High-End Immunity? Not So Much.

From the Sacramento Bee:

Even as new legislation, moratoriums and alternatives such as short sales and loan modifications have slowed foreclosures, another wave could begin this year, many warn, as new categories of risky housing boom loans reset in higher-end neighborhoods. "The last 60 days it's really become palpable. More El Dorado Hills and Sierra Oaks agents are seeing more people request homes for sale with short sales," said Mike Lyon, head of Sacramento-based Lyon Real Estate.
...
Lyon said he recently told the Placer County Association of Realtors it will take another four years to work through the region's housing slump. Partly, he said, that's due to projected waves of resetting Alt-A loans...and so-called pick-a-payment loans, also known as option ARMS...."I think it really gets back to those Alt-A's," he said, explaining rising stresses in capital-area neighborhoods that have considered themselves immune from the housing crisis.

From the Stockton Record:

The [state] law mostly just delayed defaults, said Jerry Abbott, president and co-owner of Grupe Real Estate in Stockton. "It's a pause in the storm," he said. "It's going to be more of the same in 2009."

While most previous foreclosure problems arose from adjustable-rate mortgage resets, he said, a new layer of foreclosure woes is arising from homeowners who have lost work because of the recession.

From the Sacramento Bee:

Strategic Investment Partners...scooped up 187 home lots and 35 unfinished homes, buying half of a repossessed Elk Grove subdivision named Monterey Village. The announcement this week...is a new sign of money looking beyond the capital region's housing bust to better days.

From the Stockton Record:

...[D]emand for apartments in San Joaquin County has been getting softer in the recession....[According to RealFacts] average apartment rents in the county slipped by 0.6 percent....

Randy Thomas, a Sperry Van Ness commercial real estate broker in Stockton who specializes in the Northern California apartments market, said the apartment rental market is getting softer because of the increasing number of "shadow" properties - rental houses - out there.
...
[A]n increase in the number of foreclosure properties converted to rentals has slowed demand for apartments [Norbert Huston, a Stockton real estate broker] said. "It's very hard for us right now to raise rents when the market has softened," he said.
...
While the decline in rents and occupancy is good news for renters, it's less welcome news to those who have invested in rentals as income properties....

From News10:

[Sanjay] Varshney [dean of the College of Business Administration at Sacramento State University] said the severity of the recession has been unexpected with the "complete collapse of the financial system" occurring in less than two months.
...
He said at the core of the collapse is an astonishing level of dishonesty, from financial institutions and the real estate industry, to homeowners taking out loans they knew they couldn't afford.

'More Than a Rough Patch'

From the Sacramento Bee:

New data show Sacramento homeowners continue to take a big hit as the nation's foreclosure crisis churns through a second difficult summer. One of every 145 households in Sacramento, El Dorado and Placer counties faced foreclosure in July – 5,290 properties – according to Realtytrac, Inc. data service, saddling Sacramento with the 11th worst foreclosure rate in the country.
...
All this, along with sinking home values and a bad economy, has Sacramento resident Leovardo Lopez, a pool builder, on edge this weekend. The 42-year-old Lopez's work hours recently were slashed. He was lucky; most of his co-workers have been laid off, but he fears he will not have a big enough salary next month to make his mortgage payment. Worse, the home he bought in 2005 is worth $150,000 less than he paid.

From the Modesto Bee:

"I'm looking for anything. I just need to make a living," said [Jerry King] the former Beck Properties home warranty representative..."First, I was looking for the same pay. Now, I'm looking for anything. I just need to make a living."
...
Despite increased worker productivity since the 2001 recession, workers' wealth has not increased, Berkeley economist Sylvia Allegretto said. But they are feeling the economic bust..."The labor market has hit more than a rough patch as job loss has occurred in each month of this year," Allegretto said.

From the Modesto Bee:

As the economy shrinks, enrollment at community colleges is expanding. Modesto Junior College's enrollment ballooned almost 4 percent over last year to 18,474 students.
...
"They're living in a different day and time financially. I don't think I've ever talked to so many people who have lost everything," [MJC counselor Kim] Bailey said. The Northern San Joaquin Valley's jobless rate hit 11.3 percent in July. At the same time, the region lost 3,000 homes to foreclosure. Economists say the housing market collapse is having ripple effects on the economy and forcing layoffs.

From the Stockton Record:

[Joe] Anfuso said Florsheim has sold houses in the past two months to perhaps four or five buyers who decided to buy new after finding the foreclosure market more difficult than they expected or discovering that the homes were "more challenging" than they expected. "The competition (for foreclosures) is fierce," he said. "You have people who have bid five, 10, 15 times and are getting beat out. They start asking, 'Is it really worth it?' Our agents are fielding a lot of questions from people who are looking at that market and don't like that process."

Greg Paquin, president of the Gregory Group, a real-estate information and consulting service in Folsom, said builders can be competitively priced against foreclosures, but most people don't seem to realize that yet.

From the Sacramento Business Journal:

Salt Lake City-based Woodside Homes, the Sacramento region’s 15th largest builder in 2008 based on sales volume, has announced it will file for Chapter 11 bankruptcy reorganization by Sept. 16, Big Builder Magazine reported Thursday.

From the Modesto Bee:

[Patty] Amador, whose 20-year-old Modesto mortgage company is among the region's largest, will share her concerns about recent changes Congress made to mortgage finance requirements. She said the valley's large number of foreclosures have lowered home prices, which has enabled sales to "bounce back" because first-time home buyers now can afford homes.

"Many of these buyers have the ability to qualify for loans and make payments on safe, fixed-rate mortgages. Unfortunately, few have the funds necessary for the down payment or closing costs," Amador said. "Recent legislation has not only eliminated a widely used financing tool, known as Nehemiah, but will also increase the amount of required down payment along with the monthly payment as a result of increase mortgage insurance requirements."
...
Many first-time buyers...depend on down payment help to become homeowners, Amador said. "Now is not the time to be taking away financing tools, nor increasing costs to borrowers, if we are going to come out of this 'crisis' anytime soon," Amador said. "If we back financing tools with prudent underwriting, we can bring this market back without the risk of a reoccurrence of bad loans to the wrong borrowers."

"The Complete Opposite of the American Dream"

Excellent post by Max over at SacRealStats about Sacramento's shadow inventory.

The Sacramento Bee has a fancy interactive graph of Sacramento home prices back to 1990.

From Home Front:

Four in 10 homeowners who bought houses in El Dorado, Placer, Sacramento and Yolo counties since 2003 now owe more than their homes are worth, according to the online real estate firm Zillow.com.

From Bloomberg:

In four of the state's metropolitan areas -- Stockton, Modesto, Merced and Vallejo-Fairfield -- the number of homeowners whose mortgage debts exceeded the values of their properties topped 90 percent, Zillow said. In five more California areas -- the Inland Empire (Riverside-San Bernardino), Bakersfield, Yuba City, El Centro and Madera -- the percentages were more than 80 percent.

From the CVBT:

Tops in California for foreclosure sales per capita in July [per ForeclosureRadar] was Merced County at one foreclosure for every 409 residents, a jump of 305 percent compared to July 2007. Second is Stanislaus County, with one foreclosed home for every 488 residents, a 287 percent year-over-year increase. San Joaquin County is in third, with one for every 491 residents, an increase of 204 percent...Other Central Valley counties making the top ten for July are Yuba, with one foreclosure action for every 541 residents, an increase of 169 percent, and Sacramento, with one for every 704 residents, a 156 percent year-over-year increase.

From the CVBT:

The Central Valley inland seaport city of Stockton is adrift in an ocean of red ink when it comes to home sales, according to a report from Zillow.com, a Seattle, Wash.-based online real estate information company. While U.S. home values dropped nearly 10 percent in the second quarter compared to the same period a year earlier, home values in Stockton plunged 38.2 percent. Zillow says 63.4 percent of the homes that sold in Stockton in the second quarter sold at a loss.
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Stockton’s median home value was put at $216,100, down 38.2 percent in a year and down 47.6 percent from the market’s peak, Zillow says.

From the Guardian:

The stellar increase in house prices was inflated first, fastest and furthest in California. So it is not surprising, now that the bubble has burst and the market is in freefall, that places like Stockton are suffering more than most...But the city is far more significant in the big picture of California's troubled economy than many realise. The problems facing this part-old, part-new city are being duplicated all over the state, causing an economic ripple effect that could push America's biggest economy to the brink of collapse.

From the Sacramento Business Journal:

Even a signature project such as the L Street Lofts in midtown Sacramento isn’t immune from the effects of the housing downturn. The top-floor penthouses that overlook the city were snapped up quickly to the delight of developer Sotiris Kolokotronis, including one loft bought by Kings basketball player Kevin Martin. About half of the 92 units, however, are still empty since the lofts opened for sales late last year. Kolokotronis and partner Resmark Equity Partners LLC are now in dispute over the project, according to sources familiar with the situation.

From the Fresno Bee via the Modesto Bee:

Merced-based County Bank's parent company reported Monday that it lost $12 million in the second quarter of 2008 as it increased its provisions for bad loans tied to the region's declining real estate market.
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Key to the 41-branch bank's increasing loan-loss reserves is its "exposure to real estate declining rather dramatically in the Central Valley," Richard Cupp, the newly appointed chief executive and president of the company, said in a Monday conference call with reporters.

From the Modesto Bee:

City Council members Monday advanced a package of proposals meant to provide relief for cash-strapped builders in a down housing market.

From the Sacramento Bee:

A lot of what I'm seeing is people who were looking to upgrade their homes, and were told by real estate agents, as well as mortgage brokers, they would be able to refinance in a few years. They were told that home prices would go up, that they really didn't need to be too concerned about these adjustable-rate loan issues. And there are a fair number of people who didn't have a financial savvy about them, and believed on an $80,000 income they could afford a half-million-dollar house.

I was an economics major in college. The rule I was taught was multiply your income by three, and that's the most expensive house you can afford. Everybody seems to have ignored that rule, which worked so long for so many people. Not just consumers, but brokers and real estate agents ignored that, as well. They believed multiples of five, six and seven were going to be sustainable.

From Home Front:

This afternoon came a call from Sacramento, a woman looking for help for her sister who lives in Vacaville. Their loan payment went from about $2,000 a month to $3,200 or so, she said. She said the loan was from Washington Mutual, which makes me suspect Option ARM. That's where the payment that most people make doesn't even cover all the interest. The loan gets bigger. She was looking for some kind of phone number for help. I sent her to that HOPE NOW hotline, 888-995- HOPE. It was another sad story of two hard-working people, a Spanish-speaking mom and dad, who got "snookered" by a loan they didn't understand. Now they're having to figure they might end back up in an apartment with the kids. The complete opposite of the American Dream.

Stockton's "Butterfly Effect"

From Home Front:

Like many in real estate...Jeff Johnson, who runs the Citrus Heights branch of a national mortgage lender, Platinum Home Mortgage...says that the elimination of down payment assistance...will keep thousands of would-be buyers out of the market. He believes that just as the sales here have started to rise, this federal decision is going to slow them down again..."We're really going to be in trouble."

One reader's response:

Mr. Johnson's comment "We're really going to be in trouble" shows his narcissistic view of the real estate market--it's all about me. If buyers can't get free money or bad loans, I'm not going to make $500,000 this year like I did last year. What people need is low home prices, not gimmicks to get into an expensive home. The market shouldn't be about people in the business making lots of money, it should be about people not in the business being able to afford a home. It's the mentality of people in the business thinking they need to make more that leads to less people owning homes. How about if we prohibit investment in single family homes, support more use of the Internet and less use of real estate agents and mortgage brokers, require a reasonable down payment to ensure buyer commitment, and let the market work in a sensible way, then maybe people who are responsible would be able to own a home.

From the Sacramento Bee:

On paper, the Silvertip Estates development in Orangevale may seem like a great deal for home buyers. The 32 single-family homes on a four-acre lot near the corner of Greenback Lane and Almond Avenue range from about 1,700 to 2,000 square feet and start in the low $400,000s, according to the development's Web site. Homes were slated to be available this spring, it said.

But call the number listed and you'll find it has been disconnected. Drive by the project site, and all you'll find is weeds. Silvertip Estates is one of several developments planned by Fair Oaks-based developer Sixells LLC that has become a casualty of the housing downturn...[T]he once prominent development company now finds itself sputtering along in a dismal economic climate.
...
[Sixwell project manager Jim] Franklin denied recent reports that the company was going out of business. "There's no plan to shut the doors and no plan for filing for bankruptcy," he said. But without any work to do, he wondered if – by default – it already was. "When you're not doing any business, are you out of business?" he asked.

From the Sacramento Bee (hat tip Jeff):

Increased costs prompted Lowe's Home Improvement Warehouse to pull out of a proposed store in Rocklin, according to a spokeswoman. Property owner and developer Paul Petrovich, however, said architectural details added by the Planning Commission killed the deal. "The amount of money that was added onto their building as a result of the Planning Commission busted the budget, in addition to the tougher economy," Petrovich said.

From the Appeal Democrat:

People still have to eat. But whether they will leave their homes and workplaces to do so is a question that puts local restaurant owners on edge...According to the 2008 Restaurant Growth Index, calculated by Restaurant Business Magazine, Yuba-Sutter residents didn't get out much for eats last year and are doing so even less this year. Scoring, based on local restaurant sucess and demographic measures, pegs the national average at 100. Yuba-Sutter scored 11 in 2008, down from 31 in 2007.
...
Steve Brammer, chief of operations at the Economic Development Corp. in Yuba City, says the restaurant business — like many other types of businesses — is inextricably linked to the housing market. With fewer and fewer residents able to pay their mortgages, the idea of eating out seems more and more extravagant.

The Average Buyer blog notes substantial declines in local airport activity.

From The Independent:

American Dream Realty – Reduced Price! The estate agent hammering the "for sale" placard into the yellowing lawn of a family home in the Weston Ranch district of Stockton, California, this week could hardly have been optimistic. Almost every second home had a similar sign. This suburb, created from nothing 15 years ago, had promised so much to the low-income families who streamed in during the building boom, a roof of their own at last for people deemed "sub-prime borrowers" and – perhaps – a nice profit if house prices continued to defy gravity, as they seemed they would a few years ago.

When the crash came, when the US housing market ran out of sun seekers migrating from the North and speculators hoping to flip their purchases for a quick buck, the surge in foreclosures blighted neighbourhoods. In Stockton, foreclosure capital of the US last year, the lowering of tone has been tangible, in an unpleasant way: residents became alarmed at the number of abandoned swimming pools lying uncleaned, magnets for mosquitoes and disease. Such things don't show up in the statistics, but they are as telling an indicator as the 25 per cent drop in American house prices over the last year alone.

In Weston Ranch as elsewhere, egged on by brokers on fat commissions, during the boom, residents had taken on mortgages they could not afford. Of all the bits of jargon, it is the "Ninja" loan that will stand out as the abiding symbol of the US real estate bubble – "no income, no job, no assets". Now that their cheap "teaser"-rate loans have run out and they can't find credit, they're giving up. Meals lie half finished on dining tables as families bolt the moment the sheriffs arrive to repossess the property. In many cases, owners simply post the keys through the letterbox and walk away rather than continue to pay for a home that is slumping in value.

Even now, it is impossible to know what, precisely, triggered the credit crunch. In the familiar story that is always used to explain chaos theory, the flap of a butterfly's wings in the Amazon rainforest can provoke a tornado on the other side of the globe, because even the tiniest chance alteration in a weather system can be amplified into the most dramatic of outcomes. Nature has always been global; now the globalisation of finance has made similar phenomena possible in economics. In the case of the credit crunch, the butterfly's wings might have been the crack of a real estate auctioneer's gavel a couple of years ago, heard in some corner of California, as a former dream home in Stockton went for a knockdown price as a foreclosure special. Or some casual gossip in a bar that prompted a buyer to pull out of a deal. Or a family break-up that forced a distressed sale. At some point, the momentum behind America's property boom ran out, the moment where reality caught up with the debt delusion. The credit crunch would follow, a trillion-dollar ($1,000,000,000,000) meltdown of banking losses that has left the world's financial system so feeble that banks are too scared even to lend to each other, for fear they will never be repaid.

Related posts:
Loans to Sacramento Trailer-Home Buyers...Trigger a Global Credit Crisis
California's New Canary in the Coal Mine
Placer Pops - YoY Depreciation Era Begins?

I guess Stockton and Sacramento were special after all!

'I don't think any of us are guaranteed anything anymore'

Recently foreclosed homes made up 61.4% of all resales in Sacramento County during the second quarter. That was the 6th highest rate in California, according to DataQuick (via Jon Lansner's blog). The usual suspects: Merced, San Joaquin, and Stanislaus captured the first three spots, with Yuba at #4.

Sacramento Bee housing reporter Jim Wasserman appeared on CNBC.

From the Sacramento Bee:

Unlike an elite city like San Francisco, Sacramento's growth has been fueled by an influx of educated, family-oriented residents – the populations that have been fleeing such high-priced places where the housing supply is constrained.
...
The fact Sacramento has fared far better than these cities over the past 15 years suggests the region's recent problems lie not in a lack of downtown condos and nightlife, but with a housing market that, as in much of California, has been totally out of whack. Once a consistently affordable locale, by the mid-1990s Sacramento's housing prices jumped almost nine times income growth, an unsustainable pace seen in a few areas such as Riverside, Miami and Los Angeles.

As a result, the refugees from the coastal counties who had been coming to Sacramento for affordable housing stopped arriving. Net migration to the region, more than 36,000 in 2001, fell to less than 1,000 in 2006.

From the Sacramento Business Journal:

“In the past 12 months, I have seen builders slash their staffs by more than 50 percent and consolidate operations in one office,” said Angel Ahumada, founder of recruiting firm Integrity International. “Before the builders had offices everywhere — Sacramento, Central Valley and the Bay Area. The current trend is to have one office run all three.”

From the Sacramento Bee:

Californians – spooked by negative economic news and the tens of billions of dollars they've lost to rising gas prices and disappearing home equity – are ratcheting down their spending. It's true even for those who've avoided foreclosure or a pink slip. Tim Einer, a software trainer in Lincoln, considers himself upper middle class but has seen his home equity fall by $225,000. He traded his Jaguar for a fuel-efficient Chevy, scrapped a European vacation and stocks up at Target whenever possible. "I have worries all the time – you just see how the economy is," Einer said. "I don't think any of us are guaranteed anything anymore."
...
The falling real estate market has been doubly burdensome for Meredith Wharton, a Folsom real estate agent. Not only is she "working twice as hard for half the reward," she and her husband, Mark, have had to adjust to the decline in their own home equity. Because they both live mainly on commission income, they frequently use their home equity line of credit to smooth out fluctuations in their paychecks. But their available credit was recently cut in half, to $50,000, reducing their financial cushion.

From the New York Times:

The first wave of Americans to default on their home mortgages appears to be cresting, but a second, far larger one is quickly building. Homeowners with good credit are falling behind on their payments in growing numbers, even as the problems with mortgages made to people with weak, or subprime, credit are showing their first, tentative signs of leveling off after two years of spiraling defaults.
...
“Subprime was the tip of the iceberg,” said Thomas H. Atteberry, president of First Pacific Advisors, a investment firm in Los Angeles that trades mortgage securities. “Prime will be far bigger in its impact.”

From the Sacramento Business Journal:

Aggressive belt-tightening efforts by lenders and a dismal economy put the squeeze on the commercial investment property market in the Sacramento region during the past year. Investors plowed almost $5 billion into Sacramento office buildings, shopping centers, apartment buildings and warehouses in June 2006 to June 2007, fueled by a seemingly endless supply of “cheap” money. But in the past 12 months, investment has declined to about $2.1 billion, a 58 percent drop from the peak, according to figures from brokerage CB Richard Ellis.

“It’s a weird time right now,” said Jon Wilcox, a senior associate at CB Richard Ellis who exclusively represents investors looking to purchase income-producing property. “Nobody can find a price point yet. ... (Investors) can sense blood in the water. They’re going in and offering 10 (percent) to 15 percent lower than the asking price.” He said foreclosures that have driven housing prices down might start hitting investment property soon.

"Our prices have fallen about as far as they are going to go"

From the Sacramento Bee:

In a survey released today, the Folsom-based Gregory Group says new home builders sold 1,482 homes during the second quarter of the year in El Dorado, Placer, Sacramento, Sutter, Yolo and Yuba counties. That compared with 1,304 in January, February and March. [Sales are down 17.7% YoY.]
...
The newest sales count – 2,786 during the first half of 2008 – puts the region on track to finish well behind last year's count of 7,407. [Gregory Group's forecast for 2008 is 7,710]
...
Average home prices continued to fall in April, May and June, dropping below $400,000 for the first time since late 2003. Average second-quarter values of $394,000 are a 4 1/2-year low....

From the Sacramento Bee:

When Carol Wallace sold her Sun City Roseville home two years ago, she got an expensive reminder from her lender. She owed $5,964. Why? She had paid off her adjustable-rate mortgage early. The lender offered to waive it, Wallace said, if she'd buy another house with one of their loans. But here was the point: She had cancer and didn't intend to buy again. She had to pay up.

Two years later, still ill, Wallace still fumes. "It's written in my paperwork when I die to remind my kids," she said. "It says if there's a class action lawsuit, to remember me, to get my $6,000."
...
Wallace said she knew she had a prepayment penalty. "But I didn't think it would be a problem because I didn't think I would have to move," she said.

From Elizabeth Weintraub's Active Rain blog:

The reporter asked, among other questions, where I felt the market would move over the next year. Honestly, I see signs that we're either at or near the bottom right now. I am not predicting a fast recovery, but things are unlikely to get much worse. Our prices have fallen about as far as they are going to go.

From Canadian Business Online:

Attention, real estate shoppers: the entire U.S. sunbelt is now officially on sale. Prices in many areas of Florida, Arizona, Nevada and California have dropped 40% from their peaks of a couple of years ago, to the point where the deals seem nearly too good to be true...A starter home in Sacramento, Calif., that sold for $215,000 in 2004, is on offer for a mere $129,000.
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Are these apparent bargains really as attractive as they appear?...Many believe we’ve seen just the beginning of a monumental real estate collapse. "The size of the U.S. real estate bust on the way down will be proportional to the size of the real estate boom on the way up," says Robert Campbell, a real estate economist in San Diego, Calif., and author of Timing the Real Estate Market. "There’s no slowing down this train. The areas that had the biggest booms will have the biggest bust. Prices are heading lower — way lower."...He believes some states will bottom out in a year or two. Others, such as California and Florida, will have to wait three or four years before prices hit bottom.

'They Have To Keep Things Going'

From the Sacramento Bee:

The uncertainty involving market leaders created the latest set of jitters for real estate markets – including Sacramento's – that can best be described as fragile. Though year-over-year sales have risen for the first time in 36 months in the area, still more restrictions and fewer loans have the potential to curb the supply of buyers and stall a recovery, brokers said.
...
Brokers said the recent boost in home sales locally is largely due to borrowers with good credit and the ability to put money down. But they said they're hearing that mortgage insurers may start requiring 10 percent down payments instead of 5 percent in so-called "declining markets" like Sacramento.

Still, [Beth] Gewerth [of Mason-McDuffie Mortgage Corp. in Sacramento] said the economic system will somehow keep the loans coming. "As we all know, housing drives the economy," she said. "They can't get too exotic. But they have to keep things going so people can purchase homes and keep it going."

From the Sacramento Bee:

Centex Homes, the Sacramento region's leading homebuilder, said Tuesday it has folded its Sacramento, Central Valley and Reno divisions into one operation based in Sacramento. That marks the second builder consolidation announced in recent days. Irvine-based John Laing Homes has folded its Bay Area and Central Valley divisions into one based in Sacramento.

From the Sacramento Bee (hat tip Fred):

The chairman of Greater Sacramento Bancorp is being sued for foreclosure by two other banks. Kip Skidmore, the non-executive chairman of Greater Sacramento's board of directors, was sued by Umpqua Bank and Bank of the West over two suburban housing projects for which he guaranteed loans. Neither project involves Greater Sacramento or its operating subsidiary, Bank of Sacramento.
...
[T]he lawsuits have given him a better sense of the real estate slump and its effect on banks. "It allows me to (have) some appreciation of the situation, of what developers and banks are both going through," he said.

Bail Now or Later?

From the Sacramento Business Journal:

With most of the country still reeling from the subprime mortgage meltdown, Mark Hanson is warning of the next looming blow. Hanson, a bank consultant and former mortgage broker from the Bay Area who writes a blog under the name "Mr. Mortgage," is among a handful of industry soothsayers who expect another big wave of foreclosures to hit sometime around 2010, driven by defaults among people holding less risky loans known as "alternative-A."..."I think we are through the subprime blowup, but that's nothing compared to what's coming," said Hanson, who made similar predictions on CNN in April.
...
Others in the industry say such predictions amount to Chicken Little panic. "I hear that, too -- that there's another subset of groups that haven't come due yet," said Jeff Tarbell, broker of record for Sacramento's Comstock Mortgage. But Tarbell said he's not concerned about a second foreclosure tsunami because borrowers who owe more than their homes are worth aren't waiting for their mortgage rates to reset. Those inclined to bail are already doing so, he said.
...
Tarbell, who hosts the weekly "Talking Money with Jeff Tarbell" on KHTK-AM 1140, said upside-down borrowers looking at the prospect of an interest rate reset in a couple of years called his show frequently early this year, and seemed unlikely to sit tight until their loans reset. "It's like I'm Dr. Phil," he said. "I'm doing grief counseling. They have realized they are in a negative equity situation and they're not going to sit around and wait. How many people are going to be willing to double their monthly payment when they're upside-down on the house?"

From the Sacramento Business Journal:

In the good old days of a few years ago, opening an escrow on a house meant the sale was practically a done deal. Today, it's a toss-up whether a deal will make it to closing or fall apart before the sale is completed. Title companies say they are working hard to keep their escrow-closing rates above 50 percent in the face of declining home prices and tighter lending criteria..."I would say 70 percent would be normal...said Casey Sheehan, senior vice president of Old Republic Title Co. in Folsom. The past year has not been normal. "Just generally speaking in our industry, I think title companies are struggling to close 50 percent of what they open," Sheehan said.
...
The near future isn't looking much better. "The perception was that 2007 would be the worst, and in 2008 we'd start to see a turnaround. And we didn't," said Lenora Shealy, vice president and escrow administrator for Fidelity National Title Insurance Co. in Rancho Cordova.

From the Sacramento Business Journal:

Standard Pacific sold all of its inventory in the Sacramento region during a recent sales push and has about 200 lots left that are ready to build. It has no immediate plans for new lots once that inventory is sold, but the company, backed with the fresh cash, is looking. Deals are unlikely to happen until new-home prices start rising again or the price for lots falls far enough to make a profit. "I don't see it happening this year or next year," Nicholson said. 'We're going to continue to be in survival mode."

From the Sacramento Business Journal:

Aarrow Advertising, founded by two San Diego teenagers in 2002, specializes in "human directionals" -- people skilled at an aerobic form of sign spinning. Armed with iPods and energy, Aarrow employees were a regular sight on the streets near subdivisions, twirling, tossing and waving oversized arrows to attract visitors.
...
Aarrow general manager Ly Hai, 25, estimated that during the peak market, homebuilders made up about 75 percent of the company's clientele...[H]omebuilders have dropped to about half of Aarrow's business in Sacramento and other cities that have been hit harder by the downturn, Hy said. "As the recession came, the home developers are the ones that could no longer afford to keep a regular human directional out every weekend," Hy said.
...
Aarrow has picked up work in the past year from apartment complexes and retail businesses, from chiropractic stores to Round Table Pizza.

From the Sacramento Bee:

The Kings are more than just a sports team to Sacramento. They are like a mirror for the region. When the Kings arrived in Sacramento in 1985, an emerging city embraced the club with the innocent enthusiasm of new homeowners. When the Kings ascended to prominence in 2002, the local economy and housing markets were booming – and Sacramentans gladly dropped bundles on soaring ticket prices.

When the team tumbled a few years back, it was like the housing market meltdown: The prices at Arco Arena were not equal to the value of the product, so the old barn grew barren, like someone had foreclosed on the empty seats.

The Wrong Stuff

From the Sacramento Bee:

Pressured by a faltering economy and often burdened by loans they took out during the housing boom, more Sacramento-area homeowners are looking to reverse mortgages for an escape route. But many are finding the road blocked by the falling values of their homes. "A lot of them aren't qualifying now. With the falling values they don't have as much equity," said Sylvia Williams, a Elk Grove loan specialist with San Rafael-based Sequoia Reverse Mortgage.

From Home Front:

[A] lawsuit [was] f[i]led in Sacramento County Superior Court by the Park River Oak Estates Homeowners Association in Sacramento against Chuck and Victoria Scott Yeager. The lawsuits alleges that the Yeagers owe the association $12,000 in overdue assessments and fees. Yeager was...the first pilot to break the sound barrier in 1947 at Edwards Air Force Base.

"Leery of Too Much Sunshine"

From the Today Show:

The six scariest real estate markets

Stockton, Calif.
Stockton has the highest rate of foreclosures in the nation...Unemployment is a whopping 10 percent, almost double the national average of 5.2 percent.
...
Some people are simply walking away from their homes because they're spending too much on gas to commute back and forth to work in the Bay Area, plus their homes are no longer worth what they paid for them. Instead, they just move closer to work and rent rather owning. Local realtors report that homes have become vandalized or burglarized for copper plumbing or wiring, cabinets and other re-salable fixtures. In some areas of Stockton, there are more than five homes on a single street that are abandoned. Homeless people are squatting in homes, even without power or water, just to find shelter.

Sacramento, Calif.
Home prices in this area more than doubled between 2000 and 2005, setting Sacramento up for a hard fall. Since last year, the price per square foot in Sacramento dropped 29.8 percent to $161, according to the real estate data company Radar Logic Inc.

Worse still, Sacramento has the highest concentration of homeowner debt in the country according to Forbes.com. More people here have combined their mortgages with home equity loans, second loans, or both.

When the housing market slowed here, jobs were lost in related industries: title companies, interior design, lumber supply companies, electricians, plumbers, roofers, appliance stores and so on, dealing a heavy blow to the Sacramento job market.

From the Sacramento Bee (hat tip Jeff):

Sacramento bankruptcy attorney Daniel Weiss said he's never seen this rate of filings in nearly 40 years of practice. "I've never seen this many people who are losing their homes," Weiss said. "Before they would say, 'Help me save my home.' Now, they're not even considering there's a chance."

At Sacramento's NeighborWorks Homeownership Center, which counsels struggling and first-time homeowners, director Mike Himes sees firsthand the impact of subprime loans that have left homeowners crushed beneath unpaid bills and mounting debts after moving into homes that were beyond their means. "Some people were so far over their heads on everything – property taxes, mortgage, credit," Himes said. "They were living off their credit cards."

It often began, he said, with a loan application that overstated their income. With mortgage payments based on an inflated income and often set to readjust at higher rates, many sank deeper in debt as they tried to stay afloat.

From the Sacramento Bee:

Might it be that as Sacramento helped lead the nation into the housing crisis, it is among the first to help lead it back out?

Not so fast, said Robert Kleinhenz, deputy chief economist of the California Association of Realtors. "We still have rough patches we're going through this year," he told the Sacramento Association of Realtors during a housing outlook forum earlier this week. "But I do see some hopeful signs on what we've gone through the past few months."

Kleinhenz, like many who prognosticate about the real estate market by reading conventional economic indicators, has proved to be overly optimistic in the past. But with rules for home loans getting tighter, he now sounds leery of too much sunshine.

From the Sun Post:

Enrollment numbers for the Manteca Unified School District — which also includes Lathrop and the Weston Ranch area in Stockton — have dropped 1.5 percent from March 2007 to March 2008, falling to 23,051, according to data collected from the district. And a private consultant hired by the Manteca Redevelopment Agency also reported a slight dip in the city’s population. Claritas, a New York-based demographic and marketing consultant, estimated that Manteca’s population was 64,688 in the beginning of 2007 and 64,669 in 2008, according to reports produced for the city.
...
Two factors — rapidly rising home prices in the last several years and a proliferation of foreclosures in 2007 — may have led to a stop in growth, according to Jeff Michael, who heads the Business Forecasting Center at University of the Pacific. Net migration into the county has essentially dropped to zero in the past two years, Michael said, and recent foreclosures may have led people who moved to the county from the Bay Area to move back to the place where many of them still hold jobs.

However, the local impact of foreclosures remains a mystery to demographers, he said. If people are simply moving into rental homes down the street, populations should remain steady. But forced home sales could also send residents out of state.

'No Sign' of a Foreclosure Peak

From the Modesto Bee:

No matter how you crunch the numbers, March was a brutal month for foreclosures throughout the Northern San Joaquin Valley...San Joaquin had the highest foreclosure rate in the nation during March, followed closely by Stanislaus and Merced, according to RealtyTrac.

"There's definitely no sign of a peak in any of these foreclosure numbers," warned Sean O'Toole, owner of ForeclosureRadar.

From the Stockton Record:

Four months after CBS' "60 Minutes" broadcast a segment dubbing Stockton as this nation's "ground zero" of the foreclosure crisis, a TV crew from Australia's version of "60 Minutes," titled, well, "60 Minutes," was on a repo homes bus tour, making the rounds of bank-owned houses in Spanos Park and Brookside...Reporter Peter Overton bounded off the charter bus in choreographed exits not once but several times to get just the right take, to announce to the camera that there he was, touring foreclosure homes with "vultures ... here to pick the bones of the subprime crisis."
...
Reporter Overton said the "60 Minutes" crew was visiting the Central Valley to get a look ahead at the type of mortgage crisis into which Australia already is stepping.

From Slate:

California is to mortgage lending what Chicago is to pork bellies. For years, that meant it was a place with soaring house values; today, the foreclosure rate across the state is twice the national average and going up fast...And housing prices are in freefall.
...
Unfortunately, when it comes to the California crash, these striking numbers are not the end. They are the beginning...Which brings us to the other scary part of the California story: a coming wave of interest-rate resets in prime loans given to people with good credit that are just as bad, or worse, than we've seen in subprime.
...
Just two banks, Washington Mutual and Countrywide, wrote more than $300 billion worth of option ARMs in the three years from 2005 to 2007, concentrated in California...The really amazing thing is that the meltdown in California is already happening and virtually none of these loans have yet reset.

Cocktail Party Talk: How Many Bank-Owned Properties Are on Your Block?

From CNBC's Funny Business with Jane Weils:

[T]wo doors down [in West Sacramento] lives Karnial Saini, a realtor (the irony!) who says he put down 20 percent on his home when he bought it in '04, but got an adjustable rate mortgage he can no longer afford. "Yesterday I tried to refinance," he says, but his mortgage is for more than a half million dollars, "and the house appraises at $450,000." He says he is probably going to lose his home either through a short sale or by "just giving the bank the key."
...
[W]hen I asked him if it's fair to bail him out, Saini admits not everyone deserves it. However, he didn't do a zero percent down loan, his home is just now less than his mortgage and he desperately needs a new mortgage. What he finds hard to understand is that the bank will agree to a short sale, but it refuses to lower the principal.

From the Tracy Press:

Chestene Dean, who moved from Minnesota to Tracy three years ago, called the state’s housing market a scam. She and her husband, Dennis, sold their stocks and borrowed from their retirement plan to buy a $600,000 home. Now they’re doing everything to keep the home, which now markets at about $390,000...The Deans wouldn’t say how many months they have been late on their mortgage payment, which is $4,700 a month. “There are other people hurting like us,” said Dennis Dean, glancing at the roomful of people. “Like them, we’re going to fight for our home.”

From Marketplace:

Seth and Joanna Goslin paid a final visit to their former home a few weeks ago...They haven't paid their mortgage since last summer. Now they're in bankruptcy and foreclosure proceedings...We sat on the living room floor of their 1,200 square foot condo in Elk Grove, California...Seth is 33 and worked for a mortgage broker until he was laid off early last year...
...
The Goslins bought their home with what's known as a 2/28 ARM -- the interest rate is fixed for only the first two years, then adjusts up. They also did 100 percent financing -- no down payment -- but later, they refinanced into an even riskier mortgage called an option ARM. It allows borrowers to make payments that don't even cover the interest on the loan. That's how they ended up owing even more than their purchase price.
...
Seth: I think because it's happening to so many, it doesn't really feel like a stigma. It sort of feels like... there seems to be a lot of sympathy.

Joanna: It seems like a couple of years ago, everybody at cocktail parties talked about how much their home value had increased and now it's, you know, how many bank-owned properties there are on their block.

From Marketplace:

[Realtor Alan] Waggoner and I do a little experiment. He checks the regular listings in Elk Grove. The average price is $447,000. Then he does the same search, but includes bank-owned homes and short sales -- those are the ones in pre-foreclosure. The total inventory more than doubles and it knocks the average price down to $370,000. The bank-owned homes have pushed the average price $80,000 lower.
...
[Real restate agent Michael] Freeman: We have bank REO properties that are coming on... they're trashed and they are artificially driving the price down, because it's not really what the market would be bearing, but the buyer is going to take advantage of that.

From the Sacramento Bee:

Lenders took back the keys for 1,224 Elk Grove homes from October 2006, the earliest month for which figures are available, through the end of 2007, according to a Bee analysis of Federal Home Mortgage Disclosure Act data.

From the Sacramento Business Journal:

The Sacramento County Association of Realtors expected thinner ranks this year with the housing downturn, and the prediction has held true...The association listed 5,577 Realtors as members this year, compared with 6,337 last year...The Placer County Association of Realtors also reported a 12 percent decline from last year, with about 2,300 active members this year, 320 fewer than in 2007.

From Investment News:

Speculation is growing among analysts and home-building executives that the battered housing industry finally may be approaching a bottom, at least in terms of inventory of both new and existing homes. It could be the first sign that the hemorrhaging in the housing sector could be approaching an end. But if history is any indication, home prices may not start to bounce back for at least two years, and at least one analyst thinks it could take as long as four years.

In the past, new-home sales typically started increasing about a year after supply and demand fundamentals stabilized, while home prices took at least two years to tick up, according to James F. Wilson, director of research and senior analyst with JMP Securities LLC of San Francisco...Mr. Wilson said that he has seen early signs of inventory stabilizing in certain markets such as Sacramento, Calif., and San Diego.

From the Sacramento Bee:

A fancy new campus rising in East Natomas has become the latest flash point in the toxic relationship between the Grant Joint Union High School District and the new school system that soon will absorb Grant. The new district, Twin Rivers Unified, will take over Grant and three other elementary districts on July 1 in a merger.
...
Twin Rivers officials...are deeply worried about the current housing downturn, as well as a building moratorium in the Natomas basin while levees are improved. "Two and a half years ago, when they planned this and there was a housing boom, it made sense. Today it doesn't," said Rob Ball, Twin Rivers' associate superintendent. "We're going to have a brand new building and no students to put in it."

From the Sacramento Bee:

The economic downturn hasn't bypassed Loomis, population 6,529. The sales tax portion of its $3.5 million budget is down about 20 percent, largely from the struggles of construction- related businesses. But since Loomis' city government relies lightly on development fees, the town avoided the worst effects of the downturn.

From the Sacramento Bee:

Sacramento, where unemployment has risen to 6.2 percent, is particularly vulnerable as the economy softens. Foreclosures have run into the thousands, and housing prices have fallen more than 25 percent in two years, making it among the hardest-hit markets in the country.
...
[J]ob losses are spreading beyond the housing sector...The past few months in the Sacramento area have seen layoffs at employers as diverse as Intel Corp. in Folsom (112 jobs) and Sutter Medical Center's two main hospitals (54 jobs), although Sutter said all but 20 employees found jobs elsewhere in the organization. The general downturn loops back to housing: Consumers who have lost equity are less wealthy and less likely to spend.

From the Stockton Record:

You own a winery worth about $850,000, you've built up $1 million in real estate equity between the winery building and a couple of homes and, as a married couple, have a combined income well into six figures. So what have you got to worry about?

With the housing market collapse, a big new mortgage, uncertainty on Wall Street, a wife who is retiring this year partly for health reasons, looking to his own retirement in three years and a recent, sudden slump in wine sales, there was plenty to concern Rod Ruthel. "It was too many things happening at once. I was a little freaked out about it," said the owner of French Hill Winery in Mokelumne Hill.

He was particularly concerned when sales at the winery, normally a recession-proof business, had suddenly fallen by nearly half. Also worrying was a switch from credit card charges, usually nearly 100 percent of the trade, to one-third in cash - a sign customers were watching their spending more closely.

"It is what happens with the overall economy that is important right now"

From the Sacramento Business Journal:

More than 300 individual lenders, some who risked their retirement accounts, are expected to auction 338 acres in the Placer Vineyards development Wednesday in hopes of recouping some of the $51 million they're owed by a now-defunct company that bought the property in a complex deal. It's one of the largest foreclosures in the region so far -- an offshoot of a Las Vegas company's bankruptcy and a symptom of the hard-hit housing market.

The property is owned by the defunct Placer County Land Investors LLC, which raised $31 million to buy the land in 2004 through individual lenders who signed on for a minimum of $50,000 each. As a group of individual investors they are allowed to foreclose on the property and auction the land. Those primary lenders had hoped to earn double-digit returns but find themselves trying to wring whatever value they can from the property. More than 100 secondary lenders who agreed to take a subordinate position when they loaned a total of $6.2 million for the land purchase would receive nothing from a foreclosure, said Gerald Gordon, a Las Vegas attorney.

From the Sacramento Bee:

New statistics show regional home building off to a slow start in 2008, with 798 new-home sales in El Dorado, Placer, Sacramento, Sutter, Yolo and Yuba counties. That's 57.7 percent fewer sales than in the same months of 2007, according to Hanley Wood.

From CNN Money (hat tip Housing Chronicles):

Demand for new homes may not return to normal levels until next decade, according to the latest outlook from the National Association of Home Builders. "Traditionally when housing has been in a recession, it recovers very quickly. We don't see that happening this time," said Jerry Howard, CEO of the builders' trade group. "It could be 2010 before we see sustainable, long-term stability in the home building sector."

From Wachovia Economics Group [pdf] (via FxStreet.com):

Home prices will bottom out about the same time foreclosures top out, which we believe will be in the first half of 2009. Efforts by Congress to stem the tide of foreclosures are likely to be modestly successful at best. A very large proportion of foreclosures, which we estimate to be around 40 percent, are on homes purchased by investors and speculators. There is little Congress or the lending community can do to prevent these borrowers from going under, which will result in sharply higher foreclosures and price declines in investor-laden markets, such as Florida, Arizona, Nevada and California’s Central Valley.

From the Associated Press:

Driving around depressed developments ringed by almond orchards, John Pedrozo, a Merced County supervisor who represents Planada, could not contain his distress. "I've lived here 50 years and I've never seen anything like it," said Pedrozo, who grew up on a dairy farm. "Businesses are closing, people going bankrupt. And the empty houses are vandalized." A common problem, he said, is that on weekends, vacant, foreclosed houses are crashed for wild parties and trashed.
...
Merced County, population 246,000, underwent a housing boom over the past few years that saw developments spring up on what used to be farmland, said Rep. Dennis Cardoza, a Democrat from Merced. Now, in towns like Atwater, housing values have dropped as much as 50 percent, the congressman said. "The impact on these small towns and cities is huge," Cardoza said. "In my district, I believe we are already in a recession."

Realtor Julie Jalone in Roseville & Rocklin Today:

It is true we are starting to see some subtle shifts in the Sacramento real estate market. But the only thing dramatic is the anecdotal comments of other Realtors who are saying there is increased activity.
...
What I remain concerned about is the rate of foreclosures we are seeing in the Sacramento area...I don’t see any solutions to this trend and suspect our rate of foreclosure to continue to outpace the rest of the country through 2008.
...
Watching the housing market is interesting but it is what happens with the overall economy that is important right now. Our Sacramento economy is tied to construction and government and neither is a strong driving force right now.
...
I learned my lesson with some previous overly optimistic predictions for our local real estate market. Right now I am being cautious and want to see the foreclosure numbers come down before I start to smile.

From Sacramento State [pdf] (hat tip Home Front):

Sacramento area residents are very pessimistic about the region's current housing market. Only three percent of area residents think the housing market will take six months to recover, and 17 percent say it will take a year. The majority (51%), however, believe it will take two to three years for the market to recover, and 24 percent even claim the housing slump will last at least four years of more. Close examination indicates that regardless of county of residence, homeownership status, race, age, political party affiliation, the overwhelming majority think it will take at least two years before the regional housing market recovers.
...
Currently, sixty-three percent of area residents believe 2008 is a good time to buy a house in the Sacramento region; 47 percent say now is a good time and 16 percent claim six months from now would also be a good time. Only 30 percent of residents think that the best time to buy a house in Sacramento is at least a year from now....

From Calculated Risk - Housing Bust Duration:

It might be reasonable to expect that the dynamics of the current bust will be similar to the previous bust. After another year (or two) of rapidly falling prices, it's very likely that real prices will continue to fall - but at a slower pace. During the last few years of the bust, real prices will be flat or decline slowly - and the conventional wisdom will be that homes are a poor investment.

The Los Angeles bust took 86 months in real terms from peak to trough (about 7 years) using the Case-Shiller index. If the Composite 20 bust takes a similar amount of time, the real price bottom will happen in early 2013 or so. (But prices would be close in 2010).

From the Federal Reserve Bank of SF (hat tip Calculated Risk):

To the extent that the subprime meltdown is tied to declining house prices rather than interest rate resets, other borrowers, including prime borrowers, also could be affected. Indeed, while default rates for the latter loans are lower than for subprime loans, delinquency rates among all categories are highly correlated with house price declines across regions of the country. More formal statistical analysis confirms that differences in house-price change account for most of the regional differences in delinquency rates, whether borrowers are prime or nonprime, or whether loans have fixed or variable rates.

This analysis underscores the importance of house-price movements both to future developments in the housing sector and also to the ultimate magnitude of credit losses that are likely to be realized by leveraged financial institutions on their holdings of mortgage-backed securities and other housing-related loans. Looking ahead, it seems likely that the period of house price declines will not be over very soon, since some models of the fundamental value of houses suggest that prices are still too high, and futures markets for house prices indicate further declines this year.

WSJ: Still Way Too Early to Go Bargain Hunting in the Bubble Markets

From the Wall Street Journal (hat tip Calculated Risk):

If you own a home in a former bubble region like California or southern Florida, there's bad news… and really bad news. And they suggest that it is still way too early to go bargain hunting in these markets, although -- of course -- there is always the occasional deal around.

The bad news is fresh market data published Monday night by real-estate Web site Zillow.com. They show prices, as expected, kept slumping through the end of last year.

But the really bad news is that, even after a year of misery and falling prices, homes in many of these regions still aren't cheap. They remain wildly overvalued compared to average personal incomes. There is a strong long-term correlation between the two figures. And in many regions, house prices would still have to fall a very long way to get back into line. How far? Try around a third in Florida and Arizona -- and closer to 40% in California. Yes, from here.

From News 10 (video):

Countrywide Financial notified 122,000 customers that they may no longer draw on their credit lines, even if they were previously approved for a higher limit...One of them is a woman who spoke to News10 and asked that her name not be used. "Apparently the fact that I have excellent credit, that I am not late, and that I have lived in my home for 25 years didn't count for much," she said.
...
In a statement on its Web site, Countrywide said federal regulations allow lenders to block additional extensions of credit in a declining market [pdf].

From the Sacramento Bee:

...January struck an especially hard blow to homeowners in Amador, El Dorado, Nevada, Placer, Sacramento, Sutter, Yolo and Yuba counties. Banks in the eight counties repossessed 2,292 properties – 755 more than December – according to foreclosures.com, a Fair Oaks-based Web site for real estate investors.

From the Associated Press (via Forbes):

A growing share of home sales are from foreclosures, especially in states hardest hit by the housing bust. In some parts of California lately, nearly 50 percent of home sales come from foreclosed houses.
...
In December, 46 percent of homes sold in the Sacramento area and 31 percent in the San Diego area had gone through foreclosure, up dramatically from about 4 percent a year earlier, according to San Diego-based DataQuick Information Systems, a real estate information firm.

From CBS 13:

It's called "Cash for Keys," and it's been happening for years, but the strategy has been kept quiet. Until now...The deal is simple: Occupants get out within 30 days without trashing a house, hand her the keys, and she hands them back a check from the bank. Then it's done.

CBS 13 has video of the San Joaquin County mansion ransacked by thieves. Also from CBS 13: Foreclosed Homes With Pools: Home To Mosquitoes

From the Sacramento Bee:

Don Snyder's voice cracked as he talked about the end. The emotion welled up from owning Sacramento's oldest toy store, from the joy of selling playthings to Sacramento's children to watching his own kids grow up in the store's aisles. Now it's almost over. Soon Carousel Toy & Party will close for good. Snyder is shutting down the Fulton Avenue store, a Town & Country Village mainstay that started as Bob's Toyland in 1951. He's endured rough patches before, but this year the economy, the housing market and consumer confidence in toys all tumbled at once. Holiday shoppers didn't come to the rescue.
...
The housing market's slide – the Sacramento area is among the nation's hardest-hit – continues to hurt retail spending. So does the volatile stock market – along with high prices for gas and food, the escalating credit crisis and a weak job market.

From the Modesto Bee:

Northern San Joaquin Valley home values have declined so much that more than a quarter of homeowners can expect to pay less property tax next year. About 37,000 Stanislaus County homes will be reviewed. Their assessed values are expected to drop 10 percent to 40 percent, Assessor Doug Harms said Monday.
...
Assessors will be more aggressive in lowering San Joaquin County home values this year. "We're reviewing (home purchases) back to 2002," said Ken Blakemore, San Joaquin's assistant assessor.

60 Minutes: Stockton's "House of Cards"

From CBS News (video) (hat tip Tyrone):

It sounds complicated, but it's really fairly simple. Banks lent hundreds of billions of dollars to homebuyers who can't pay them back. Wall Street took the risky debt, dressed it up as fancy securities, and sold it around the world as safe investments. It sounds like a shell game or Ponzi scheme; in some ways, it was a house of cards rife with corruption, greed, and negligence.

And as correspondent Steve Kroft reports, it started in places like Stockton, Calif. Stockton is a city of 280,000 people in the Central Valley; 80 miles east of San Francisco and 80 miles north of San Jose. In many ways, this is ground zero for the current financial crisis and a microcosm of everything that went wrong. A few years ago, it was one of the hottest real estate markets in the country; today it is the foreclosure capital of America.

From the CNNMoney:

The risk of foreclosure is on a rapid rise nationally and, with a possible recession at hand, this spike in mortgage-defaults could last for years. A report released Monday by First American Core Logic rates foreclosure risk for 381 metropolitan areas, and found that the risk of foreclosure has jumped 22 percent from January, 2007, and 9 percent from three months ago.
...
The price declines are biting hardest in California, especially the Central Valley cities that had recorded outsized price gains during the boom. Of the top 10 large cities facing the highest risk of foreclosure over the next six months, five are in California. Of the 36 markets nationwide undergoing double-digit price declines, 22 are in California.
...
Top 10 risky cities
The markets facing the highest risk of foreclosure
[Annualized home price appreciation]

#2 Stockton [-18.7%]
#7 Sacramento [-15.1%]

From the Stockton Record:

The telephone began ringing at 6 p.m. Thursday and didn't let up for the next two hours as eight members Financial Planners Association of the San Joaquin Valley offered free financial advice to callers. "This is the busiest we've been," said Teresa Mandella, a financial planner with Ameriprise Financial.
...
Frank Mandella, owner of Meadow Lake Mortage (and Teresa Mandella's husband), handled many calls from people unable to meet rising mortgage payments or worried about falling home prices.

"All the problems I dealt with tonight dealt with option ARMs," he said, referring to adjustable loans in which borrowers are offered a selection of payments, including at interest-only or lower levels...He also spoke to callers worried their home's value had fallen below the mortgage balance, even though they could still afford the payments.

From the Sacramento Bee:

When the economy sours and gold soars, there's one business segment that actually sees more traffic coming in the door. Welcome to the world of pawnbrokers. Amid the economic queasiness surrounding housing, jobs and credit, local pawnshop owners are seeing evidence that more money-strapped customers are dropping off their valuables to get fast loans or unloading their gold for a quick windfall. "The demand for loans is way up, because the economy stinks," said John Appelbaum of Sacramento Loan and Jewelry Inc. on 10th Street in downtown Sacramento.
...
Out in suburban pawnshops near the American River, the flood of pawned construction tools bears evidence of the area's protracted housing slump. "You can usually tell (how) the economy (is doing) by how many tools we get in," said "KC" Carvalho, of Carvalho's Loan in Sacramento's Foothill Farms area. "We now have more tools than we've ever had. Ever." Carvalho has devoted an entire section of his store to tools brought in by idled construction workers, from air compressors to heavy-duty drill sets.

From the Sacramento Business Journal:

Bold moves carried Reynen & Bardis Communities Inc. into the top tier of Sacramento's firms during the housing boom, but the longtime developer's full-throttle approach to buying land has backfired through the bust. The company is accused of missing payments on $34 million in debts tied to land acquired as the housing market slipped. It ceased construction last month at its three divisions -- Sacramento, Reno and Visalia -- and has hired a restructuring and turnaround specialist to increase cash flow and strike new deals with the developer's many lenders, according to sources familiar with the company's financial position.
...
While land brokers declined to discuss Reynen & Bardis directly, they said Sacramento builders are actively seeking partners to stay afloat. "That's what people with excess inventory are doing right now; they're reaching out to the investors," said Randy Grimsman, a land broker with CB Richard Ellis. As for investors, "They're waiting for the bottom before committing. When they feel the deal is right, that's when they're going to move."

From Keep It Real in Sacramento:

[A]fter two plus years of downward real estate trends, there are now industry professionals who have gone in the other direction and seem to pride themselves on how “gloomy” they can make the market appear. I didn’t attend but got a report from a title company sales officer that Mike Lyon of Lyon Real Estate made such a “gloom and doom” forecast yesterday in Roseville. My contact is a sale person; he makes his living selling his company’s service to real estate agents. He told me the Lyon talk was so depressing he had to leave.

Sacramento Real Estate "A Little Too Rock n' Roll"

From the Central Valley Business Times:

Central Valley cities are among the most likely places in the nation to see home prices decline in the next two years, according to a report Tuesday from the PMI Group Inc. (NYSE: PMI), a Walnut Creek-based writer of mortgage insurance. The most likely place in the country is Naples, Fla., in PMI’s opinion, but Stockton and Merced are tied as the fifth most likely locations for price declines. PMI says the two Valley cities have a 91 percent chance of price declines...[#8] Sacramento was given a risk score of 73, up from 49, by PMI.

From the Central Valley Business Times:

The pace of home foreclosures in the Central Valley and across most of California is quickening, a foreclosure information company says Tuesday. There was a “gargantuan jump” in Notice of Default filings in December and “we’re already observing a record pace of auction sales in January,” says ForeclosureRadar of Discovery Bay...“Many analysts fail to understand the delays inherent in the foreclosure process, and I believe we have yet to see the real impact from the ARM resets that began in earnest last October.”
...
For the Central Valley, ForeclosureRadar’s figures for December’s NODs and sales are:
• Merced County: 373 NODs; 215 sales
• Stanislaus County: 1,033 NODs; 381 sales
• San Joaquin County: 1,402 NODs; 542 sales
• Sacramento County: 2,145 NODs; 972 sales
• Yolo County: 130 NODs; 59 sales

From the Sacramento Bee:

Eight U.S. financial institutions and two California foundations have contributed $4.6 million to help mortgage counseling agencies beef up California staffs increasingly overwhelmed by borrowers trying to avoid foreclosure, a statewide housing group announced Monday.
...
The positions will be spread across California's 80 federally certified nonprofit counseling agencies. Many new staffers are likely to land in Sacramento, said Alan Fisher, the coalition's executive director. "Sacramento is one of the places that has been hit hardest, and we think they could come up large in our effort," said Fisher.

From KCRA:

Kylee Roe bought this Sacramento duplex when the market was red hot...And after years in rock radio, Kylee started working in real estate. Lately, that's been a little too rock n' roll! "My salary's down 40% for the year. So, I've already been behind, and that's enough. So they say I don't qualify.

Kylee says she's now catching up with the help of a chapter 13 bankruptcy agreement. But she's worried about the next jump in her adjustable rate mortgage...due in June. "It's gonna up my payment by about $600 a month, and there's no way I can keep my house."

So Kylee says she tried to talk to her lender, countrywide, about fixing or freezing her interest rate. She says she knew her previous financial problems techically disqualified her, but....

From the Bakersfield Californian:

A developer's bankruptcy case -- one with ties to three projects in Bakersfield -- will be moved to a Sacramento courtroom from New York state, a federal judge ordered Monday. The change of venue is considered good news for a roster of construction companies owed money by subsidiaries of Dunmore Homes Inc., a once-prominent homebuilder from the Sacramento area. A group of construction firms requested the change, saying they had a hard time accessing court proceedings across the country. All of Dunmore's projects are in California.

From the Sacramento Bee:

A building moratorium is likely for Sacramento's fast-growing Natomas basin after federal flood-control officials said Tuesday they will designate the area as having a high risk of devastating flood damage because of inadequate river levees.

Burning Down The Car

From the Stockton Record:

Can't make your auto payment? Light your car on fire, and tell the insurance company you were a victim of theft. That's what a local prosecutor says he's seeing more of these days. But instead of chasing down a phantom arsonist, oftentimes he charges the car owner with insurance fraud.

A symptom of the overall economy - a troubled housing market and high gas prices - auto arsons in San Joaquin County have doubled in the past three years, according to the state Department of Insurance.
...
These days, people in financial straits who torch their cars are often caught in the subprime home loan debacle, and on top of that, they have to pay $3 for a gallon of gas, said Daniel Bale, national director for special investigations at Mercury Insurance Group.

From the LA Times:

The no-worries lending that inflated the housing bubble is resulting in a flood of soured option-ARM loans, adjustable-rate mortgages that allow borrowers to pay so little every month that their loan balances rise rather than fall, sometimes sharply. Numbers from industry trackers suggest that these borrowers -- most of whom boast respectable and often top-tier credit scores and appear to have substantial incomes and home equity -- are starting to create a second tide of defaults for lenders swamped by the meltdown in sub-prime loans made to people with bad credit or overstretched finances.
...
The percentage of option ARMs with payments behind by at least 60 days in California is in double digits in the Inland Empire, San Diego County, Santa Barbara County, Sacramento, Salinas and Modesto, according to data provided to The Times by mortgage researcher First American Loan Performance...In Yuba City, north of Sacramento, 15% of option ARMs made in 2005 were delinquent at the end of October, the Loan Performance tally showed, and in Stockton-Lodi the delinquency rate on option ARMs from both 2005 and 2006 was over 13%.

"It is astonishing how fast the credit deterioration has occurred," said Paul Miller, an analyst with Friedman, Billings, Ramsey & Co. who follows the savings and loans that specialize in these mortgages. "It took me and everybody else by surprise."

From the Central Valley Business Times:

Two of the nation’s five weakest residential real estate markets this year are in the Central Valley, according to Veros Real Estate Solutions, a Santa Ana-based company that sells enterprise risk management and collateral valuation services. Home prices in the Modesto market are predicted to decline 15 percent and the Sacramento/Roseville market is expected to have a 12 percent drop, Veros says.

Another 2008 price prediction from HousingPredictor.com (hat tip Housing Panic):

• Sacramento, CA: -10.4%

"Loans to Sacramento Trailer-Home Buyers...Trigger a Global Credit Crisis"

From the Toronto Star (hat tip Tyrone):

Anatomy of a credit crunch
Who would have thought questionable loans to Sacramento trailer-home buyers could someday trigger a global credit crisis

The current calamity arises from a systemic failure over, of all things, home mortgages – one of the most dead-simple financial transactions in existence. When the housing bubble was gaining altitude, lenders, regulators, debt-rating agencies, buyers of bundled mortgages and central bankers couldn't imagine that questionable loans to Sacramento trailer-home buyers could someday trigger a global credit crisis.

From the Sacramento Bee:

Even in a region with more than 7,600 foreclosures in just the first 10 months of the year, no place has been hit as hard as Western Avenue in North Sacramento. On the block where Marshall lives, 16 of 45 homes have been foreclosed in 2007 – more than on any other block in the four-county region, according to a Sacramento Bee analysis of thousands of foreclosure records...Of the 16 homes foreclosed on the street's hardest hit block, at least 13 had been bought with adjustable rate mortgages, according to a Bee review of property records.
...
But, by several accounts, Western Avenue was getting better when multiple new homeowners – most carrying expensive subprime loans given to borrowers with shaky credit – moved into the neighborhood during the past three years. They were chasing bargains and believing the hype about everyone being able to own a home.

Now, with the collapse of the housing market and the plunge of home values, Western Avenue's best chance to escape its past appears to have come – and gone. "This is like a Third World country," says Michael Davis, who grew up in the neighborhood and lives in a rented house on the street.
...
Jack Poe is among the few who has seen opportunity in Western's crisis. The ATM repairman and his sister were able to buy half a duplex from US Bank a month ago for $86,000, well below the $125,000 to $200,000 prices similar homes on the street were going for just a few years ago. Poe got a taste of reality right from the start: Someone stole the air conditioner from his new place while it was vacant. "We don't have a lot of neighbors right now," says Poe, 47, who formerly lived in a rented house in Rancho Cordova. But he's upbeat about having 800 square feet of his own now. "It's finally nice to say, 'I've got a home.' "
...
Tony Brisbane, a caretaker for Coldwell Banker Real Estate..is in charge of trying to keep three houses on Western clean and free of squatters. He oversees more than 50 such properties in the region...He is not optimistic about where things are headed. "It's going to grow," he says. "It's going to get worse."

From the Sacramento Business Journal:

Warren Adams, a broker with Security Pacific Real Estate, has been selling REO property for 20 years and has watched the industry shift. When the real estate market was in a frenzy, most foreclosures were older homes in tougher neighborhoods. During those times, the majority of REO brokers sold to home investors who preferred a low price to a home in good condition. The investor added value by doing the work. "A few years ago, we could sell those all day long to investors," he said.

But things have changed. Such a flood of REO is hitting the market that there aren't enough investors to buy the homes. That means REO brokers are now primarily marketing to people who are actually going to live in the home, which means a home's condition takes on more significance, Adams said. "The banks are realizing that the target buyer now is an owner-occupied buyer, and the homes have to be move-in ready for those people," Adams said.
...
One key job for an REO broker is putting the right value on a home. They send the lender "broker's price opinions" on the market value of a home. Typically, they offer a timeline with that opinion for 90 days, 120 days and 180 days on the market. In a regular market, the shorter term is the lowest price; prices usually go up when a broker has more time to market and show a home. But now that calculation isn't working, [Ron] Leis [co-owner of Diez & Leis Real Estate Group] said. These days, the longer-term price is actually lower, with perhaps a 10 percent discount on the value for a home at 180 days versus the present value.
...
What got the real estate market to this point was a lot of misdirection from lenders and mortgage companies trying to make a sale during the run-up in housing prices, said Robert Dillon, a broker with Security Pacific Real Estate. "I'd get people who earn $12 an hour telling me they qualified for a $300,000 loan," Dillon said. "I warned people against that kind of loan."

From the Sacramento Business Journal:

Last month, Dann Ingrim, co-manager of Lyon Real Estate's downtown Sacramento office, went to market confidently with a 985-square-foot, three-bedroom house priced in the low $400,000s. It sold in three days at full price. Sacramento is bearing the brunt of what some are calling the worst housing slump since the Great Depression, and houses three times that size have been sitting on the market for half a year. But this home is located in East Sacramento, one of the city's venerable neighborhoods along with others such as midtown, Land Park and Curtis Park that have in many ways resisted the ravages of the housing downturn.
...
[T]he price per square foot for homes in core areas has been historically much higher than suburban areas, often about $300 or more according to TrendGraphix....While that figure has leveled off or declined slightly for core neighborhoods, the decline has been much sharper in the suburbs. In Elk Grove, the price per square foot is approaching half what it is in core neighborhoods -- a disparity that's only growing wider as the slump rolls on.
...
Despite the resilience of the core neighborhoods, they're not immune. Just as in Sacramento as a whole, the inventory of homes for sale in core neighborhoods has crept up over the past two years. Gone are the days when two or three offers was the guaranteed response after a home had been listed for a week, [Coldwell Banker agent Polly] Sanders said.

From the Sacramento Bee:

[R]ecently announced plans by the federal government and the state of California to save some of them in the name of saving the economy are provoking protests from people who say they've played by the rules. Their rallying cry is personal responsibility and living within your means.
...
A homeowner for 33 years, Ron Loutzenhiser opposes a mortgage bailout of subprime and other borrowers and pronounced himself "infuriated" by a recent spate of "tear jerker" Bee stories about people in foreclosure. Dozens of others said the same in calls, e-mails and reader comments on the newspaper's Web site.
...
Proposals to modify global financial contracts to bring short-term relief to U.S. borrowers risk long-term damage by sparking enduring uncertainty in the mortgage system, he said. "For the greater good, you're talking not just about the immediate future of these borrowers, but the future of their sons and daughters," [Steven] Sheffrin [economist and dean of the division of social sciences at the University of California, Davis] said. "It's really about a small set of today's homeowners against a whole future set of homeowners."

Talk to someone waiting to buy a home, and you'll see what Sheffrin is talking about. They're offended the government is stepping in. They worry that a bailout will artificially prop up home prices that have been fast falling in their direction. "There's a lot of us waiting on the sidelines for prices to come down to an affordable level, says Chris Stafford, 34, a commercial insurance broker in Sacramento. "A lot of us were priced out of this market."
...
"We saved our money while our friends and co-workers bragged about how much equity they just cashed out to buy their new boats and cars," says a recent post on The Bee's Web site. "Now while they're on the verge of losing everything we are preparing to buy our first home next year. … Life lesson: Live within your means."

From News10:

Salvation Army Capt. John Brackenbury...said donations stuffed in the organization's familiar red kettles are off by $36,000 in Sacramento County when compared to this same time last year. Nancy Richards, is manning the Salvation Army's toy donation desk inside the Arden Fair Mall. "Hardly anybody's buying," Richards said. "This is the worst I've seen it in 15 years." She blames high gas prices and the sagging housing market. "Because of the foreclosures and stuff, people can't afford to buy. They're losing their homes. They're just buying what they can for themselves," Richards said.

From the Sacramento Business Journal:

Investors will likely find favorable real estate deals next year -- if sellers are willing to bargain -- in land, apartment complexes and office buildings around Sacramento, according to a market forecast from the region's top brokerage, CB Richard Ellis. The discount is courtesy of the severe housing downturn and the global credit crunch, which have pushed values down for all kinds of non-housing assets.
...
Land values are plunging, and broker William Ayres expects the same in 2008. So far, owners have been reluctant to deal, holding out hope that their once-skyrocketing values will return as the housing crisis passes. But not all of them will be able to stand pat and will be forced to sell to cover debt on their holdings.
...
"It is troubling that we have 2.5 million square feet under construction with another 6 million vacant," [office specialist Greg] Levi said of the overall downtown market. "That's an eight- to 10-year supply."
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CB Richard Ellis 2008 predictions: Average home prices will drop well below $300,000 before stabilizing.

From the Modesto Bee:

The cost to secure and maintain a neglected home here for a year? Nearly $3,000 by the [Manteca] police chief's tally. This city, hit hard by the housing market downturn and upsurge in foreclosures, passed strict requirements last month to keep up appearances at vacant houses. Owners, some of which are banks, are responsible for neatly boarding up windows to keep out squatters and for maintaining the front yard. Those who don't, risk getting a bill from the city for the work. Today, Police Chief Charlie Halford is scheduled to ask the City Council to allocate $102,725 for landscaping and boarding up about 35 houses. That amount is what it would cost to fix up and maintain for a year, 5 percent of the estimated 700 residences in the city in some stage of being repossessed.

From the Modesto Bee:

Another foreclosure record was set in November as 1,336 properties were offered to the highest bidder on the courthouse steps in Modesto, Merced and Stockton. Now here's the real surprise: Only 17 of them sold, despite lenders offering deeply discounted prices.
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On Friday, [ForeclosureRadar owner Sean] O'Toole said, a foreclosed five-bedroom Modesto home on Hemstead Avenue went up for auction with a starting bid of $301,500, even though the lender was owed $537,000 from a delinquent mortgage. But that $235,500 discount apparently wasn't enough. O'Toole said no one bid, so the lender now owns the house.

From the Stockton Record:

Existing home sales in San Joaquin County rose last month from October, making it the second consecutive monthly increase in a season when sales usually fall off...The median sales price also slid last month to $310,000, down 20 percent from $388,000 a year ago.
...
The majority of sales and pending sales reportedly are foreclosure houses, more than 2,000 of which have piled into the residential market since just the beginning of the year. Brokers and agents said that those foreclosures are clogging up the market and most of the demand for traditional resale homes as would-be buyers watch prices slide. "Every sale counts," said Jerry Abbott, president and co-owner of Coldwell Banker Grupe, Stockton. "I still think September was the bottom of the sales market."