Monday, August 28, 2006

"Upside Down" in Sacramento

From the Sacramento Bee:

Sam Webber had it all during the real estate boom. The former accountant bought old houses, fixed them up and resold them for more than he paid. It was a good independent living until four months ago when the bottom fell out of his game. Now as home prices have declined 5 percent from last year in Sacramento County, Webber is what analysts call "upside down." He owes banks more than his two remaining fixer-uppers are worth. He's missed mortgage payments on each. Worse, he's tied up his entire savings and previous profits in remodeling the houses.

Webber has one last hope to avoid foreclosure -- selling the houses for what he can get and persuading his bankers to accept less than he owes. "The house in North Sacramento, I'm $305,000 into the bank, and it's worth $280,000. I'm trying to get the bank to agree to $280,000," he said. Webber says he has a buyer at that price. If the bank agrees, it would avoid not only the lost time and legal expense of foreclosure but also the financial risk of resale in a depreciating market.

Known in the real estate trade as a "short sale," this desperate, but practical tactic -- negotiating less than a complete payoff to lenders -- reappears like clockwork when real estate markets sour. Widespread in Texas during the 1980s oil and real estate crash and again in the 1990s as California lost thousands of jobs to military base closings, short sales are back and proliferating, say local specialists who handled them in the 1990s. Elk Grove real estate agent Derek Kirk recently counted 264 short-sale listings in El Dorado, Placer and Sacramento counties compared with fewer than 50 six months ago...

"I made a decision to do this as my livelihood," Webber said recently as he begins a job search at age 47. "All my income was coming from the houses. This time it's burned me. I've tapped out every dime I have..."

Across the region, say 1990s-era short sale veterans, homeowners are facing serious financial setbacks from illnesses, divorce, job loss, and car or home repairs. But this time many also have risky financing because they borrowed to the very edge of their ability and took out home equity loans. In Watkin's words, they have an "albatross that's dragging them under" at the same time their home values are falling.

It's little wonder many are stressed. Last year up to 77 percent of capital-area homebuyers used riskier adjustable-rate financing to help them buy homes they couldn't otherwise have afforded. Many are falling behind on mortgage payments. In April, May and June, Sacramento, Sutter and Placer counties showed some of California's biggest increases in missed mortgage payments, according to La Jolla-based researcher DataQuick Information Systems.
More Sacramento flippers in trouble here.

15 comments:

Anonymous said...

i was coming back from a fishing trip last weekend and heard a lot of ads on the radio from jts builders about a "half off"sale in lincoln,"million dollar homes from the low $500,000's." is this the usual misleading bs,or are there serious price reductions? also i was shocked to see the quality of the mcmanions for sale in el dorado hills,this is seriously crappy stuff,and will make lovely slums in a few years.

Lander said...

"Lincoln Crossing Liquidation Sale"

Ten Homes Sold in Two Weeks at Lincoln Crossing Liquidation Sale“All remaining homes must be sold, period,” said Ray Melville of The Advantage Group, JTS Communities Sales and Marketing company. “This is tremendous bottom-line pricing, something homebuyers haven’t seen yet. JTS recognizes this is a true buyer’s market, and at these prices buyers are getting what they are demanding – tremendous value in an upscale, move-up community.”
There are homes valued up to one million dollars but liquidation pricing starts in the low $500,000’s.

rocklin renter said...

There are homes valued up to one million dollars but liquidation pricing starts in the low $500,000’s

That makes total sense. They must use the same calculator as Al Gore.

If the home is valued at $1mm, why are you selling it for $0.5mm?

Isn't the true value of an item what you can actually sell it for?

Doesn't anyone regulate these people? If I put out a blantantly misleading advert like that I would be in serious trouble with a number of the regulators that oversee my industry.

Anonymous said...

Good one Rocklin. What would make it correct would be:

"There are homes (once) valued up to one million dollars but liquidation pricing starts in the low $500,000’s"

As it stands, it is clearly deceptive advertising. I think there are laws against false advertising and hopefully someone will take issue.

Happy Renter said...

8.9% drop in asking price in one month for Folsom.

http://ziprealty.typepad.com/marketconditions/sacramento_real_estate/index.html

JR said...

JTS has 50 homes for sale in the Lincoln crossing. I visited the place yesterday. Two of the homes that had "SOLD" signs on them last Friday said "AVAILABLE" again on Sunday. So maybe a "net" of 8 homes in two weeks have been "RESERVED". Nothing has been "sold". Furthermore, at 8 homes sold in two weeks, it will take 3 more months to "sell out". When half of those (or more) fall out of contract the second and third time, JTS will call in the auctioneers in December. And the people who bought this week will be FB's, just like everyone else that deals with JTS. Think about the Flippers who bought a 130 homes for full price two months ago and have now lost $100,000 to $200,000 in value. I would not buy anything for the next 2 years, because the builders are going to continue cutting prices to sell houses on land they need to move off their inventory. You become a victim.
Get this from 3 hours ago: I just bought a refrigerator from some greater fool that purchased a new home in Whitney Ranch. He was bragging that with the $10,000 cash incentive, the free refrigerator, the free washer and dryer, the free big screen TV, his total closing cost to move into the place was only $300! Yet his 100% mortgage is $507,000!! His payment will certainly be $4,000 or more each month. He purchased a 2,000 sf 2-story that will be worth about $300,000 in two years, on a cash basis. He did not "get it" and I did not have the heart to burst his bubble, or his personal housing bubble. I just kept quiet as he sold me his 4-year old $1700 refrigerator for $320. Some people are just born to bleed money. It always amazes me. And this guy works in an industry that depends on housing jobs. If he gets laid off, his game is over.

Jack Russell said...

So will someone tell me why the bank's good customers should subsidize this weazel, former accountant-really(?)?

Go after his other assets, retirement accounts, and his put his first-born into indentured servitude before they let him walk on this. He isn't some poor first-time house buyer who got upside down-he's an INVESTOR. He earned his topsy turvy stature.

Anonymous said...

Just another point on the Lincoln Crossing...

We have family that moved there from the Bay Area. They are quick to tell me that the "value" of their house went from $500k to $750k in two years.

They forget that they also HELOC'd $120k for a pool and landscaping.

The neighbor has a house for sale for $700k...he paid $450 for it a couple years ago.

I am looking at renting in the area. The same houses listed at $0.8m are renting for between d $1450 and $1900 (source: Craigslist).

Wow. I feel terrible for anyone that bought in the last 12 months.

JR said...

JTS & Lincoln.... go to sacbee.com, click on real estate and choose to search Placer county. Then select Lincoln, and search for 2000 sf homes between $350,000 and $450,000. There are 42 homes for resale. Look at a few: Words like: Motivated, Never Lived In, Pre Forclosure, Lease w/ Option.
If anyone pays over $200/sf for a home in Lincoln, they are a GF and a soon to be FB.

And to Anonymous 4:46:10, you are correct. Your family is in big denial about value. There is NOTHING in Lincoln Crossing worth $800,000 today. Just ask JTS...they'll sell you a $1,000,000 home for $500,000!!! Yee Haw.......

Anonymous said...

Liquidation Sale

Sounds like the market is in the Crapper!

I would feel like hitting the JTS "consultant" that sold me the house.

Consultant; usually a smiling person with nice clothes that has no idea where the market is going.

"JTS will call in the auctioneers in December."

Man that will be true indicator of how crappy things are.

Anonymous said...

Which sacramento submarket do you think will drop the most?

how low can it go?

Anonymous said...

Help, I've fallen and I can't get up!

Anonymous said...

Hey they can always turn their places into POT HOUSES!

http://www.news10.net/storyfull2.aspx?storyid=19727

Anonymous said...

Found this at
http://www.elk-grove.com/forums/viewtopic.asp?TopicID=28931:

Elk Grove Flipper Haiku

Bay Area landlords

Incompetent / negligent management (not conducting periodic inspections)

Poor maintenance and upkeep (evidence to magistrate of poor management)

DEA will seize and sell house and keep money (helps pay for budget deficit)

Investment in upside down property is gone

Landlords not concerned because they are upside down anyway (nortgage exceeds resale value)

So bad, So sad!

sercasey said...

If done right, short sales are good for the bank, the borrower and the buyer/investor.

I'm an example of an over-leveraged "flipper" and will be attempting to sell a couple of my properties quickly.

My hardship letter is ready, time to short sale.