Arnold: "This crisis is not going to last"

A couple of newsy items warrant mentioning today:

Gov. Schwarzenegger (pictured at left), is striking a hopeful tone about housing: "This crisis is not going to last," the governor said in Stockton yesterday. "It's a bump in the road." He predicted that California's declining home values would turn upward again soon.

I'm pretty certain he is wrong, but being hopeful is often a good leadership strategy nonetheless.  It's not entirely fair, but Schwarzenegger is in a position to suffer more from the housing downturn than any other elected official in the state.  A state budget crisis -- entirely possible over the next couple of years -- is a governor's burden. 

In other words, the easiest way to be a popular governor is to have good timing -- time your career so that you govern during an economic expansion.  Schwarzenegger had great timing until the past few months.

Moving, on, the Federal Reserve, as most of you already know, is proposing a series of new regulations aimed at bringing more sanity to the mortgage business: "The Fed proposal would require lenders who make sub-prime loans to consider borrowers' abilities to make payments and to verify that they have the income and assets they claim.  It also would require better disclosure of special bonuses that mortgage brokers earn when they write loans at higher rates than a borrower is eligible to receive."

Your thoughts? Comments? Email story tips to peter.viles@latimes.com
Photo Credit: LATimes

Comments

[shockg]

"I'm pretty certain he is wrong, but being hopeful is often a good leadership strategy nonetheless. "

Vile Peter, And I am certain you don't want a quick turn around. You are just another housing crash cheerleader.

[pugtv]

Lefty,

Buy my house. It's a great investment just for you ... JUST DO IT!!! lol ...

[Cal]

Realtytrac foreclosure report came out today, it was pretty good relatively for California, NOD/NTS/REO have fallen the last 3 months in a row and YoY is "only" up 100%+

[MyLessThanPrimeBeef]

Why do we need these regulations? Why would banks make loans to borrowers who can't afford them?

Wouldn't they lose a bunch of money, like billions with a 'b?' Wouldn't the thought of losing that much money deter them from seppuku-ing themselves in the first place?

Oh, that's right, it wouldn't...because the Fed is ALWAYS there to BAIL THEM OUT.

So, we do these proposed regulations after all.

PS: Don't knock harikiri, seppuku or the Chinese lead toy factory manager killing himself. These people take their jobs seriously. They have honor, instead of walking off with hundreds of millions of dollars in their pockets after losing billions of their companies' money.

And thanks to globalization, these are the people we have to compete with now...unless Clintons' super-sensitive to worker-job security WTO negotiators demanded in the negotiation rounds that such un-fair labor practices be banned.

[Tired of the politically correct]

So what's the Governator going to say when next year comes and goes and home prices are much lower and still headed downward? This mess has a long way down to go in CA due to the idiotic prices that people were willing to pay for a home with the bank's money. Time will tell who is correct but it doesn't take a rocket scientist to analyze the facts with the number of REO's plus individual homes for sale (plus the upcoming foreclosures on ARM resets), inventory trends and availability of qualified buyers to see where the bottom end of this story lies. Another 40-50% drop in prices is in the bag by the end of 2011-spring of 2012.

[mike]

i've been saying on this blog that the downturn is coming to an end!!!!! now the governor is backing me up. the california housing crisis will last no longer than the first quarter of 2008. time to start buying again!!!!!

[Ace]

From the article 'The Fed proposal would require lenders who make sub-prime loans to consider borrowers' abilities to make payments and to verify that they have the income and assets they claim.'

Ok, I am all for verifying income and assets... but for the government to require the lenders to 'consider borrowers' abilities to make payments' is wrong in our free market. Since when did it become a bank's responsibility to handle the personal finances of people who want to borrow money? A bank should look at the risk and then make the loan and set the terms based on the risk.

I am tired of us Americans accepting no responsibility for the financial decisions we make. I'm gonna have to punch the next person who says 'I didn't think the credit card companies would give me credit cards if I wouldn't be able to make the payments'.

Sure, there is predatory lending going on. But in reality, you could spend one hour and read a book and learn everything there is to know about mortgages before making the biggest purchase in your life. But people don't. It is much more important to watch Dancing with the Stars.

[adrian]

for mike, downturn will last until spring 2008.
By chance, I ran into a Moody's article, October 2005. They predicted all that's happening right now. Also, they said 2009 will be the corner end.
Why should I believe you, Mike?

[l.a. guy]

I don't see it mentioned in the article, but when they were discussing this on CNBC Tuesday they said the new rules might include banning pre-payment penalties for all loans. That seems to me like it could have a chilling effect on capital if lenders couldn't reasonably know what the return on a loan is going to be. I would think it would also raise the cost of capital since lenders would want to price in the uncertainty.

I don't see it mentioned in the article so maybe it has been removed from consideration.

[mike]

i'm not exactly sure what the stats are but by the year 2020 we are supposed to have 10 million or more people coming to so. cal. by that time. these people will be coming here because they want a mediterranian type climate. they will come from all over the world and they will have lots of money and will need to spend it if they want real estate here.people dont like sweltering,sweating or freezing. we still have more people coming here than going. no signifigant downturn here!!!!! spring 2008. on the uptick again!!!!!!!!

[Rob]

Mike,
If I pay you, will you go away....?

[mike]

why would you want me to go away????? people get so mad about the truth on this blog.

[D]

I agree with Mike, people here just want to look for the worst, so they can finally afford to buy a place out here.. Face it to many people want to live in LA. Areas like the Westside, DownTown LA are going to be stable for awhile and then go right back to climbing up. Now the the valleys and Inland empires, those are set to fall, too much inventory, and not as many people want to live that far from the coast.

[JDZ]

Mike -- give us a break. If you don't know what the stats are, please don't quote them. Your opinion followed by an inordinate number of exclamation points doesn't enhance the analysis. You and Lefty are clearly trying to spin without adding substance. Getting old, and I can't imagine anyone on this site is actually buying it.

[Keith]

It's not "truth" Mike, it's the BS that gets spread around such as what you are putting up there. The reason people are so against it is because it's the same brand of BS that has put such a hurt on So Cal right now, albeit watered down a bit. It caused a lot of harm and people are sick of hearing it and will call you on it. So don't stand around with this "Who, me?" attitude, it's a crock.

[Keith]

BTW, Mike, your "stats" are worthless. It's a projection over 13 years in the future, absolutely useless. Other projections say that due to global warming there will be a mediterranean climate worldwide, so why move to So Cal?

[lefty]

thank you gov, for showing that now is the time to buy metro L.A.!! don't wait for the bottom, it is virtually here already. enjoy the CA sunshine and start building your equity now!!

[Rob]

I am getting the feeling Mike is the right side of Lefty's brain. Anybody?

[amir]

It's really funny the mike and lefty excessively use exclamation points!!!

So to you guys, please show some stats!!!!! that support your view!!!!!

Screaming!!!!! won't stop prices from dropping!!!!! The last real estate decline took six years!!!!!!! 1989-1995!!!!!! People wanted to live here then as wel!!!!

This crash is WORSE!!!! MUCH WORSE!!!!

People don't move for the weather!!!! They move for jobs!!!!! and for houses their jobs can support!!!!!

Prices need to drop AT LEAST (!!!!!) 50% (!!!!!) for housing to be affordable!!!!!

And by the way, if prices drop in SF valley, don't you think people will consider buying twice (!!!!!) as much house there than in the city for the same price?!?!?!?!?! And don't you think that leads to eventual price drops in the city as well????!!!!!!

It's time you get a calculator!!!!!!!!!!!!!!!!!!!!!

[buz algood]

CA is going to hid the skids hard. A majority of people in the state can't afford the average home based on their income and I don't see exotic mortgages making a comeback any time soon. Tax hikes on the horizon, check. Think that will add to economic stagnation? You bet. Job growth during the past five years has largely been due to the housing boom which is now gone. So you add some service jobs at the nursing home or Best Buy, big deal. And we haven't even mentioned the likelihood of $4 gas and what effect that will have. Bottom line-look out below.

[CD]

The Governor speech reminds me of Henry Paulson in August. It's all contained people,Subprime will not hurt our economy, our economy is too great to suffer from a few bad loans......Same guy, different suit. Arnold works for the developers....Now they are gone, and he has to declare a fiscal emergency !!!!By the way, went shopping today, you could shoot a canon trough the stores in West Hollywood. Dept stores are giving the stuff away ,trying to make their books shine for the big report. Make no mistake, the people know the party is over.

[originalthinker]

The cat's on fire from the friction of his fall !
Yoweeeeeee !!!
Do flaming cats bounce or just leave contrails?

[alejandrom]

The population figures are easy to locate on the Census website. California population was 36 million in 2006 and studies forecast California population increasing to 41 to 50 million by 2025. The MTA has a statistic the current LA Basin population will grow from 16.7 to 23 million by 2030 (a 37% increase).

So yes millions of people are headed to the state and the 10 million figure used above just might be right. Projections are crucial for planning water, infrastructure and development. It takes 10 plus years to build transportation, water, wastewater infrastructure. Most cities in California have grown so fast their transportation, water and wastewater infrastructure isn't keeping up. For the most part people have underestimated growth.

Those stats indicate to me lots of people are here, going to come here and California will keep growing. Feels good to own a house. If you cannot afford it - as the Govenator would say - hasta la vista Baby.

[pugtv]

Mike and Lefty,

Take your money out of your 401k NOW!!! Liquidate that checking account of yours NOW!!! Buy that huge house NOW! This is ithe best investment for your family ever!!! JUST DO IT!!!! lol

[joeinlosangeles]

Don't know where you got that data. The proections I've seen from the state are that the entire state population will increase by about 5 million by 2020.

--i'm not exactly sure what the stats are but by the year 2020 we are supposed to have 10 million or more people coming to so. cal. by that time. these--

[Louman]

I just keep laughing and shaking my head, how you hopefuls think this will be over next year. Look at the fundamentals: $50-75K a year doesn't qualify you for $500K+ (if you're lucky) homes in L.A. area. Not when you're paying real P+I, down payments, taxes, not the teaser rates which is what caused all these prices to soar in the first place. I wish I was wrong, but even in L.A., regular folks aren't millionaires who can afford these ridiculous prices. Rent for the next 2-5 years. Remember the early 90's? That was just a preview. This will be much worse.

[Louman]

I just keep laughing and shaking my head, how you hopefuls think this will be over next year. Look at the fundamentals: $50-75K a year doesn't qualify you for $500K+ (if you're lucky) homes in L.A. area. Not when you're paying real P+I, down payments, taxes, not the teaser rates which is what caused all these prices to soar in the first place. I wish I was wrong, but even in L.A., regular folks aren't millionaires who can afford these ridiculous prices. Rent for the next 2-5 years. Remember the early 90's? That was just a preview. This will be much worse.

[Jason Hoppe]

Mike and Lefty,

Apple One is hiring for Data Entry if you're interested.

And if it's such a good time to buy, why would you bother telling I or anybody else? Why don't you take advantage of people not believing you and go buy every house is CA? It's like telling everybody your going all in poker with Jack high.

[Keith]

Where you guys lose your translation onthe stats is that these same stats don't predict what these new people in California will be earning. That's the whole point. House prices and affordability must be in sync,ahouse is only worht what the market is willing and ABLE to pay for it.

[yourkillingmelarry]

I wouldn't count on that population growth to increase demand for $750 to $3 Million homes. California and Los Angeles for that matter are experiencing domestic out-migration. The housing shortage in California is very misunderstood. Population growth is being fueled by immigration (mostly non-monied) and births. California and its population centers lack multi-tenet apartments to accommodate that growth. These people could not afford a home in Des Moines Iowa much less Los Angeles. As you can see from the data once you remove the exotic loans, sales transactions basically collapse. Right now there is no shortage of overpriced stucco boxes with people asking north of $750K in fact there is a huge overhang.

[enlightenment]

Arnold...by soon...do you mean 2010...then I agree with you.

[toby]

Unless Arnie can bring back free money....I think he's statement will go down as one of those "Dewey beats Truman".

[Leavin' LA]

Louman and the other short-sided goofballs: Who cares about income vs prices? Lenders lend. There will be new loan products by March that will prop up the market. I know one broker who still gets 50 faxes a day from lenders with subprime and alt-a money. Wish all you want for $200K housing prices -- you'll be crying in two years when it hasn't happened and you're still renting.

Meanwhile, I'll continue livin' large on the other coast on the profits of my LA sale. So kiss my assets.

[The Real Estate Guy]

Bottom will come in about 5-7 years, regardless of what the "Governator" may say...

Boons are all Psychological....We don't have it at this time...

As far as the people coming to the State, these are poor people. California is becoming a Socialist European Country...Get ready to pay more taxes!

Sorry for the bad news....

Hasta la vista baby!

[buz algood]

To respond to Alejandrom. Yes you are correct in recognizing that the population in CA will grow in the next decade. The key question is will they be able to afford a 500K starter home? I say no way jose. Who are these new Californians. Probably more economic refugees from Central America with no education or money and, if a democrat wins in 08, a big bolus of Iraq refugees. Not sure what house prices are in Bagdad but I doubt they will have enough cash to start bidding wars on cracker box tract homes in Pacoima.

[Rip N Tear!!!]

Sure Mike, are you going to employ them with 6 figure salaries??? Plus, we are over using Californias resources, so I have great idea, go away with lame comments that make no sense.

RNT

[mruniverse]

Da subpryiime maw-tij situation in Calee-fawn-ya wiwl be ovah by New Yeahs dey. Trost me peepol. Dere was a time back wehn I was a bodybilding combettita und I was against dis terrific posa.... sorry, da subprime...

[Rip N Tear!!!]

I just found the best house to buy in the Studio City....North of the Blvd for ONLY $ 3,999,995

Mike and Lefty should buy it, its a great investment for them.

[Uncle Billy]

On the first day of christmas, Ahnold said to me, "dis will be jas lahk evry cycle in his-to-ry."

On the 2nd day of christmas, Dubwa said to me, "heh-heh, di-al 800-silly-me.

On the 3rd day of christmas, Bernanke said to me, "damned if we do, damned if we don't, and it's haaaard to be me."

On the 4th day of christmas Goldman said to me: "we're the only ones makin' money here as faaaar a-as we can see."

On the 5th day of christmas, Countrywide said to me: "weee're the good guys, and this cou-ntry iiiiis free."

On the 6th day of christmas, China said to me: "thanks for the shares and we'll soon have you oo-on your knees."

Someone... keep... singing....

[econo]

Many millions moving to California = greater demand for housing = higher prices.

Many millions moving to California = greater supply of workers = lower wages.

Supply and demand, works both ways.

Doesn't sound like a place I'd like to immigrate to...

[Roger Moore]

"Ok, I am all for verifying income and assets... but for the government to require the lenders to 'consider borrowers' abilities to make payments' is wrong in our free market. Since when did it become a bank's responsibility to handle the personal finances of people who want to borrow money?" --Ace

Banks have had to put up with government regulation since they started taking advantage of Federal Deposit Insurance. I'll be willing to listen to complaints about the government interfering in the banks' free market the moment that they stop demanding the government bail them out when they make mistakes. If you want the government to get off your back, first take your hand out of its pocket.

[Pasadena Res.]

I am wondering if Lefty and Mike are the same person....
As I said before, best to ignore such people. They are just
rocking the boat to see people's reaction.

[BRAD]]

Folks, the early 1990's downturn was just a normal cyclical trend exasperated by several ancillary events: 1992 riots, 1993 fires and susequent mudslides and the enormous Northridge Quake. Amir, the downturn did not start in 1989 but in August of 1990 sometime after the temporary bump we got afte the first Persian Guld invasion. No one really knows where this current crisis is going becasue no one knows what ancillary events lie ahead (dirty bomb at LaGuardia, Tidal wave off Northern California).

[tew]

He slyly hedges when he says "The problem is going to get much worse unless we can do something about it". Why did he insert the word "can"? The sentence reads perfectly without it.

A year from now he can toss out statements like "The bump in the road turned out to be bigger than we thought. At the time I was asking myself 'What CAN we do about this?'". Well, we continue to do what we can. We've worked - - hard, but even our best economists and advisors at the time couldn't anticipate . I call on the President and Congress as well as our representatives in Sacramento to recognize the urgency of the crisis and provide real help to our families in need."

[Ed]

Schwarzie's an idiot, just like his wife and father-in-law. He and his croneys will be governing illegal aliens and government workers. Oy, si, many millions moving to California. Stop at the San Clemente rest area and see who's coming. Can you say "free healthcare for all"? Stand aside for the next flood.

[Steve Wimer]

Buz is right. People will move here for jobs. With the housing sector in the dumps, jobs will be lost. If the borders become secure, which the people want, but the corporate Democrats and Repubicans do not, real estate demand falls. Besides, as another Times reader pointed out, homes are not affordable these days. This "perfect storm" should last years.

[Stephen Richard Levine]

Our RINO (Republican In Name Only) Governor is all about ego-driven celebrity and loves to hear his own pronouncements. His advice on the current real estate bubble or the subprime mortgage meltdown or the liquidy crisis should be taken with a grain of salt. This is the guy that failed to curb spending by the democrats to the tune of a projected $14 BILLION dollar deficit. This is the guy who would walk over fellow Republicans such as budget expert Senator Tom McClintock to pose with the democrats. The guy is a fake and his public appearances are so much smoke and mirrors. He is a "pol" out of the Teddy Kennedy school. He talks about economic problems and then considers a $10 billion dollar health care bill to be financed with what he claims are fees -- but are really taxes on California citizens. I cannot believe he has any credibility left when it comes to fiscal responsibility or explaining California's financial future.

[j.white]

According to LA Times 89000 more people moved out of California than moved in fiscal year 2007, see the article:

http://www.latimes.com/news/local/la-me-
growth20dec20,0,4381660.story?coll=la-home-center

[Diego]

Be careful trusting Arnold’s predictions.

Remember he is a weightlifter, not a brain trust.

[butterfly soup]

Right now Arnold is lining up buyers from China, Middle East, etc.

[Omond]

Diego. He was not a weightlifter but a steroid abusing cheat. He should be in the dock with Barry Bonds instead of being portrayed as a leader.

[Rich]

"Ok, I am all for verifying income and assets... but for the government to require the lenders to 'consider borrowers' abilities to make payments' is wrong in our free market. Since when did it become a bank's responsibility to handle the personal finances of people who want to borrow money? A bank should look at the risk and then make the loan and set the terms based on the risk."

Accurately determining a borrower's ability to pay IS part of "setting the terms based on risk". This is the part that non-bank investors got wrong when they bought from mortgage brokers: they thought due diligence was being done, and it wasn't, in fact it was being circumvented.

Banks and institutional investors have a fiduciary responsibility to their shareholders to determine risk with the utmost accuracy. It was never responsible for them to make loans WITHOUT knowing the borrower's ablitity to pay because the money lost belongs to them, it isn't somebody else's writeoff...

[yourkillingmelarry]

"Who cares about income vs prices? Lenders lend. There will be new loan products by March that will prop up the market. I know one broker who still gets 50 faxes a day from lenders with subprime and alt-a money."

Thank you for the rigorous analysis on the current state of the credit markets....."lenders lend". A broker getting 50 faxes a day from lenders for subprime and alt-a is far different than closing the loans. In fact it smacks of desperation. Lenders have found themselves in the most precarious and if you want to get down to it unreasonable position of only being able to lend money to people that have the capacity to service the loan. So if you are a lender you are going to fax all day long until you find that person. I can't wait to see the "New" products this March, I'm sure credit markets will be completely cleaned up by then.

[Joe]

The typical 3+ 1 3/4 west valley home went last year for over $600,000. It is now down to somewhere in the $500s. Some are just under. They will fall to around $400, give or take a little based on how upgraded that 50 year old home is. The market will continue flat or somewhat down for at least another year and a half. It will not be until 3-4 years from now it returns to todays level, maybe 6 years before it returns to 2006 levels, but it will return. Buy what you can afford, drive a hard bargain, and live in what you buy and overall you will do OK. Be picky, don't fall for hype and don't panic. It may be harder to get a mortgage, but if you don't qualify you probably shouldn't have bought that place anyway.

[la voce bella]

Does anyone have a bead on the market in the Coachella Valley, i.e., Palm Springs, Palm Desert and Rancho Mirage? Thanks.

[Cal]

j.whites article is very important to housing. My wifes work had a bunch of people (4 in her work alone, and its a small company) just up and left to Texas because the jobs were paying well and the houses were cheap (2 sets of parents of workers from her worker decided to do the same thing and sold their houses here). We are renting from someone who wanted to retire to Arizona and couldnt sell her home.

Jobs and housing are fundamental, houses are expensive and California economy is at, or close to, recessionary levels. I think as soon as government spending drops (which is immediately set to happen) its going to bad for awhile.

It is rapidly turning from "Everyone wants to live here" to "Everyone wants to leave here".

[Allen]

I have a better investment for Lefty and Mike. Look at the CME housing futures market. A basket of LA houses currently at 254 (down from 273) is available at 213 for delivery in November 2009. Be a shame to buy a house for delivery now and take such a big loss. If you want to argue against the futures market pricing, do it with money, not with arm waving. These are the best guesses of those with serious skin in the game.

[T-bone]

Someone on this particular post raised the point of Arnold lining up foreign buyers, I'm not sure if it was meant as a joke or not, but it did remind me of a point someone made here to me regarding my observations of the continued market escalations in Canada. I had mentioned that RE in Vancouver is far higher $/sf than in SoCal and still rising although incomes are lower. Another poster mentioned that Vancouver wasn't a good benchmark for comparison because of foreign ownership artificially driving up values. There is in fact considerable foreign ownership in Vancouver and it has resulted in very high rental rates that are paid to property management firms and then on to their foreign clients who own the properties. It is as someone pointed out almost a foreign controlled fiefdom of sorts, a rental slavery because nobody can afford to buy.

It all just gets me wondering what the bigger picture really is? I know a lot of folks on here espousing the virtues of renting versus buying, and I do appreciate their point of view. But I wonder about China's economic expansion and its effect on the US. They are also buying US treasuries by the bucket full. What if they do become de-facto or actual owners of most of our property? Maybe we should welcome some gov't regulation of not just lending practices, but foreign ownership as most other countries do and consider repatriating our jobs and assets. Prices are too high right now, but I still think strong home-ownership is the only way to protect sovereignty.

By the way, I'm not trying to stir the pot, these are just things I'm pondering. I don't claim to have the answers.

[lefty]

omond, please do not call arnold a 'cheater'. all pro bodybuilders use steroids, and all the fans know it. therefore no one is being 'cheated'. it is just not possible to get that large naturally. thank you.

[dog-walker]

T-bone

This is an interesting point.

In addition, assets here (residential and commercial properties, for example) might have a premium value for foreign investors in search of greater economic and political stability for their wealth. The dollar, for another example, is still after all, "the world's reserve currency." [BTW, can anybody explain what exactly that means?]

BUT, foreign investors are just as susceptible to bubble thinking and fallout as we are at home, and probably just as keen to avoid losses. At some point the Vancouver bubble will max out. At that point, wouldn't it be likely for foreign investors to be just as motivated as anyone else to protect their wealth by dumping declining assets in real estate and searching for appreciating (or at least stable) assets elsewhere? Won't that likely accelerate and deepen the fall?

During the bubble phase, investors (foreign and domestic) bid against each other for a piece of very lucrative price action. During "normal" times, however, if you take away everyone who wants to share bubble wealth, you just have plain vanilla investments that will return whatever the underlying economic base can generate. Is there a reason for this return to be better in real estate in Vancouver (or anywhere else) than in any other sector of the economy?

I can think of only one, which might be important, and relates to political stability. People might want a safe haven not just for their cash but also for themselves and their families in case of political upheaval in their countries. If so, the perceived stability and safety of a place would put a premium on properties their.

BUT, if the investors were rational, they'd recognize that they can rent as well as own anywhere they go or want to stash their families. Money in Swiss banks is still more secure than anything else, isn't it? Not subject to zoning laws? Not demanding a visa, Etc? And kicking off a return?

[Jimmy]

Arnold is right. Prices will rise again very soon. What is going on in LA is "housing crash hysteria". I suggest renters that have a down payment get in NOW. This "housing crash hysteria" is a lot like Y2K.

[Omond]

Hey lefty. You know as much about bodybuilding as you know about real estate. Steroids, HGH and other chemical additives have always been illegal in all bodybuilding competitions from Mr Universe down. They just didn't have the testing mechanisms in place. Schwarzenegger is no different to Mr Bonds except Barry could be President one day. Another proud day for the GOP.

[Jeremy R]

Arnold is right, the crisis of unaffordablity and risky loans is almost over. Houses will soon return to reality. I cant wait.

When the dust settles, let's just hope we can attract professionals back to CA