Ryan Jessup: Sacramento Bee's Latest Housing Bubble "Victim"

One of the most disappointing aspects of the media's coverage since the housing bubble burst (besides the blind reliance on "expert" opinion), has been the parade of so-called victims. Is it just me, or has the media struggled mightily in its search for legitimate causalities of the housing bubble fiasco? Are they looking in the wrong places? Is it simply that there is not enough genuine victims?

I pondered these questions as I read an article by Jim Wasserman in Sunday's Sacramento Bee. Among others, the story profiles a man by the name of Ryan Jessup, who "walked away" from his Oak Park house (this site says it was a short sale).

[M]any who can afford their payments have decided it's no longer worth it. They walk, or, as is becoming the trend, park rent-free in the house for months until they get the boot.

It's a question that Ryan Jessup of Sacramento answered a year ago, when he, too, sensed the financial game had turned against him. Early in 2008, the software engineer stopped making payments on his Victorian house in Oak Park. A long habit of playing by the rules, he said, had provided him a good income, a credit score of 804 and a lovely $430,000 house. But when playing by the rules meant riding down the housing market to who knows where, he said, "It came down to morals or survival. I chose survival. It made no sense to stay."
...
Many borrowers like Clawson and Jessup no longer feel so obligated to a financial system they believe overstimulated the housing market, sold them questionable loan products, sometimes by fraud, and then didn't provide help they need in the face of falling home values.
...
Jessup walked away. "I haven't even looked (at the credit score)," he said. "It's like being hit by a train or a bus."
...
Jessup, looking back, has no regrets. He lives with a friend now who has also stopped making payments on a condo bought at the peak of the market in 2005.

What Mr. Wasserman didn't say in the article is that apparently Ryan Jessup has quite the history of touting the virtues of Sacramento real estate in comments at sacbee.com. As the name sounded familiar, I dug through Sacramento Land(ing)'s "save for future use" folder and ran across some quotes by a sacbee.com commenter named "rjessup2mouse." Could rjessup2mouse be Ryan Jessup?

I started to read the article's comments and sure enough, rjessup2mouse, purporting to be Ryan Jessup quickly chimed in on his own story:

rjessup2mouse wrote on 03/08/2009 06:47:04 AM:

Good article Jim - this is a very hotly debated topic right now and weighing on alot of peoples minds. yes the house was actually in a nice neighborhood. Not all of Oak Park is bad... I was extremely choosy of where I bought and wanted to be closer to downtown as I figured the value would hold up better. It did but still fell enough for me to leave. I did not think it would increase in price when I bought it. I am sure alot of people on this board are going to be angry - I figured as much - I am not happy with the way it turned out and I lost alot of $$$ on it. But to me it was better to lose alot then to lose it all (and keep losing). One of the reasons I chose to be a part of the article was for the people who were not speculators or anyone who thought the market would go up forever. Just for normal people who had always played by the rules and then the game changed. Each situation is different and deciding to miss that first payment is a tough one.

Assuming that rjessup2mouse really is Ryan Jessup, let's take a look at how Jessup got to the point of parting with his own bit of Sacramento real estate. Below are some excerpts from comments made by Ryan Jessup over the last few years. Jessup's arguments (and tone) nicely encapsulate the mindset of many, whether "experts" or not, in the face of the housing bubble's implosion.

For those who choose not to wade through the excerpts, here is a summary of Ryan Jessup's assertions over the years:

(1.) Employment is strong
(2.) Population growth is strong
(3.) Home prices will not crash
(4.) It's all about affording the monthly payment
(5.) State government is strong
(6.) The sky is not falling
(7.) This will not be like the .com implosion
(8.) There are a lot of buyers out there (especially in my neighborhood)
(9.) My neighborhood is special/great/different [see green highlights below]
(10.) The economy is strong
(11.) Those who did not buy "missed the boat"
(12.) Real estate is not the stock market
(13.) Real estate is not wildly unaffordable
(14.) People have made millions on real estate
(15.) Construction employment is still going strong
(16.) My industry sources say things are good
(17.) This is nothing like the 1990s (as in not as bad).
(18.) The bottom is near
(19.) Good areas (i.e. where I live) are doing fine
(20.) The worst is behind us
(21.) I bought in 200x, I will be fine
(22.) Subprime will have little impact
(23.) The Bay Area will save us...

Now on to the excerpts. Let's start out with Ryan Jessup's take on the Sacramento Bee's ill-conceived 'No Panic' piece, which was published just as home prices were going negative (yoy).

rjessup2mouse at 7:28 AM PST Tuesday, June 20, 2006 wrote:

To a lot of negative folks - the market will be ok

There are people who write comments in these sections that would LOVE to see housing fall down. So you come up with your doomsday scenarios and facts to support your own theories. Sorry - this article is one of the better ones around. Solid job and population growth in Sacramento will keep from a market crash. Sorry for all you "experts" out there who need to bash the bee and think the market is 53% overvalued. If prices drop 53% here I will buy 20 of them..... I do believe prices will drop a little more and then basically become stagnation for a long time. People who own should not expect appreciation for 5 years at least. Homeowners - just ride out the current downtrend by staying in your house. Homebuyers - maybe wait a couple of months. Or find a homeowner who is panicking and get a bargain.

According to DataQuick, the total home price decline exceeded 53% back in December. Funny, I don't remember any recent reports of software engineers buying 20 homes at a time. Also note Jessup's advice for homeowners to ride out the downturn.

rjessup2mouse at 9:24 AM PST Thursday, June 22, 2006 wrote:

...I also agree there seems to be alot of negativity. Those generally come from people with a vested interest in seeing the market fall. Everyone tried to talk me out of buying in 2002 - saying that it was better to rent and the sky will fall. All I can say is I know a TON of friends that sure hate renting and I am sure glad I didn't listen to the naysayers. It really all comes down to the monthly payment and can you afford it...If you are in the house for the long haul - you will be fine if you lock in a good rate and price isn't as important...


rjessup2mouse at 2:45 PM PST Wednesday, June 28, 2006 wrote:

Prices will fall some but they won't crash
But I am suprised that there is a 42% chance that they won't decline. Prices will decline some but won't crash as incomes need to catch up. The State of California is Sacramento's main employer and the state is in hiring mode and doing well. There seems to be quite a few positions open.


rjessup2mouse at 9:13 AM PST Thursday, June 29, 2006 wrote:

...Prices will fall a little and then stagnate for a long while. There seems to be a vicious negative tone to the people who have an interest in the market and sky falling. I think you will see a pretty large difference in the .com drop and a housing drop. Wether you have money or not - there are people (alot) that have $ to buy houses and the region is not short of buyers . Plus the economy here is strong. People are simply waiting to see if they can get a better deal by holding off some. This combined with homeowners panicking to get the the best price now before any drop - that is why you see so many homes on the market. Prices have gotten high but they won't fall overnight (like stocks) and won't change much on even a yearly basis. I think the largest correction might happen in the next 3 months. Like I have said before - buyers - wait a little to get a better deal - homeowners - don't panic and remember why you bought your house (to live in) and ride out the real estate game in sac.


rjessup2mouse at 7:57 AM PST Wednesday, July 12, 2006 wrote:

I agree prices are falling - I never said anything otherwise. I just don't believe the extreme view of the market falling apart. Extreme views rarely happen and are more based on theories and in cases such as this thread - hopes of someone who has a vested interest. Alot of people want to focus on the negative and ignore positive. There are too many things in Sacramento's favor for housing to fall apart. I totally agree a price correction is currently happening. I think a 8-10% correction is in order, then basically very little or no appreciation for roughly 5 years.


rjessup2mouse at 1:25 PM PST Tuesday, July 18, 2006 wrote:

markets are dictated by emotion coupled with supply and demand.I think there will be some more slight drops followed by some large stagnation. Can't wait to see all "the sky is falling" comments in this thread shortly.


rjessup2mouse at 10:10 PM PST Wednesday, August 2, 2006 wrote:

no the sky is not falling but there are going to be bouts of depreciation and people that have a difficult time. Sacramento will be ok. People who are looking for massive depreceation are in for a very slow letdown...


rjessup2mouse at 5:01 PM PST Thursday, August 3, 2006 wrote:

jobs are very healthy and growing in sacramento right now. Be thankful as that does have the biggest impact and is a massive cushion against the sky is falling folks...


rjessup2mouse at 8:24 PM PST Wednesday, August 16, 2006 wrote:

people who are waiting for a crash are in for a slow dissappointment. Prices will probably fall a little more and then hold steady for awhile. The regional economy is too strong for a crash. In fact I have seen alot of Pending Sales in my area (East Sac) because some folks are swooping in to pick up $10-20k price drops...


rjessup2mouse at 7:34 AM PST Thursday, August 17, 2006 wrote:

NoNewArena sounds like a reasonable voice


rjessup2mouse at 9:15 AM PST Thursday, August 17, 2006 wrote:

The people who want housing prices to crash are people who have an agenda. So they try and add fuel to the fire and get joyful of a families demise, just be glad you are not them. There is alot of jealousy over missing the boat and not making $ while others made a lot of money. yeah - prices may fall a little - it isn't going to crash - and the local economy is strong - and mortgage rates are falling. There are alot of buffers. I am already seeing some Pending sales in my neighborhood finally. Buyers wanted to see 10k -20k price drops. People seem to forget there are alot of buyers. And simple math - owning your own home over the long run saves $$. It seems as if its a big game/stock market right now. When prices do a hit a bottom - I bet they spring back up pretty good as people pull inventory out because their houses are making money again and buyers pent up demand comes in pretty quickly.


rjessup2mouse at 12:59 PM PST Thursday, August 17, 2006 wrote:

Be funny when the price bottom hits to see how fast the mentality turns again. Sacramento housing will not fall 25% - thats too steep a decline with so many buyers out there.


rjessup2mouse at 9:05 AM PST Friday, August 18, 2006 wrote:

No the market will not tank - sorry for people who want it too its simple math. what you would be paying for rent principle tax write off = Sacramento is not as overpriced as you would think. sorry andersb - the local economy does matter and the housing market is NOT the stock market. They are both assets but they ACT VERY DIFFERENT. People need to realize that the underlying factors that make them different but I will let you figure that out yourself. I am blown away by the hositlity of people on these postings with their number twisting to try and persuade that the housing market is going to fall 50%. Yes - the market is dropping right now and may drop a little more. But I bet it won't even drop 10% more. But there are alot more factors than simple hope it tanks so you can make a buck by getting a cheaper house. Seems some areas are already starting to rebound (midtown, east sac and med center area)...There are A LOT of buyers out there.


rjessup2mouse at 11:48 AM PST Friday, August 18, 2006 wrote:

...There are too many good things about Sacramento for the market to tfall alot. People have been saying the Bay Area is totally unafforadable and overpriced for about 25 years. that doesn't mean that it was going to drop. Just because some people don't have money - doesn't mean it isn't out there. Don't get me wrong - I probably will not buy in the next 2-3 months or so to see what happens. The market is not good- except maybe closer to downtown - that seems to be showing some suprising strength the last couple of months as prices dropped some and inventory is lower.

rjessup2mouse at 12:43 PM PST Friday, August 18, 2006 wrote:

...People have made MILLIONS on real estate. I don't believe i know ANY wealthy renters but I know a TON of wealthy homeowners...


rjessup2mouse at 8:38 AM PST Thursday, August 31, 2006 wrote:

...Currently I don't believe prices are really that much higher than they should be. I am sure alot of people would disagree with that and probably about 90% of folks on this forum(most people on this forum have a vested interest in wanting prices to come down)...I believe housing will fall maybe a little more and then hold steady for a long time. Just my personal opinion but my track record for being correct has made a lot of $ for people.


rjessup2mouse at 8:46 AM PST Thursday, August 31, 2006 wrote:

I see you are a doomsdayer. Yes - even though the state is adding many jobs and employment is very strong in sacramento its going to all fall apart because....housing employment is down? ummm hate to tell you that construction employment is doing REALLY well right now. All of my construction sources say there is more work then they have folks right now. And comparing the 90's bust to today is comparing apples and oranges. But these housing forums are full of it. Some people on these forums need to get up in the morning and drink a little reality.


rjessup2mouse at 9:25 AM PST Wednesday, September 20, 2006 wrote:

Home prices are close to bottom...Some really good deals are out there. Good areas seem to be closer to downtown...


rjessup2mouse at 12:07 PM PST Sunday, September 24, 2006 wrote:

Thinking a 40% decline huh? your in for a big let down. And heck - that 40% you said was modest. why not bottom at 75%?? you should be able to pick up a 2000 sq foot for around $150k soon right? if you wait long enought maybe at $125k? Some people are absolutely nuts - how do you possibly think it could decline by that? how?


rjessup2mouse at 7:32 AM PST Sunday, October 1, 2006 wrote:

East Sac, Med Center, Midtown and Land Park have been selling alot lately. Closer to downtown seems to have gotten hot(relativly) in the last month and a half actually.


rjessup2mouse at 11:00 AM PST Wednesday, October 18, 2006 wrote:

...I disagree that prices will drop much further though...I think prices by far have gone through the worst of it now.


rjessup2mouse at 7:23 AM PST Thursday, October 19, 2006 wrote:

...and no - I bought in 2002 - I am fine...


rjessup2mouse at 8:57 AM PST Saturday, December 16, 2006 wrote:

...[Y]ou paint a pretty bleak picture of downtown. I think there are plenty of beautiful areas in downtown, east sac , med center and such.


rjessup2mouse at 7:41 AM PST Friday, December 22, 2006 wrote:

Have to completely disagree with Mr.Lyon's assessment on 10% decline for sacramento. Most "experts" predict 3.5%. His is by far the biggesst drop prediction I have read about. This last year seems to have come in about 8.2%. I thought it would have been 10% this last year so it was almost 2% better than i even expected. So is Mr. Lyon saying that this year should be worse than last? Why is he the only one saying this?


rjessup2mouse at 10:25 AM PST Friday, December 22, 2006 wrote:

I have no number crunching but I would have to say that I predicted a 10% drop for the year last year (I was off by 2% )and I will predict a 3-4% drop this year. But I am no expert - I just listen to people who are in the industry and what they see happening.


rjessup2mouse at 9:07 AM PST Sunday, December 31, 2006 wrote:

...Smart money right now is saying that sac is going to do 0 to -3% for the year....


rjessup2mouse at 1:08 PM PST Friday, January 5, 2007 wrote:

people are so negative that have an agenda or a vested interest. The bee has covered stories that make housing look bad and they cover stories that make housing look good. Are you some of the same folks that said it would be down 20% this last year? I remember those predictions a year ago. Looks like Sac was down 8.2%. Some areas in Sac were worse than that and some areas less. But just hoping/waiting for the bottom to fall out is not going to make it happen. California Real Estate is and always will be a good investment long term. The worst is over. That doesn't mean it is bottom but I believe by far the worst is behind.


rjessup2mouse at 10:01 AM PST Wednesday, January 17, 2007 wrote:

Oak Park is changing and I have seen investor interest in it. Next to it - The med center area - is a really good place to have a home and rather safe. Remember - not all of Oak Park is considered "bad".


rjessup2mouse at 8:22 AM PST Wednesday, March 14, 2007 wrote:

...I am not to worried about the subprime headlines of right now. It will have some impact I am sure but not much. Just like everyone was saying the housing market would already be down 35%...


rjessup2mouse at 8:41 PM PST Wednesday, April 4, 2007 wrote:

I think Med center area is already pretty nice.


rjessup2mouse at 1:02 PM PST Thursday, April 5, 2007 wrote:

kindof what I have been saying - Dowtown and Midtown are solid
the suburbs and sub divisions have taken a large hit while closer to downtown has been fairly steady. The houses closer to downtown are bouncing back quicker because people are realizing that you can't make these homes anymore and therefore have good price stability. There will only be less - never more of these homes.


rjessup2mouse at 8:20 AM PST Friday, April 13, 2007 wrote:

funny to see the gloomers again :-) - always makes me chuckle to see the 40% drop again predicted/wanted by home buyers. I am sorry for the doom and gloomers - your not going to get anywhere near that price drop. Not even close. Housing I think is going to take a small hit again - with negative publicity being the bigger culprit than what will actually shake out with the subprime situation. People tend to forget that we are tied to the bay area home prices and that the local job market is plenty strong. I am no real estate agent or optimist - just a realist. For the past few years my predictions have been pretty close - and i would predict possibly another 2-4% drop...


rjessup2mouse at 12:53 PM PST Friday, April 13, 2007 wrote:

...my finances are fine are yours? do you own a house or have you ever? I didn't think so. WIll you? and do the math - its not that tricky - fairly simple actually. As far as predictions - I am sorry to say that it has been fairly accurate. I do appreciate how emotional you are over it - I believe you probably one of the "its going to drop by about 30%" correct? Makes me laugh.


rjessup2mouse at 12:59 PM PST Friday, April 13, 2007 wrote:

isn't it funny? I have been seeing these posts for 2 years now - the predictions by most of the gloomers have been that the market would have dropped 25% as of now. It has not. I think I said 7 - 15% from the start.

I find the final two comments, made in January 2008, particularly interesting given that Jessup purportedly stopped paying his Oak Park mortgage in early 2008.

rjessup2mouse at 11:33 AM PST Friday, January 18, 2008 wrote:

a little advice - the really good deals
If you want a bargain and something thats gonna retain its value. Buy where a bunch of houses are NOT for sale and try and scoop up a bank repo. Some downtown and surrounding areas have it- just gotta find the right pockets of places.

0 out of 3 people found this comment helpful.


rjessup2mouse at 1:46 PM PST Saturday, January 19, 2008 wrote:

time to buy or at least look pretty hard
you folks that are sitting should be looking right now.

1 out of 5 people found this comment helpful.

'A couple of years ago everybody thought they were rich'

From the Sacramento Bee:

Wall Street's meltdown is fast becoming Sacramento's problem, too. The three-headed monster gripping the financial markets Monday will put more economic pressure on the Sacramento area. Credit markets will tighten, which could hurt the fragile recovery in the housing market. Businesses will find it harder to expand. Pension plans might suffer. A lot of people will feel poorer and more afraid.
...
It's not just a psychological problem. The housing market crash has erased billions of dollars in wealth throughout Sacramento and the state. The latest problems on Wall Street – with the Lehman debacle coming a week after the bailout of mortgage giants Freddie Mac and Fannie Mae – are making things worse. "A couple of years ago everybody thought they were rich," said Chris Thornberg, head of Beacon Economics consulting firm in Los Angeles.

From the Sacramento Bee:

Inside their homes, residents are plotting against each other. They have attacked one another in legal filings, lodged complaints with the state attorney general and jousted at meetings. Two men – one disabled and one in his late 60s – even grappled with each other on another resident's front lawn.

The root of the tension lies in the depressed real estate market. An influx of renters into the 55-and-older development has angered homeowners, some of whom charge that renters have allowed underage people to live with them longer than is allowed. There's talk of teenagers and diapered babies in the swimming pool.

About 30 of the development's 136 homes sit empty and are controlled by a court-appointed receiver. Another 25 have been rented out by Sun Meadows' developer, Allen Warren. Outside investors also have leased homes to renters.

From the Stockton Record:

Foreclosures accounted for four out of 10 of the 4,419 single-family homes on the [San Joaquin County] market last month and made up eight out of 10 of the closed home sales, the [TrendGraphix] report said.
...
The median selling price fell again. The median selling price last month of $205,000 slid by $10,000 from July. The monthly median hasn't been that low since January 2002, when it stood at $200,000 countywide.

From News10:

San Joaquin County may be at the center of the nation's foreclosure crisis, but that hasn't stopped builders from putting up new homes. The Meritage Company continues to build in Lathrop, in a neighborhood called Riverstone.

It's surprising to University of the Pacific Prof. Dr. John Knight who teaches finance and real estate. "It's hard to understand, how the new homes can compete on a price basis, with the existing homes that are empty. It's very hard to understand," said Knight.

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!

'Promises, Promises, Promises'

From the Sacramento Business Journal:

[Leslie] Appleton-Young’s job includes overseeing the association’s analysis of the statewide housing market and industry trends. Realtors want to know what’s ahead, so sometimes she has to make predictions. Usually, she’s right. [LOL!] Sometimes, she’s not.

Last fall, she estimated that median home prices in California would drop 4 percent in 2008. Recently, she revised her estimate to 8 percent to 10 percent. [The median has dropped 19.1% since December.]
...
[Appleton-Young:] What jumped out at me, in looking at the statistics, was that the percentage of first-time buyers was low, 26 percent of all home buyers. That’s the lowest number since 1979, and it’s a testament to the affordability hurdles that first-timers face.

Jim Wasserman has the latest TrendGraphix figures. The SAR numbers for June are available here.

From the Sacramento Bee:

The bailout of mortgage firms Freddie Mac and Fannie Mae will help stabilize the wobbly recovery in Sacramento's real estate market, analysts said Monday. But the collapse of big mortgage lender IndyMac Bancorp Inc. last week continued to shake Wall Street, depressing the prices of other bank stocks, and showed that many perils remain.

From the Sacramento Business Journal:

“The government sector seems to be strong when we need it to be and the private sector is strong when it needs to be,” said Bob Burris, deputy director at the Sacramento Area Commerce and Trade Organization. “It’s kind of a hedge in difficult times.”
...
Nobody is discounting the concern about 10 percent across-the-board cuts in state government, but there appears to be consensus that actual job losses will not be significant. “Our thought is the state employee reduction will largely be absorbed through elimination of vacant positions or retirements,” said Michael Cohen, director of state administration for the Legislative Analyst’s Office.

From the Sacramento Business Journal:

Steven Cochrane: Prices peaked in late ’05, though the plunge really started about a year ago. The trouble is there’s no end in sight yet. It’s going to get worse before it gets better.
...
I’m fairly certain when the budget is passed, we will start to see some cutbacks in state employment. Sacramento will be the hardest hit — Sacramento and any other area that has a high concentration of state government.
...
Suzanne O’Keefe: The market is maybe reaching a bottom.
...
Sanjay Varshney: The foreclosure rates are still high. Yes, there are a lot of foreclosures that have been picked up by buyers, but that certainly hasn’t had an impact on declining values of existing homes.
...
Sacramento is much more vulnerable. The reason is that Sacramento does not have the paychecks to support the housing market that evolved in the last five years...Really, we need to go back to ... when a good 3,000-square-foot home was only $250,000.

From the Appeal Democrat:

Patti Clary, director of YouthBuild for the Yuba County Office of Education, said the $165,000 three-bedroom, two-bath house on Pine Street — on the market for a year — would have been snapped up during the boom days of California home-buying. "These were a real deal," Clary said. "Now they're not."

The YouthBuild houses still represent a good buy, excellent construction and a program that provides 18-to-24- year-olds training in building and other skills, said board of education President Sidney Muck..."The question still looms whether it's overpriced," [Mercy Housing vice president Greg] Sparks said. "I don't think that they're way out there."

From the Sacramento Bee:

A number of small school districts in the foothills of Placer County are considering a merger to combat years of dwindling enrollment and shrinking funds from the state....Placer Union High School District initiated a preliminary study of district reorganization by the Placer County Office of Education to see how merging school districts would improve the schools' financing.
...
The additional cash flow might entice districts hit hard by a struggling housing market, an older population and fewer students to keep schools open.

From the Stockton Record:

The dramatic decrease in this area's population growth may be some of the best news possible for our cities. Census Bureau figures released last week show that from 2000 to 2007, Stockton's population grew roughly 17 percent, to 287,245. That makes Stockton the 62nd-largest U.S. city.

But much more interesting, perhaps, is that population growth slowed considerably starting in 2005, coinciding with the start of the real estate market meltdown. The collapse of the overheated housing market throughout California, but especially in San Joaquin County, with its proximity to the Bay Area, means this area has grown increasingly less attractive to Bay Area residents looking to escape stratospheric housing prices.

From the Modesto Bee:

When Joe Melendrez bought his home in Bridle Ridge, a master-planned community on Oakdale's southwest edge, the promise of a park and friendly neighbors were crucial. "I assumed I'd look out the window to a park and could cross the street to visit my neighbors," he said. "I'm still waiting for both."

Rather than a lush park, with kids playing and families enjoying picnics, Melendrez looks out over a field of knee-high dead weeds and construction debris..."Promises, promises, promises" Melendrez said. "The only activity around here is when they dump more concrete in the field that was supposed to be a park."
...
At least two builders in Bridle Ridge declared bankruptcy, city manager Steve Hallam said....

LA Land: Waiting in line: That was then... This is now.

"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."
...
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.
...
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."

200 Implosions

The Implode-O-Meter hits 200

'I just wish we never would have bought'

In conjunction with the article linked below, the Sacramento Bee has posted an interactive map which shows foreclosures that have occurred over the last 13 months in the Sacramento region.

From the Sacramento Bee:

For more than 7,600 households across the region, the lights of home have gone out this year. Months after their foreclosure proceedings ended, they are scattered to new neighborhoods and to other towns. They are a harbinger of what's to come as the region's mortgage crisis spills into 2008.
...
As the turmoil mounts, assigning blame or asking why almost seems beside the point. People are losing houses for every reason you can imagine. They got sick and lost jobs. People got adjustable-rate mortgages with initial low interest rates that then reset to a higher rate, causing payments to soar out of reach. Mortgage brokers fraudulently sold them loans they didn't understand and couldn't afford. Many who bought early in the boom recklessly spent their equity gains and couldn't make their refinance payments.
...
"I just wanted to own a home," says Andrea Eddy, 27, a former state worker in Sacramento who lives in Trinity County now, a four-hour drive from the capital. "I thought everything was perfect with my husband and our jobs and our daughter, and that a house was the next step." A year after losing her new light-brown two-story home at Southport's Huckleberry Circle, she says, "I just wish we never would have bought."

From the Stockton Record (hat tip Tyrone):

When Jenny and Ricardo Hernandez bought their north Stockton home in 2005, their monthly mortgage payments were around $1,800. Now the payments total nearly $3,000 - more than the working couple's monthly net income - and the Hernandez family is facing almost inevitable foreclosure. Jenny Hernandez, 36, was just one of around 500 people who lined up Saturday at Stockton Arena for an informational workshop in the hope they might stave off foreclosure on their homes or improve their financing in a troubled mortgage market.

From the Central Valley Business Times:

[T]here may be little the government can do to bail out those faced with losing their homes as the interest rates on their mortgages goes up, says state Sen. Mike Machado, D-Linden, chairman of the state Senate’s banking and finance committee. “A mortgage is a contract and that contract in many cases has been bundled and has been sold away from the local bank or institution that issued the contract,” says Mr. Machado.

“It has become part of a securitized product that is now being marketed worldwide,” he says. “By coming in and by law trying to change a contract will send ripples … to the investment market in terms of the confidence investors will have in products that would be coming from the mortgage marketplace in the future.”

From ABC 7 (hat tip Jeff):

When it comes to the mortgage crisis, it's hard to find the bright side. But for a very few, the misfortune of others has been a financial boon. A nightmare for so many, the mortgage crisis has unlocked new business opportunities for at least a few people in East Contra Costa County. That's where changing locks on homes like this that have gone into foreclosure, has become a bit of a windfall for Joe Grant, the owner of "Poppa Joe's Lock & Key."

From the Associated Press: (hat tip Diggin Deeper)

Echoing the complaints of consumer advocates who have long pushed for mortgage lending reform, Robert Toll, chief executive of luxury homebuilder Toll Brothers Inc., said stronger restraints are needed to prevent a recurrence of today's problems. "We had mortgages available to the alive and standing and that was the only criteria," he said. "There's no reason why we can't set limits." Toll also said home prices "may not have stopped falling yet," adding that it may not "be the best time to buy a home."

Mark Zandi, chief economist at Moody's Economy.com, predicted that, if the economy slips into recession or if efforts to modify loans don't pick up substantially, the housing market downturn could last through the end of the decade. "This is the most serious housing downturn since the Great Depression," Zandi said.

Dunmore Homes Files For Bankruptcy

From the Associated Press:

Residential homebuilder Dunmore Homes Inc. filed for Chapter 11 protection in New York, the latest victim of the faltering U.S. housing market. The privately owned builder, based Granite Bay, Calif., near Sacramento, listed assets and debts each of more than $100 million in its bankruptcy petition filed Thursday with the U.S. Bankruptcy Court in Manhattan. The company didn't say what prompted it to seek bankruptcy protection. But Michael A. Kane of Granite Bay, the sole owner of Dunmore, according to the bankruptcy filing, said in court papers that the Chapter 11 filing was in the "best interests" of the company, its employees and its creditors.

From dunmorehomes.com:

“We have engaged our lenders in a process to restructure our debts,” said Michael Kane, Dunmore Homes’ owner, “and while certain creditors took positions requiring us to seek the protection of the bankruptcy court, we intend to continue focusing on our restructuring efforts while ensuring all creditors are treated fairly.”

Looks like the moths just got burned. From the Sacramento Bee:

On a perfect Saturday in June the lemonade flowed, cookies abounded and cheerful crowds flowed through Pardee Homes' eight model homes in Natomas. It was a memorable opening day in Natomas for a Los Angeles builder launching the first of its 660 houses near downtown.

Now, just five months later, Pardee has closed the project. Sales offices that opened during a national subprime loan crisis that quickly worsened into a credit crunch have been shut. Building crews have been laid off and deals made with only four buyers canceled. Three other regional builders have done the same in recent weeks. Their actions are the latest indicator of how brutal the Sacramento market has become for area home builders as they fight one another for sales.
...
Milwaukee-based Homes by Towne also has mothballed its 145-home project in Natomas called Sky Park at Natomas Field and a 50-home project in Elk Grove called Spring Gardens. The builder has stopped construction at its 227-home Yuba County project called River Landing at Plumas Lakes...Rocklin-based Nouveau Homes has taken similar action with a 51-home project in Lincoln called Crystalwood. It was the builder's only active development, according to Costa Mesa-based building industry tracker Hanley Wood Market Intelligence.
...
"They can't compete anymore. All these builders, they aren't making any money on any of these homes," said Kathryn Boyce, analyst for Costa Mesa-based Hanley Wood Market Intelligence. "They're losing money on all the homes they're selling right now." Ironically, Boyce said, it's the aggressive price cuts and deals that builders are using to woo buyers that are making more buyers leery. She said many fear their houses will be worth less a week after they unpack.

From the Modesto Bee:

It's been a tough year for builders, and those who attended Thursday's Central California Housing Summit heard little cheery news about the near future...New-home sales have plummeted 62 percent in Stanislaus, San Joaquin and Merced counties since their 2004 peak, said Rick Baldonado, regional director of Hanley Wood Market Intelligence. He said sales in the region's 248 subdivisions are so slow that, at the current pace, it would take nearly four years to fill all the empty lots..."Standing inventory is definitely a thorn in our side," Baldonado told the builders. He asked audience members to tell him when they thought the market would turn around, and the majority there predicted 2010.
...
To increase sales, the speakers agreed homes need to cost less...Alan Nevin, the California Building Industry Association's chief economist...predicted that empty lots in many large-home subdivisions will be sold at significantly reduced prices to other builders, who then may be able to build houses priced below $250,000.

From the Modesto Bee:

A Stockton builder's decision to halt work on an Oakdale Road subdivision means the company also is pausing on street improvements it agreed to install. Florsheim Homes postponed its Rose Way development in September after it began preliminary work on the 26-acre project between Mable Avenue and a planned extension of Claratina Avenue. As a result, Oakdale Road cuts off to a ditch on its west side.

From the Sacramento Business Journal:

A deal to sell Southport Industrial Park in West Sacramento has tanked due to the credit crunch, according to the broker marketing the high-profile property.

From the Appeal Democrat:

A decline in the housing market is not only affecting homeowners trying to sell their homes, but also Yuba County’s financial status. County officials estimated revenues from property tax values would increase by 11 percent for the 2007-08 fiscal year, but the housing market decline shows an increase of only 8 to 9 percent, a reduction of roughly $300,000. The projection has caused Yuba County officials to request an evaluation of building and impact fees.

From the Sacramento Bee:

Credit the global economy, said David Hill, executive chairman of Chicago-based Kimball Hill Homes, which builds in Sacramento and Stockton. Get over the idea of a domestic home building industry that relies on conditions inside the United States to thrive. The world's money is rushing in, he said, transforming the building industry that has so transformed the capital region in recent years.

"The Germans and many others are looking at a chance to own a piece of this great economy of ours," he told builders. Brush up on your foreign language skills, he advised local land brokers. As struggling area builders face prospects of land sell-offs, rich foreign investors will be there to buy.

Hill asked builders to think about who buys homes. Nearly one in three buyers now are recent immigrants – what Hill called "foreign-sourced homebuyers." And he sounded a warning. They're being made to feel unwelcome in the United States. "We're doing a lot of things in this country to make sure the foreign-sourced buyers can't get citizenship very easily, can't get documented very easily and are really looked at very suspiciously," Hill said. "All I know is there is fewer of them now. And they are subtracted from the demand."

Condo "Scrapheap" Grows

From the Sacramento Bee:

Billboards featuring the bemused face of star architect Daniel Libeskind have disappeared from downtown street corners, and so have plans by Denver developer Craig Nassi to build two Libeskind buildings here. First, Nassi's Aura condominium project on the Capitol Mall ran into trouble. Now the head of BCN Development says he can't find financing for the 50-story Epic condo and hotel tower he planned for 12th and I streets, either.

Last week, a lawyer representing Libeskind and the local office of architecture firm Stantec Inc. sent a letter to Nassi terminating their relationship for nonpayment. "Design professionals do not have the ability to continue working for free," said the letter from lawyer John Condrey, a copy of which was provided to the city. In an e-mail Thursday, Nassi characterized the letter as a "routine" part of shutting down the city approval process for Epic for lack of funding.
...
"Sacramento's economy is so depressed at the moment, we can't get lenders to consider any projects at this time," he said.
...
The scrapheap of high-rises planned for Sacramento before the real estate market collapsed is starting to pile up. Libeskind's creations join the twin 53-story hotel and condominium towers formerly planned for the Capitol Mall by local developer John Saca.

From DQNews.com:

Lenders started formal foreclosure proceedings on a record number of California homeowners last quarter, the result of declining home prices, sluggish sales and subprime mortgage distress, a real estate information service reported. A total of 72,571 Notices of Default (NoDs) were filed during the July-to-September period, up 34.5 percent from 53,943 during the previous quarter, and up 166.6 percent from 27,218 in third-quarter 2006, according to DataQuick Information Systems of La Jolla. Last quarter's default level passed the previous peak of 61,541 reached in first-quarter 1996. A low of 12,417 was reached in third-quarter 2004. An average of 34,781 NoDs have been filed quarterly since 1992, when DataQuick's NoD statistics begin.
...
Trustees Deeds recorded, or the actual loss of a home to foreclosure, totaled 24,209 during the third quarter. That is the highest number in DataQuick's statistics, which go back to 1988. Last quarter was up 38.7 percent from 17,458 for the previous quarter, and up 604.8 percent from 3,435 for last year's third quarter. The peak of the prior foreclosure cycle was 15,418 in third-quarter 1996....
...
Half the state's default activity is concentrated in 293 zip codes, almost all of which are in the Inland Empire and Central Valley...While numbers at the zip code level can fluctuate severely, among the zips with the biggest foreclosure problem are 95330 Lathrop in San Joaquin County, 92571 Perris in Riverside County and 95832 Sacramento.

From the Sacramento Bee:

At least 6,638 homeowners in El Dorado, Placer, Sacramento, Sutter, Yolo and Yuba received formal notices of default -- the first step in the foreclosure process -- from their lenders during the three-month period....That's up 27.6 percent from April, May and June defaults in the six counties...Sacramento County's defaults were up 180 percent from July, August and September 2006.
...
In the six-county region, 2,731 home owners lost their houses to banks during July, August and September. That's up from 2,203 foreclosures in those counties in April, May and June.
...
DataQuick says about 46 percent of homeowners who go into default are able to work out financial arrangements to either keep their houses or sell them and pay off their debts.

From the Sacramento Bee:

We know. We know. The real estate news these days is always about home sales hitting a new low and values falling. As 2007 nears an end, everyone who owns a house is longing for something better – a recovery or at least some stability for the Sacramento region. Most local experts counsel it's still a little early to be talking about either.

But for the sake of all anxious homeowners standing around the wishing well, let's look at local history. If it has anything to tell us, it's that real estate recoveries – and that dependable upward trajectory for California home values over the long run – usually come pretty fast once they start.

Consider 1997 across much of the Sacramento region. After several lean years of recession, job losses and military base closings, homeowners in El Dorado, Placer, Sacramento and Yolo counties saw their values start to climb again. Here's a look at [DataQuick] September median sales prices for new and existing homes combined in the region after recovery began and until the next boom took off.
...
Sacramento County: September 1997 delivered a $119,000 median price – still below the $138,000 median from September 1991. But the median climbed to $140,000 in 1999 and $154,000 in 2000. In September 2001 it hit $180,000 and then soared away. The September 2007 median: $307,000.

From the Sacramento Business Journal:

Bank of America Corp. will exit its consumer wholesale-mortgage business, a move that will eliminate 700 jobs, including "less than 100" in Rancho Cordova...The Rancho Cordova operation has a centralized processing operation for wholesale mortgages, and that will be ended.

From the Modesto Bee:

Condo conversions were all the rage a couple of years ago, as seven Modesto apartment complexes decided to sell about 500 rentals as owner-occupied units. The first couple of projects sold like hotcakes, filling a niche for lower- priced housing. Then the real estate market cooled, and sales slowed dramatically. Now after two years of trying, one of those multifamily projects is giving up on traditional sales methods. Instead, the Villas at Creekside is going to auction off its final 29 units Nov. 18, with bids starting at $100,000 to $130,000. That's less than half what those town houses sold for in 2005.
...
At first, only those who planned to live there were allowed to buy. Now investors are being invited to bid, and the auction is being promoted in the Bay Area....

Take the Money and Run?

From KCRA (hat tip paperboy):

On Friday, the FBI and IRS arrested *****, a loan officer with First Liberty Financial in Sacramento. He was arrested while boarding a flight at Sacramento International Airport. Agents said at the time, he had thousands of dollars in cash and believe he was trying to flee the state...**** is a former employee of VFM Investment Group.

From the Sacramento Bee:

Sacramento-based Comstock Mortgage announced its second local merger in five months, adding ATM Mortgage of Sacramento to its home loan operation...As numerous wholesale mortgage lenders close amid the nation's housing slump, it's become harder for small mortgage brokerages, said [ATM's owner Jeff] Tarbell.

From the Wall Street Journal:

As America's mortgage markets began unraveling this year, economists seeking explanations pointed to "subprime" mortgages issued to low-income, minority and urban borrowers. But an analysis of more than 130 million home loans made over the past decade reveals that risky mortgages were made in nearly every corner of the nation, from small towns in the middle of nowhere to inner cities to affluent suburbs.
...
To examine the surge in subprime lending, the Journal analyzed more than 250 million records on mortgage applications and originations filed by lenders under the federal Home Mortgage Disclosure Act. Subprime mortgages were initially aimed at lower-income consumers with spotty credit. But the data contradict the conventional wisdom that subprime borrowers are overwhelmingly low-income residents of inner cities. Although the concentration of high-rate loans is higher in poorer communities, the numbers show that high-rate lending also rose sharply in middle-class and wealthier communities.
...
The Journal compared the fastest-growing high-rate loan markets to the rankings compiled by foreclosure-listing providers RealtyTrac Inc. and ForeclosureS.com. In Stockton, Calif., for example, high-rate loans accounted for 33% of total home-loan volume last year, up from 13% in 2004.

Subprime Tidal Wave Interactive Map

From the Modesto Bee:

It's a title no one wants, but counties in the Northern San Joaquin Valley keep passing around the undesirable honor of having the nation's highest home foreclosure rate. Merced County is the latest to get that title, pushing Stanislaus County into the No. 2 spot and San Joaquin County into No. 3...The three Northern San Joaquin Valley counties have been at or near the top of the dreaded foreclosure ranking every month for about a year.
...
Home values in the valley have declined an estimated 15 percent to 30 percent since the 2005 housing market peak, and about half as many homes have sold this year compared with last year.
...
RealtyTrac said lenders repossessed 921 homes last month in Stanislaus, San Joaquin and Merced counties. In September 2006, by comparison, 14 homes were taken back by lenders.

From CNN Money (hat tip J):

California claimed six cities among the top 10 metro areas for the number of filings. Merced topped the list with one of every 68 households, followed by Modesto, Stockton, Riverside-San Bernardino, Vallejo-Fairfield, and Sacramento.

From the Stockton Record:

Susan Dell'Osso thought she would be overseeing the building of luxury riverside homes by now. But with area home prices dropping, Dell'Osso, the perennial face behind the controversial, superlevee-reinforced River Islands development, announced this week it will be another year before model homes rise out of the Delta soil.
...
"We're all ready to go. Our levees are certified, our sewer is on standby, but the market's just not there," Dell'Osso said....If home prices go up by April, River Islands will have models up by the end of 2008, Dell'Osso said.
...
The dipping housing market caused the projected flow of builder fees to be the biggest revenue reduction in the city's most recent annual budget, according to Mayor Kristy Sayles...The city has cut back on the funds it will spend on improvements to Valverde Park and the construction of the new Lathrop teen center, in addition to leaving some staff positions vacant instead of hiring new employees, she said.
...
In 2005, Lathrop approved 921 building permits for residential units. So far in 2007, there have been 197 permits, according to numbers from the Construction Industry Research Board, which tracks the California building industry.

From the Stockton Record:

Few areas are more vulnerable than new Lathrop neighborhoods west of Interstate 5 that are protected by a levee known as RD17...Speculation is that RD17 won't be certified, forcing property owners to pay more for insurance and Lathrop officials to work with builders in upgrading the levee.
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Like San Joaquin County and California, the housing market in Lathrop and areas of southwest Stockton has been slowed by the home-mortgage and foreclosure crisis. Suddenly imposing additional flood insurance costs could force more homeowners out of the market. Where would they go?

Builder's Boom Recipe: Loose Lending + Bailout + Media Silence

From the Lodi News Sentinel:

Three years ago, builder Tom Doucette was "moving at 100 miles per hour" trying to keep up with the demand for new homes at his project sites. Potential buyers were "camping out" at his FCB Homes subdivisions, hoping to snatch up a piece of real estate at the peak of the housing boom.

Business is no longer a blur for Doucette...[A]ctual construction has slowed dramatically. In Lodi, for example, the number of building permits issued for detached single family homes has plummeted from 396 for all of 2005 to just 18 so far this year, according to city records.
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The shaky housing market has led Lodi builder Dennis Bennett to build only pre-sold homes...Overall, Bennett said his company has reduced new home construction by 50 percent compared to just a couple years ago.
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Bennett, who started his company in 1977, said there are a number of reasons for the building slowdown. The media should take some blame for continuing to highlight the trend, he said. Large, corporate home builders are also part of the problem. They've flooded regional markets with new homes creating "huge inventories." That, in turn, lowers sale prices for smaller builders.
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Bennet said new construction won't boom again until the "huge inventories" of homes for sale are bought up. Easing some of the recent mortgage restrictions and offering federal relief to those with expanding subprime mortgages might be two ways to bring buyers back, he added. "If we get a little relief from the lending side of the business, hopefully that will help the inventory out there," Bennett said.

CBS 13 (also video): Developer Says Real Estate Buyers Are Too Worried

From the Sacramento Bee:

Sacramento city leaders have pulled back their offer to loan $10 million to fund construction of a downtown condominium high-rise. Craig Nassi, the Denver-based developer behind the 39-story Aura tower proposed for 601 Capitol Mall, lost the city's commitment after he failed to secure all of his private financing by the end of last month.
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Nassi insists that Aura is alive. But besides having the city withdraw its money, he hasn't yet bought the land for it from local developer David Taylor...In June, Nassi said that he would have his lenders lined up within 45 days. This week, he said financing was on the horizon for the $177 million project. "We hope to have the loan ready to fund soon," Nassi said in an e-mail. He blamed the delay on "capital markets (that) have been paralyzed by the subprime fallout and the unknown of secondary market pricing."

Bank Run?

From the LA Times (hat tip Peter Viles):

Anxious customers jammed the phone lines and website of Countrywide Bank and crowded its branch offices to pull out their savings because of concerns about the financial problems of the mortgage lender that owns the bank.
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At Countrywide Bank offices, in a scene not common since the U.S. savings-and-loan crisis ended in the early '90s, so many people showed up to take out some or all of their money that in some cases they had to leave their names.
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At a branch near Countrywide's corporate headquarters in Calabasas on Thursday, a flood of spooked customers seeking to withdraw their certificates of deposit and money-market accounts overwhelmed the small staff. The Countrywide employees were forced to resort to taking down names and asking people to wait it out or come back later.
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Bill Ashmore drove his Porsche Cayenne to Countrywide's Laguna Niguel office and waited half an hour to cash out $500,000, which he then wired to an account at Bank of America. "It's because of the fear of the bankruptcy," said Ashmore, president of Irvine's Impac Mortgage Holdings, which escaped bankruptcy itself recently by shutting down virtually all its lending and laying off hundreds of employees. "It's got my wife totally freaked out," he said. "I just don't want to deal with it. I don't care about losing 90 days' interest, I don't care if it's FDIC-insured -- I just want it out."

The "All-Powerful" Bubble Sitters

From the Sacramento Bee (hat tip Jeff):

With a cool and steely patience over the past year, John and Toni Daniels have waited out a capital-area housing market buffeted by oversupply and price depreciation. They've resisted every call from a real estate establishment that says this is the time to buy. Now comes a new factor to reward their patience: the growing fallout in Sacramento from subprime lending. For the Danielses, holding a powerful upper hand in a game of supply and demand, subprime's spiraling turmoil may be one more reason to hold out for lower home prices.
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Rising subprime-related foreclosures are pushing more houses onto an already overcrowded market. Tightened credit standards for all loans, not just subprime, are shrinking the buyer pool.
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[N]o one knows exactly how the subprime fallout will affect the Sacramento market or the U.S. economy. But clearly, what started in March as a focus on people with bad credit has morphed into something larger, a psychological and investor malaise that dominates the whole housing market debate.
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Analysts and industry experts can speculate all they want about subprime lending's effects on a housing market or the U.S. economy, but it still comes back to Sacramento homebuyers like the Danielses. John Daniels says he's heard the subprime "horror stories." He says he can only assume they won't help the capital's housing market. "We're watching prices of houses that we've seen on the market for a year," he says. "They've gone from $350,000 to $275,000 to $260,000."

Real estate executives say no one can guess the bottom. The Danielses have waited a year through record oversupply and now the spreading local fallout of subprime lending. They can wait a little longer. They have both the money to buy and the upper hand in negotiating. "It makes no sense for us to jump into something while prices are falling like this," John Daniels says. "Everybody wants the best deal possible. That's what it is."

Julie Jalone in Roseville & Rocklin Today:

I agree with Jim Wasserman, being a buyer with good credit in this market is a nice place to be but it also may be a reason to wait a bit longer. I know most people don’t understand what subprime means let alone the crisis in the mortgage industry that these loans have caused. But the constant media attention and reports of declining home prices make many stay away. As long as that happens prices will fall.

From the North County Times (hat tip Neil):

Let me begin by passing along my congratulations to the many people who are celebrating the current situation in the housing market. In concert with much of the national and local media, they have been able to artificially construct something that has never ---- I repeat, never ---- been done before: drive down housing prices at a time when unemployment is low, the economy is booming and consumer confidence is approaching record highs.

NC Times reader Leo responds:

This alone tells you that the real estate boom of the past few years has been a speculative bubble. Driving down prices by psychology alone is only possible when prices are supported by psychology alone. That's what a bubble is."

From CNN Money:

The binge that many housing markets went on in the early- to mid-2000s is over, and some of the hottest markets like California are now experiencing the worst hangovers...Stockton, California now leads the nation in foreclosures. Of RealtyTrac's top 10 metro areas for foreclosures, four are in Central California...Stockton recorded one foreclosure filing for every 27 households during the six months ended June 30, a 256 percent increase compared with the first six months of 2006.
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The other California cities in the top 10 were Riverside/San Bernardino [#4] (one in 33, up 198 percent), Sacramento [#5] (one in 36, up 231 percent) and Bakersfield [#8] (one in 47, up 222 percent).

From USA Today (hat tip Jeff):

For evidence of what is spooking Wall Street and wreaking havoc on the mortgage industry, one need only look at the housing market in Stockton, Calif., 40 miles south of Sacramento. During the real estate boom, Stockton was a hotbed of speculation, bidding wars, and rocketing prices. Now, foreclosures are soaring, sales are plummeting, and there is more than a year's supply of homes and condos on the market.

The housing market "is still sliding," said Larry Underhill, president of the Lodi Association of Realtors, which covers Stockton. "The buzz is there is just a ton of foreclosures, and banks are going to own a lot more property before it's over."...Underhill says he's seeing homes go under contract two or three times, and each time, the deal falls apart because "buyers can't qualify, or buyers are understandably cautious. They see property values sliding and are saying, 'Why am I doing this?' "

"Bankruptcy is the next logical step"

From CNN Money

American Home Mortgage to shut down

American Home Mortgage Investment Corp. plans to close most operations Friday and said nearly 7,000 employees will lose their jobs as the lender becomes one of the biggest casualties of the U.S. housing downturn. Experts said it is likely the Melville, New York-based company will have to seek bankruptcy protection, and no later than Monday.

American Home originated $59 billion in loans last year, and mostly to people with better credit than risky subprime borrowers. About half of those mortgages were adjustable-rate loans, whose defining feature is an interest rate that can be adjusted upward.

American Home's collapse shows how problems in the U.S. mortgage market are broadening, as credit quality issues begin to affect lenders focused on borrowers with decent credit, as opposed to "subprime" borrowers thought to be greater risks.

While American Home focused on borrowers considered good credit risks, it made many loans to people who could not document income or assets.

The company offered many "Alt-A" mortgages, which fall between prime and subprime in quality, as well as adjustable-rate loans. Founded in 1987, the company said it had by 2006 become the 10th largest U.S. retail mortgage lender.

Lyon pulls ads, Rocklin housing loan sucks

From the Sacramento Business Journal

Sacramento's Lyon Real Estate says it plans to significantly reduce advertising with THe Sacramento Bee, citing national statistics that four of every five homebuyers use the Internet in some way to find their homes.

Lyon's contract with the Bee is worth more than $1 million per year, Lyon chief executive officer Michael Lyon said.

From the Central Valley Business Times

A single bad loan to a housing developer in the Sacramento area is sucking most of the second quarter profits out of Capital Corp of the West (NASDAQ: CCOW) of Merced. The company says it had net income of $642,000 or 6 cents per diluted per share for the quarter ended June 30.

A year earlier, it had net income of $6,254,000 or 57 cents per diluted share. The slumping Central Valley housing industry is being blamed. The bank has had to set aside more than $3.7 million as a loan loss reserve and a provision for off-balance sheet items of $1.595 million.

It’s due to a previously disclosed $12.9 million residential construction project located in Rocklin that the bank foreclosed on July 25. The developer was not identified by the bank.

Snaith: 'I didn't anticipate the severity of the sub-prime issue'

Another for the "surprised expert" category. From the Stockton Record:

California's economy is headed for a soft landing, not a recessionary crash, according to the latest forecast [pdf] from University of the Pacific's Business Forecasting Center.

"To say we're going downhill is a fair characterization, but we're not going off a cliff," said Sean Snaith, consultant to Pacific's Forecasting Center and director of University of Central Florida's Institute for Economic Competitiveness.

Slumping conditions in the state's housing market and energy price volatility are contributing to the downturn...Defaults on sub-prime loans, which are mortgages made to borrowers with poor credit ratings, are magnifying the problem, particularly in the Stockton-San Joaquin County area, Snaith said.

"I didn't anticipate the severity of the sub-prime issue," he said. More borrowers than he thought jumped at loans touting low interest rates and monthly payments....

From the Sacramento Bee (hat tip Gwyn):

Weighed down by the housing sector, the job markets in California and Sacramento nearly ground to a halt last month. The Sacramento-area unemployment rate jumped four-tenths of a point in June to 5.2 percent, the Employment Development Department reported Friday. Although the region added 200 construction jobs, financial-services payrolls shrank by 1,300 - a reflection of cutbacks in real estate and mortgage lending.

From the Associated Press (via Forbes):

It was supposed to be contained slump, but there's no avoiding it any more: The housing sector's woes are spreading, squeezing makers of everything from the fireplace to the kitchen sink.

The market's two-year meltdown has already claimed a number of obvious victims, from the homebuilders who overextended themselves trying to satisfy unsustainable demand, to aggressive lenders who scuttled vetting procedures to cash in on commissions - but the recent round of earnings reports indicates the turmoil is more widespread than people first expected.
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As the housing slump spreads to a wider swath of the economy, economists and industry groups that long claimed the turmoil would be contained are warning otherwise.

[Sacramento Bee] newspaper publisher McClatchy Co. reported a 9.5 percent decline in second-quarter profits Thursday....McClatchy attributed the weaker results largely to a severe decline in real estate advertising in two of its key markets, California and Florida, where the housing market had been booming.

Gary Pruitt, McClatchy's CEO, said in a statement that advertising revenues were down 17.8 percent in those two markets in the second quarter, with auto and employment advertising falling in tandem with real estate advertising given the importance of the housing sector to those economies.

From the Sacramento Bee:

The McClatchy Co.'s latest earnings show the Sacramento-based publisher is still feeling the impact of a one-two punch: the newspaper industry's overall advertising slump and a housing market downturn that's slammed two of McClatchy's biggest markets.
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The downturn mainly reflected a significant drop in ad sales, especially at McClatchy's California and Florida papers. Nearly three-quarters of the drop in ad revenue came from those two states, which are suffering from real estate woes. Real estate advertising was down 32 percent in California and Florida, causing a spillover effect that depressed other ad categories.

Also from The Bee:

Dallas-based auction giant Hudson & Marshall says it's expecting about 1,000 people Sunday for its first foreclosure auction here of 175 houses...What's attracting the auctioneers -- and buyers: More than 4,000 bank repossessions so far this year in Amador, El Dorado, Nevada, Placer, Sacramento, Sutter, Yolo and Yuba counties, according to Foreclosures.com of Fair Oaks. That's roughly twice last year's total of 2,082 bank repossessions.