Home Front

A big rain swept into Sacramento this morning mixing with the fall colors really starting to peak now in the older neighborhoods. A street scene at Midtown's 24th and S Streets:

 

First American CoreLogic predicts that area home values (distressed homes included) will rise by 4.85 percent from Sept. 2009 to Sept. 2010. The forecast is for the collective Sacramento-Arden Arcade-Roseville metropolitan statistical area (El Dorado, Placer, Sacramento and Yolo counties).

 It's a small part of a larger report that sees the rate of decline in home values increasing through much of the nation - including here in the capital region. This is one of the first indicators from a large market tracker to show a market-wide appreciation in values starting to take root.

Read more  at this link.

 

In the crush of yesterday's deadlines I wasn't able to get these news releases online detailing the wobbly state of the nation's - and California's - home loan delinquencies and foreclosures from the Mortgage Bankers Association.

So we go: first  a look at California. (This isn't pretty, but all I can say is be glad you don't live in Florida, where it's so much worse).

Secondly, here's a national view. (Much of the carnage remains in four states: Nevada, Florida, Arizona and California).

I sat in on the national conference call with reporters, a list that seems to be diminishing a little as the worst of the housing problem has shrunk to the Sunbelt.

Here's the podcast of that call.

The main point by VP, and Chief Economist Jay Brinkmann is this: prime loans, including the safe 30-year fixed-rate benchmarks, have replaced subprime loans as the leading edge of delinquencies now as joblessness has moved up the ladder to reach the better-off borrowers.

"Clearly the results have been driven by the changes in employment" he said. "We've had about a 5.5 million increase in the number of unemployed the last year. That compares with an increase of about 2 million loans that are past due."

And it's harder to get out of trouble now when it finds you, Brinkmann said.

"We went into the recession with a weakened housing market. So the impact was when people lost their jobs they were less likely to recover by selling the house. There was less equity in it and that translated to more foreclosures. Unemployment went up and now both the jobless rate the foreclosure rate are both going up together."

For prime borrowers it's become an endurance contest, he said.

"Prime borrowers usually have reserves. They can hold out. But the longer the problem takes place the more will fall," he said. What he means is: for a lot of borrowers this is a race between their savings and when they can find another job. 

As for Florida?

Ouch.

- 12.7 percent of the state's mortgages are in the foreclosure pipeline between a notice of default and handing back the keys - and 25 percent more are at least 30 days late with payments.

 "It's going to take Florida well into the end of 2011 to clear out what's currently on the books," said Brinkmann about repo inventory. "And then the new ones are coming in. We may not see anything change there until well into 2012 and even into 2013."

Photo: Mortgage Bankers Association

 

From this morning's Home Front Column:

Say goodbye, finally, to hopes of extending that $10,000 tax credit for buyers of new unoccupied homes in California. It's all but dead for this year, says one lobbyist who patrols the state Legislature on behalf of home builders.

  "We were disappointed neither of those bills panned out this year," said Allison Barnett  of the California Building Industry Association, a trade group for the residential construction industry. An Assembly Bill, AB765, extending the tax credit to 4,300 more buyers failed to pass in the state Senate. A similar Senate bill, SBX3 37 bill failed in the Assembly as lawmakers turned their focus to water bills.

"We're looking for options next year," Barnett said this week. One idea is to establish a tax credit that a buyer could collect only when a building permit is issued for his or her new house. Another is to seek an extension for a few more months. Said Barnett, "We're still looking at details."

Bottom line, buyers of new houses now approaching escrow or signing sales contracts are out of luck in the near term for a state credit. And though there's always next year, it may be a safe bet - considering a new estimated $21 billion hole in the state budget for the next year and a half - that buyers may have seen the last of this one for good.

 But check out the federal government's $8,000 first-time buyer tax credit, which has been extended to April 30.

More than 10,600 new-home buyers claimed the $10,000 state tax credit earlier this year.

California unemployment increased to 12.5 percent last month, but the state actually added jobs for the first time in more than a year.

The Employment Development Department today said California payrolls grew by 25,700 in October, the first job growth the state has seen since April 2008. California was one of 28 states recording job growth, according to federal officials.

The unemployment rate grew three-tenths of a percent, to 12.5 percent.

It's not unusual for the payroll statistics and unemployment rate to provide mixed signals. Economists generally look at the payroll numbers, which are derived from a broader survey, as a more reliable indicator of the health of the job market.

In the Sacramento area, unemployment increased to 12.3 percent, a four-tenths of a percent increase from September. The region lost 3,600 jobs.

A key reason was the leisure and hospitality sector - everything from restaurants to hotels to theater companies - shedding 1,900 jobs. Normally that sector cuts back around 1,200 jobs in October.

State government added 600 jobs in the region as university instructors went back on payrolls. But normally the start of the school year translates into 1,300 more jobs.

Justin Wehner, a labor market consultant at EDD, said the Sacramento region is suffering worse than many other parts of California because of continued downsizing in construction. That sector has lost 12,700 jobs in the past year.

Unemployment in Sacramento is "the highest it's ever been since 1990 and it's still going higher," he said. "Definitely no daylight at this point."

There was disagreement about the significance of the gain in jobs statewide. Howard Roth, chief economist at the state Department of Finance, said "I think it's going to turn out to be the start of something."

Others noted, however, that the EDD job-loss figures for September were worse than originally believed. The new estimate is that California lost 66,400 that month, a loss of 27,100 additional jobs.

The two months taken together mean "we're going sideways right now," said Jeff Michael, director of business forecasting at the University of the Pacific. "I'm not sure this is the bottom quite yet, but I think we're getting close."

Stephen Levy, an economic consultant in Palo Alto, added, "I think this is a false signal to say this is the beginning of a sustained period of growth (but) we're nearing the end of the job losses." 

FRIDAY UPDATE: The full, more detailed story is here in this morning's Bee.

To see how it looked in the neighborhood in October follow this link to sales and price data by ZIP Code.

In October - for the first time since June 2007 - year-over-year declines in median sales prices have fallen back to single digits. Much the same is true in Placer County. But in wealthier El Dorado County it appears that the speed of declines is growing again - as the upper end of the housing market suffers from fewer buyers and the necessity of cutting hard to win one.

We'll be digging deeper into this today for a story in tomorrow's Bee. In meantime, here is a first look online at October's sales and prices for the capital region. 

Wells Fargo today agreed to a $1.4 billion settlement with state officials over a securities sale that was branded "false and deceptive" by Attorney General Jerry Brown.

Under the settlement, the big San Francisco bank will repurchase $1.4 billion in so-called auction-rate securities from thousands of customers. About half the money, or $700 million, will go to Californians.

According to Brown, Wells had marketed the securities as safe and highly liquid. When the market froze in early 2008, customers were unable to cash them in, he said. Brown sued Wells in April.

"Wells Fargo convinced thousands of investors to purchase auction-rate securities with promises of robust returns and liquidity, but when the market collapsed, investors were left out in the cold," he said in a press release today. "Based on misleading advice, investors bought these risky securities. Now, retail investors and small businesses are finally getting their money back."

There was some disagreement about the size of the settlement. The North American Securities Administrators Association said Wells Fargo is returning about $1.3 billion to investors.

The association said Wells made settlements six states besides California: Georgia, Missouri, Oregon, Texas, Utah and Washington state. It said the settlements stemmed from an investigation led by Washington state's Department of Financial Institutions.

Wells isn't the first institution to refund money over the collapse of the auction-rate securities market. UBS, Citigroup and others have entered into settlements; the securities administrators association pegged the total settlements at more than $61 billion.

Wells didn't admit any wrongdoing in the settlement.

A spokesman for the bank couldn't be immediately reached for comment.

 

MDA DataQuick has issued its

October sales and price report for Southern California - showing that median prices rose sligthly from Oct. 2008 - first time in three years.

Orange County did it for a second straight month.

The Bay Area saw its first year over year gains in two years.

Sales numbers were also higher in Los Angeles, Orange, Ventura, San Bernardino, Riverside and San Diego counties than the same time last year - for the 16th month in a row.

It's part of a slow continuing thaw in California's real estate deep freeze.

We should get San Francisco Bay Area and Sacramento numbers this week, too.

That's the analysis from the Sacramento Association of Realtors, which is pointing out that "In the last six months the median sales prices has remained between $180,000 and $190,000." That's considered a positive in its new October sales report - a salute to "market stability."

 I think sellers and homeowners who have endured a terrifying downhill slide in prices the past two years are probably ready to agree. After all, the median October sales price of $185,000 is only an amazing 5.2 percent below the same time last year.

All in all, SAR counted 1,716 closed escrows in October in Sacramento County and the city of West Sacramento - up a little from 1,631 in September. Repos were 41.6 percent of sales (still falling) and short sales were 20.7 percent (still rising). 

Here are the details:

The October news release.

The Summary Statistics.

A look at prices and sales in the neighborhoods, by Zip Code.

Lyon Real Estate's research arm, TrendGraphix, also predicts more  short sales than repos in the higher-end market  because expensive repos are too hard to sell. It's also seeing prices rise in teh $400,000 and under market.

 

The twice-a-year dance over workers' compensation insurance premiums is under way again. Earlier today, Insurance Commissioner Steve Poizner rejected the industry's call for a 22.8 percent increase in premiums effective Jan. 1.

"Any increase in costs for employers will only make our already dire economic situation worse," he said in a press release. "Given these harsh economic realities, I refuse to rubber stamp double digit increases." He said insurers can do more to rein in costs.

The commissioner's findings are advisory. So is the 22.8 percent recommendation of the Workers' Compensation Insurance Rating Bureau, an industry-controlled group. If the past is any guide, most insurers will raise rates but not as much as the rating bureau recommends.

 

 The Sacramento-based Consul General of Mexico has teamed with credit counseling agency ClearPoint for a week-long series of foreclosure prevention workshops and personal advice starting Monday, Nov. 9, in Sacramento and the northern San Joaquin Valley.

Events are free to the region's Latino community and will be conducted in Spanish and English. Here is the regional schedule as the consulate reaches out to "support the Mexican community in tough economic times."
 
Monday, Sacramento's Univision 19 will host a television program from 5 p.m. to 7 p.m. featuring ClearPoint and other volunteers taking foreclosure-related calls.

Tuesday, Nov. 10, a foreclosure prevention workshop is scheduled from 7 p.m. to 9 p.m. at Our Lady of Guadalupe Catholic Church, 711 T Street, Sacramento. ClearPoint representatives will analyze individual cases for those struggling with mortgages and where applicable, make appointments to offer personal advice.

 Those individualized sessions will be scheduled at the Consul General's offices at 1010 8th St. in Sacramento from 9 a.m. to 2 p.m. on Monday, Nov. 16, and Friday, Nov. 20.

Another workshop is scheduled Thursday, Nov. 12, from 6:30 p.m. to 8:30 p.m. at St. Stanislaus Catholic Church, 709 J Street, Modesto.

The last workshop is set for Friday, Nov. 13, from 7 p.m. to 9 p.m. at St. Mary of the Assumption Catholic Church, 203 E. Washington St., Stockton.

Thanks to Mike Lyon, head of Sacramento's Lyon Real Estate, for clarifying a critical ingredient of the homebuyer tax credit extension and expansion that has passed Congress and is expected to be signed today by President Obama:

I understood the extension of the $8,000 credit easy enough. First-time buyers get another six months of eligibility now.That should prevent an acute winter slowdown in sales.

What I could not get my head around based on reading press reports was the $6,500 credit for people who have lived in their homes for at least five years.It sounded for the life of me that anyone who has lived in a home that long would get one just for being alive.

Not so, said an amused Lyon.You have to buy another house to get the credit, he said.

The aim there is to break up the huge excess of supply in the middle of the market.

There is plenty of competition for lower- end homes, but the middle of the market is extremely lethargic, he said. This credit may spur older people to move out of big houses into smaller ones or to retirement communities. It may spur people who are divorced to sell and buy elsewhere. It may spur people who have outgrown their existing home to move up.

So bottom line: there is no free lunch. You get the $6,500 tax credit for existing homeowners if you move up or down - or sideways. It's designed to get a whole new class of people off the fence and into the market.

Incidentally, here an analysis of what might happen now from Stan Humphries, chief economist at Zillow.com

For that vast swath of humanity beyond the 200 building industry representatives who attended Thursday's 2009 regional housing forecast presented by the North State Building Industry - here is the Powerpoint presentation by Greg Paquin of the Folsom-based Gregory Group. All the charts and graphs you could ever want to see.

Among the most spectacular predictions:his belief that it may take another seven years for capital-area home builders to get back to what they were building here in 1999.

That would be in 2016 - when he projects sales of 10,921 new houses in El Dorado, Placer, Sacramento, Sutter, Yolo and Yuba counties.

 As for this year: Paquin predicts 3,048 sales in the six-county region. The good news, he told builders who know pretty much nothing but bad news, is that 2009 should be the absolute bottom of sales levels.

Builders in 2004 did almost 18,000 sales in the region.

Paquin called the current situation in the region "an economic recession and a housing depression."

One of the most interesting observations, however, was the consultant's reference to a massive "brain drain" from the Sacramento region's residential construction industy. Economists say the sector has shed 26,300 jobs. Said Paquin: they've all left the business, left the area, retired or moved onto new businesses.

Yet as a result Paquin foresees "an industry that will become younger and more sophisticated." That will be especially important as the entire home building business goes green, he said. Make no mistake about it, he told the crowd about the implications of California legislation and global warming initiatives to reduce energy use. Homes will be green.

"That train has left the station," he said.

The Urban Land Insititute, a progressive arm of the real estate industry, has been meeting this week in San Francisco - and just released its awards for the world's finest new designs.

The list is here and includes the California Academy of Sciences in San Francisco's Golden Gate Park.

Here's the academy: photo courtesy of propertysolutions.com

 

 

Congress has finally extended the $8,000 homebuyer tax credit and added a couple other sweeteners. The real estate industry is rejoicing.

Still no word in California about extending a $10,000 tax credit for buyers of new homes. The Legislature is awash in water bills. Builders say they're still trying.

FRIDAY UPDATE: We got this response today from Dustin Hobbs, spokesman for the CMBA, adding some context to how they do their survey. It's an important distinction in reference to my earlier remark about the lending industry pretending and extending:

 "You raise an interesting question about why the ratio is so low.  Many other DQ surveys show a 4% or so rate, while ours has stayed remarkably low.  The main reason is that most surveys look at CMBS loans - securitized loans, versus ours, which is heavily focused on life insurance-backed portfolio loans - much more conservatively originated.  From what I gather from our folks, that is the main difference - life companies did not see the boom that the rest of the commercial real estate industry saw over the past few years.  The pool of capital from life companies did not increase substantially, indicating their conservative nature.  Bottom line - I'm not so sure is as much 'pretend and extend' as they were just sound loans from the start."

 

The California Mortgage Bankers Association says commercial loan defaults have been falling. That's a sure surprise given the frequent worries that this is the next sector to endure a wave of foreclosures. Apparently the "pretend and extend" movement by commercial lenders is the real deal.

"Pretend and Extend?" That means lenders and borrowers pretending everything is OK.

The news release is

here

The Center for Responsible Lending weighs in today with this  summary and nine-page economic report saying that the foreclosure crisis will get worse, not better - a major threat to  any notion of economic recovery.

It's a new call for lenders to reduce principal to keep people in their homes.

So far, lenders have been very reluctant to go that route.

The Red Hawk Casino at Shingle Springs continues to produce disappointing results.

The company that manages the casino, Lakes Entertainment Inc., said today that Red Hawk's revenue is still being hampered by the weak economy. The disclosure came as the company announced third quarter earnings.

Red Hawk's employment has been trimmed from 1,750 to fewer than 1,500 full-time equivalents since the casino opened last December.

"The uncertain economic environment in the California market continues to impact the Red Hawk Casino's ability to achieve strong opeating results," Lakes Chief Executive Lyle Berman said in a press release.

"We remain diligent in streamlining processes and making constructive changes at this property and we are cautiously optimistic that these enhancements as well as potential improvements in the general economic environment will positively influence the long-term operating results of this property."

Lakes said it earned $2.3 million, or 9 cents a share, during the quarter. That compared with a loss of $5.7 million, or 23 cents. Revenue fell to $6.6 million from $8.4 million.

The company's shares were up 67 cents, to $3.51, in morning trading on the Nasdaq market.

 

Congratulations to Sutter Brownstones for winning a merit award for infill development in Builder Magazine's 2009 Builder's Choice Awards. The 28-unit project on N Street, between 26th and 27th streets, opened in April 2008 and sold out in 16 months.

Overall, California did very well in the national design contest, called one of the largest and most prestigious in the U.S. housing industry.

Here is the award link to Sutter Brownstones, and an overall award announcement by Builder Magazine based in Washington, D.C.

Sutter Brownstones was developed by Sacramento partnership LoftWorks and designed by Sacramento-based architects LPAS. Individual units sold at prices between $370,000 and $625,000.

Photo courtesy of hellerpacific.com

A fellow business writer here at the paper received this report today from a University of Arizona associate law professor he's interviewed in the past. It a full-scale look at why people stay in their homes even when they are way underwater - when the sensible business decision might be to walk away.

I haven't yet read most of it. But I think it's very relevant here in Sacramento.

The 54-page study by Professor Brent T. White, titled, "Underwater and Not Walking Away: Shame, Fear and the Social Management of the Housing Crisis" is at this link.

Here is the summary: 

 "Despite reports that homeowners are increasingly "walking away" from their mortgages, most homeowners continue to make their payments even when they are significantly underwater.

 This article suggests that most homeowners choose not to strategically default as a result of two emotional forces: 1) the desire to avoid the shame and guilt of foreclosure; and 2) exaggerated anxiety over foreclosure's perceived consequences.

 Moreover, these emotional constraints are actively cultivated by the government and other social control agents in order to encourage homeowners to follow social and moral norms related to the honoring of financial obligations - and to ignore market and legal norms under which strategic default might be both viable and the wisest financial decision.

Norms governing homeowner behavior stand in sharp contrast to norms governing lenders, who seek to maximize profits or minimize losses irrespective of concerns of morality or social responsibility. This norm asymmetry leads to distributional inequalities in which individual homeowners shoulder a disproportionate burden from the housing collapse."

Hi again. Sorry I've been out of touch the past week.

Anyhow, it's time to resume talking about the economy. If you missed it, please read my colleagues Darrell Smith and Mark Glover's story today about the apparent end of the recession.

The story crackles with sarcasm from Sacramentans about how dismal things still feel around here. In short, if this is a recovery, it sure doesn't feel like one.

Of course, it seems all recoveries start out slowly. The recession of the early 90s had been officially over for 20 months when voters tossed the first President Bush out of the White House mostly out of anger over the economy. Similarly, the dot-com recession was over by November 2001, but we spent the next couple of years talking about the "jobless recovery."

So get ready for another slow recovery. Little wonder the stock market did so poorly today, as new economic statistics spread a wave of gloom over Wall Street.

 California Attorney General Jerry Brown's office has picked up on paranoia that a round of resetting Option ARM loans is going to derail a fragile housing recovery.Yesterday, he asked 10 big banks and loan servicers to tell him their plans to avoid a new round of widespread defaults.

Here's a news story out of New York about it from Reuters.

The AG's link has the letter to servicers from Deputy AG Bejamin Diehl. And he wants details from banks in three weeks. It also has a number and link to register complaints about your pay-option loan. Those are the ones with four payment options each month. Most people make the minimum payment, which makes the size of the loan grow even as the borrower is trying to pay it down. They were really popular in California - and especially popular in the Sacramento region as housing prices skyrocketed in 2004-2005 and remained high through much of 2006.

Here is what Diehl wants to know from Bank of America Home Loans & Insurance; Wells Fargo & Company; JP Morgan Chase & Co.; Litton Loan Servicing; ResCap, LLC; Ocwen Financial Corporation; OneWest Bank; American Home Mortgage Servicing; Saxon Mortgage Services, Inc.; and Select Portfolio Servicing.

1. The number of Pay Option ARM loans secured by residential real property
located in California that you are servicing (regardless of whether you own the loans).

2. Of the number of Pay Option ARM loans identified above, the number that have negatively amortized, and the average dollar amount of that negative amortization.

3. A detailed explanation of all efforts you have taken to handle customer service concerns of borrowers with Pay Option ARM loans, including any increased staffing and a description of any notices you send or are planning to send to borrowers whose loans are about to reset. For advance notices sent to borrowers, please specify how far in advance of the reset date you send, or plan to send, those notices.

4. A detailed explanation of the loan modification plans you have developed for Pay Option ARM loans. Please state the circumstances under which your plans allow for the reduction of principal, and the possible amounts of principal reduction. If you are not willing to consider principal reduction as part of your plan, please explain why. Please also specify whether you have already implemented your modification plans for Pay Option ARMs or, if not, the time frame within which you expect to do so.

5. To the extent your approach for considering whether and how to modify Pay Option ARM loans has changed since the beginning of the foreclosure crisis, please explain the changes and the reasons for those changes.

 A $3.4 billion stimulus grant announced yesterday in Florida has turned into an amazing score for Sacramento. The region's public utility, the Sacramento Municipal Utility District, has received $127.5 million - 63 percent of all the money steered to California - to install 600,000 smart meters and set up a smart grid. And that's just the beginning of what the bounty will bring - and how it will help homeowners and business save energy and money in the long run.

The first meters will be installed this fall, and then early next year it starts with 60,000 meters a month until every residence and business in SMUD's territory (Sacramento County and a slice of Placer County) has one. Sacramento State is also going to install smart meters in 50 campus buildings and the state is doing the same with 24 office buildings in downtown Sacramento.

  Here is the story explaining what may be the largest federal grant ever received in Sacramento - in this morning's Bee.

Here is SMUD's announcement issued yesterday.

 And here is the announcement from the U.S. Department of Energy. (Search it for links to all the awardees nationally. Other cities, other utilities, makers of appliances and systems control technology).

   Our congressional reps were ecstatic at this big deal. Here is the announcement of the grant from Rep. Doris Matsui, D-Sacramento. Here's an announcement of the stimulus award  from Rep. Dan Lungren, R-Gold River.

Gov. Arnold Schwarzenegger also had a reaction with this statement.

  I'm somewhat of a newcomer to this smart grid business. I've seen what's possible in SMUD's "houses of the future," which it tricks up with all the newest energy efficiency technology to show contractors how it's done. But I was really struck by a phone conversation yesterday with Emir Macari, a Sacramento State dean and authority on this as head of the university's year-old California Smart Grid Center. He said it's the biggest revolution in the electrical grid in the century that it's existed. And I expect his is a name that will become very familiar in Sacramento as this money hits the ground.

  Sacramento State is poised to really benefit from this. It never got rid of its power engineering studies program and today supplies 60 percent of California's utility engineers.

What it all seems to mean is jobs - lots of jobs - for a region that sorely needs them, a real kick finally for this struggling economy. Good news at last.

  

 A Seattle law firm has filed suit against Michigan-based Pulte Homes on behalf of a Lathrop buyer, alleging that the firm propped up home prices by recruiting buyers - even as it could see the market was shifting and values would fall. The suit is seeking plaintiffs who bought between Jan. 1, 2005 andf March 1, 2007. 

Pulte denies the allegations and said it will vigorously defend itself.

A copy of the lawsuit is  here.

 

In the rush of things last week I forgot to post this online: It's a statement from K. Hovnanian's Sacramento attorney Courtney McAlister outlining the homebuilder's position on the permit issues at Westshore that got so much attention last week.

The K. Hovnanian statement is  here.

The California Association of Realtors released its September sales and price numbers a few minutes ago.  The details are here.

 The newest September statistic for California home starts has led the Construction Industry Research Board to again revise its 2009 forecast downward - to 37,700 new homes, condos and apartments in a state approaching a population of 40 million.

 The Sacramento region may see sales ewer than 3,000 new single-family homes this year.

The new numbers show that builders have taken out only 2,309 building permits the first nine months of 2009 in El Dorado, Placer, Sacramento, Sutter, Yolo and Yuba counties. That's about half last year's tally at the same time - 4,790.

It's all here in the new release from the California Building Industry.

If you want to see how lousy 37,700 housing starts also look check out this chart. Just five years ago in 2004, builders did 212,960 housing starts.

Builders, naturally, are pushing for an extension of the state's $10K tax credit for buyers of new unoccupied houses.  The Assembly is expected to take that up this afternoon. If it passes it's up to Gov. Arnold Schwarzenegger to sign or veto. Most expect him to sign it.

 Here's an weekend article from The Washington Post surely recounting the experiences that thousands of borrowers here in the capital region are having. As in promises, but too little help. This will explain why.