Sonoma Housing Bubble

Pulling the cork out of Sonoma's bubbly housing foolishness

Friday, September 14, 2007

Ssshh! The Show is Starting...

Remember how so many blowhards quoted in the Sonoma County excuse for the press touted that the only other downturn of significance was in 1993 and 1994, when prices dropped a total of 4.2 percent over those two years? And they advised reluctant buyers to not wait for more prices to drop because it wasn't going to happen?

August was the 14th consecutive month of median home price drops in Sonoma County.

Darlin' we are only singing the national anthem of this ball game. Make yourself comfortable, and stay away from falling knives. You ain't seen nothin' yet!

"In Sonoma County, home sales tumbled 24.8 percent in August, compared with a year ago. The price for a typical Sonoma County home dropped to $505,000 in August, down from $550,000 a year ago, an 8.2 percent decline. The figure includes new and resale houses and condominiums."

"Housing's downturn has hurt Sonoma County in particular because of a widening gap between incomes and home prices, pushing more first-time buyers out of the market. Increasingly stringent loan qualifications are taking out even more buyers as lenders tighten the money supply with mortgage defaults soaring."

"Slowing sales mean homes are sitting on the market longer. In Sonoma County, supplies have risen to their highest levels in more than a decade."

"Mortgage defaults, the first step in the foreclosure process, are at their highest level in Sonoma County since at least 1992, according to DataQuick Information Systems, a La Jolla firm that tracks real estate trends."

"The soaring number of foreclosures is forcing more homes onto the market as banks attempt to sell houses. Foreclosure resales accounted for 6 percent of all home sales in the county in August, up from 1.5 percent a year ago."

Between April and June 2007, Sonoma County homeowners who lost their homes in foreclosure proceedings were up 806 percent from a year ago.

"A year ago, 88 percent of homeowners in default were able to avoid foreclosure by bringing their payments current, refinancing, or selling the home and paying off what they owe. Today, only 55 percent of homeowners in default are able to hold onto their houses, DataQuick reported."

Even with the decline in median price, it still outstrips incomes of many buyers, making the county one of the nation's least affordable regions.

Facts at a Glance

* The typical monthly mortgage payment for Sonoma County buyers in August was $2,251.

* The median price of a home is still unaffordable for more than half of Sonoma County families.

* The approximate median family income in Sonoma County in 2005 was $58,330.

* Around Sonoma County, an entry-level home is $525,970. The minimum qualifying income for that is $105,960 -- with a minimum of 10 percent down.

Percentage of Sonoma County home buyers choosing some form of I/O, Negative amortizing and adjustable-rate mortgages (this includes subprime, Alt-A & Prime)

2003 - 36.8%
2004 - 59.4%
2005 - 69%

Prices doubled for the typical Sonoma County home between 2000 -2006. But the mortgage meltdown has turned a spotlight on the role loose lending standards, greed, stupidity and pixie dust financing played in the buying frenzy that drove up home prices. Market value for your Sonoma County $hitbox did not rise. Speculation and Greed fueled the ponzi scheme that has been the housing market.

Welcome to the real world, Baby.

More Facts:

* 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. (we were already in a recession in 2003, yet the housing bubble continued to boil with greater fools still rushing in, and the surge in exotic financing due to the unaffordability of prices is proof in the pudding)

* Through 2005, only 2,400 jobs had returned.

* As of the end of 2006 Real Estate accounted for 13% of the jobs in Sonoma County. 40% increase from 5 years ago. During the last 5 years tech and manufacturing were losing jobs. We are still below the number of jobs in 2001 and the non- real estate related jobs we have gained have been lower paying mostly service sector jobs.

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

* By October 2006 the county lost 3,100 jobs
"Plunging sales led to construction layoffs and job losses in real estate, financing and other housing related areas.

"It seems like Sonoma County is one of the weakest economies in the Bay Area. There's hardly any job growth to speak of. That's essentially the basic building block of the economy," Steve Cochrane, an analyst with Moody's said."

Unemployment in Sonoma County climbed to 4.6 percent in July 2007 -- its highest rate in two years -- as the local economy felt a loss of jobs in the real estate and home loan industries.

'"We may be seeing some early signs of layoffs in the financial area," said Ben Stone, who heads the Sonoma County Economic Development Board."

"At the end of July, National City Mortgage laid off 40 workers at its Santa Rosa call center. Another 60 company employees will lose their jobs by September. The layoffs followed earlier cuts at National City and other Sonoma County mortgage centers."

"The housing sector slowdown led to a loss of 450 financial services and construction jobs in Sonoma County in the first half of 2007, according to Moody's, which tracks local employment."

Tuesday, September 11, 2007

Look Out Below!!!!

The idea that things are going to get back to "normal" Real Estate - wise seems to have bitten the big one today with a report issued by my favorite group of fiction writers, The National Association of Realtors.

After thoroughly blowing smoke up everyones collective ass for the last several years, they finally might be getting a handle on reality.
The National Association of Realtors' revised monthly prediction calls for U.S. existing home sales of 5.9 million in 2007, down from 6.5 million last year. The forecast was below last month's prediction of a 6.8 percent drop.

This year's sales would be the lowest since 2002, when sales hit 5.6 million. Home sale prices this year are forecast to drop 1.7 percent to a median of $218,200.

Seems that those suicide loans to risky borrowers have finally come home to roost, that and jumbo loans, that is anything over 400k or so are almost impossible to get. Now given that most houses in these inflated times have been going for prices way above anything that would be considered a Jumbo Loan it doesn't seem that sales are going to go up again any time in the near future unless prices fall substantially.

Next year, the trade group expects existing home sales to climb to 6.3 million. It forecasts new home sales will fall 24 percent to 801,000 this year and 741,000 next year.

The forecast comes as delinquencies among borrowers with weak, or subprime, credit have risen dramatically over the past year, and other loans are showing weakness as well

Seems that the suckers who've been gobbling up this bad paper faster than a bag of lead laced snack foods from China have finally gotten smart and closed the checkbooks. This, just as the fit has hit the shan, as my gramma used to say. Actually she used to say the shit has hit the fan, but I was trying to be polite.

Last week, the NAR said pending sales of existing homes fell in July to the lowest level in nearly six years as borrowers struggled to finalize home purchases, particularly in expensive areas.

Investors around the world have been spooked by the U.S. mortgage market's problems, amid uncertainty about how much they will grow. The Federal Deposit Insurance Corp. estimates that 2.5 million mortgages given to borrowers with weak credit will reset at higher rates and sometimes dramatically higher monthly payments by the end of next year.

Which brings us to the issue of all those mortages that were given away out there during the boom. Seems that one can't put an ad for a "Miracle Product" on TV or Radio anymore that claims it will grow hair, bring world peace, cure cancer, etc. unless it's for real and can deliver on it's promises. The days of the snake -oil salesman have gone, unless that guy on the back of the buckboard is offering you a sub-prime mortgage.

Now that the barn door is swinging wide open and the horse is eating the neighbors petunias are they starting to realize that "Hey! All those sleazy mortgage ads??? Well, they might be like...illegal????!"

What? Really? No shit.

The U.S. Federal Trade Commission said Tuesday that some advertisements for home mortgages might be deceptive and even violate the law.

The FTC said it had warned mortgage brokers and lenders, as well as media outlets carrying the advertisements, that the claims appearing on Web sites and in newspapers, magazines, direct mail, e-mail and faxes might be unlawful.

Warning letters were sent to more than 200 advertisers and media outlets, the FTC said in a statement.

Wow. That's big of them. Just in time too, or like who knows what might have happened? I mean people could really get in trouble with these wonky financial instruments, ya' know??? We wouldn't want that to happen. I mean that could lead to a bailout or something where we'd all have to pay for their mistakes and.......never mind.

The warnings stem from a nationwide review this summer of ads that failed to adequately disclose other important terms of home loans, the FTC said.

Questions of whether lenders inappropriately pushed home mortgages onto subprime borrowers -- those with poor credit histories -- are at the heart of the turmoil in that market.

Lawmakers and regulators are debating whether the federal government should oversee independent mortgage brokers and lenders.

Gee. Do ya' think???

So what're the Powers That Be planning on doing about all this? According to the Detroit Free Press, nothing.

The last thing somebody who couldn't pay the mortgage would expect is a tax document in the mail that proclaims they magically got an extra $20,000 in income they never touched.

But that's exactly the tortured tax picture that faces many troubled homeowners in Michigan and elsewhere.

Thousands of families could face an unexpected tax hit if they went through foreclosure, worked out some unusual deals with the bank to refinance or sold homes for less than the outstanding debt.
"This really adds insult to injury where someone is in a situation where they get hit with a tax bill on top of having to lose their house or refinance at a lower value," said U.S. Sen. Debbie Stabenow.

So they're just figuring this out now?

So Senator Stabenow wants to cut these guys some slack, and change this tax rule temporarily...that is untill the next bubble

It's one of those tax rules that not many people know about because home values have typically gone up, not down. Yet, it's a tax issue that now could have great impact on families throughout the country.

Yes, houses have always gone up ...that is when they haven't gone down.

My Zimbio
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