"Don't look back. Something might be gaining on you." -- Satchel Paige
The only time I ever saw the great black pitcher, Satchel Paige, was when he pitched an exhibition game at the former Modesto Reds ballpark on the banks of the Tuolumne River in what is now called West Modesto. He was playing for a black traveling team, I forget the name, against a team of bearded white men. It was in the mid-Fifties, less than a decade after Branch Rickey had integrated major league baseball by hiring Jackie Robinson to play for the Brooklyn Dodgers. Paige was the most famous pitcher of the Negro Leagues and a year after Robinson went to the majors the Cleveland Indians hired Paige to help them win a penant race. He went on to play for two more major league teams and ended his career as a coach.
At Modesto High School, near the ballpark, the only Cleveland Indians fan in our group got ahold of some of Paige's wit and wisdom and used to utter the sentences in ominous tones. But we never took the title quote too much to mind because we really didn't have that far to look back.
Things are different now. But don't worry: "Age is a case of mind over matter. If you don't mind, it don't matter. " Satchel Paige
Badlands Journal editorial board
Christian Scoience mONITOR
The dangers of falling home prices
By David R. Francis
Economist Dean Baker was so worried about a housing bubble that he sold his Washington, D.C., condominium, at three times the price he paid for it, and rented an apartment instead. Now, about two years later, he's still waiting for the bubble to pop.
The danger of a bust is "absolutely getting worse," says Mr. Baker, codirector of the Center for Economic and Policy Research in Washington.
A bear market in housing would chew up home values, take a big bite out of commercial banks, and depress consumption, perhaps causing a recession, he and some other economists warn.
So far, the bubble - if it is that - has simply stopped growing as fast. The Office of Federal Housing Enterprise Oversight reported last month that the average house price in the United States in the last quarter of 2004 rose just 1.69 percent, down from an exceptionally large appreciation of 4.79 percent in the 3rd quarter. Also, rental prices have been falling for 18 months.
Optimists predict that, rather than popping suddenly, the housing market will see a further slowdown in rising prices, or maybe a small decline.
"Housing is not overvalued," says Joel Prakken, an economist at Macroeconomic Advisers in St. Louis, looking at the entire nation. But, he adds, in certain markets, house prices may be high.
Pessimists anticipate a damaging, perhaps frightening, drop in home prices at some unknown future time. Baker, by the way, talked in 1997 of a stock market bubble - three years early.
"Bubbles can keep inflating as long as there is cheap credit," says Paul Kasriel, an economist at Northern Trust Co. in Chicago. His concern is that the Federal Reserve will push up interest rates so much that financing a house purchase or taking out a home-equity loan will become prohibitively costly for many Americans.
On average, the interest rate on a 30-year, fixed-rate mortgage stands today just above 6 percent, approximately half a percentage point higher than the rate a year ago. But the Fed last month raised a key short-term rate, the federal funds rate, to 2.75 percent. And Wall Street anticipates this rate going gradually to between 3 and 5 percent in the months ahead, largely depending on what happens to inflation in the nation.
"The warning has been sounded," says Mr. Kasriel. Among the signs:
• The fastest growing component of the earning assets of banks is home-equity loans - loans homeowners take out against the value of their homes, with their houses put up as collateral for the loans. Last December, these loans amounted to $399 billion, up $118 billion from a year earlier.
• Banks are making more "piggyback loans." Major buyers of home mortgages, such as Fannie Mae and Freddie Mac, generally require a down payment by the buyer of at least 20 percent of the home's value. Buyers lacking that big a down payment can borrow money to cover the down payment and even the costs of the transaction, taking out separate insurance to cover the extra loan. In 2004, 42 percent of mortgage assignations had piggyback loans, twice the proportion of 2003.
• One in four houses sold last year were bought by investors, looking to rent the homes.
• More homes are being bought with adjustable-rate mortgages. The interest rate on these loans can be jacked up if long-term interest rates rise, perhaps after five years, perhaps in fewer years.
• Cash-out refinancing by homeowners last year took a net $325 billion in equity out of their homes.
"It's almost like a house is an ATM machine," Kasriel says. He sees some likenesses to the Florida land boom of 1924-25, which ended in a terrible bust.
Housing is a crucial component of the nation's economy. Over the past 50 years, housing expenditures have made up more than a fifth of the nation's gross domestic product, that is, total spending on goods and services. Housing provides a living not just for homebuilders, but for real estate agents, mortgage providers, lawyers, hardware stores, and so on.
Further, rising home prices have tended to equalize wealth in recent years. They're the chief assets of low- and middle-income people; so when they go up, these groups benefit. The well-to-do, more dependent on equities, saw their wealth fall when the stock-market bubble burst.
Housing booms don't end with a bang, but a whimper, says Karl Case, a Wellesley College economist. Houses can't be sold in minutes, but rather in days and weeks. Homeowners think they know the value of their homes, and often don't sell if they don't get that price. So prices are sticky.
Eric Belsky, an expert at the Joint Center for Housing Studies at Harvard University, notes that in the past 10 years house prices have risen faster than household income in only a quarter of the 153 larger metropolitan areas in the nation - a good sign for housing prices. Nothing in the immediate horizon indicates housing prices will be hammered, he says.
Contrariwise, Baker sees a major gap between new home construction of about 2 million a year and new home demand of 1.3 million to 1.4 million, with the difference becoming rental units or vacancies.
Though more optimistic, Mr. Case admits: "It could turn into a bust." And Mr. Belsky says, "It's unchartered waters."
Read more at http://www.brainyquote.com/quotes/authors/s/satchel_paige.html#sop5lmfMBED6h90J.99
Another California city opts for bankruptcy…Associated Press
SAN BERNARDINO, Calif. -- As recently as last month, no city in California had opted for bankruptcy since 2008, and no U.S. city of more than 200,000 people had ever chosen bankruptcy.
The past two weeks have changed all that, in a big way, as the fiscal struggles faced by so many American cities became too much for some to bear.
San Bernardino became the third California city in that small span to choose Chapter 9 bankruptcy protection with a City Council vote on Tuesday night.
The Southern California city of about 210,000 people will also become the second largest in the nation ever to file for bankruptcy. Stockton, the Northern California city of nearly 300,000, became the biggest when it filed for Chapter 9 on June 28. The much smaller city of Mammoth Lakes voted for bankruptcy July 3.
San Bernardino's City Council directed the city attorney to make the move during a meeting where administrators explained the dire fiscal circumstances and urged them to choose the bankruptcy option.
"We have an immediate cash flow issue," Interim City Manager Andrea Miller told Mayor Patrick Morris and the seven-member City Council, according to the Los Angeles Times.
Miller said the city is facing a budget shortfall of $45.8 million. It has already stopped paying some vendors, and may not be able to make payroll over the next three months.
Four council members voted for the authorization, two opposed it, and one abstained.
"This is probably the hardest decision this councilwoman will ever have to make in this chair," Councilwoman Wendy McCammack said, according to the San Bernardino Sun.
The councilman who abstained from voting, John Valdivia, said he did not trust the information presented at the meeting, and having only served since March believed he should not be held responsible for the money mess.
"The taxpayers of this city have been duped, hoodwinked and misguided for the past several years," Valdivia said, according to the Sun.
It was not immediately clear when the city planned to file.
Sixty miles east of Los Angeles, San Bernardino is in a region that soared economically during the housing boom, and suffered accordingly after the crash.
It joins a number of other cities and counties across the nation that have plunged into financial crisis as the recession made it tough to cover rising costs involving payroll, pensions, bondholders and vendors.
Before Stockton, a California city had not filed for bankruptcy since Vallejo in 2008.
Since Congress added Chapter 9 to the bankruptcy code in 1937 to allow municipalities to seek protection, about 640 government entities have filed.
More than half of Stanislaus County homes 'underwater'…Marijke Rowland and J.N. Sbranti
MODESTO -- More than half of Stanislaus County homeowners owe more on their mortgages than their homes are worth, just-released home-equity data show.
San Joaquin County is almost as bad, with nearly half of all homes “underwater.”
The percentage of homes with negative equity is more than twice as high in the Northern San Joaquin Valley as in the nation as a whole, according to analytic firm CoreLogic.
That more homes are underwater than not doesn’t surprise county residents such as cqDanielle Davis. She and her husband bought their Newman home in 2002, before the housing boom skyrocketed, for $198,000. Now, 10 years later, the house is worth $100,000 less.
“We aren’t really in that angry crowd, though,” Davis said. “We’re not happy about the market value, but figure we put ourselves here. We didn’t buy an overinflated home with tricky financing. We didn’t back out of our loan, ruining our neighbors’ property values. … Was it a smart move? Probably not, but we made a commitment. We are doing our best to honor it.”
In Stanislaus County, 51.3 percent of homes — 49,581 in all — have mortgage debt higher than what they are worth. An additional 5.3percent of homes — 5,119 — are nearly upside down on their mortgages.
In San Joaquin County, 49.6 percent — 62,937 homes — have negative equity. An additional 5.3 percent — 6,694 homes — are near negative.
The data, gathered for the first three months of 2012, show that 23.7 percent of homes nationwide have more debt than value. That’s 11.4 million homes upside down on their mortgages. An additional 2.3 million homeowners had less than 5 percent equity, which means their homes are barely above water.
In California, 30.5percent of homes have negative equity.
It’s worst in Nevada, where 61percent of homeowners owe more than their homes are worth.
Still, Stanislaus County ranks the fifth highest in the nation for percentage of underwater homes and second highest in the state, behind Solano County, which has 55.1percent with negative equity.
Businesses suffering, too
Having more than half of all mortgages in the county underwater has an impact on more than just homeowners. Businesses that traditionally have relied on people’s ability to take out loans based on their equity also are suffering. Home renovation, remodeling and upgrading businesses all have taken a big hit as home values have crumbled.
John Gordon, the second-generation owner of Modesto’s Gordo’s Pool City, said he has seen a precipitous drop-off in people eligible for consumer loans. He said five years ago, he might have 200 people get approved for a loan. Today, it is down to practically none.
“At this point, everyone is paying for it with a Visa or cash,” he said. “We’ve tried to get a few people approved and it’s come back at an extremely high interest rate. Even for people with good credit, the rules change virtually overnight.”
In 2007, the Yosemite Boulevard business closed its Plaza Parkway satellite office in response to slowing sales. But thanks to owning the Yosemite building, Gordon said the business has been able to weather the drop. Other similar businesses, such as Aqua Pool & Spa between Ripon and Manteca, which closed abruptly two years ago, were not as fortunate.
Robert Smits, owner of Modesto’s Village Home & Design Center, estimates his home-renovation business dropped by 50 percent to 60 percent as the housing market crashed. The lack of equity means fewer people are doing the kind of big-ticket $30,000 kitchen and $15,000 bathroom remodels than when home-equity loans were plentiful.
“Five, six years ago, people didn’t even hesitate,” he said. “Having so many people underwater has made a big difference. People used to be willing to spend that equity. Now they’re holding on, if they’ve even got any equity.”