterious Forces the Trigger Events," is 35 years old. But in it is a fascinating chart: "The 18 1/3-Year Cycle in Real Estate Activity, 1795-1958."'

"In eight 18.3-year cycles over 150 years, Dewey says, "the waves were too clear and too regular to be denied or ignored."'

"Dewey wrote that it should be reviewed yearly. But he hasn't been around to do the job since 1978."

"Nevertheless, that 150-year chart of real estate cycles has intrigued me since the 1970s when I worked in Morgan Stanley's real estate investment banking group. So I took a trip down memory lane and projected the 18.3-year cycle from a low point in the early '50s forward three cycles to a low point around 2007. In other words, a bottom in the real estate market is dead ahead."

"Dewey's real estate cycle is also in line with economist Gary Shilling's prediction in Forbes a couple months ago:

'"The current housing weakness will develop into a full-scale rout ... It's clearly a bubble and is nationwide ... The house price collapse will induce a painful recession that will send U.S. stocks into a tailspin ... and weakness in the U.S. and China will spread worldwide."'

Best strategy: act now, don't lose money

"If Shilling's message sounds dark, the bottom line of economist Michael Hudson's "Guide to the Coming Real Estate Collapse" in Harper's is darker."

Here's how he sees the future unfolding. He analyzed 20 trends:

'"Taken together, these factors will further shrink the 'real' economy, drive down those already declining real wages, and push our debt-ridden economy into Japan-style stagflation or worse."'

"It's not a pretty scenario. But, the truth is, these guys could all be wrong. Still, the drumbeat is obviously getting louder and more frequent. So my advice is simple, make darn sure your portfolio allocations are markedly conservative, towing the line with Warren Buffett's No. 1 rule of investing, "never lose money." Leave some on the table if you have to, but act now so you don't lose money."

"Choose to go ultra-conservative now, on your own timetable. Before it's too late when the rest of America's 95 million investors are racing for the doors, all forced into "rehab."'

Friday, May 26, 2006

Thank You Darlin! XXOO

Sonoma's Housing Bubble is of great interest to me and a handful of local residents (judging by the stats counter), but I find it incredibly flattering that it is also of interest to some pretty sharp cookies outside of Sonoma.

It also appears the Press Democrat doesn't seem to appreciate facts as much as The New York Times.

Damon Darlin (most appropriate name I might add) of The New York Times, took an interest in our local bubble scene and gave us a little write up.

Many thanks Damon!

"When You Say It Like That"

Categories: Prices, Economics

"The assumption that the real estate market won’t come crashing down is built on the idea that the economy is strong."

"The Sonoma Housing Bubble blog lays out a convincing case for why homeowners in Sonoma county, north of San Francisco, ought to worry. It rolls out a list of statistics showing the anemic job growth in the area....."

Which Came First? Decline in Home Sales or...

...Decline in Reporting Quality?

This is the title of today's Press Democrat article on the housing market: "Home sales plummet in North Bay, state"

written by: Michael Coit of THE PRESS DEMOCRAT

"April home sales tumbled across California and the North Bay, with rising interest rates keeping more buyers out of the market, the California Association of Realtors reported Thursday."

"Home sales have been declining since fall. But April's 21 percent drop was particularly steep because the sales total a year ago was the second-highest ever for the state."

1. Old news. We have had the April numbers for the north bay for a couple of weeks now.

2. I thought this was about sales plummeting in the North Bay and the state? Where are the actual sales numbers about the North Bay in this article? Did he not put "North Bay" first in the title leading one to believe that the plummeted sales would be the main subject?

"The statewide median resale price was $562,380, a 10 percent increase over a year ago."

3. Just for kicks... here is the Sonoma County median since he neglected to report it:

The April median resale price was $596,925, the second consecutive month with little change compared with prices a year ago.

Sonoma: $618,000
Glen Ellen: $714,000
Sebastopol: $618,500
Petaluma: $649,500
Healdsburg: $655,000
Penngrove: $942,500
Cotati: $672,000
Windsor: $594,475
Rohnert Park: $580,000
Santa Rosa: $570,000

"The greatest gains were on the Central Coast, in Los Angeles and in the Inland Empire."

4. What are those numbers and what were the gains?

"Prices were up 5 percent to $638,680 in the association's Northern Wine Country region of Sonoma, Napa and Mendocino counties."

5. Ah... this must be what he meant by "North Bay." He combined Sonoma, Napa and Mendocino County data to get a higher median price so he could claim the 5 percent gain. However, Sonoma County did not enjoy a 5% gain. Median price was only a hair above 2005. Sonoma County posted a 0.90% gain.

"Statewide, homes took 42 days to sell compared to 28 days a year ago. Slowing sales have boosted the statewide inventory of homes for sale to a 5.6-month supply compared to 2.4 months a year ago."

6. Interesting state data. Let's talk about Sonoma County data... since the North Bay numbers seem to be lacking here, I feel compelled to go ahead and help Michael out and re-post yet again the Sonoma County data. Wouldn't want any potential fools to think that the state data was representative of Sonoma County data and go rushing in to hold the bag for some over-extended flipper.

According to's April Data for Sonoma County the average count for Days on the Market is: 85 In April of 2005 it was 59

Sonoma: 100
Glen Ellen: 217
Santa Rosa: 90
Rohnert Park: 69
Petaluma: 55
Sebastopol: 87
Penngrove: 98
Healdsburg: 90
Cotati: 132
Windsor: 75

Sonoma County has 3425 listings on the mls.

7. At the current rate of sales based on April data that translates into 9.01 months of inventory on the market.

8. Since Michael mentioned Napa and apparently used at least the pricing data to make that laughable 5% gain claim, according to dataquick: From April 2005 to April 2006, sales in the state fell most in Napa County, down 39 percent.

9. When your sales are down almost 40% just how long are those prices going to rise? Fundamental law of supply and demand... when there is no demand, prices will fall.

10. According to Ziprealty the number of Sonoma County houses with recent price reductions is: 871

Sales for Sonoma County were down -24.60%

380 homes were sold in April of 2006 compared with 504 for April 2005.

Bodega Bay -42.90%
Cloverdale -26.70%
Cotati -45.50%
Guerneville -13.30%
Healdsburg -26.70%
Petaluma -32.40%
Rohnert Park -28.60%
Santa Rosa -21.60%
Sebastopol -18.50%
Sonoma Valley -47.90%

So with all that down data what was it that allowed the county only a -24.60% decline?

ah... glad you asked.

Forestville sold 9 properties with an average of 110 days on the market, and had an 80% gain from last year.

Glen Ellen sold 2 properties with an average of 217 days on the market, and had a 100% gain from last year.

Windsor sold 38 properties with an average of 75 days on the market, and had an 18.8% gain from last year.

Thursday, May 25, 2006

Housing Market Already in Recession...

...Says Merrill Lynch

(From the Christian Science Monitor)

"In the past, of 10 slowdowns in home building since 1959, seven have preceded broader recessions for the economy as a whole. But there was a significant lag time - often about 20 months - between the moment when construction started to ebb and when the economy entered recession, according to research by Merrill Lynch."

"Most economists aren't forecasting recession for the US economy next year, but the prospect of more interest-rate hikes raises that risk."

'"We think it's a pretty safe assumption that the housing market has already entered into a recession," Merrill Lynch economists wrote in a recent analysis."

"Builders are starting new homes at a pace that has plunged at an annualized rate of 56 percent in the past three months, they note. That's similar to what occurred early in 1991, when the economy was in recession."

We Regret To Inform You...

... That Muckraking Journalism is Dead

-and has been replaced by lazy advertising subsidized glorified PR service masquerading as your local newspaper.

(New story From Michael Coit at the Press Democrat)

"The North Bay housing market is losing steam, but solid job growth continues bolstering the economy and should keep home prices from declining across the board, a senior Federal Reserve economist said Thursday."

What are these solid job growth numbers? Last time I checked, job growth was anemic at best... Sonoma County Economy & Job Lost and Found

I guess posting stats to sanity check these unsupported conclusions would be too much effort for the newspaper. Here are some recent facts, figures and numbers.

Let's review the facts again...

"Sonoma County experienced slow job growth throughout 2005, gaining only about 600 jobs in net, with the unemployment rate at 4.2% as of November 2005."

This is what was predicted for 2006:

"The county will add about 1,900 jobs this year, a 1 percent increase. That's not a lot of growth, but still an improvement over last year, when the county added only 1,000 jobs for a 0.5 percent increase."

* Employment peaked in Sonoma County in 2001 at the end of the tech boom when the county had 196,700 payroll jobs.

* By 2003, the economic downturn had wiped out 7,600 of those jobs, based on average annual employment.* Through 2005, only 2,400 had returned.

* The number of jobs in the county is still 3.3 percent, or 6,500 jobs, below 2001.

* In Sonoma County, the average wage is $42,171

* The Press Democrat study found that 58 percent of the new jobs created between 2003 and 2005 paid below the average wage.

* It is estimated that 60% of the new jobs added between 2001 and 2003 were lower-paying service jobs that are below the county’s average wage of $42,171 per year.

* Fifty-eight percent of new jobs between 2003 and 2005 paid below the average wage.

** Per-capita income fell 2.6 percent in 2005.

*Adjusted for inflation, per-capita income in 2006 will increase 1.9 percent, to $29,113.

* Only 7 percent of households could afford a median-priced home in Sonoma County at year's end 2005 compared with 12 percent a year ago.

* In 2005 a Sonoma County household needed a minimum income of $152,595 to buy the typical home, based on prevailing interest rates for a 30-year mortgage.

* In 2004, the minimum income needed was $124,650.

(Did you note the per capita income is only: $29,113? Did you note the average wage is $42,171? Did you note that of the new jobs created nearly 60% are paying below that average wage? Did you notice even if they ARE paying the average wage it still is nowhere near the income needed to buy a median priced home? Did you notice that even if you double the average wage it still isn't enough? ok... just checking)

* Adjustable-rate mortgages accounted for 69 percent of loans to buy Sonoma County homes last year and only 31 percent were 30-year, fixed-interest loans - a reversal from just two years earlier.

* Buyers had to increasingly stretch financially to purchase homes. A majority turned to interest-only and other adjustable-rate loans, often making little or no down payment when purchasing homes.

* As interest rates rise, and there are conversions from adjustable rate mortgages to fixed, defaults are likely to rise.

* Default notices are rising, signaling business instability and consumer insolvency.

Reasons foreclosure rates have increased:

* People stretched themselves financially to get into homes using adjustable rate mortgages, interest-only mortgages and more exotic loan products.

* Banks relaxed lending standards to make it easier for people to purchase homes; however, for some of those homeowners, once they have an unexpected financial hardship, such as medical bills, a lost job or necessary car repairs, they stop making mortgage payments.

* Many homeowners put little to no money down when they bought their homes and currently have little or even no equity in their home and thus nothing to fall back on. And in some cases, these homeowners then took out home equity loans or lines of credit and now owe even more.

* Homeowners have relied on the recent double-digit increases in home prices to build up equity in their home instead of paying down more in principal. As housing prices increase more slowly, many homeowners will not be able to rely on high home values to cover their debt loads.

'"The slowdown appears to have taken hold in the North Bay and across California, said Gary Zimmerman, regional economist with the Federal Reserve Bank of San Francisco."'

Ya think?

April Sales Data

"Home prices could level off, Zimmerman said Thursday at conference on North Bay real estate trends. But the housing market should hold its own unless there are major job losses and a flood of homes hit the market, Zimmerman said."

"The April median resale price was $596,925, the second consecutive month with little change compared with prices a year ago."

In Sonoma the median is: $618,000
Glen Ellen: $714,000
Sebastopol: $618,500
Petaluma: $649,500
Healdsburg: $655,000P
enngrove: $942,500
Cotati: $672,000
Windsor: $594,475
Rohnert Park: $580,000
Santa Rosa: $570,000

If you don't call this a flood of homes hitting the market... what DO you call it?

Sonoma County listings progression

3/20/06 = 1742
3/26/06 = 1766
4/03/06 = 1888
4/19/06 = 2828
4/25/06 = 2868
4/30/06 = 2898
5/07/06 = 3052
5/13/06 = 3187
5/18/06 = 3310
5/25/06 = 3412


Sonoma Valley listing progression

2/14/06 = 172
2/14/06 = 183
2/24/06 = 193
2/25/06 = 200
2/27/06 = 214
3/01/06 = 219
3/04/06 = 220
3/12/06 = 230
3/20/06 = 236
3/26/06 = 238
4/03/06 = 268
4/19/06 = 291
4/25/06 = 305
4/30/06 = 315
5/07/06 = 328
5/13/06 = 346
5/18/06 = 363
5/25/06 = 372

According to's April Data for Sonoma County the average count for Days on the Market is: 85.

In April of 2005 it was 59

In Sonoma: 100
Glen Ellen: 217
Santa Rosa: 90
Rohnert Park: 69
Petaluma: 55
Sebastopol: 87
Penngrove: 98
Healdsburg: 90
Cotati: 132
Windsor: 75

“It takes a really big hit to the economy to get those falling prices."

According to Ziprealty the number of houses with recent price reductions is: 871

'"The good news here is we’re pretty strong,” Zimmerman told the conference at the Hyatt Vineyard Creek Hotel in Santa Rosa, presented by the North Bay Business Journal."

Even the sponsor for the Press Democrat's printed real estate informercials says this: (from a previously posted article)

"Increasingly, sellers must reduce their prices to attract buyers, agents and brokers said."Last year people got more than their asking price. This year it doesn't look like that and people need to price accordingly," said Rick Laws, Santa Rosa manager for Coldwell Banker, which prepares the monthly Press Democrat home sales report."

Real Estate With Split Personality?

"The National Association of Realtors said Thursday that sales of previously owned single-family homes and condominiums dropped by 2 percent last month to a seasonally adjusted sales pace of 6.76 million units."

"Sales of existing homes fell in April, and the price posted the smallest increase in 4 1/2 years, new signals that the nation's once red-hot housing market has cooled."

Yawn... does the real estate industry really need a dues collecting organization to officially bring up the rear riding a pinto and selling old news?

"Sales of both new and existing homes set new records for five straight years as the housing industry enjoyed a boom powered by the lowest mortgage rates in more than four decades.
However, rates have been rising this year, with 30-year mortgages climbing this week to a nearly four-year high of 6.62 percent, mortgage giant Freddie Mac reported Thursday."

"David Lereah, chief economist for the Realtors, said he expected the 30-year mortgage would keep rising and would be near 7 percent by the end of the year. He said that was consistent with his view that the country was heading for a soft landing in housing but not a crash."

"However, other economists worry that with a large overhang of unsold homes and rising mortgage rates, the industry could be facing a more severe outcome."

Ya think?

"Inventory levels are simply out of sight," said Joel Naroff, chief economist at Naroff Economic Advisors, a private consulting firm. "Something has got to give and that is likely to be prices."'

"For April, the total number of unsold homes hit a new record of 3.38 million units, which represented a six-month supply at the April sales pace. The time period needed to exhaust the current supply was the highest since January 1998."

"Lereah said the data the Realtors are collecting indicate the housing industry is still experiencing a split personality with once hot markets in Florida, California and Arizona slowing down while some housing markets which had been lagging behind the front-runners are starting to take off."

'"This is a tale of two markets. Half of the country is heating up and half the country is cooling off," Lereah said."

Today's Bubble History Lesson....

Headlines in History....Brought to you by Desidude who made this comment over at Ben's place.

Comment by desidude
2006-05-25 12:37:33

California History as it unfolded. thanks to a poster some time last year. we are still here.

State’s Home Sales Drop 14% Median Price Tops$200,000 for First Time
Crouch, Gregory; Los Angeles Times; May 25, 1989;pg. IV1

It extended for more than a year.

Realtors Hear Gloomy Price, Sales Forecasts
Myers, David W; Los Angeles Times; Oct 7, 1990;pg. K1

1985-1986: Housing is booming, inventory is low.

Housing Starts Surge 14.9% During January, BestGain in 20 Months
Los Angeles Times (pre-1997 Fulltext); Feb 20,1985; pg. 1

Inventory of Housing Dips in Southland Unsold New Homes Declined by 3.2% from End of 1984
DAVID M. KINCHEN; Los Angeles Times (pre-1997Fulltext); Mar 16, 1986; pg. 1

Housing Sales Boom Keeps Inventories Slim
DICK TURPIN; Los Angeles Times (pre-1997Fulltext); Aug 24, 1986; pg. 1

1987: Housing still booming, prices increasing,inventories low. High-End Home Sales Push Up Median Price
Dick Turpin; Los Angeles Times (pre-1997Fulltext); Mar 15, 1987; pg. 1

Inventory of Unsold Homes Sets New Low
Los Angeles Times (pre-1997 Fulltext); Mar 15,1987; pg. 1

Fewer Homes, High Prices as Mortgage Rates Climb
TOM FURLONG; Los Angeles Times (pre-1997Fulltext); Sep 10, 1987; pg. 1

Fixed-Mortgage Interest Rates Surge Woes Mount forHome Buyers, Brokers
TOM FURLONG; Los Angeles Times (pre-1997Fulltext); Sep 10, 1987; pg. 1

Unsold Homes Inventory Drops for Third Time
DAVID M. KINCHEN; Los Angeles Times (pre-1997Fulltext); Sep 13, 1987; pg.1

1988: People start to question the boom. Realtors assure us the boom will continue. Houses aren’t likestocks afterall.

‘88 Outlook Bright for U. S. Real Estate
Dick Turpin; Los Angeles Times (pre-1997Fulltext); Jan 10, 1988; pg. 1

County’s Median Resale Price of Homes Reaches$179,999, Costliest in California
JOHN O’DELL; Los Angeles Times (pre-1997Fulltext); Mar 23, 1988; pg. 5

Unlike Stocks, Home Prices Rarely Collapse
JAMES FLANIGAN; Los Angeles Times (pre-1997Fulltext); Aug 28, 1988; pg. 1

Southland Inventory of Unsold New Homes Lowest in Decade
DAVID M. KINCHEN; Los Angeles Times (pre-1997Fulltext); Sep 11, 1988; pg. 10

J. M. Peters Reports Skyrocketing Sales for Second Quarter
MICHAEL FLAGG; Los Angeles Times (pre-1997Fulltext); Sep 14, 1988; pg. 5

Limit Issue Driving Up Home Prices
Dick Turpin; Los Angeles Times (pre-1997Fulltext); Sep 18, 1988; pg. 1

Hot Housing Sales Belie Doom Forecast
Ryon, Ruth; Los Angeles Times; Sep 25, 1988; Vol.107, Iss. 297; 8; pg. 1

1989: Prices are very expensive; affordability anissue. Sales slow and prices drop. Mention of riskyloan types.

Housing Prices in State Climb 3% in February
Furlong, Tom; Los Angeles Times; Mar 29, 1989;Vol. 108, Iss. 116; 4; pg. 1

Stock of Unsold Homes Drops Dramatically
DAVID M. KINCHEN; Los Angeles Times (pre-1997Fulltext); Apr 2, 1989; pg. 9

How First-Time Buyers Can Get Their Piece of the Dream
Myers, David W; Los Angeles Times; May 21, 1989;pg. VIII1

State’s Home Sales Drop 14% Median Price Tops $200,000 for First Time
Crouch, Gregory; Los Angeles Times; May 25, 1989;pg. IV1

Sales of Existing Homes in State Fall During May
Furlong, Tom; Los Angeles Times; Jun 23, 1989;Vol. 108, Iss. 202; 4; pg. 1

Orange County Home Sales Drop by 22% in May
TOM FURLONG; Los Angeles Times (pre-1997Fulltext); Jun 23, 1989; pg. 1

Realtors Tackle New Topic: How to Handle SlowHousing Market
Myers, David W; Los Angeles Times; Oct 1, 1989;pg. VIII1

Prices Drop, Sales Slow in State’s Housing Market
TOM FURLONG; Los Angeles Times (pre-1997Fulltext); Nov 29, 1989; pg. 1

Housing Affordability Rises Outside L.A., Orange County
Kristof, Kathy M.; Los Angeles Times; Dec 06,1989; Vol. 109, Iss. 3; D; pg. 1

Survey Cites Four California Banks With Possibly Risky Realty Loans
JAMES BATES; Los Angeles Times (pre-1997Fulltext); Dec 30, 1989; pg. 1

1990: Prices take a serious plunge. One article claimsthat housing booms are a bad thing and we should hopeprices stay low. Increasing mortgage rates are blamedfor the bust. The word “recession” is mentioned. Gloomand doom.

Home Sales in Southland Plunge in ‘89
Samuels, Alisa; Los Angeles Times; Feb 8, 1990;pg. D2

The Number of Homes for Sale Sets a Record
RealEstate: San Diego becomes buyer’s market, with 4,000 existing homes listed in January.
GREG JOHNSON; Los Angeles Times (pre-1997Fulltext); Feb 13, 1990; pg. 2.A

Pray That the Housing Boom Stays Dead
Jones, Robert A; Los Angeles Times; Apr 24, 1990;pg. A3

Climbing Mortgage Rates Hurt Existing Home Sales
Samuels, Alisa; Los Angeles Times; Apr 26, 1990;Vol. 109, Iss. 144; D; pg. 3

California Is Nearing the Edge of Recession, UCLA Forecast Warns
Anderson, Harry; Los Angeles Times; Jun 29, 1990;Vol. 109, Iss. 208; D; pg. 1

California Real Estate Market Continues to Cool
TOM FURLONG; Los Angeles Times (pre-1997Fulltext); Jul 26, 1990; pg. 1

Home Sales in July at Slowest Pace in 4 1/2 Years
Furlong, Tom; Los Angeles Times; Aug 28, 1990;Vol. 109, Iss. 268; D; pg. 2

Realtors Hear Gloomy Price, Sales Forecasts
Myers, David W; Los Angeles Times; Oct 7, 1990;pg. K1

O.C. Home Resales, Prices Fall Sharply Housing:Realtors group attributes slump in county and statefigures to fears of recession.
MICHAEL FLAGG; Los Angeles Times (pre-1997Fulltext); Oct 26, 1990; pg. 5

Housing Slump in California Seen Worsening
TOM FURLONG; Los Angeles Times (pre-1997Fulltext); Nov 21, 1990; pg. 1

1991: A “dead cat bounce”? Some folks wondering if the bust has bottomed out or not. Sales are abysmal (e.g.,-42%). Other parts of the country showing some signs of recovery. Back to Basics
Inman, Bradley; Los Angeles Times; Jan 20, 1991;pg. K1

Re-Assessing When Home Prices Fall
Boyer, Jeanne; Los Angeles Times; Feb 3, 1991; pg.K1

California Still Among Lagging Areas, Fed Says
JAMES RISEN; Los Angeles Times (pre-1997Fulltext); May 2, 1991; pg. 1

Reading Signs–Is Market at Bottom?
Inman, Bradley; Los Angeles Times; Sep 8, 1991;pg. K1

County’s New-Home Sales Plunge 42% for Quarter *Real estate: New figures indicate the market issputtering again after a brief recovery. The inventory of unsold houses rose by 15%.
GREGORY CROUCH; Los Angeles Times (pre-1997Fulltext); Oct 4, 1991; pg. 5

Home Sales Decline in California
Los Angeles Times; Nov 26, 1991; pg. D1

Home Sales Decline in California Housing: The drop in mortgage rates fails to spur sales in the state,but sales of existing homes across the country edge up in October.
Los Angeles Times (pre-1997 Fulltext); Nov 26,1991; pg. 1

1992: No one is buying; housing is an investment that no one will touch. Desperate political efforts beingmade to encourage house buying. Rock bottom prices andlower mortgage rates encourage some purchasing. The year ends with some buying. Another “dead cat bounce”? It’s not clear.

Move-Up Home Buyers Pretty Much Left Out Realestate: While Bush’s plan may boost first-timepurchases, it does little to dispel caution in theother key housing sector.
JUBE SHIVER Jr.; Los Angeles Times (pre-1997Fulltext); Jan 30, 1992; pg. 4

Home Sales in State Fell 6.2% in 1991
Shiver, Jube, Jr.; Los Angeles Times; Feb 12,1992; D; pg. 1

Spring Thaw Real estate: The local housing marketis showing signs of recovery. More realistic selling prices and reasonable interest rates have helped to spur sales.
PATRICIA WARD BIEDERMAN; Los Angeles Times(pre-1997 Fulltext); Mar 26, 1992; pg. 1

Housing Starts Increase 6.4% to 2-Year High *Economy: A strong surge in apartment building leads the way, providing economists with more evidence of a sustained recovery.
JUBE SHIVER Jr.; Los Angeles Times (pre-1997Fulltext); Apr 18, 1992; pg. 1

June Home Sales 3.5% over May but Trail 1991 Figure
Los Angeles Times; Aug 2, 1992; pg. K1

August Housing Starts Rebound 10.4%,
Marshall, Matt; Los Angeles Times; Sep 23, 1992;D; pg. 1

California Home Sales Surge
Myers, David W; Los Angeles Times; Nov 25, 1992;pg. D1

Sales of Existing Homes in California Rise Again
Myers, David W; Los Angeles Times; Dec 24, 1992;pg. D1

1993: It’s definitely a buyer’s market. Some people are saddened by the fact that current prices are 50% of what they were in the 1980’s.

The housing bust in Southern California is clearly negatively impacting the California economy and the national economy at large. Sellers are desperate to sell (and some peopletaking extreme measures like putting huge “for sale”signs on their lawns for passing planes to see). Folks who waited out the boom to buy at the bottom are being handsomely rewarded for their patience. Proof-positive of the contrarian investing style — be greedy when everyone is fearful and fearful when everyone is greedy. The “slump” may be ending.

Long Southland Housing Slump Finally Ending?
DAVID W. MYERS; Los Angeles Times (pre-1997Fulltext); Feb 10, 1993; pg. 1

Housing Market Warming Up After 3-Year Slump Realestate: Optimism returns to Southland with rising sales. Number of homes on market is down.
DAVID W. MYERS; Los Angeles Times (pre-1997Fulltext); Feb 10, 1993; pg. 1

A sad Westside story: Home prices have declined up to 50% since late 1980s
Myers, David W; Los Angeles Times; May 28, 1993;D; pg. 1

Couple Put Up a Big Sign of the Real Estate Slump Housing: They write `For Sale’ in huge letters ontheir lawn, hoping to attract attention frompassengers in planes and jets on flight path to LAX.
DICK WAGNER; Los Angeles Times (pre-1997; Apr 29,1993; pg. 8

Home Sales in County Climb by 3% Real estate: The market bucks the downward trend of neighboring areas. But analysts say don’t be too optimistic.
STEPHANIE SIMON; Los Angeles Times (pre-1997Fulltext); May 28, 1993; pg. 1

It’s a Buyer’s Market as Peninsula Home Prices Tumble Real estate: Younger families are taking another look at an area that was once beyond their economic grasp. This could revitalize the school district.
TED JOHNSON; Los Angeles Times (pre-1997; Jun 24,1993; pg. 3

Home Sales Up 6.3% in State, 4.6% Nationwide RealEstate: Analysts credit low interest rates and saybuyers are beginning to think that prices may have bottomed out.
DAVID W. MYERS; Los Angeles Times (pre-1997Fulltext); Jun 26, 1993; pg. 1

California’s real estate slump deepens
Miller, Greg; Los Angeles Times; Jul 27, 1993; pg.D2

Southland home values lead U.S.–Downward
Myers, David W; Los Angeles Times; Aug 4, 1993;pg. D1

Bottom Line: Housing Market May Be Mending RealEstate: Despite a three-year slump, experts say prices are stabilizing, especially for homes under $500,000.
PATRICIA WARD BIEDERMAN; Los Angeles Times(pre-1997 Fulltext); Aug 22, 1993; pg. 1

Buyers Seek Bargains as Home Prices Keep Sliding Real estate: La Canada Flintridge emerges as brightspot with a nearly 21% increase in sales over sameperiod last year.
ANDREW LePAGE; Los Angeles Times (pre-1997Fulltext); Sep 2, 1993; pg. 1

Sitting on the market: After the cash, owners adjust to the region’s housing slump
Myers, David W; Los Angeles Times; Sep 20, 1993;D; pg. 1

State’s bargain hunters boost new-home sales to 3-year high
Myers, David W; Los Angeles Times; Oct 1, 1993;pg. D1

Home Sales Rise Sharply in State, Nation Realestate: Size of increase surprises housing analysts.Median price in California is down 4.3% from 1992 figure.
DAVID W. MYERS; Los Angeles Times (pre-1997Fulltext); Oct 26, 1993; pg. 2

Jump in new-home sales spurs hopes of long-awaited revival
Myers, David W; Los Angeles Times; Nov 3, 1993;pg. D1

Drop in Southland Home Sales Slows in First 10 Months of ‘93
Los Angeles Times (pre-1997 Fulltext); Nov 28,1993; pg. 4

U.S. home sales hit 14-year high
Myers, David W; Los Angeles Times; Nov 30, 1993;pg. D1

Slump in O.C. Housing Market May Be Ending Realestate: November figures show a major year-to-year increase in the number of units sold. Median price still sags.
JOHN O’DELL; Los Angeles Times (pre-1997Fulltext); Dec 21, 1993; pg. 1

1994: Housing begins its comeback. People who had the intelligence to wait for the bottom are buying now at great values. Even rising mortgage rates are not shaking the recovery.

Bright Spots Some Areas Showing Signs of RecoveryAfter Four-Year Slump in Home Prices
Los Angeles Times (pre-1997 Fulltext); Jan 16,1994; pg. 1

Lenders scramble to keep housing comeback alive
Myers, David W; Los Angeles Times; Mar 30, 1994;D; pg. 1

First-Time Buyers Who Waited Spark Housing Rebound Real estate: After years of ice-cold sales, the city’s Westside market is finally starting to heat up.
SCOTT SHIBUYA BROWN; Los Angeles Times (pre-1997Fulltext); Jun 5, 1994; pg. 10

Home Sales Up 24% From Last Year
Los Angeles Times (pre-1997 Fulltext); Jun 26,1994; pg. 6

June Home Sales Best in 5 Years Ventura County Is Leader
Jack Searles; Los Angeles Times (pre-1997Fulltext); Jul 26, 1994; pg. 8

Rising mortgage rates shake but don’t break state housing industry
Lee, Patrick; Los Angeles Times; Oct 7, 1994; pg.D1

1995: Some parts of the Southland are recovering others are not. People with “negative equity” are in despair.

Home Sales Rise 10.5% in State, Hit 5-Year High
JAMES F. PELTZ; Los Angeles Times (pre-1997Fulltext); Feb 9, 1995; pg. 1

Southland Home Price Rebound Fails to Appear
JESUS SANCHEZ; Los Angeles Times (pre-1997Fulltext); May 22, 1995; pg. 1

County Home Sales Slide 20.4% in May
DAVID R. BAKER; Los Angeles Times (pre-1997Fulltext); Jun 13, 1995; pg. 1

Home sales surge 19% in May, raising doubts of rate cut
Mowbray, Rebecca; Los Angeles Times; Jun 30, 1995;D; pg. 1

Study of Homeowners Finds `Negative Equity’ a Problem
Real estate: Nearly 5% owe more than homes areworth. Impact hinders the state’s economy, experts say.
DEBORA VRANA; Los Angeles Times (pre-1997Fulltext); Jul 6, 1995; pg. 1

O.C. Real Estate Sales Drop Property: Preliminary figures for July suggest the county’s housing marketis still in a slump.
DEBORA VRANA; Los Angeles Times (pre-1997Fulltext); Aug 1, 1995; pg. 1

1996: A tentative recovery is still in the making.
State’s housing market finally in turnaround

Sanchez, Jesus; Los Angeles Times; Oct 25, 1996;pg. D1, 1

O.C. homeowners more confident
Fulmer, Melinda; Los Angeles Times; Dec 3, 1996;pg. D.2

Ready to fly? Region’s housing prices on rise,moderately
Sanchez, Jesus; Los Angeles Times; Dec 29, 1996;pg. D.1

1997: Finally, housing has recovered.
Southland Home Sales Are Unseasonably Hot Realestate: In O.C., October sales were 46.5% higher thanlast year. Median price of $208,000 was highest since1994.

E. SCOTT RECKARD; Los Angeles Times; Nov 14, 1997;pg. 1

Median Price for O.C. Homes Surges 10.5%
E. SCOTT RECKARD; Los Angeles Times; Dec 10, 1997;

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