Tuesday, November 21, 2006

West Sacramento Flop

From Flip This:

Well, it looks like the McMansions in Woodhaven saga has come to an end after a year. This story was based on a Sac Bee story that ran in December 2005 (see below) just as the market was starting to cool. The story dealt with a flipper couple who had purchased a newly built 3,100 sq foot McMansion for $809K and had hoped to flip it for $885K.
...
Anyway, it looks like the saga has come to an end. The house sold (according Domania) for $681,036. The burn rate in the story for this empty house was $6000/month (or $72K for the year held) so I get an overall loss for this dog of: $681K (sale price) - $34K (commission) - 72K (holding cost for year) - $809K (original cost) = $234K.
From the original Sacramento Bee story:
On a Saturday in July 2004, the line formed at The Rivers, outside a sales trailer operated by Sacramento homebuilder JTS Communities Inc. Perched next to an old golf course just minutes from downtown Sacramento, the subdivision is one of several projects bringing high-end housing to West Sacramento. On this day, 70 lots were being released. As the line of buyers lengthened, sales people passed out water bottles to the parched masses.

John McConnell, an Elk Grove building contractor, waited in line with his real estate agent and future wife, Lynette Wall. Hours later they got inside the trailer and he reserved a two-story, 3,100-square-foot home on Woodhaven Place. The price: $809,000, including an unexpected $85,000 "lot premium" for sites next to the golf course. But he wasn't complaining.

"At the time we all thought it was a fairly good deal," McConnell said. An agent who works for Wall snapped up a property on Woodhaven, too. When the trailer closed, at 10 p.m., the lots were gone.

McConnell said he and Wall originally planned to live on Woodhaven. By the time construction was completed two months ago, they'd changed their minds. The purchase was now an investment - and a somewhat risky one at that.

They listed the property in early October for $885,000. Soon they dropped it to $880,000. They need $860,000 to break even, Wall said, given the closing costs they paid, the $6,000 monthly mortgage payments and a 3 percent commission to the buyer's agent.

Complicating things: competition. Four other homebuyers on the two-block street are trying to sell, including Wall's agent. And the builder is offering discounts on four other Woodhaven homes it hasn't yet sold. All told, one-fourth of the street is for sale.

Wall has faith, but acknowledged she's getting uneasy. "I knew it was going to have to slow down (but) I didn't think we would have so much inventory," Wall said. "I'm hoping somebody will offer me a fair deal that'll make me a little bit of money."

20 comments:

Karl Marx Brothers said...

So if I was seriously house hunting back when this story was reported, I should have complained to the reporter that due to this coverage the prices were going up too fast ... I cant afford it ... stop making the market unaffordable ... waa waa waa ....
(someone call me a wambulance)

Ok so did anyone, ANYONE hear a PEEP of caution or warning from the real estate players when this run-up happened??!
OF COURSE NOT !!

But they sure as hell piss n moan on the way down.

Karl Marx Brothers said...

Oh and I love the surprise gouging of a " $85,000 lot premium " at the last minute closing.

EIGHTY FIVE THOUSAND !!

But heck, at these prices an extra $85 grand is chump change, and you'll be mocked if you protest.
Hey you ARE a player arent you?

But sorry, I'm too harsh.
We should all feel bad for the greedy flippers & developers.
After all, they're just caught up in this downturn as innocent as anyone.

JF said...

Here is the next tragedy.....What Greater Fool bought this declining asset for $680,000? I will bet dollars to jelly beans that the worst part of this story is yet to be written. The GF who bought this 3070 SF home in Woodhaven will be dying a slow death. He paid $221/sf. The value of this house will soon be less than $400,000.

If this house rents for $2,000/mon and expenses (taxes, ins, bonds, HOA) total $1100/mon, this property will return $10,800/year to the owner. Using a 6% return, this property is worth $180,000.

People now insist on good cash flows when they buy rentals, because there will be no appreciation in Sacramento for until 2015. Think about it. Visit Flippers in Trouble if you don't believe it. This story is repeated hundreds of times all over Sacramento every day.

And if you don't think values are headed lower, check out the latest homebuilder adds in last Sunday's Bee. You can buy a 2600 SF home for $355,000 right now in a much nicer area than West Sac. Which deal would you rather have? Hmmm, let's pay twice as much and get a worse deal!! It can not go on forever. We should be running out of greater fools soon. This Barnum and Bailey mentality is starting to wind down.

Merced Going Quickly said...

My god, what an idiot. 800K! One gets what one deserves. Oh, and the RE agent "picked one up, too"? How do you pick-up an 800K property?

There's no housing bubble here, keep moving, we've got a deal for you.

Anonymous said...

I hope those places on Woodhaven come with a boat - they are right next to the confluence of the American and Sac Rivers. Discovery Park, just across the river from them, floods every winter and spring.

Max said...

I hope those places on Woodhaven come with a boat...

JTS actually just built five $1 million+ (asking price) houses on top of the levee overlooking Woodhaven!

I actually just did a writeup on Woodhaven. For those who haven't seen it:

Flipper Massacre Part II: Woodhaven Place

Steven said...

JF-

Where can you find "a 2600 SF home for $355,000 right now in a much nicer area than West Sac."?

Anonymous said...

Semi-open letter to all subs of lennar Corporation from VP (or Ceo) Jeffries:

"Effective immediately we expect an across the board bid reduction of at least 10% in ALL markets and 20-30% in "some" markets. Failure to meet these price reductions will force us to NO LONGER CONSIDER YOU AS A TRADE PARTNER"

I assume "some" markets includes California-AZ-FL and DC metro....

--A Serrano superintendent...

JR said...

Steven, check DR Horton's Sunday adds. It was in a full double page add...I think it was called "Rock Bottom Pricing".

Of course, based on Lennar's latest memo to their subs, their costs to build a new home should be dropping another 10%, perhaps 20-30% in "some markets" (hello, Sacramento). We should be seeing some very nice price reductions next year. Maybe they will call it "Below Rock Bottom Pricing".

Anonymous said...

Does this "Woodhaven" have anything to do with all those acres of McMansions I saw in the middle of the Delta along I-5 last time I went North?

Right in the middle of the rice fields with nothing else in sight sat this abandoned set from Over the Hedge; walled, gated, and flanked by billboards touting "INVESTMENT Real Estate!!!"

Die Flipper Scum.

AnalysisGuy said...

Today's report is out on Atlanta and it's first for AnalysisGuy. No big bubble.
Daily Home Price Analysis

Merced Going Quickly said...

JR,
What about the "below rock-bottom; 12-year; FB undercut; at these prices, these will go in about 365 days" sale.

Hurry, going quickly.

Foooools.

And, does anyone know an individual who is looking for a house? Is there someone out there that has a fiend, family memebr that is looking to purchase in the Central Valley?

I don't.

Gwynster said...

I'm buying at the right price!

1999 price plus 3.5% appreciation annualized. I'm looking for a older home in central Davis. Get me the price and location and I have 35% down. In the meantime I'm happy to rent and save >; )

JR said...

Gwynster,

So a 1400 SF home in Davis went for what?....$120/sf or $168,000 in 1999?? Add the CPI of 3.5% for 9 years (1999-2007) and you get $221,000 or $157/SF. G will put $75,000 down and make the deal happen with a $150,000 loan. Here PITI will be under $1400/month. More than an apartment, but after the down and after the tax benefits, probably about the same cost.

So there you have it Realtors (tm). Find her a reasonable deal and she will step up. You get a $12,000 commission.

Hang in there Gwynster, it will get there by 2008.

Gwynster said...

Close -

155K average for 3 br 2 ba 1470 sq ft. would be $204,105 in 07 and $218,642 in 09. This means that prices in my neighborhood need to drop by 53.4%. This is right on target since I believe this neighborhood had already dropped by 10% and the greater Sac area was 63% over valued at the peak.

Anonymous said...

Shows you that real estate sales people should stick to smiling, dialing and SELLING.

They don't know jack about supply, demand and cyclical behavior.

Anyone that trusts a sales person to tell you about where the market is going should get their head examined.

Anonymous said...

REmember JTS is short for Just to Sell.

Anonymous said...

I do think it will be 99' prices plus 7% per year annualized. It always has been in California, if you take the average of the last 30 to 40 years it comes out to about 7.2%. Not sure why it would change now, just because of the bubble.

JR said...

Anon 2:00 PM says...

"...take the average of the last 30 to 40 years it comes out to about 7.2%. Not sure why it would change now..."

I can tell you why in four words: Reversion to the Mean. The manic level is so highly overpriced in this bubble, the depressive low will just as imbalanced in the other direction. Check out a few sites with some interesting numbers:

http://www.housedata.info/CA/Sacramento.Arden.Arcade.Roseville/

and you will see this market peak is worse than 1979 or 1990. Or go to

http://mysite.verizon.net/vodkajim/housingbubble/sacramento.html

or any number of other places which have the hard data to show you this correction is just getting started. It will run for 5 years or more. There will be no appreciation in real estate in Sacramento for at least 5, if not 10 years.

Gwynster said...

If it's 7.25% then ny decsion is easy - I move out of state. No muss, no fuss.

Right now Yolo is sitting at a lovely 15% yoy price decline and even Davis is going negative.

I can wait. It just means I'm paying less and saving more and getting 5.2% return on my savings. Hell, I may even be able to get my rent reduced when I renew. Prices in Davis are going down and my landlord loves me since I actually work on the place.