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California’s History Is Of Boom And Bust

A report from the San Francisco Chronicle in California. “The Bay Area just said goodbye to a decade when real estate prices soared to astronomical heights. The 2010s were marked by $1 million fixer-uppers and bidding wars, and many homeowners saw their property values double. Will the housing market crash in 2020? We asked real estate experts to look ahead. Herman Chan, Sotheby’s real estate agent working in the East Bay: ‘We are in an inflection period now…If you want to sell a house you just bought recently, it’s probably not going to turn out profitable after factoring carrying costs, closing costs, realtor fees, taxes, etc. New Luxury Condos are overbuilt and many do not feel those are strong investments anymore due to oversupply and lack of product differentiation. If you are looking for a good deal, many condo developers are more willing to wheel and deal to make a sale.'”

“What factors will impact the Bay Area market in 2020? Chan: ‘There was a reckoning with the IPOs buzz that fizzled. Frenzy is gone.'”

The Orange County Register. “You’ve heard of ivory tower thinking. How about the Ivory Court of California? Last month a California appellate court concluded that a mortgage lender could not require its borrower to revert to the original mortgage note terms if the borrowers defaulted on new, modified note terms as a condition of accepting the mortgage modification. In the case of Charles Taniguchi et al v. Restoration Homes LLC, it was 2009 when Charles and Marie Louise Taniguchi signed a loan modification agreement after struggling to make their house payments (originally taken out in 2006 for $510,500). Among other things, the mod fixed the interest rate, reduced the interest rate and monthly payments and deferred approximately $116,000 of accrued unpaid mortgage payments and foreclosure expenses on their loan.”

“One condition was a failure to make the modified payments would be considered a default and the lender would have the right to enforce the original 2006 mortgage terms, which included an acceleration clause requiring immediate payment in full or face foreclosure. The Taniguchi’s missed four payments on the modified loan, and that’s when the court battle ensued. The long and the short of the appellate court ruling is that if a borrower modifies a mortgage (bringing the mortgage current and paying the lender’s foreclosure charges, etc.), then the borrower gets to stick with the mortgage modification terms and is not required to revert to any original note language that may have been included in the mod agreement.”

“Do these judges not understand real-life economic incentives? Why should the borrower stick to the same mod terms if the money catch-up is all that is needed and the borrower does not have to sweat paying the arrearage or lose the home? Why would the lender even offer a loan mod if there is just a carrot but no stick? Letting borrowers off the payment hook does not bode well for the mortgage industry, which notes re-defaults on loan mods are a growing issue.”

“Marketwatch in October cited a JPMorgan Chase Q2 2019 earnings report that said of nearly $10 billion in modified loans 43% were listed as having re-defaulted. Bank of America reported 41% of its modified loans had re-defaulted. The U.S. Office of the Comptroller of the Currency, which regulates national banks, noted in a first-quarter 2019 report that 21% of the most recently modified loans had re-defaulted within six months.”

“Starting with the mortgage meltdown days (January 2009) through November 2019, lenders have granted 233,619 mortgage modifications on California properties according to Attom Data Solutions. The volume of mods issued spiked starting in 2013 and has held relatively steady year-over-year ever since, even with this red-hot economy.”

“California’s history is of boom and bust. Now would be a good time for either the California Supreme Court to address the ivory court decision or Gov. Gavin Newsom and company to legislatively come up with fair incentives for both potential loan mod borrowers and lenders before the ivory really hits the fan.”

The Times Herald. “A growing number of Bay Area residents, particularly millennials, say they are considering leaving the region in part because owning a home is no longer a realistic dream. In the Bay Area, Realtor.com’s director of economic research, Javier Vivas Castillo said, ‘our analysis of the recent down payment data shows home ownership in some markets remains a luxury item.'”

“A new law makes buying a home a little easier for at least one group of people: veterans. VA loans have long given active-duty military service members and veterans access to home loans that allow for zero down payment. But in the past, there have been limits. In expensive places like Santa Clara County, where last year the cap was in the $700,000s, down payments have been required for typical, market-rate homes, which were regularly priced above $1 million. As of January 1, those limits are mostly gone and the impact in places like San Jose and Oakland stands to be significant.”

“‘Now, if a veteran can afford a $1.5 million mortgage, they can get that mortgage without putting down a dime and that has not been the case in years past,’ said Chris Birk with Veterans United Home Loans, which recently ran an analysis of where veterans will see the largest increase in their ability to purchase without putting any money down. According to Veterans United figures, in fiscal year 2019, more than 1,300 families relied on VA loans in Contra Costa County. Hundreds more families took out the loans in Alameda, San Mateo and Santa Clara counties that year. Now, Birk said, he’s hearing from borrowers who pushed off closing on property until after the start of 2020 to take advantage of the change.”

“With the help of the new law and with the GI Bill reducing the need for hefty student loans, young veterans may be in a much better position when it comes to buying a home than their non-military peers who are struggling to put together large down payments while burdened with debt. ‘They’re not stuck,’ Birk said, ‘on the sidelines like civilians.'”

The Salinas Californian. “In Idaho, Susanna Cardenas-Lopez said, she and her husband have free time to spend with each other and money left over at the end of each month. There’s a bonus — the area is significantly safer, she added. ‘I feel like it’s a dream with the quality of life we now have,’ Cardenas-Lopez said. ‘Yes, the pay is less, but that just doesn’t even seem to matter to me. At least we have enough to pay our rent and bills. I love California, but it’s just not the Golden State in my eyes anymore.'”

“Cardenas-Lopez isn’t alone. So many people are leaving California that it has slowed the state’s growth. Indeed, even her family members are in the same boat. Five months ago, Cardenas-Lopez’s 35-year-old daughter, son-in-law and grandchildren left Salinas after their rent increased from $1,300 to $2,000 in just three years, she said. Many who have left the state in recent years say they simply couldn’t afford to stay here.”

“In the second quarter of 2019, the San Francisco Bay Area came in ahead of Los Angeles, Washington and Chicago when it came to people leaving major U.S. cities. It was second only to New York City. More than 28,190 departed the area during those three months, close to double 2017’s rate, according to Redfin. In 2018, according to data provided by the U.S. Census Bureau, about 190,000 more people left the Golden State than moved there. This is the second year in a row of the negative trend.”

“Randa Moore used to live in Santa Rosa in Sonoma County and said the No. 1 reason she left California for Florida was the cost of living. ‘We were working 10-16 hours a day, seven days a week, every holiday, and were still struggling to buy groceries,’ she said. Now, Moore rents a three-bedroom home with a pool for $1,400 a month and has money to spare. ‘The difference is in the thousands of dollars and hours working’ she said. ‘We don’t make California money anymore, but we actually have more money at the end of the month.'”

“‘Do I miss it?’ she asked. ‘I miss what it used to be. Before the industries were destroyed as well as the middle class. It seems it’s become a two-class system…the haves and the have-nots. The poor have no chance to survive.'”

“Salinas Realtor Chris Barrera has worked for Windermere Valley Properties for five years. In the last few years, he said, he has seen more and more clients cite cost of living as a main reason they are leaving California. He estimated about a quarter of the 20 clients he works with a month felt they could no longer afford California. Most of them are in the service industry or live on a fixed income, and many are leaving for states with a low or no income tax, and a low cost of living. ‘People are being priced out,’ Barrera said. ‘I have a lot of clients who are selling and they’re just tired of California politics.'”

“‘Monterey County is one of the most expensive places to live in the U.S., and the only other option is to have numerous families living at one property,’ he said. That creates its own problems, and can push people to move out of the area. ‘When does this stop?’ Barrera asked. ‘When does this start evening out? All of us are going to be in that situation one day when we retire. To have to leave where our family is and where we were brought up just because we can’t afford it is pretty sad.'”

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This Post Has 50 Comments

  1. ‘New Luxury Condos are overbuilt and many do not feel those are strong investments anymore due to oversupply’

    Yep, you read that right. A UHS saying oversupply for bay aryans. I said this was going to happen. Of course, it happens everywhere. If price is artificially high, construction will continue until…GLUT!

  2. ‘But in the past, there have been limits. In expensive places like Santa Clara County, where last year the cap was in the $700,000s, down payments have been required for typical, market-rate homes, which were regularly priced above $1 million. As of January 1, those limits are mostly gone and the impact in places like San Jose and Oakland stands to be significant’

    ‘Now, if a veteran can afford a $1.5 million mortgage, they can get that mortgage without putting down a dime and that has not been the case in years past,’ said Chris Birk with Veterans United Home Loans…in fiscal year 2019, more than 1,300 families relied on VA loans in Contra Costa County. Hundreds more families took out the loans in Alameda, San Mateo and Santa Clara counties that year’

    So the subprime debacle spreads and deepens. And note that other than cheery pom pom pieces like this, the media hardly touches the facts. How many veterans can afford a 1.5M loan? I’d say none.

    1. ‘Now, if a veteran can afford a $1.5 million mortgage, they can get that mortgage without putting down a dime and that has not been the case in years past,’ said Chris Birk with Veterans United Home Loans…

      Below is a military pay scale. No veteran can afford a $1.5 million mortgage on what Uncle Sam pays them. There’s a reason every military base is surrounded with pawn shops and payday lenders: the troops and their wives tend not to manage their finances very responsibly, especially the spouses when hubby is deployed. Divorce rates are much higher in the military than among the general population, which also impacts veterans’ ability to swing a big mortgage.

      https://www.militaryrates.com/military-pay-charts-e1_e5_2020

      1. “Below is a military pay scale. No veteran can afford a $1.5 million mortgage on what Uncle Sam pays them.”

        Veterans, not active duty but veterans. The pay scale is for those on active duty. Veterans are not on active duty.

        1. Most veterans who retire after 20 years of service earn a pension of 1/2 of their base pay at whatever rank they retired at. (Hence the pay scale). Those who get out before 20 years don’t get anything, unless they were medically retired or are getting paid for some alleged service-connected disability (which a staggering percentage of former female troops are collecting, but let’s not go there). At any rate, they are not a demographic that can afford to buy even median-priced houses, for the most part, much less $1.5 million shacks.

          1. A veteran of the armed forces is a person who served in the armed forces. Whether he served for twenty years or any other length of time makes no difference, he is still a veteran and is eligible for loans for set aside for veterans.

            A veteran who has a good paying job after leaving the armed forces will be able to buy a house via a veteran’s administration loan regardless of whether he is receiving a pension or not. The only criteria for receiving the loan is the apparent ability to pay it back.

          1. Most of the people who take out VA loans are active-duty military members. I would say the vast majority, in my experience as both a former military guy and a veteran.

    2. At 3.5% interest, that’s $6,700 per month, not counting taxes, insurance, etc. This program isn’t for people looking for a house to live in, it’s for speculators. Zero down on a million five? C’mon…..

    1. We rented in SF during 10’s and am completely debt free with 500K spread between cash, gold and equities. All of our friends here bought houses for a million plus and have to rely on two incomes to make the mortgage payments and ends-meat. But their property values have doubled. I still ask myself, did I make the right choice? I don’t know.

      1. Values?

        Prices my good friend prices!

        San Ramon, CA Rental Rates Crater 14% YOY As Bay Area Housing Prices Tumble

        https://www.zillow.com/san-ramon-ca/home-values/

        *Select price from dropdown menu on rental chart

        As a noted economist suggested, “Why buy a house when you can rent one for half the monthly cost. Buy it later after prices crater for 70% less.”

        1. >Values?

          San Francisco is under rent control. Our rents only went up 1 or 2% a year. But if you are down in San Mateo or Santa Clara, your rents would have spiked from 2k to 5K. This is the primary reason why a number of our friends moved out and into million+ mortgages. Everything you make is in that house more or less. The problem is, a high paying tech job could easily implode especially when the industry starts to go south, as it has with biotech, the rest of tech isn’t far behind. The unicorn ponzi schemes blew up last year, wework being the big one. Miss a few house payment and the bank forecloses on you. CA is nonrecourse so i guess a lot of people just walk away when the SHTF.

          1. As a noted economist said, “I can ask $50k for my run down 10 year old Chevy pickup but where is the buyer at that price? So it is with all depreciating assets like houses.”

            He’s right. “Values” don’t mean much.

            San Mateo, CA Housing Prices Crater 15% YOY As Rental Rates Plummet

            https://www.zillow.com/san-mateo-ca/home-values/

          2. The problem is, a high paying tech job could easily implode especially when the industry starts to go south, as it has with biotech, the rest of tech isn’t far behind.

            And then, right when you desperately need the house to be worth millions, suddenly it isn’t.

      2. did I make the right choice

        Prudence suggests not gambling with money that you cannot afford to lose. This would include money that you don’t even have (taking that $1,000,000 mortgage). We’ve had some degenerate gamblers and real estate speculators on here who would say you were wrong, but hey, you’re the guy with some money in the bank.

  4. ‘of nearly $10 billion in modified loans 43% were listed as having re-defaulted. Bank of America reported 41% of its modified loans had re-defaulted. The U.S. Office of the Comptroller of the Currency, which regulates national banks, noted in a first-quarter 2019 report that 21% of the most recently modified loans had re-defaulted within six months’

    ‘Starting with the mortgage meltdown days (January 2009) through November 2019, lenders have granted 233,619 mortgage modifications on California properties. The volume of mods issued spiked starting in 2013 and has held relatively steady year-over-year ever since, even with this red-hot economy’

    If you listen to REIC outfits like Attom, foreclosures are at a 20 year low. Yet here are the defaults, over and over again. Under the direction of Mel Watt the GSE’s became a default hiding scheme. Remember the “foam the runway for the banks” thing? It’s ongoing.

    1. All of the past programs are still ongoing while new programs abound. Meanwhile, the FED has backed their gasoline tanker up to the fire to “put it out.” That’s how you put out a raging inferno – with more fuel, right?

      This stuff is embarrassing and shameful. I honestly can’t believe they’re getting away with it. It’s ALL FOR THE BANKS.

      1. That’s a bit out of date. Banks have been backing out of the shack loan biz for years. It’s more non-banks nowadaz.

        May 25, 2018

        “In his corner of American finance, where hard selling meets hard luck, Angelo Christian is a star. Each time Christian sells a home loan, the company he works for, American Financial Network Inc., takes as much as 5 percent. Many of Christian’s customers have no savings, poor credit, or low income—sometimes all three. Some are like Joseph Taylor, a corrections officer who saw Christian’s roadside billboard touting zero-down mortgages. Taylor had recently filed for bankruptcy because of his $25,000 in credit card debt. But he just bought his first home for $120,000 with a zero-down loan from Christian’s company. Monthly debt payments now eat up half his take-home pay. ‘If he can help me, he can help anyone,’ Taylor says. ‘My credit history was just horrible.’”

        “Christian can do this kind of deal because he is, in effect, making the loan on behalf of the federal government through its most important affordable housing program. It’s a sweet deal: He gets his nearly risk-free commission. Taylor puts no money down. If things go south, the government ultimately bears the risk. Many borrowers ‘are living paycheck to paycheck and, if they lose their jobs, they go into default immediately,’ says John Burns, a housing consultant.”

        http://thehousingbubbleblog.com/?p=10443

        I see 2018 loans scheduled for auction all the time now.

        1. Instead we have a new “solution” from Elizabeth Warren—forgive the millennial student loans so they can afford the inflated house prices caused by the dearth of affordable homes being held onto by the Xers and Boomers who can’t pay their bubble 1.0 debt!

    2. While yesterday’s subprime loanowners are granted infinitely-lived forbearance and mortgage workouts, Millennials are unable to afford to buy, thanks to a persistent dearth of homes on the market.

      Why doesn’t Uncle Sam step aside and let the market decide who is worthy to own, instead of picking winners and losers?

      1. Instead we have a new “solution” from Elizabeth Warren—forgive the millennial student loans so they can afford the inflated house prices caused by the dearth of affordable homes being held onto by the Xers and Boomers who can’t pay their bubble 1.0 debt!

    3. “$10 billion in modified loans 43% were listed as having re-defaulted“

      Oh my! nearly 1/2 of the loans re-defaulted. But Attom reports a 20 year low. Someone is a lion

  5. “Marketwatch in October cited a JPMorgan Chase Q2 2019 earnings report that said of nearly $10 billion in modified loans 43% were listed as having re-defaulted. Bank of America reported 41% of its modified loans had re-defaulted.

    Lending money to the manifestly non-credit worthy would be a fatally flawed business model if the Fed and middle class taxpayers weren’t on the hook for non-performing loans.

  7. Coincidentally I heard from a long time resident of California I know last night. Left the Bay Area for a city in the south. Cost of living exile.

    The homeless in my San Diego hood seem to be increasing in numbers continually. Last night someone stole all the fruit off my blood orange tree. A 1200-1300 sq ft shoe box that isn’t a tear down is 600k$ even if it hasn’t been updated since it was built in the 1970s.

    And flippers are still buying up properties all around. We are more than a decade into this cycle of asset reflation. Salvador Dali couldn’t have imagined something this surreal.

    Uhaul update.

    26’ foot truck
    SF to Boise 3375$
    Boise to SF 309$
    LA to Prescott 1382$
    Prescott to LA 101$

    1. The homeless in my San Diego hood seem to be increasing in numbers continually. Last night someone stole all the fruit off my blood orange tree.

      Citizen! You should rejoice at your opportunity to participate in the redistribution of the wealth! Forward!

  13. A ‘Lost Decade’: Haiti Still Struggles To Recover 10 Years After Massive Earthquake

    January 12, 20207:59 AM ET

    https://www.npr.org/2020/01/12/794298546/a-lost-decade-haiti-still-struggles-to-recover-10-years-after-massive-earthquake

    How the Clinton Foundation got rich off poor Haitians

    Dinesh D’Souza
    Nov 10, 2016

    Where did it go? It did not escape the attention of the Haitians that Bill Clinton was the designated UN representative for aid to Haiti. Following the earthquake, Bill Clinton had with media fanfare established the Haiti Reconstruction Fund. Meanwhile, his wife Hillary was the United States secretary of state. She was in charge of U.S. aid allocated to Haiti. Together the Clintons were the two most powerful people who controlled the flow of funds to Haiti from around the world.

    Haitian deals appeared to be a quid pro quo for filling the coffers of the Clintons. The Haitian protesters noticed an interesting pattern involving the Clintons and the designation of how aid funds were used. They observed that a number of companies that received contracts in Haiti happened to be entities that made large donations to the Clinton Foundation. The Haitian contracts appeared less tailored to the needs of Haiti than to the needs of the companies that were performing the services. In sum, Haitian deals appeared to be a quid pro quo for filling the coffers of the Clintons.

    For example, the Clinton Foundation selected Clayton Homes, a construction company owned by Warren Buffett’s Berkshire Hathaway, to build temporary shelters in Haiti. Buffett is an active member of the Clinton Global Initiative who has donated generously to the Clintons as well as the Clinton Foundation. The contract was supposed to be given through the normal United Nations bidding process, with the deal going to the lowest bidder who met the project’s standards. UN officials said, however, that the contract was never competitively bid for.

    Clayton offered to build “hurricane-proof trailers” but what they actually delivered turned out to be a disaster. The trailers were structurally unsafe, with high levels of formaldehyde and insulation coming out of the walls. There were problems with mold and fumes. The stifling heat inside made Haitians sick and many of them abandoned the trailers because they were ill-constructed and unusable.

    The Clintons also funneled $10 million in federal loans to a firm called InnoVida, headed by Clinton donor Claudio Osorio. Osorio had loaded its board with Clinton cronies, including longtime Clinton ally General Wesley Clark; Hillary’s 2008 finance director Jonathan Mantz; and Democratic fundraiser Chris Korge who has helped raise millions for the Clintons.

    Normally the loan approval process takes months or even years. But in this case, a government official wrote, “Former President Bill Clinton is personally in contact with the company to organize its logistical and support needs. And as Secretary of State, Hillary Clinton has made available State Department resources to assist with logistical arrangements.”

    InnoVida had not even provided an independently audited financial report that is normally a requirement for such applications. This requirement, however, was waived. On the basis of the Clinton connection, InnoVida’s application was fast-tracked and approved in two weeks.

    The company, however, defaulted on the loan and never built any houses. An investigation revealed that Osorio had diverted company funds to pay for his Miami Beach mansion, his Maserati, and his Colorado ski chalet. He pleaded guilty to wire fraud and money laundering in 2013, and is currently serving a twelve-year prison term on fraud charges related to the loan.

    The schools they never built

    https://www.pambazuka.org/global-south/how-clinton-foundation-got-rich-poor-haitians

    1. NPR does a nice job of toeing the Party line…

      “Donors from around the world swiftly pledged billions of dollars in aid and made promises to rebuild. But a decade on, Haitians who survived say they feel forgotten, as much of the goodwill and billions have been lost to waste, greed and corruption.”

      Yet the only mention of the name Clinton is…

      “The Interim Haiti Recovery Commission, set up to streamline and provide transparency for major aid projects and co-chaired by former President Bill Clinton, had already disbanded by the fall of 2011, and less than half of the $4.6 billion pledged to projects was spent.”

  14. I lived in Albuquerque Northeast next to Sandia Mountain for 20 years and all of sudden seeing out of state license plates swarming around. Driving slowly and gawking at the homes here. Mostly and mainly from California, but Arizona, Colorado and Texas are not far behind. Our house price been going up nearly $500 a day or
    $50,000 in past 2 months. It is crazy that the R.E. Bubble now spilling over to Albuquerque!

    Realtors saying there is a shortage of homes! Go figure it out!

    1. Driving slowly and gawking at the homes here. Mostly and mainly from California,”
      That was me in Sept. Got some serious hay fever in old town. went through a pretty nice rain storm on the way back to Flagstaff. Painted desert was amazing and so was Sandia peak. I also looked at new houses North west of ABQ for mid 350K and laughed at the realtor when she told me in the Bay area you can’t get a house for under 500K. I said it was a little higher than that. Good times. Checking out Tucson next.

  15. Wilmington, NC Housing Prices Crater 22% YOY As Coastal Carolina Homeowners Slip Deeper Underwater

    https://www.zillow.com/wilmington-nc-28405/home-values/

    *Select price from dropdown menu on first chart

    As a noted economist said so eloquently, “A house is a rapidly depreciating asset that empties your wallet every day you own it. Rent a house for half the monthly cost of buying it.”

  16. This is the song that never ends.

    Canadian billionaire Frank Giustra providing luxe hideout for Prince Harry, Meghan Markle

    By Emily Smith and Oli Coleman
    January 12, 2020 | 12:43pm

    Prince Harry and Meghan Markle have been hiding out at the home of Canadian billionaire Frank Giustra, whose close ties to the Clintons have created international controversy, Page Six can exclusively reveal.

    In 2005, he and President Bill Clinton traveled together to Kazakhstan to meet with the former Soviet republic’s authoritarian leader. Days later, Giustra acquired shares in three of the country’s state-run uranium mines — a venture valued at more than $3 billion. Months after the Kazakh pact, Giustra reportedly gave a $31.3 million donation to the Clinton Foundation and has since publicly pledged he’ll donate another $100 million.

    Both Giustra and Clinton have denied the former US president helped him cement the Kazakh deal, and Giustra later divested himself of the assets.

    Then in 2016, as Hillary Clinton was running for president, the leaked e-mails of her campaign chairman, John Podesta, revealed that Giustra and Mexican billionaire Carlos Slim gave an endowment of $20 million in 2010 to the Clinton Foundation to set up the for-profit Haiti Development Fund, intended to give seed money to Haitian entrepreneurs after the devastating earthquake. Yet there is “almost nothing in the public record” showing what happened to the millions of dollars, according to reports at the time.

    https://pagesix.com/2020/01/12/canadian-billionaire-frank-giustra-providing-luxe-hideout-for-prince-harry-meghan-markle/

      1. It was right after that second (wtf?) booth review. One of those guys out there with a parabolic mic caught it. 🙂

    2. He’ll always be remembered as the NFL coach that handed New England another super bowl trophy in 2014.

    2. “Why can’t buyers pay for their own appraisals instead? Can we change the mortgage system from being bank-centric to being homebuyer-centric? Probably not. It’s a mortgage system, it’s not a homebuyer system.”

      IOW: a big ponzi system to keep values inflated

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