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.’”