Here are a couple of interesting articles about Richmond residential real estate.
The first one is by Emily Badger, a prolific Journalist who has written some interesting pieces, but this is about as close to fluff as journalism can get. In fairness, the article is largely based on research by Pamela Lee, a research associate with the Housing Finance Policy Center at the Urban Institute, who has reached the brilliant conclusion that cities with “high unemployment, stagnant incomes, high poverty, high housing vacancy rates and a large share of homeowners with a crushing mortgage burden” have shown the most interest in the possibility of using eminent domain to lower mortgage costs for those “homeowners with a crushing mortgage burden.”
According to Badger and Lee, “These cities, in other words, were in bad shape before the housing crisis happened, they suffered particularly acutely from it as a result, and they've been the slowest to recover amid what Lee calls "a toxic combination" of high unemployment, high vacancy rates, and high proportions of cost-burdened homeowners. In effect, the very places that have been forced to consider last-ditch solutions like eminent domain have problems that are too complex to be easily solved by it.” Duh!
I resent the implication that being in “bad shape,” that is according to Lee having high unemployment and low income residents, is somehow not only the fault of a city but also is a characteristic so fundamentally entrenched that a city should not look for “last ditch solutions” (mortgage relief) for at least one of its four sins. Are we to believe that It is simply Richmond’s fault that it is not Orinda or Danville? That a city should be measured by what it is doing, or at least trying to do, for its residents, not by how it tries to creatively solve problems but by easily it gives up?
Incidentally, JP Morgan Chase just this week agree to pay $13 billion to settle lawsuit by the U.S. Justice Department and another $5.1 billion to the Federal Housing Finance Agency, both for involvement in illegal bad mortgage loans, a factor widely recognized as a major contributing cause of the great recession and the foreclosures that followed. Also, Bank of America was found guilty this week of civil fraud related to mortgages. Pamela Lee, however, did not mention that, blaming the victim instead.
The second article from Richmond Confidential, profiles the wholesale acquisition of Richmond homes by cash-laden investors, the results of which are yet to be seen. Getting a lot of presumably vacated homes reoccupied is a good thing, whether owner-occupied or rented. If these buyers are truly investors rather than speculators, and they take care of the homes, that could be a good thing.
According to Doug Guilbert, a frustrated prospective buyer, “the median Richmond home sale prices have increased from a low of $142,000 in Feb. 2010 to a high of $230,000 in July 2013.” If this trend continues, the value of using eminent domain to reduce mortgage burdens will diminish to a the point where it will no longer benefit either the homeowner or the investors who would buy the seized mortgages.
Finally, on this weekend’s Bill Moyers show, “Citizen Activists Pick up the Pieces,” guest Peter Dreier describes Richmond’s fight against wall street.
PETER DREIER: Well, that's a big problem. You know, all over America right now there are people fighting back on the grassroots level. And it's quite amazing how little media attention they get. For example, in Richmond, California there's a small city of 100,000 people, a progressive mayor and city council. And a community organizing group called ACCE is taking on Wall Street directly. In that city over half of the homeowners are underwater, their mortgages cost more than their homes are worth this is Wall Street's predatory practices crashing the economy. This has happened all over America.
There are over 10 million American homeowners that are underwater. And in Richmond, California the mayor and the community are fighting back and saying, "We're not going to take this anymore." They've tried to get Wall Street banks to rewrite their mortgages so they can stay in their homes and avoid foreclosure. And when Wall Street wouldn't do that, the city council said to the banks, "We're going to take these mortgages by eminent domain. We're going to buy them from you. If you don't want to sell them to us, we'll do it by eminent domain. And we're going to sell them back to the homeowners for about half the price, for the current market value." And of course Wall Street, the Wells Fargo bank and other banks, have sued the city. The federal judge threw out the suit. And they're going to win, the city of Richmond is going to take on Wall Street and they're going to win.
And once they do, that idea is going to spread throughout the whole country. There are dozens of cities ready to pounce and to do the same thing. And Wall Street is frightened. And in general Wall Street is frightened because they know the American people have had enough.
And we're not talking Occupy Wall Street, we're not talking about people sitting in and taking over the banks by civil disobedience. We're talking about using the electoral politics in one small city, in Richmond, to take on Wall Street. And this is going to spread throughout the country.
BILL MOYERS: Tell me about that mayor.
PETER DREIER: A woman named Gayle McLaughlin, who's a former schoolteacher, she's the mayor of this city. They started off-- it's a city dominated by Chevron oil, the biggest refinery and it's the biggest employer in town. And Mayor McLaughlin and a community organizing group called ACCE and the Service Employees Union have mobilized the homeowners in that city to go before the city council and to demand that the city do something.
And the mayor is responding. She's a leader in this movement. And she knows that Wall Street is looking at her as, like, enemy number one. And she's willing to take the heat because she's on the right side of history.
(Peter Dreier is E.P. Clapp Distinguished Professor of Politics, and chair of the Urban & Environmental Policy Department, at Occidental College. His latest book, The 100 Greatest Americans of the 20th Century: A Social Justice Hall of Fame, was published in July 2012 by Nation Books. He is coauthor of Place Matters: Metropolitics for the 21st Century and The Next Los Angeles: The Struggle for a Livable City. He writes regularly for the Los Angeles Times, The Nation, and American Prospect. From 1984-92 he served as senior policy advisor to Boston Mayor Ray Flynn. He is chair of the Cry Wolf Project, a nonprofit research network that identifies and exposes misleading rhetoric about the economy and government. He also serves on the boards of several organizations, including the Los Angeles Alliance for a New Economy and the National Housing Institute.)
Why Eminent Domain Can't Save Broke Cities Like Richmond, California
Emily Badger is a staff writer at The Atlantic Cities. Her work has previously appeared in Pacific Standard, GOOD, The Christian Science Monitor, and The New York Times. She lives in the Washington, D.C. area
As we've mentioned, the city of Richmond, California, recently took the drastic step of voting to use eminent domain to try to rescue underwater homeowners. Under the plan (the city has not yet actually executed it), Richmond would effectively seize mortgages from investors who currently hold them, paying about 80 percent of a home's current market value. A for-profit company working with the city would then restructure the mortgages and sell them back to the current homeowners at a rate they could afford.
The very places considering eminent domain have problems too complex to be easily solved by it.
The idea has prompted all kinds of criticism (as well as populist praise) far beyond Richmond. Banks cry that they'll have to stop giving credit to cities that show they're willing to seize mortgages. The Federal Housing Finance Agency has wagged its finger. And law professors debate whether all of this is even legal. For outsiders less interested in the housing implications or the legal theory, the story has simply been a compelling one about a hard-luck town forced to rescue its own residents when no one else would help.
But in this raucous national debate, focus on precedent may have obscured a more basic question: If this were legal, if Richmond did succeed in doing this with hundreds of homes, would it help solve the city's deep troubles?
Pamela Lee, a research associate with the Housing Finance Policy Center at the Urban Institute, argues that a constellation of problems that left Richmond so far behind during the economic recovery also mean that this eminent domain proposal wouldn't touch the roots of the city's distress. Richmond's problem isn't simply – or even primarily – that so many homeowners are underwater.
Richmond's problem is that it has high unemployment, stagnant incomes, high poverty, high housing vacancy rates and a large share of homeowners with a crushing mortgage burden.
"I understand the desperation, and [eminent domain] is a very powerful tool that they have – that cities have – especially considering that federal strategies have been a little bit less effective than hoped for," Lee says (with admitted understatement). "The fact is that they have a lot of problems that existed before and that are part of the reason that they were so badly affected by the crisis."
Richmond is the only city in the U.S. that has gotten this close to using eminent domain. But it is not the only city that's considered it. To understand the commonalities among all of the municipalities that have weighed this option of last resort, Lee corralled data on 15 communities that have publicly expressed some kind of interest in using eminent domain, eight of them in California, plus Newark, Chicago, and several smaller municipalities.
Look at them all side-by-side, and it's clear that they suffer from some systemic and shared woes that go far beyond housing. Aside from Suffolk County, New York, every one of them had an unemployment rate above the national average (shown at far right), based on American Community Survey data from 2007-2011:
Data from the 2007-2011 ACS
In nine counties, the median household income was below the national rate:
Data from the 2007-2011 ACS
Many of these places also have notably lower income levels than the communities immediately around them. The median income in New Jersey is 50 percent higher than it is in Irvington, and 42 percent higher than in Newark. In Richmond, it's 30 percent lower than in Contra Costa County. And in most of these places, the median income (adjusted for inflation) has also decreased since 2000, as housing vacancy rates have remained high.
This last chart built with Lee's data shows the local share of mortgaged homeowners paying at least 35 percent of their income on housing costs, a sign that they may be struggling to keep up:
Data from the 2007-2011 ACS
These cities, in other words, were in bad shape before the housing crisis happened, they suffered particularly acutely from it as a result, and they've been the slowest to recover amid what Lee calls "a toxic combination" of high unemployment, high vacancy rates, and high proportions of cost-burdened homeowners. In effect, the very places that have been forced to consider last-ditch solutions like eminent domain have problems that are too complex to be easily solved by it.
Top image of a foreclosed home in Chicago: John Gress/Reuters.
Investors pounce on Richmond real estate market
Richmond has seen a steep increase in both absentee buyers and all-cash home sales – common indicators that homes are being bought by investors. (Data provided by DataQuick)
By Mark Andrew Boyer Posted October 26, 2013 11:29 am
The Richmond housing market is booming, and Doug Guilbert, a prospective buyer, is frustrated. Guilbert, 67, is a retired military veteran, has been trying to buy a home for two years, but each time he has lost out to investors.
“It’s very frustrating,” said Guilbert, who has made offers on six different homes. “And the prices of houses are just going up, so it’s just getting harder and harder for me.”
Guilbert’s story is a familiar one in Richmond, where investors have buoyed the housing market. From 2009 to 2012, cash buyers purchased nearly half of all homes sold in Richmond, according to real estate firm DataQuick. And the percentage of absentee buyers – buyers who have property tax bills sent to different address – climbed every year during that period. But some Richmond residents are concerned that replacing homeowners with absentee landlords will hurt neighborhoods.
“The biggest thing is that renters aren’t invested in neighborhoods so much,” said Guilbert, who is living in a rental apartment in Richmond. “If you’ve got a good rental company, that’s one thing. But if it’s just investors, they aren’t really invested in keeping the place nice.”
On a nationwide scale, there is plenty of evidence to support Guilbert’s fears, according to Alan Mallach, a New Jersey-based urban policy expert with the Brookings Institution and the Center for Community Progress. “Having a solid homeownership base is very important for neighborhood stability, especially when you’re talking about lower-income, working class neighborhoods,” Mallach said.
Homeowners tend to stay in neighborhoods longer, whereas renters turn over every few years. Homeowners are also more likely to make improvements to their homes and “spiffy them up,” as Mallach put it.
But Mallach thinks that market conditions will likely compel Richmond investors to do a good job maintaining their properties.
In particularly depressed housing markets, like Detroit, investors have little incentive to improve properties because they stand to make more money renting homes than selling them, according to Mallach. But in more stable housing markets, like Richmond, investors should be looking to keep their properties in good condition so that they sell them at some future date for a profit.
“From the standpoint of neighborhood vitality, they’re not going to destroy the neighborhood,” Mallach said. “That doesn’t mean they’re going to make it better, though.”
Joe Fisher, a local Realtor and president of Coronado Neighborhood Council, says the increased investor activity is nothing to get worked up about. “The market changes all the time,” he said. “It’s just like the weather: We complain when it’s too hot, we complain when it’s too cold, we complains when it rains.”
Fisher acknowledged that sellers have concerns about neighborhood stability, and that many would prefer to sell their homes to buyers who are going to live in them. But in the end, money talks: “People are not seeking out investors – they’re seeking out the quickest way to guarantee them the top dollar in their sale,” Fisher said.
Investors are beating out homebuyers, and not only because they are able to buy homes with cash. They can also buy homes “as-is,” and forgo the option to negotiate repairs with sellers. This speeds up the process and can save sellers a lot of money. People who need to borrow money when buying a house, can’t offer these deal-sweetening perks. “It knocks the homebuyer out of the picture,” said Mallach.
Guilbert also expressed concern about gentrification, and the effect that rising prices will have on low-income residents. As investors flood the market, housing prices have steadily climbed. Since the mortgage crisis, median home sale prices have increased from a low of $142,000 in Feb. 2010 to a high of $230,000 in July 2013.
Investors won’t rule the market forever, Fisher said. “There’s a time and season for everything. With my years, I’ve seen all the different markets, and it normally will balance itself out.”