Saturday, December 09, 2006

When Life Gives You Lemons, Plant Almond Trees

More fallout from Merced's bursting housing bubble. From the Merced Sun-Star:

  • "Greg Hostetler, president of Ranchwood Homes, the county's largest developer, said his company prepared for the slowdown by transforming itself into a major almond grower. While Ranchwood's building business is down about 30 percent this year, Hostetler said, the company is set to plant 1,750 acres of almonds in the next two weeks."
("Almond trees require at least three years to produce, with maximum nut production in six- to ten-years.") Wow! A new way to predict the duration of the housing bust?!
  • "In 2005, Rodriques' employer, Centex Homes, offered her a promotion she couldn't pass up -- a chance to earn $60,000 as a construction superintendent at a subdivision Centex was building on Yosemite Avenue. A year later her job disappeared, the casualty of a "massive work force reduction" at Centex, the letter from corporate headquarters told her."

  • "Chuck Falkenstein, general manager of Central Valley Concrete, said new houses made up about 80 percent of his business last year. Today that part of his business has shrunk to less than 10 percent, he said. Falkenstein said his employees are working fewer hours than they did last year, and that his business has shifted to non-housing jobs."

  • "Anthony Fragassi, manager of 84 Lumber building supply on Highway 59, described business as 'nonexistent' compared with last year. Fragassi said his employees made 20 to 30 deliveries a day in 2005. Now it's down to half or less, he said."

  • "This is my fourth cycle like this so I knew it was coming, but I didn't know it was going to be this bad," [Bob] Rucker [owner of Rucker Construction] said.
And this could be the quote of the week:
"Summerton [Home's] Don Gray said builders are fighting a battle against the public perception that now is a bad time to buy. 'We think that's a misconception,' Gray said. 'Prices are down about as low as they can go, interest rates are very strong. We think houses should be flying off inventory.'
So 11 positive quarters and one quarter of "slightly" lower prices and he thinks prices are as low as they can go? Perhaps Mr. Gray should consult his association's own data for Merced:
Only 4.3 percent of houses sold during the last quarter were affordable to a family earning the community's median income of $46,400 [according to the National Association of Home Builders].

16 comments:

sippn said...

Hey the guy could be just like Angelo Tskopolous - "just a farmer". Well at least he's doing something and by generating income from the land while he's waiting, it lowers the final cost for homebuilding when its time. In commercial/retail it seems like tatoo parlors and strip joints occupy fallow buildings. Maybe some kind of church for the empty WalMart!


"Only 4.3 percent of houses sold during the last quarter were affordable to a family earning the community's median income of $46,400..."

Ya know most of our communities in the central valley are just commute suburbs for jobs elsewhere, so the income that feeds these housing sales (or lack of) in Merced come from the east bay, plus there's a lot of immigration into the central valley that is skewing it. The direct link between income and median price works better for large centers like Sacramento.

Anonymous said...

Does anyone commute from Merced to the East Bay? Looks an almost 2hr commute (one way).

Bakersfield Bubble said...

Speaking from experience - the last few years have been great in the almond biz. In 2005 prices reached $3.90 lb.

Today prices are around $2.20 lb to the grower, while costs are around $1.30 or so. Prices bottomed in 2000 at .85 lb to the grower.

However, just like housing - almonds are headed for some pain. There are thousands of acres of new plantings. I see the price apporaching the 2000 level in a couple of years.


crispy&cole

Bakersfield Bubble said...

"Greg Hostetler, president of Ranchwood Homes, the county's largest developer, said his company prepared for the slowdown by transforming itself into a major almond grower. While Ranchwood's building business is down about 30 percent this year, Hostetler said, the company is set to plant 1,750 acres of almonds in the next two weeks."


_______________________________

Looks like this guy went from one hot industry to another and will lose his a$$ in both!

Bakersfield Bubble said...

I wonder if Greg H. owned beanie babies and cabbage patch dolls?

drwende said...

This used to be real estate
Now it's only fields and trees
Where, where is the town
Now, it's nothing but flowers
The highways and cars
Were sacrificed for agriculture

--Talking Heads

Anonymous said...

So the income that feeds these housing sales (or lack of) in Merced come from the east bay, plus there's a lot of immigration into the central valley that is skewing it.

Have you ever been to Merced. It is a crap hole. If you don't want take my word for it ask anybody in Merced what they think of Merced and they will say it is a crap hole. People are not commuting from Merced to anywhere.

Their best restaurant is some dark lite steak joint called the Brandy Iron and they make this steak with bacon in it, it sucks bad, no amount of steak sauce can cure it. Merced sucks period end of question.

Anonymous said...

There is plenty of anecdotal evidence that clearly shows that this is not just a Merced problem, but a national bubble that is exploding. For example:

Andersen Corporation
Bayport, MN

Workers at Andersen Corp. said they've been notified that the window and door maker will lay off more than 400 workers by the end of the year. Workers leaving after an afternoon shift at the plant Tuesday told reporters they were informed that everyone hired since February 2000 would be laid off, and several said their last days on the job would come before the end of the month. Andersen the world's largest maker of wood windows, patio doors and storm doors employs more than 9,000 people worldwide, including its Bayport window and door factory. Many companies have been hurt by the downturn in the home construction industry. Housing starts and sales of existing homes are down significantly from recent years.

Approximate Affected Workforce: 101-500
Source: The Associated Press State & Local Wire - December 6, 2006

sippn said...

Link to official comments on commute from central valley to Santa Clara Co..

http://www.mtc.ca.gov/maps_and_data/datamart/census/county2county/commute_siliconvalley.pdf

As of 2000, about 15,000 commute from San Joaquin, Stanislaus and Merced Cos to Santa Clara Co.

It may be crappy to you, but its someone's vision of a dream home and community.

Wait, I have a solution... for every $500 chip manufactured in Silicone Valley, we tack on a $50,000 fee to build affordable housing in Silicone Valley...

drwende said...

As well as the data Sippn cites (and there are Santa Clara County workers who come from as far away as Fresno)... investors bought heavily in Merced County, believing rents would spike up once the new UC Merced opened.

That campus opened late and has grown more slowly than anticipated. The whole Merced-Atwater-Chowchilla thing is kind of the Appalachia of the Central Valley.

sippn said...

Appalachia, huh? - that funny banjo music always slows down the applicants a little.

Drwende, thanks for grading my paper!

Gwynster said...

As a UC employee, I did give moving to Merced a thought but only because prices used to be really low out there. Now I wouldn't touch it with a ten foot pole. It's affordibility was the only thing it had going for it.

Now I remember drving down the 99 to Oakvale during the winter months and was floored by the smell of the dairies. Is there lots of dairy still around Merced or has it moved onto orchards and other ag buisinesses?

ps. Mr Gwynster and I just bought a 07 Tucson with all the bells and whistles for just over invoice. I thought the sales manager was going to kill me because I wouldn't budge on price or trade-in. Mr. Gwynster had to leave the table to keep from laughing >; )

HappyinSF said...

I think it would be foolish to dismiss local wages and just say everywhere California is a suburb of SF/LA. Yes, supercommuters may have a dream of living in Merced, but these super long commutes needs to be discouraged due to pollution, fuel use, and the way it destroys local economies, i.e., everyone needs to drive for 4 hours a day if they want to buy a house in Merced. You may say that it brings money into Merced, then why are local wages still so low?

Anonymous said...

Like I said nobody is commutting from Merced to the East Bay. Houses will easily go down 60% in Merced by 2009.

Gwynster said...

I've been watching this for years but the SacBee finally reported on it.
Agency says more residents left California than arrived in 2005
http://www.sacbee.com/114/story/90893.html

So say goodbye to pent up demand and increasing rental costs >; )

AnalysisGuy said...

Clearly this isn't a Modesto, Northern Cal or even a west coast problem. However, not all (but most) markets have experienced such a bubbly rise.

In today’s FREE report on Chicago you'll actually see a "normal" market! It joins prior FREE reports on Boston, Bakersfield, San Francisco, Seattle & Los Angeles.
thebubblebuster.com