Sunday, August 26, 2007

Another Look at the Unfolding Housing Crisis

I came upon this diary on DailyKos, and thought it would be worth sharing. This is about the unfolding housing crisis in California, but to be honest, I think it could be extrapolated to any place in the country that has seen the huge rise in housing prices over the past five years.

The Rich Get Richer. The Poor? Maybe Homeless
by shanikka [Subscribe]
Fri Aug 24, 2007

Something that not too many folks are talking about in connection with the mortgage and market shakeouts is the divergent impact of this problem on communities, depending on the demographics.

At present, there still appears to be no meaningful harm to the upper end of the housing market in terms of either devaluation or a flattening sales curve. For the wealthy, real estate business (as opposed to mortgage-backed securities investment, anyhow!) appears to still be booming. Inventories in some of the more "upscale" (almost all white and Asian) places to live in the Bay Area are just around 30 days - which means that sales are beyond brisk.

shanikka's diary :: ::

While there is a temporary panic over the fact that jumbo loan financing (that which exceeds $417,000, the maximum loan amount that can be guaranteed by Fannie Mae and Freddie Mac) shut completely down two Fridays ago and thus, high end folks had to pony up even more money for closing home deals, the word on the street is that this was only temporary and now business is inching upward again already (no doubt because those who can come up with more cash are doing so.)

Would that the working and middle class had it so good. With plummeting values and sales non-existent, with some "not upscale" communities (like east and south San Jose, where there are lots and lots of Brown people) now faced with more than a 1 year inventory of homes up for sale, things are grim and California is facing the highest levels of foreclosure activity it has seen in a decade.

At the same time that prices for housing continue to go up - but only if you want to buy in the "right neighborhoods."

In other words, the rich continue to make each other richer, through their homes - median prices continue to rise for them, even as they plummet for those whose only real asset was the equity in their homes. It at times feels like well-off folks (not to mention the equity purchasers and foreclosure rescuers, for whom RealtyTrac continues to be valuable) are presently having an orgy, that they are driving prices up at the same time they know how bad it is out there for more modest homeowners whose struggle to become homeowners far more closely reflects the original meaning of the "American Dream" than the new money which followed the post-Reagan era of personal greed.

The frightening proof in the pudding about what we face here in California as a result of the "mortgage liquidity crisis" is seen in the number of trustee's deeds recorded - after homes were actually sold on the auction block, the ultimate failure of lending that historically both borrowers and lenders have done everything possible to avoid, such that they heretofore were a comparatively rare occurrence in life.

Not anymore.

The percentage increase in the most devastating event to occur in a homeowner's life -- one's home being sold at public trustee's sale -- in those California counties which house huge numbers of the poor/working/lower middle-class population in of our state -- particularly in the rural/farmworker counties -- in just one year should bring any decent person close to tears:

San Bernadino County: 986.9% increase

Contra Costa County: 1,154.8%

San Luis Obispo County: 1,200%

Stanislaus County: 1,350%

Monterey County: 1,825%

Yuba County: 2,000%

Kern County: 2,032%

El Dorado County: 2,125%

Merced County: 3,328.6%

Yolo County: 10,200%

(Source: DataQuick)

That the state's bottom line of trustee's sales is "only" 799.2% more than it was a year ago in light of the numbers I've listed above is something for celebration, only if you're in one of the neighborhoods whose average pulled the listed numbers down to "only" 799.2%.

This is occurring all over the country and while this diary won't post all the data, it isn't hard to find, and confirm. For those skeptics -- almost all employed by the real estate sales industry at this point -- who insist insanely that all this shakeout of low-income communities is either (a) just a fluke given the high cost of California housing or (b) a natural correction in the marketplace -- I urge them to review ALL of Dataquick's market reports that are publicly available as a starting place:

For Portland, Oregon (21% fewer homes sold, but at a 2.6% higher price);

Seattle, Washington (23% decrease in home sales yet prices rose 7.6%)

Miami, Florida (33.3% decrease in sales yet prices rose 5.1%)

Honolulu, Hawaii (in most expensive zip codes, price per square foot rose between 3.7 and 115.2% yet fell in less costly neighborhoods)

Nashville, Tennessee (sales decreased up to 11.8% in most expensive neighborhoods yet prices rose up to 13.3%)

Chicago, Illinois (many exclusive residential areas, such as Lake Forest, Hinsdale, Kenilworth, Glencoe, Oak Park, River Forest, Winnetka and Western Springs, saw sales decrease as much as 39.4% yet prices increase up to 34.3%)

Read the rest here:

We are just beginning to see the ramifications of the 'creative financing' in the housing industry. And, as the bubble bursts, and the market readjusts, I do believe that this will become one of the top three issues of the 2008 campaign by this time, next year.


md sarker said...

This is so unfortunate what happened with housing market. I am sure lot of people knew its coming, there were all signs but no measures to prevent this.

Sol Rodriguez said...

When you look at the stats from those other states that you posted, it's starting to get hard to justify staying in California. I recently started a family, and it seems the American Dream is broken in California. I'm currently trying to decide if it's time to leave California. I wonder how many others feel the same way... especially younger families who are educated and could potentially thrive in other states? I'm starting a dialogue about this on my blog called and I appreciate stories like yours that help educate us all about the state of disparity in California.

UK said...

@sol rodriguez

[T]he American Dream is broken in California

Your assumption is that owning a home is the American Dream. IF that is the American Dream, it is indeed broken in California, because saving a large down payment, and paying a conventional mortgage for a house costing several hundred thousand dollars is not possible for most people. Perhaps the better question is, "Is home ownership the American Dream?" While many tell us it is so, ask yourself this question. Your answer may be different. Does home price appreciation over many years outpace inflation? What are the pros and cons of home ownership? If home ownership isn't the American Dream for me, would I still say, "Farewell California?" I look forward to your answer on your blog.