Monday, October 23, 2006

Dreaming of a 'Soft Landing' in Stockton

From the Stockton Record:

Thank heavens for the stock market. Just when our false sense of wealth was waning along with the real estate market (as in, "What do you mean my house isn't worth a half-million?"), the Dow flirts with 12,000.

The "wealth effect" is back. The "wealth effect" is the economists' code language for feeling rich when you're not. And rich is how a lot of American homeowners felt, especially if they also were Californians, as they rode the real estate wave upward in double-digit bounds for five years or so...

It's a recession, as the saying goes, if the other guy is out of work. It's a depression if you're out of work. By extension, you're in a real estate soft landing, slowdown or what ever euphemism you like, if your neighbor can't sell his house. The bubble has burst in real estate if you're trying to sell your house and can't. That was the situation for the 4,733 San Joaquin County homeowners who had houses on the market in September. Or if you were among the 898 homeowners who received foreclosure notices in the third quarter, a figure up 178 percent from the same period in 2005. Those numbing realities should knock a few digits off your "wealth effect" number.

From the Wall Street Journal:

Some 2.33% of mortgages were delinquent at the end of the third quarter, the highest level since 2003, according to Equifax and Moody's Among the areas that saw the biggest jump in the delinquency rate since the end of last year were Stockton [3.15%] and Merced, Calif. [3.30%], and Las Vegas-Paradise, Nev...

The increase is particularly notable because bad loans normally climb when the economy weakens and job losses rise, leaving more borrowers unable to make their monthly payments. By contrast, the latest increase appears to be more closely tied to looser lending standards, borrowers tapping their equity and slowing home-price growth. "We're seeing rises in delinquencies and loan losses that are unrelated to what's going on in the job market," says Mark Zandi, chief economist of Moody's "It's very unusual."

Several articles about the Stockton/San Joaquin housing market appeared in the Stockton Record over the last week:

-S.J. rental market booming
The rental market is better now partly because the area is seeing a rising wave of foreclosures, she said, as people who bought homes with flexible loans tied to interest rates are caught with higher payments after rates rose. And there are a lot of people who haven't hit foreclosure yet who are in trouble, she said.

There is a plethora of houses for rent on the market these days, owned by investors who bought when values were jumping 25 percent to 40 percent per year during a five-year period that ended last fall. Since prices began dipping, the investors have been unable to "flip" the properties for a profit, she said, and they need to rent the houses to get some kind of cash flow.
-S.J. home sales hit 'soft landing'
A new quarterly study shows that new-home sales in San Joaquin County took a nearly 33 percent dive from the third quarter of last year to the recent third quarter, but prices slipped 2.3 percent.

"Things clearly couldn't keep going at the same pace," said Greg Paquin, president of the Gregory Group, a real estate information and consulting service in Folsom. "We may have hit the soft landing..." Paquin said some markets, including Sacramento, have seen a worse downturn.
-S.J. home sales down; prices up
The most striking news from the new report was that the number of houses on the market dropped countywide, said Jerry Abbott, president and co-owner of Coldwell Banker Grupe. So how much did inventory drop?

"Only five houses less, but it is less," he said.
Even better:
"...prices rose slightly overall, despite being down from a year ago."
Yes folks, the San Joaquin County median home price increased by $4,000 (1%) from August to September. I guess the party is over for all you doom-and-gloomers. Oh wait. What did you say? Something about prices falling? That little green chart in the top corner? Oh, O.K.

Change in median price from September 2005 to September 2006:

Stockton: -8.8% ($25,000 loss)
Tracy: -2.8% ($15,000 loss)
Lodi: -4.8% ($20,000 loss)
San Joaquin County: -5.9% ($25,000 loss)


Anonymous said...

This is just the beginning of the correction.

Anonymous said...
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Anonymous said...

Thanks for mentioning Stockton here. The recent slate of powder puff stories in the 'Record' borders on criminal. It reminds me Baghdad Bob. When the full correction hits, there will be widespread panic. I moved here in January of 2005 from out of state. I couldn't afford nor stomach forking out 300K for a POS in South Stockton, so I've been renting. It was the best decision that I probably ever made!

Oh and by the way -- while apartment rents may be going up a bit, SFRs are impossible to get renters into. I pay $1200/month for 2000 sq. ft. There is a similar house nearby that was listed to rent for $1450. It sat for 4-5 months before they chopped the rent to $1300/mon with 1st month free. Finally the sign came down about a week ago. Many landlords are slashing rents and giving incentives to get people into their "investments."(see

Even in Brookside, only the best homes can get more than $1400/month. How many months can these landlords hold their breath with this amount of negative cash flow before they throw it at the market to get out?

It could get very interesting in the next year. Despite all the RE spinners telling me it is a buyers market, I'm not touching anything untill at least fall 07 or 2008 -- maybe even later.

Dr Housing Bubble said...

Sacramento foreclosures are up 99% year-on-year. Stockton will be hit just as hard. The challenge will be unloading these properties in spring of 2007 when rates will begin heavily resetting, prices will go negative YoY, and the general market sentiment will be anti-real estate.

Think it is bad now? Just wait until the winds of 2007 come rushing in.

Anonymous said...

DR. Housing; foreclosure jumped 170% in stockton (SJ County) this month! (YOY)!

I live in stockton; my best friend is a cop here- things are bad, REAL BAD. The SPD "loses control" (their words) on friday and sat nights. An SPD detective's home was BURNED TO THE GROUND last year- after he rebuilt it- they came back and burglarized it.

The Mexicans control south stockton at night. (Take that statement for what you will, it IS true).

The SJ county jail has a legal capacity of 1300 (Court ordered max capacity; ie; "court cap") inmates. THere are 1500 in there now. Over 200 VIOLENT offenders were RELEASED this week on "court caps". The construction layoffs are huge- what do you think those layed off const. workers are gonna do?

Anonymous said...

Here in Sacramento they fire bombed a deputy sheriffs house on Y St. Anybody know if that crime has been solved? I think he was actually injured. I could see Stockton becoming a town of pure criminals.

Anonymous said...

It appears Stockton could go down in flames. If I were a Bay Area Flipper, I would just slash my flip home now by 40% and get out.

Max said...

Or wait for it to be firebombed, and collect the insurance. :)

Anonymous said...

The Stockton metropolitan area had the state's highest per capita rate of violent crime last year, even higher than big cities such as Los Angeles and San Francisco, according to FBI statistics.

The city also ranks in the top five California cities when it comes to robbery, vehicle thefts, aggravated assaults and murder.

This in 2004, it is getting worse, much worse.

Anonymous said...

My neighbor was transferred two months ago. He was lucky that the corporation he works for bought his house from him. They bought it for 450K after sending multiple home inspectors over finding various problems. Now they have come down to 375k (ouch!) And still no buyers. THe listing agent lives 3 doors down;(on same court) he is putting ALOT of effort into marketing the home- but nobody has even come to look- 2 "open houses" and no (zero, zip) people even have come to look. No offers. THe prominent "price reduced" sign reminds me of another blog where an agent in Livermore said that there was a shortage of real estate "reduced" signs!

If you look at the Stockton Craig's List real estate for sale section- you'll feel the desparation! it's absolutely palpable. My daily foreclosure email has spike to 4-5 new NOD's per day from 2-3 per day earlier this year. (thats just for the San Joaquin COunty- 90% of the foreclosure notices are for Stockton though.) All the bay area transplants (BATS) are losing their shirts on xxxxx stockton real estate. THe violent crime and property crime in Stockton are off the charts. THe Stockton record intentionally under-reports crime. The effects of the slowdown (depression?) are being felt first in Stockton, where the 1980's city council decisions to "integrate" residential neighborhoods with low income housing. These pockets of low income housing invariably grow like cancer into adjacent areas destroying property values. (Kelley drive is a prime example)
My wife's friend (former neighbor too) is a relatively new real estate agent- she hasnt sold a house in months- she and all the other agents just completed a short sale class- they've got 60% of their for sale listings pursuing short sales! I wouldnt be surprised to see stockton real estate values plummet over 50% from 2005's high....

Monday, October 23, 2006 3:30:00 PM