Home Front: Predicting bottom of housing mess takes courage

Calling the bottom of a real estate cycle is more than difficult these days. It's perilous, an invitation for news sources who answer the question to be ripped by critics.

There are so many points of view and so much passion. And there are so many who have offered false sightings in the past two years.

This month brought several new reports looking at the first quarter: sales of new and existing homes, foreclosures and conditions for renters. Sources were all asked to try to answer the question most on everyone's mind: When will this end?

What poured out was an earful of variables, scenarios and possibilities.

There are those who believe we have reached bottom and are rebounding. They point out that buyers are snapping up thousands of bank-repossessed homes. Multiple offers are back; so is that boom word "frenzy."

Mike Lyon, head of Sacramento-based Lyon Real Estate, hasn't called bottom. But he pointed to about 3,000 pending sales in El Dorado, Placer, Sacramento and Yolo counties last week as the most since 2005. He said it means we are at last reducing the number of "for sale" signs instead of adding to them.

Last fall, Lyon worried about the potential for 20,000 to 25,000 homes on the market this year if repos created a pileup. Instead, inventory is in the 13,000 range – the lowest it's been in a year – and falling.

In another indicator, Business Week recently noted that no U.S. metro has slashed home prices more in the past year than Sacramento. Obviously, that's no joy for owners and has a lot to do with banks setting market values. But one way to look at it is that the region just wants to get this over with now, an entire market ripping off the Band-Aid instead of pulling it off slowly.

To Folsom-based consultant Greg Paquin, the worst sales quarter for new-home builders in more than decade may be a good sign: Sales stayed about the same as the previous quarter and may have found some level of stability.

Still, a big worry is that for all the buyers snapping up foreclosed homes, thousands more are coming onto the market. La Jolla-based DataQuick Information Systems reported 5,278 foreclosures in January, February and March.

More repos are a recipe for falling home values, a primary driver of foreclosures. Mark Fleming, chief economist at Irvine-based First American CoreLogic, said foreclosures will continue in Sacramento as long as home prices keep falling.

The more those prices fall, the more people consider walking away from their houses. Pam Canada, executive director of NeighborWorks HomeOwnership Center of Sacramento, which counsels troubled borrowers, said this week that more homeowners are telling her staff that they're ready to shut the door and leave the keys behind.

One positive note: Statistics from First American CoreLogic, Loan Performance, show that the subprime loans that triggered the meltdown are within months of becoming much less of a problem in California. The number of big interest-rate resets that hike monthly mortgage payments will begin to slow dramatically at the end of 2008.

But then, as Credit Suisse points out, we have to watch for troubles with so-called "Alt A" loans, given to borrowers whose credit is a little better than that of subprime borrowers, and Option ARMs, loans that initially let borrowers pick among four monthly payments. Those were popular in California.

All these points and counterpoints add up to no easy answer. What many agree upon is that we're in the worst of it right now, shooting the river rapids and hanging on for dear life. A common hope, now that the first quarter is history, is that sometime in the third or fourth quarter of this year these waters will start to calm.

Get to know LIBOR

Now let's talk about LIBOR. The global financial index that determines the monthly payment hikes of most subprime loans has begun to rise again. That's not good for subprime borrowers.

LIBOR is the London Interbank Offering Rate, which banks charge for lending to one another. The Wall Street Journal surmises that the rising rate reflects new reluctance by banks to lend to one another.

That means subprime borrowers might get less of a break than recently expected for their six-month resets. They are still better off than a year ago when the LIBOR rate was 5.36 percent. But since dipping to 2.63 percent a month ago, it has risen back to 2.72 percent, according to Bankrate.com. This is one little-known indicator to watch.

Helping pets left homeless

The rising phenomenon of pets being driven from repossessed homes is prompting a fundraising drive by the Humane Society of the United States. The society is soliciting donations to launch a grant program for animal shelters and rescue groups.

Grants will range from $500 to $2,000. Donors should note "foreclosure fund" on their checks. Pet shelters can apply online at www.animalsheltering.org/ foreclosurepets.

About the writer:

• Call The Bee's Jim Wasserman, (916) 321-1102. Read his Home Front blog at www.sacbee.com/blogs.