Sonoma Housing Bubble

Pulling the cork out of Sonoma's bubbly housing foolishness

Tuesday, March 20, 2007

When Your Ride Costs More Than Your Crib

What's a F'ed Borrower to do? That seems to be the situation that's happening in the state of Michigan where residents are now finding that it costs more to drive around than it does to stay at home, and they haven't even figured in the cost of gas vs heating oil.

Even though Detroit never suffered from the huge RE run-ups that the rest of the country did, it spared them the pain, as the city has lost more than 50% of its' population in the last 30 years.
With bidding stalled on some of the least desirable residences in Detroit's collapsing housing market, even the fast-talking auctioneer was feeling the stress.

"Folks, the ground underneath the house goes with it. You do know that, right?" he offered.

After selling house after house in the Motor City for less than the $29,000 it costs to buy the average new car, the auctioneer tried a new line: "The lumber in the house is worth more than that!"

As Detroit reels from job losses in the U.S. auto industry, the depressed city has emerged as a boomtown in one area: foreclosed property.

It also stands as a case study in the economic pain from a housing bust as analysts consider whether a developing crisis in mortgages to high-risk borrowers will trigger a slowdown in the broader U.S. economy.

The rising cost of mortgage financing for Detroit borrowers with weak credit has added to the downdraft from a slumping local economy to send home values plunging faster than many investors anticipated a few months ago.

At a weekend sale of about 300 Detroit-area houses by Texas-based auction firm Hudson & Marshall, the mood was marked more by fear than greed.

Wow! When Fear trumps Greed, that's news any day.

Now Detroit is a long ways away from our little Valley here, but we're all impacted by the same economy . The same boom or loss in jobs sends rippples right over the Rockies and no one is immune. One can blame the RE disaster in MoTown on job loss, the collapse of the American automotive industry, but one very telling statement was this:

But investors, including some from out of state, proved far more cautious at Sunday's auction.

In the most spirited bidding of the day, a sprawling, four-bedroom mansion from Detroit's boom days with an ornate stone entrance fetched just $135,000.

Dave Webb, principal at Hudson & Marshall, said Michigan had become a "heavy volume" market for his auction firm in recent years, although bigger-money deals were waiting in California, a market he said was ready for the first such auctions of repossessed property in years.

"These people that are buying have got to look at holding on for five to seven years," he said. "The key is holding power."

So this guy is looking forward to coming west to Cali? We're getting ready for an all you can eat RE smorgey here. Detroit is just an appetizer. A veritible garnish on the investment plate.

Now, as to what's happening in the Spy Vs Spy world of subprime lenders, get ready for another implosion. Remember all those Ameriquestads back in the good ol' days of say 5 minutes ago? Ameriquest, one of the biggest subprime lenders and arch-rival of New Century just got a great big Ka-Pow right in the snoot.

The parent of Ameriquest Mortgage Co., once the biggest provider of home loans to Americans with checkered credit, fired a large number of its workers Thursday and closed six operations centers around the country in a bid to survive the shakeout in sub-prime lending.

Two years ago, Orange-based Ameriquest was at the top of the game — sponsoring the Rolling Stones on tour and the halftime show at Super Bowl XXXIX. Its founder, Los Angeles billionaire Roland Arnall, was a major political donor who was later named U.S. ambassador to the Netherlands.

Does this mean the guy has to come home from Amsterdam? Since they're closing loan centers, they're going to be tightening the old belt buckle personnelwise.

Ameriquest Vice Chairman Adam Bass declined to say how many employees were dismissed, saying only that it was a "significant number" of the company's 6,000 employees. At its peak, the privately held company employed 15,000 people across the country.

"It was a tough day," Bass said. "Our employees are really good people."

The company told workers not to talk to outsiders. One supervisor, who asked not to be named because he was not authorized to speak, said 3,000 people would get pink slips, with more layoffs to come. The supervisor also said salaries of remaining employees had been frozen and bonuses cut in half.

And finally, just to show that "the world is a circle" and we all land someplace on the Great Housing Mandala, It seems that people caught with soap scum from the bubble all over their mitts, here in Sonoma (and Cali in general) aren't buying the cars they normally would have. Who pays the price for that? The folks in Detroit.

California and Florida alone - usually the No. 1 and No. 2 automotive markets in the United States - are experiencing such weak housing markets that they are largely responsible for that decline, as well as the nation's overall 2.4 percent decrease in auto sales, said Art Spinella, president of CNW Marketing Research in Bandon, Ore.

"The housing market and especially home values are behind much of the auto industry's stumbling," Spinella said.

And if one didn't understand it before,
Edward Leamer, a professor of management, economics and statistics and the director of the Anderson Forecast at UCLA, said there are many parallels between the housing and automotive markets and their current suffering.

Low interest rates set by the Federal Reserve in recent years encouraged aggressive lending practices in both industries to entice consumers to make purchases sooner than they should have, he said.

That environment also allowed more leniencies for customers with risky credit profiles.

But now homes aren't appreciating enough to cover the risk for some of those customers, and auto owners are often underwater on their loans.

Consequently, there aren't as many buyers for homes or autos these days.

I'll make it even easier, after all The Lion King said it best.
Some say eat or be eaten
Some say live and let live
But all are agreed as they join the stampede
You should never take more than you give
(more song)

Some of us fall by the wayside
And some of us soar to the stars
And some of us sail through our troubles
And some have to live with the scars


At 3/20/2007 02:42:00 PM , Anonymous TS said...

But,But,It was only last june that our own dr.eyler said there was no chance of a decline in prices within 50 miles of the coast!and now even the esteemed dr.cagan,despite his assurances that the problem is confined to subprime...says that 1.1 million foreclosures will occur over the next 7 years as long as prices stay flat! where is gary watts,where is suzanne!! i feel so lonely.

At 3/20/2007 06:17:00 PM , Anonymous Bob said...

But Athena you forget that Sonoma is different. You are a key wine region after all and when the #$#%# hits the fan in the economy, people will want to drink more to forget their woes, wine industry will prosper and Sonoma housing prices will skyrocket!!!

(or is that the region where they grow and make two buck chuck will prosper...too confusing....need another glass of wine)

At 3/20/2007 06:23:00 PM , Blogger moonvalley said...

I see malpractice in dr. eyler and dr. cagans' future.

At 3/20/2007 09:57:00 PM , Anonymous tom stone said...

MV,the good doctors need not worry,they may BE abortions,but they are not abortion doctors.This is getting ugly fast,and it looks like it will stay ugly for years,calculated risk had a link to a map showing mortgage resets,and when they hit.5 years of resets to go.Alt-a is going down hard,and prime will be hitting the skids pdq.LEND sold a $2.7 Billion portfolio of loans made this year for $1.7 billion.sonoma will be referred to as "whine country" soon.

At 3/20/2007 11:04:00 PM , Blogger dimitris said...

Bob, Sonoma is different. The weather is nice as well. Prices can only go up up.

At 3/20/2007 11:45:00 PM , Blogger Athena said...

right... the rich that come here are the real rich who can afford to be here. locals may not be able to afford buying, but we don't need them to. there will always be people with money who want to live the lifestyle here. no reason to worry here. don't you love the new countrywide building downtown?

At 3/21/2007 12:26:00 AM , Blogger moonvalley said...

you mean the place that was always the going out of business restaurants??? That's a real permanent spot.

At 3/21/2007 12:57:00 PM , Blogger Athena said...

yup! When their fearless leader walks out in cuffs and the authorities padlock the door, do you think they will just say it was a building curse?

At 3/21/2007 07:44:00 PM , Anonymous Anonymous said...

At 3/22/2007 04:09:00 PM , Anonymous marinite said...

Hey, our Baghdad-Lereah pic made it into the video! Coolio. We are anonymously famous internet style.

At 3/22/2007 05:07:00 PM , Anonymous tom stone said...

got to go to a seminar on appraisal fraud put on by OREA today.the good news is that the enforcement staff was increased 121/2% percent this there are 8 investigators statewide.8.they investigate about 250 cases a year.he did comment that we are in a declining market,that he knew they saw only the tio of the iceberg,and mentioned the reluctance of lenders to report appraisal fraud to OREA.common problems were "supervising" appraisers who "supervised" 20 or more trainees at once,and some who shared their digital signatures with all and sundry."we know there are a lot of bad things happening out there".bottom line? understaffed,underfunded,little cooperation from the lenders.talked to one appraiser who refuses jobs in one modesto subdivision,he told me there were so many flips between a gang of loan and real estate brokers that an appraisal was impossible.

At 3/22/2007 08:03:00 PM , Blogger marin_explorer said...

Wow, that pic sure got around! We need something of similar visibility for this blog. Maybe when I get up to Sonoma to visit I can put one together.

At 3/22/2007 10:49:00 PM , Blogger Athena said...

Yay! Marinite, you are Awesome! I love that picture! we totally need to do a video about the sonoma/marin bubble and put it out there!

At 3/23/2007 09:44:00 AM , Anonymous marinite said...

Marin_Explorer actually did the meld of Lereah's face and Baghdad Bob. A reader took the pic and added the book and sock puppet after a number of commentors said that is what was needed.

At 3/23/2007 09:45:00 AM , Anonymous marinite said...

A spoof video would be so awesome.

Hah! My word verification for this comment was "bblbbl".

At 3/23/2007 10:36:00 AM , Blogger marin_explorer said...


So I've been thinking of a fitting visual for Sonoma RE in the form of a wine bottle, filled with inverted homes and a label reading:

"Sonoma Upside-Down Vineyards"
(Real) Estate Bottled 2007
A fine red (ink) vintage, to be served with foreclosure, bankruptcies, or any form of financial disaster."

And perhaps our resident writer, MV, has some better wordcraft?

At 3/23/2007 11:22:00 AM , Anonymous marinite said...

My vision was a bunch of bare foot Sonomites stomping around in a vat of grapes to produce wine. Except the grapes were houses, and what was coming out of the vat's spigot was blood.

At 3/23/2007 11:57:00 AM , Blogger marin_explorer said...

Wow, now there's an apocalyptic vision. Perhaps it should also include the Four Horsemen, with their appropriate titles?

At 3/23/2007 12:46:00 PM , Blogger Athena said...

omg! I love the grape stomping idea as well as the wine label! we must do that. We can create little souvenir items. Did you guys ever see the tshirts that Harm made us for the blog party at Surfer X's house in Santa Barbara last Labor Day? Mine is so awesome. I hear rumors of another one coming up in Marin. Are you guys in or what?

At 3/23/2007 03:45:00 PM , Anonymous marinite said...

By the way, I am so pissed off about the possibility of bail outs that I started a Wiki letter where people can contribute to crafting a killer letter to our elected officials. The idea is that anyone can copy-and-paste it into an email or print it out and mail it.

Anyone can view it. You have to be invited by me to edit it.

The first draft can be found here:

You are all welcome to join and edit it.

At 3/23/2007 08:51:00 PM , Blogger marin_explorer said...

You are all welcome to join and edit it.

Sure thing--if I can mention the Four Horsemen of the housing (credit) apocalyse.

At 3/24/2007 09:25:00 AM , Blogger marin_explorer said...

And Marinite, glad you resurrected your blog!

At 3/24/2007 11:54:00 AM , Blogger Marinite said...

Sure thing--if I can mention the Four Horsemen of the housing (credit) apocalyse.

Ok, so I have got to ask what's up with the "four horsement of the apocalypse"? Yes, I know about the biblical tale/prediction. But how does tha tie in neatly with the housing bubble other than a lot of financial pain? Please explain it to me.

At 3/24/2007 11:56:00 AM , Blogger Marinite said...

And Marinite, glad you resurrected your blog!

I'll send you an invite shortly.

At 3/24/2007 12:39:00 PM , Blogger marin_explorer said...

Ok, so I have got to ask what's up with the "four horsemen of the apocalypse"?

Yeah-- the same old book with a bloody winepress mentions four horsemen. It was probably the several glasses of wine I had, but I can easily see waves of crises ahead for homedebtors. I might name the four Foreclosure/Bankruptcy, Financial/Social Chaos, Abject Poverty, and finally Suicide. Like I said, this involved some drink.

At 3/24/2007 01:41:00 PM , Blogger AnalysisGuy said...

The nice about those of us in California is that we're all different. Remember the last runup since we were different we didn't ... oh wait ... we did have a HUGE drop. Damn.

Anyhow, I just shoot up a report on a new city. San Luis Obispo.

SLO Report

At 3/26/2007 05:17:00 PM , Blogger moonvalley said...

so glad you're back. I've missed your blog.

At 3/26/2007 10:23:00 PM , Blogger Marinite said...

You know, when I started my blog there were like a handful of blogs. Bubble Meter, Ben's blog, Housing Blog, come to mind. Then there were all the blogs like Mish's, Greenspan Mess...not really housing bubble blogs per se but contrarian economic analysis. Now bubble blogs are all over the fricken place. And everyone wants to cross-link! If I cross-linked everyone then my right margin would be nothing but bubble blogs. Seriously, I secretly wish someone would take up the Marin bubble torch and let me return to my bomb shelter. But then the IJ says something really shamelessly self-serving or some realtor hack comes in with her 2 years of high school education and pukes her hype and what can a sane, rational person do? If people haven't gotten the message yet then they deserve what's coming.

At 3/27/2007 07:08:00 PM , Blogger moonvalley said...

one of my buds up here in Sonoma is a fan having grown up in Marin. I'm gonna tell him you're back.

At 3/28/2007 10:40:00 AM , Anonymous Anonymous said...

"Ride" and "Crib"...

Isn't a "ride" what you give to someone too young to drive?

And isn't a "crib" something a BABY sleeps in?


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