Sonoma Housing Bubble

Pulling the cork out of Sonoma's bubbly housing foolishness

Thursday, August 09, 2007

Sub-Prime Patty Meltdown, Or How Those Subprime Mortages Keep Coming Back Like A Bad Hungarian Dinner...

The Dow has gone looking for the Titanic this afternoon as the French get antsy about all those wonky subprimes they invested in, and who can blame them?

Wall Street plunged again Thursday after a French bank said it was freezing three funds that invested in U.S. subprime mortgages because it was unable to properly value their assets. The Dow Jones industrials extended its series of triple-digit swings, this time falling more than 380 points

The safe has been dropped into the middle of the US Credit Market and the real tsunami hasn't yet been felt. The only Ripples we're talking here is the cheap wine the brokers are going to be drowing their sorrows in. The days of Chateau Mont Helena are gone. Welcome to the real world, and the reality based financial community.

A move by the European Central Bank to provide more cash to money markets intensified Wall Street's angst. Although the bank's loan of more than $130 billion in overnight funds to banks at a low rate of 4 percent was intended to calm investors, Wall Street saw it as confirmation of the credit markets' problems. It was the ECB's biggest injection ever.

The Federal Reserve added a larger-than-normal $24 billion in temporary reserves to the U.S. banking system.

There's only so long that one can live in denial. Even Cleopatra had to get off her barge once in a while. This situation is more than Joe, and Jane Doe with the suicide loan or the giganto HELOC swimming sideways toward the drain. It impacts the prudent and the imprudent alike. Worldwide.

The ECB's injection of money into the system is an unprecedented move, said Joseph V. Battipaglia, chief investment officer at Ryan Beck & Co., adding that it shows that problems in subprime lending are, in fact, spilling into the general economy.

"This is a mini-panic," he said. "All the things that had been denied up until this point are unraveling. On top of this, retail sales were mediocre, which shows that indeed, the housing collapse is affecting the consumer."

Yeah, and that includes even those of us who've sat this dance out. The band is packing up, don't look at us to pay the tab.
I was particularly struck by this little incident when the "other" Cramer had his own meltdown last night.

If you want to get a general idea of things just watch the little birds that have been living off the dung on the housing rhinos back for the last five years. Can you say Hakuna Matata!

In another sign of credit market trouble, Home Depot Inc. warned that the sale of its wholesale business might bring in less than expected. The world's largest home improvement retailer, which also cut how much it intends to pay to repurchase stock, said volatility in the stock, debt and housing markets has led to the possible repricing. Home Depot fell $2.01, or 5.3 percent, to $35.79, and was the worst performer of the 30 Dow components.

But American International Group Inc., one of the world's largest insurers, on Thursday reassured investors that it remains comfortable with its exposure to the subprime lending market as an investor, lender and mortgage insurer. AIG, which reported a 34 percent jump in second-quarter profit late Wednesday, said it has enough cash and liquidity and "does not need to liquidate any investment securities in a chaotic market."

AIG fell $2.18, or 3.3 percent, to $64.30.

Of course this headline probably didn't help.
Mortgage delinquencies, defaults spreading: AIG

Let me get this straight, they're not worried about anything, and yet they're warning their investors. Ok.

While saying most of its mortgage insurance and residential loans were safe, AIG made a presentation to analysts and investors that showed delinquencies are becoming more common among borrowers in the category just above subprime.

Although acknowledging the "significant declines" in subprime securities, Chief Executive Martin Sullivan said AIG's tight underwriting standards had minimized losses and he was "poised to take advantage of opportunities" in the mortgage market.

But it was clear the overall market was getting worse.

"We are experiencing stress in the Midwest markets where jobs have been lost and we are now seeing it in Florida and California," said William Nutt Jr., chief executive of AIG's mortgage insurance arm.

Everything's A-OK, except where it's not.

Yeah, and other than that how did you like the play Mrs. Lincoln?

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At 8/09/2007 07:05:00 PM , Anonymous jjs said...

Jim was spot on. Things are great for Wall Street and no where else, certainly not the middle class. We're scared like we were in the 80s. We're screwed and we know it. Damn, there goes the 401k again. Now we've lost the investment our home brought us. Bernanke's no genius, that's for sure.

At 8/09/2007 10:54:00 PM , Blogger Tyrone said...

This comment has been removed by the author.

At 8/09/2007 10:55:00 PM , Blogger Tyrone said...

Zillow has 1600 homes for sale in Santa Rosa. Random properties show a lot of problems.

e.g. 464 UMLAND DR

Zillow Sale History
06/20/2007: $427,352

Ziprealty shows it just hit the market price at $427,352

I suppose this is the price the bank took it back at, now it's back on the market. The pictures show the house has been vacant for quite a while.

At 8/10/2007 12:44:00 AM , Anonymous Anonymous said...

Check the county assesor web site:

464 Umland Dr. a repo and is now owned by Deutsche Bank. Someone bought it for 505k on 4/28/2006.

SR RE is tanking. I see quite a few repos that the banks are unable to sell even with 15-20% drops from the sale price of 2-3 years ago.

And then there's the Chanate Village auction!

At 8/10/2007 09:42:00 AM , Blogger moonvalley said...

Deutsche Bank??? well, that tells us something right there.

At 8/10/2007 10:08:00 AM , Anonymous Kurt said...

Hello Athena and MV!
What is DB doing w/ Sonoma RE? Well, I've kept my nose out of the bubble for a while, but what we predicted months ago seems to be now hitting the fan. And my larger suspicion--this credit bubble has been shouldered by the intl. markets, appears to ring true. I'm rather glad my own exposure is minimal, but what happens when all this liquidity drains away? That's 'gonna leave a mark'. ;-)


At 8/10/2007 10:11:00 AM , Blogger moonvalley said...

And than Chanate Village and the auction there.
. Some of the properties have minimum bids of $200,000 below the seller's original asking price. The builder is willing to take the price cut in order to get the homes off the books.

that must make the neighbors happy.

Owners of the 11 other homes in the development may not be happy with the lowered prices, but Kennedy Wilson President Rhett Winchell notes that empty townhomes lingering on the market for another year would be even more harmful to property values.

but this is the quote I loved best:
"It's a great marketing tool we've discovered and it's a way to move your product faster," said Centennial Homes division President Jim Clifford. "Now that I'm more educated on it, I might even use it in the good times."

Yeah. Sure ya will. What were these palaces selling for originally? Anyone know?

At 8/10/2007 10:14:00 AM , Blogger moonvalley said...

Aomost forgot, here's the story those remarks came from.

At 8/10/2007 11:08:00 AM , Blogger moonvalley said...

Kurt, talk about leaving a mark, it's gonna be the mother of all bathtub rings!

At 8/10/2007 11:50:00 AM , Anonymous Anonymous said...

Look at; there
are several models. Data for cheapest:

Min bid: $260k
Previous asking price: $419k

I don't know the sale prices of the units that have already sold.

I don't know if this auction has those sleazy hidden "reserve prices".

At 8/10/2007 12:02:00 PM , Blogger moonvalley said...

no wonder the neighbors are peeved.

At 8/10/2007 05:11:00 PM , Anonymous tom stone said...

I saw the sign twirler for the auction,but did not check it out.I did watch these units going up last winter,they are made of soggy cardboard...wood chips in a matrix of epoxy,soaking wet from the rains.I wonder if the mold is more toxic than the acetone they outgas?as far as the market,Indymac pulled their signature 12MAT arm,they are honoring locks,but if you want the lock extended the cost is 10 points.10%.NOT 10 basis points.Prime jumbo's are still available at 7.5%-8% with 20% down and good credit,but after August 15th,all bets are off.why 8/15? that is when the next window opens for hedge fund day long.then you wait 45 days to get your $ because they will need to sell some of those lovely rmbs to raise the $ to pay you.However there is NO MARKET for Alt-A right now.NONE.subprime AAA rated tranches will still sell if discounted 30% or so.Fitch reported this week that they were now going to consider debt to income ratios and dig deep down to the state level when measuring the risk of mbs... just think about being the defense lawyer for these guys "our risk model did not have enough fields to include DTI"...the deathblow was delivered by GW when he announced the markets were working and that real estate was assured of a soft landing.

At 8/10/2007 08:04:00 PM , Blogger Tyrone said...

7 new listings from Zip Realty. Here is one:
Sale History
01/31/2007: $1,052,000
05/14/1998: $520,000
10/14/1997: $394,000

List Price: $1,200,000

The house is in the middle of remodel. You have to see the pictures. Keep dreaming, bagholders! LOL

At 8/10/2007 11:03:00 PM , Blogger moonvalley said...

geeze, I was talking to a friend the other day who was literally watching the DJ sink as GW was giving his speech.

At 8/11/2007 09:46:00 AM , Anonymous crashwatcher said...

Prices of 3 bed 2 bath homes in the 95401 area down 15-25% from the 2005 peak, and they still seem way over priced.
I saw that Bush speech, I don't think anyone has uttered the words "soft landing" in over six months. What a monkey.

At 8/11/2007 10:50:00 AM , Blogger moonvalley said...

In case anyone wants to know, there was a piece in the Mercury News this morning about the percentage of jumbo loans taken on first mortgages here in the Bay Area....look where Sonoma comes in.
Percent of Bay Area counties' home purchase loans considered jumbo loans - over $417,000 - from January to June 2007.
Alameda 56.8
Contra Costa 54
Marin 78.4
Napa 51.2
Santa Clara 72.7
San Francisco 77.2
San Mateo 78.8
Solano 29.8
Sonoma 39.3
Bay Area 61.9

At 8/11/2007 11:47:00 AM , Anonymous tom stone said...

GW is inarguably the greatest American President to take office in this century...and will be until the second one takes office.One thing I did not bring up beacause I thought it too obvious is that the Rate changes,underwriting requirements and changes in product mix by lenders dropped the value of ALL california homes roughly 12% in the last 8 days.bye bye buyers...and "refi" will once again be considered an odd name for a toy poodle.

At 8/11/2007 12:41:00 PM , Anonymous Anonymous said...

I propose a competition for favorite repo/failed flip. Here's my candidate:

507 Alderbrook, SR; MLS 20728010

non-flipper last had it priced at $423 before being repo'ed; bank is now trying to sell it for $479. Oh yeah, BTW, it's an "unfinished remodel". bwahhahhahhah. Meaning the exterior walls look like chickenwire embedded in asphalt, complete with peeling panels. They did manage to sort of cut the grass since the MLS photos were taken.

Right across the steet is a failed flip, with a $125k, 1-year haircut (and still no sale). I wonder who cut the grass on the repo...

At 8/11/2007 08:38:00 PM , Blogger Lisa said...

Remember last year when we were all complaining that this was like watching paint dry, that the RE bubble was taking forever to deflate?

Well, this week was breathtaking. Voodoo financing is almost extinct. It is now much more difficult to get a jumbo loan, which pretty much everyone in the Bay Area needs to purchase a home, especially if you're a first time buyer with no equity from your previous home to leverage.

I think the market is toast, and I think the credit meltdown last week was the tipping point we've been waiting for. The central banks cannot dump billions into the financial system every time a hedge fund goes belly up. And besides, what the Fed did was only a 3 day loan. It doesn't do anything to permanently inject liquidity into the market.

If there really is no more secondary market for mortgage junk, the game is OVER. No one can afford to have these loans on their books.

At 8/11/2007 08:58:00 PM , Blogger Tyrone said...

Holy Cow! I subscribed to Zip Realty listings for Santa Rosa just for kicks. 21 more new listings!!

Check this out. 5 new homes just on the market.
3220 Nielsen Ct: $564K
3222 Nielsen Ct: $559K
3224 Nielsen Ct: $549K
3226 Nielsen Ct: $559K
3228 Nielsen Ct: $569K

Gonna need ~$150K down to avoid that Jumbo, right? Game Over!

At 8/11/2007 09:08:00 PM , Blogger Tyrone said...

Hope I'm not boring you, but this is comical. I'm using Yahoo e-mail and there are 2 huge ads that alternate when I refresh:
1) Refinance $300K for $996/month
2) Refinance $200K for $660/month
-No credit check required
-Low monthly payment options

I don't think so. LOL

At 8/12/2007 08:38:00 AM , Blogger Tyrone said...

Sunday morning and 4 new listings from Zip. Here is one:

List Price: $680,000

Sale History
04/12/2004: $500,000
04/07/2000: $320,000

Good luck, 914 Orchard. Yer gonna need it.

At 8/12/2007 02:31:00 PM , Blogger Tyrone said...

Here is another...

2571 Mohawk Ct
List Price: $600,000
Sale History
05/11/2001: $250,000

Looking at the historical trend for prices, I put a fair value on this home at no more than $300K. That 50% haircut is looking more possible every day.

At 8/12/2007 04:17:00 PM , Blogger moonvalley said...

1) Refinance $300K for $996/month
2) Refinance $200K for $660/month
-No credit check required
-Low monthly payment options

that sounds like the sort of loan my great uncle Amerigo used to give? I'd hate to see how they collect.

At 8/12/2007 06:51:00 PM , Anonymous tom stone said...

Junk loans are gone,and good riddance.if we get back to median price being 4x median household income we are looking at a median priced home in sonoma county priced at $216k.We are talking about a 60% drop from last months median,and substantial societal may want to take a moment to reflect on the consequences.this is not just about houses becoming affordable again,and there will be a lot of pain.

At 8/12/2007 09:16:00 PM , Anonymous Anonymous said...

Re 914 Orchard and 2571 Mohawk Ct, my experience that initial listings by non-preforeclosure homeowners are currently ridiculous (especially in the JC) and stay on the market for months or even years. The only realistic prices are by preforeclosure homeowners and banks; those are the houses that are selling at prices comparable to 2004 (15-20% of 2005-2006).

At 8/13/2007 07:56:00 PM , Blogger Tyrone said...

Monday, Aug 13, 2007;
8 new listings from Zip.
3 new homes:
2004 Glenwell Dr $609K
1986 Glenwell Dr $564K
1948 Citrine Way $494K

502 Fitzsimmons Pl
List Price: $595,000
~10% appreciation per year
Sale History
12/12/1997: $220,000
Maybe a fair price is $375K.

At 8/14/2007 07:51:00 PM , Blogger Tyrone said...

Tuesday, Aug 14, 2007;
19 new listings from Zip.

Today's featured home:
527 Olive St
1 bed/1 bath bungalow style home
"Excellent opportunity for first time home buyer or investor."

List Price: $439,000
Sale History
01/29/1991: $59,000

Even Zillow thinks it's worth less; $316K. If your an investor, you better jump on this one quick!

At 8/14/2007 11:39:00 PM , Anonymous Anonymous said...

How about 2138 Mt Olive Ct. (MLS 20724218). 2/2 1800 sqft, 0.191 acre.

1st listed in 7/2006 (!!) for 645k; now down to $509k.

They could have sold it for $600k a year ago, now who knows what they'll get.

At 8/15/2007 08:28:00 PM , Blogger Tyrone said...

Wednesday, Aug 15, 2007;
15 new listings from Zip.
Featured home:
3715 PAXTON PL, 3bed/3ba

List Price: $925,000
Sale History
05/14/2002: $570,000
10/15/1998: $852,909

Strange sales history, but they're dreaming at $925K.

At 8/16/2007 09:44:00 PM , Blogger Tyrone said...

Zip Realty is now showing 1633 Santa Rosa homes.

Here's a great 1bed/1bath condo:
List Price: $329,000
Square Feet: 624

Sale History
10/28/2004: $255,000
03/29/1996: $93,500

Cut the price in half and you're approaching realistic pricing.

At 8/21/2007 07:00:00 PM , Blogger Tyrone said...

Zillow Santa Rosa homes:
Aug 09: 1600
Aug 21: 1643

Today's featured home:
4 bed/3 bath
List Price: $949,000

Sale History
05/16/2007: $925,000 <<< BANK??

The Santa Rosa McMansion "owners" are gonna be hurting when the ARMs reset. Remember the Carnes'--No-interest loan and "I don't know what my payment will be".

Past Due and Pay Day (video)


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