Tuesday, June 06, 2006

Weeds & Foreclosures in Elk Grove

Apparently, I'm not the only one who has visited Elk Grove and noticed all the unoccupied "investor" homes. A commenter on the Sacramento Housing Bubble blog had this story:

Last weekend (May 8, 2006) a lady friend I went to spend the day with in Sacramento had driven out from Walnut Creek to Elk Grove to meet me at a house she, her sister and brother in law bought last year, as an "investment." I didn't think much of the fact that she is trying to rent it, but then I went in the house (huge, with so many windows -- and high ones -- one would need a full time maid to keep up).

Then I went up stairs and looked out into the back yards of the surrounding new homes filled with weeds. No one was living in those houses either!! She said her house will rent for about $600 mo less than their payment (I have no idea what kind of loan it is). Even the front yards of these houses, haven't even had the lawns mowed. The sod is 8 inches high.
Weeds aren't the only things growing in Elk Grove. The Elk Grove News blog has noticed an upturn in foreclosures notices.
Perusing the pages of the last Wednesday's Elk Grove Citizen, I was stunned to see paid advertising on the normally ad-free editorial page. And the ads were not just any ads either. They were Trustee Sales Notices, or more commonly known as Foreclosure notices. A type of advertising mandated by statute, trustee sales notices are the last step in a process for a lender to take possession of a property from individuals who have defaulted on their loans.

The fact that these ads appeared on the editorial page indicates they came in just a deadline was closing is telling. Normally these sort of public notices have a much earlier deadline. Obviously the lender wanted to make sure these ads were published so the foreclosures were not delayed.

Foreclosures in of themselves are not unusual. Having worked in this field for a number of years, people lose their homes for a variety of reasons. The most common are divorce, loss of a job or a major medical calamity. It is true that even in the best of economic times lots of families are only a paycheck or two away from losing their homes.

As you read though each of these notices, one thing stands out -- in all cases the occupants had been in their house three years or less.

In boom times, when people get into trouble with a home loans there are several ways out. The most common approach is to sell the house, pay off the loan and pocket some money.

The fact that these relatively new loan contracts are going to foreclosure indicates that in each of these cases the borrower is most likely "upside down." That is, they owe more money that the house is currently worth.

When people become upside down, it is a strong indicator of a declining real estate market. With prices falling, it tends to drag the whole market and those people who bought at peak prices are the most vulnerable, hence the only option typically left is a foreclosure.

Unfortunately, when foreclosures happen en masse, which looks what is starting to happen, it quickly floods the market with excess supply and prices fall even quicker. A sort of self-fulfilling prophecy.

1 comment:

Happy Renter said...

An unexpected twist may hit the Sacramento real estate market. The rumor over at Ben's blog is Intel is planning to lay off 15,000 employees in the coming months.
Intel only has 100,000 employees worldwide so you can expect some cuts in Sac.

Her's an article on the subject.