"The First Wave of Option ARM Casualties"

From BusinessWeek:

For cash-strapped homeowners, it was a pitch they couldn't refuse: Refinance your mortgage at a bargain rate and cut your payments in half. New home buyers, stretching to afford something in a super-heated market, didn't even need to produce documentation, much less a downpayment. Those who took the bait are in for a nasty surprise. While many Americans have started to worry about falling home prices, borrowers who jumped into so-called option ARM loans have another, more urgent problem: payments that are about to skyrocket...

After prolonging the boom, these exotic mortgages could worsen the bust. They also betray such a lack of due diligence on the part of lenders and borrowers that it raises questions of what other problems may be lurking. And most of the pain will be borne by ordinary people, not the lenders, brokers, or financiers who created the problem.

Gordon Burger is among the first wave of option ARM casualties. The 42-year-old police officer from a suburb of Sacramento, Calif., is stuck in a new mortgage that's making him poorer by the month. Burger, a solid earner with clean credit, has bought and sold several houses in the past. In February he got a flyer from a broker advertising an interest rate of 2.2%. It was an unbeatable opportunity, he thought. If he refinanced the mortgage on his $500,000 home into an option ARM, he could save $14,000 in interest payments over three years. Burger quickly pulled the trigger, switching out of his 5.1% fixed-rate loan. "The payment schedule looked like what we talked about, so I just started signing away," says Burger. He didn't read the fine print.

After two months Burger noticed that the minimum payment of $1,697 was actually adding $1,000 to his balance every month. "I'm not making any ground on this house; it's a loss every month," he says. He says he was told by his lender, Minneapolis-based Homecoming Financial, a unit of Residential Capital, the nation's fifth-largest mortgage shop, that he'd have to pay more than $10,000 in prepayment penalties to refinance out of the loan. If he's unhappy, he should take it up with his broker, the bank said. "They know they're selling crap, and they're doing it in a way that's very deceiving," he says. "Unfortunately, I got sucked into it." In a written statement, Residential said it couldn't comment on Burger's loan but that "each mortgage is designed to meet the specific financial needs of a consumer."

California's New Canary in the Coal Mine

San Diego gets all the attention. It is often cited as the national housing market's "canary in the coal mine." But does it still deserve that title? Well folks, it's time for Round 3 of the California Canary Showdown (Round 1, Round 2) and it looks like we have a new champ!

First up, is a comparison of median price appreciation/depreciation rates for resale single family residences and condos as well as new homes in San Diego and Sacramento counties. (Data Source: DataQuick's dqnews)



Winner: Sacramento

Now let's look at another data source and push back the time frame to 2004. This next graph compares median price appreciation/depreciation rates for resale homes only in the San Diego and Sacramento regions. (Data Source: California Association of Realtors, car.org)



Looks like San Diego peaked earlier, but Sacramento has now caught up and ekes out a small victory.

Winner: Sacramento

We might have a knock out punch in this next graph. Here's a look at sales volume change of resale homes for the two regions. (Data Source: California Association of Realtors, car.org)



Winner: Sacramento

Meet the new canary in the California coal mine: Sacramento.

"The biggest slowdown is the one getting the least attention -- the one in my own back yard (the Sacramento area). The Bay Area influx into Sacramento has waned here and a lot of investor-speculator types have run off to Texas, Idaho and other areas out of state. The Sacramento market is relying on local buyers more so than in many years. The result last month was the median sale price for all homes fell 5 percent from a year ago -- the biggest drop among major counties statewide. Sizeable builder incentives and some outright builder price reductions have been the norm here this year."

~DataQuick's Andrew LePage, August 25, 2006.

A Soft Landing After This?

NYTimes

'There's Nothing Great About This Market Right Now'

From the Modesto Bee:

It wasn't long ago that condominiums were hard to find in Stanislaus County. But now first-time buyers and others looking to buy small homes have lots to choose from, with prices starting as low as $149,000. That's particularly true in Modesto, where six former apartment complexes have converted to condos, one of which will have its grand opening Saturday. And another Modesto condo conversion is in the works, with plans to open this winter.

But condo sales throughout the nation are slumping, and industry experts say there's now an oversupply. That's certainly a switch for Stanislaus County. The county's largest new condo project, the 152-unit Balboa Park by Fitzpatrick Homes in Turlock, opened two years ago when the market was booming. Balboa Park had so many interested customers back then that it used a lottery to determine who would get to buy.

Now Balboa Park has about a dozen units left, but sales have slowed so much that it's trying to lure buyers by giving away a BMW Mini Cooper automobile with each purchase. Or, buyers can take $20,000 off the development's $290,000 starting price...

Yet to be priced are condos on Brighton Avenue, which had been rentals known as Continental Townhouses. Those 40 units range from 960 to 1,346 square feet and could be ready for sale in two months. "But we might wait until after Christmas to start selling them, because there's nothing great about this market right now," said Mike Baskauskas, whose company owns the Brighton project. "A lot of it is timing and luck."

Baskauskas said he's contemplating what price to ask, and he's considered cutting his original estimates to generate more buyer interest and sales. Lowering prices in developments where units have already been sold is rare, according to Rick Balbonado, regional director of sales for Hanley Wood Market Intelligence, which tracks new home and condo sales. "Once you lower the base prices, you create a domino effect," Balbonado said.

Even with such deals, condos are a tough sell this summer in Stanislaus County. Statistics gathered by Hanley Wood show that eight condos -- new or apartment conversions -- sold in the county in June, compared with 87 in June 2005. And two previously signed sales contracts canceled this June, so those condos must be resold. Prices are down, too. The average sales price for Stanislaus County condos was $258,270 in June 2005, but it fell nearly 16 percent to $217,323 in June 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.

Bakersfield Bubble & Agent Bubble

Two regular Sacramento Land(ing) commenters have started blogging. Crispy (aka Crispy&Cole) recently launched the Bakersfield Bubble blog. Sacramento may have a head start, but when the dust settles, I think the Bakersfield housing market may turn out to be the poster child of the housing boom/bust.

Closer to home, commenter Agent Bubble has joined forces with Max over at the Sacramento Real Estate Statistics blog. As someone who works in the Sacramento real estate industry, Agent Bubble should have a unique perspective for a "bubble blogger" (and more importantly insider data!)

Looking forward to some great posts from both of you. Welcome to our little corner of the Bubblesphere!

Sacramento Housing Flu Spreads, Hits Bay Area

Even the almighty Bay Area can't escape the contagion. From the San Jose Mercury News:

During this particular cycle, he [Richard Calhoun, owner of Creekside Realty] said, the real estate market has "slowed down from the outside in," starting last summer in Sacramento, moving to the Central Valley, Monterey and Santa Cruz, and hitting the Bay Area's employment centers recently.

Lereah: 'Hard Landings' Possible For California Cities

From USA Today:

Existing home sales posted an unexpectedly sharp drop last month to the lowest level since January 2004 and home prices fell in all regions of the country but the South, the National Association of Realtors said Wednesday...

"I was disappointed, it was a lot lower than I anticipated," said David Lereah, NAR's chief economist. "What is clear to me is sellers are more stubborn than I expected them to be. We definitely need a correction in prices in order for buyers to come back into the market."

He said he expects home prices to come down 5% nationally, more in some markets, less in others. And a few cities in Florida and California, where home prices soared to nose-bleed heights, could have "hard landings," he said.

Uh-oh. Bad sign when the chief optimist for NAR is mentioning 'hard landings.' Guess I'll have to launch Sacramento Crash Land(ing) soon. By the way, where in California did home prices not soar to "nose-bleed heights" in comparison to incomes?

American Dream Turned Nightmare

From KCRA: "At the Sacramento County Courthouse, it used to be that foreclosure auctions happened once a week. Now, several times a day homeowners are seeing their American dream turn into a nightmare. In Sacramento County during the second quarter of this year, the number of homes going into foreclosure stood at 1,866. That compares to 857 forclosures for the same time last year -- an increase of 118 percent. Elsewhere, foreclosures are up 74 percent in Stanislaus County, 87 percent in San Joaquin County and 116 percent in Placer County."

"Alexis McGee of the investor services agency Foreclosures.com said many homeowners who find themselves falling behind on their mortgage payments should not try to refinance, but rather simply try to sell..."

"So, does this mean the housing bubble has burst? McGee still describes it as a leaking bubble but said her description will change if a year from now foreclosure rates have doubled again."

From the Sacramento Business Journal: "Sacramento-area home prices dipped lower last month, and sales tumbled by almost 45 percent from a year ago, according to a report released Thursday. The region's median home price -- meaning half the homes sold for more, the other half for less -- dropped 2.4 percent to $378,590 in July, compared to the same month a year ago, according to the California Association of Realtors. Home prices also inched 1.5 percent lower from June."

"West Sacramento had the area's largest one-year drop at 16.5 percent, while home prices in Lincoln and Rocklin -- one of the fastest-growing cities in the region -- fell 13.8 percent and 12.5, respectively...Sacramento County's median home price fell 3.4 percent to $367,000 from a year ago, with Orangevale and Fair Oaks posting 5 percent-plus price drops, the largest in the county."

"Placer County's median-home price decreased to $460,000, 7.1 percent lower than a year ago. In addition to Lincoln and Roseville's double-digit price drop, Granite Bay home prices were off 7.4 percent to $735,000, still by far the priciest community in the county. Auburn's median-home price improved 11 percent to $479,000, the only price increase in the county."

For Sale: "Divine Intervention"

Thanks to a reader who sent in this story from KCRA:

Some home sellers frustrated by a lack of buyers are turning to a higher power for help. Matthew Hempy is among those who said they need some divine intervention. His home in Ceres has been on the market for about four months -- much longer than he expected. "I guess it's just the market. That's what everybody's telling me," Hempy said.

So, even after all the landscaping's he's done, Hempy is taking his real estate agent's advice and pulling out the shovel one last time. "He says, 'Let's bury this thing and get some luck into this place because we really need it at this point,'" Hempy said. What they're burying is an 8-inch plastic statue of Saint Joseph, hoping the patron saint of household needs will help sell the house...

Hempy said he just figures a $10 investment in faith can't hurt when you're trying to unload a $340,000 home. "I'm all for any kind of luck we can buy right now," Hempy said...

In the Central Valley and across the country, realtors and homeowners say the longer these for sale signs stay up, the more they turn to St. Joseph. Phil Cates' company sells thousands of statues a year out of its Modesto office...Cates said the tradition began 500 years ago in Europe. Today in the U.S., the slower the home sales, the better the statue business.

"Our sales have tripled...actually have risen by triple digits over the last three years," Cates said. "California is frankly kind of starting to get to the top of our list."

Triple digit sales increase? Sounds like a bubble. Perhaps the bursting housing bubble will save the Modesto economy after all.

Housing Market "Slump" Has 'Nothing To Do With [6%] Affordability'

From the Stockton Record:

In the middle of a housing-market slump, the Stockton, Sacramento and Modesto areas continue to sit high on a list of the least-affordable metro areas in the country. California cities continued to dominate the least affordable metro areas in major U.S. housing markets in the second quarter of 2006, according to a National Association of Home Builders/Wells Fargo Housing Opportunity Index, released Tuesday.

Of 10 least-affordable metro areas with populations of 500,000 or more, Stockton - basically, San Joaquin County - ranked fifth, behind only Los Angeles, Anaheim, San Diego and New York City. Sacramento ranked eighth on that list. Of 10 least-affordable metro areas with populations of 500,000 or less, Modesto ranked third, behind Salinas and Merced.

A year ago, the Stockton metro area ranked ninth in the least-affordable list. In the new list, the area was 12th lowest out of 199 metro areas surveyed for affordability...In San Joaquin County, where the median sales prices last quarter stood at $435,000, only 6 percent of the homes sold could be afforded by a family earning the area's median income of $57,000...

Greg Paquin, president of the Gregory Group, a real estate information and consulting service in Folsom, said the market is slowing because of affordability - home prices went up much faster than incomes. "There's a gap there that needs to narrow, and I think that's what we're seeing," he said. "Sales are down, and they will continue to be. You're going to see that affect prices to some degree as well as incentives..."

Stockton real estate broker Bruce Davies, of Partners Real Estate, said flatly that affordability isn't an issue at all in the slow market. Interest rates have been going down lately, are still relatively very low, and it's a good time to buy, he said. "People are just wondering whether prices are going to go down," he said. "It has nothing to do with affordability..."

Jerry Abbott, president and co-owner of Coldwell Banker Grupe in Stockton, said that in recent weeks, sellers for the first time have begun really slashing prices in hopes of selling. As the number of homes for sale continues to grow month after month, sales are flat, he said. "A lot of people may be anticipating that prices may be less next year, and they'd better sell now."

Sacramento Region Median Prices - July 2006

The first graph shows the percent change in median home prices for the Sacramento region's four counties. This includes single-family homes, condos, and new home sales. In July, all four counties experienced price depreciation on a yearly basis.


The second graph shows median prices for the region's four counties. Again, this includes single-family homes, condos, and new home sales. The diamond points represent price peaks.

Placer Not So Lonely Anymore

Back in January of this year, Placer County was the only California county listed by DQNews to suffer a year-over-year price decline. Six months later, Placer has plenty of company in the depreciation club, according to the latest DataQuick numbers for July:

• Placer: -7.07%
  
• Marin: -6.61%
• San Benito: -6.45%
• Yolo: -6.16%
• El Dorado: -3.93%
• Santa Cruz: -3.43%
• Sacramento: -3.42%
• Sonoma: -1.82%
  
• Monterey: -1.77%
• San Diego: -1.74%
  
• Napa: -1.32%

Data is for resale single family residences and condos as well as new homes.

"It Still Hasn't Sold"

MSN Money has an update on the Stockton woman who advertised her home on the radio. (prior post here)

Margot Ray, a radio-ad saleswoman in Stockton, Calif., put her five-bedroom, three-bath house on the market in February for $480,000. There it sat, along with about 3,000 other homes for sale. She dropped the price to $465,000 in April. Nada. "We'd have an open house and maybe one or two people would come by. I had an open house where nobody came," Ray says.

In July, she had a brainstorm: Why not advertise on the radio? The ad put the house on the map. Now agents remember the address. The price is down to $427,000 and, at a recent open house where Ray raffled football tickets and a spa day, 15 groups of potential buyers showed up on a 107-degree day.

But it still hasn't sold.

Ray has two kids in college and a new house with its own mortgage. "Am I to the point of desperation? Not yet," she says, "but I want this house sold."

Was it only last summer that houses sold in a day, buyers were bidding up prices and sellers in some markets haggled down real-estate agents' commissions? Nationally, 39% more "existing" homes -- not new ones -- are on the market than last year this time. Real-estate agents are giving stunned sellers crash courses in marketing. Agents now command the full traditional 6% commissions -- sometimes more -- if only to use most of it as bait so they can offer up to 4% or 5% to a buyer's agent for a successful sale.

In the toughest markets -- including the Florida cities, Detroit, Atlanta, Dallas, Stockton, Sacramento and San Diego -- incentive is the name of the game. One Florida agent offered a Mercedes-Benz with a house sale. Others dangle vacations or gift cards with thousands of dollars in gasoline.

Tip of the hat to Ben Jones.

Triple Negative

For those interested in more than just the median price, the Sacramento Real Estate Blog has some additional metrics based on MLS data. Here's a summary:

Change in price between July 2005 and July 2006 (Sacramento County):

• Median Price: -4.5%
• Price Per Square Foot: -3.4%
• Average Price: -0.3%

Downtown Condos: From Sizzling to Fizzling

Is the Sacramento downtown condo-mania ending? From the Sacramento Bee:

The lobby has been remodeled, the building's exterior painted and model condo units readied for show. But sales have been slower than expected at 500 N -- the former Bridgeway Towers housing complex that's been converted from mostly apartments to for-sale condos. Just 20 of the 123 available units have been sold since March when a sales office opened.

"I don't think anybody anticipated we'd be where we are now," says agent Leslie McBride, whose company took over sales of units in May. With condo-mania sweeping the city, the expectation was that people would snap up units that are available well before -- and priced considerably below -- those planned at glitzy high-rises just a few blocks away on Capitol Mall.

But the rush hasn't materialized for the "N" condos, which are finely appointed and priced from $346,000 to $700,000 for the one- to three-bedroom units. McBride expects sales will pick up, since downtown is becoming a more popular residential destination. It's just taking awhile to sign up the pioneers.

"It's a big lifestyle change," she says, for buyers switching from suburbia to the central business district. People need to adjust to the noises of construction and car traffic. For suburbanites, that can be off-putting. For experienced city dwellers, McBride says, it's "one of the attractions."

NAR 2005: 5% Price Decline "Extremely Unlikely" in Sacramento

Back in February, I mentioned the National Association of Realtors anti-bubble report on Sacramento. Included in that report was this gem:

[T]he local housing market is in excellent shape with a potential for significant housing equity gains....

Or not. The Bubble Meter blog has a great post deconstructing this forecast:

For metropolitan Sacramento, CA their anti bubble report (pdf) stated that

The local housing market will experience a price decline of 5% only under extreme unlikely scenarios. For example, mortgage rates rising to 7.8% in combination with 25,000 job losses could lead to a price decline.

However, according to data from DataQuick:

The new survey shows that median sales prices for new and resale homes and condominiums in Sacramento County fell 5 percent below July 2005 levels.

According to Freddie Mac interest rates on 30yr fixed averaged 6.52. Jobs are still plentiful in Sacramento as it "showed strong growth in online want ads." [Monster.com] The 'extremely unlikely scenario' where mortgage rates hit 7.8% in conjunction with 25,000 job losses in Sacramento area has not yet happened. Yet, median prices have already declined 5% (YoY) in Sacramento county.

So if we have a 5% decline without massive job lay-offs or high interest rates, what will happen to the Sacramento real estate market when the current business cycle ends (as it always does) and massive job losses commence? Again, from the report:

There have been few times when local prices declined. In nearly all these cases, the price declines were accompanied by sharp prolonged job losses. It is difficult to foresee a price decline in a job creating economy.

I guess Sacramento really is different.

Stockton, Tracy, Manteca and Modesto Go Negative

From the Stockton Record:

The resale-home market in San Joaquin County saw sales slip again, though sales prices continued to climb and the number of homes on the market rose even higher. Year-to-year prices in some areas, though, were in the red for the first time in at least several years because of the soft market.

Sales dropped from 581 in June to 439 last month countywide, but the median sales price moved up from $420,000 to $425,000 in the same period, according to the latest sales figures from Coldwell Banker Grupe-TrendGraphix monthly sales report, based on Multiple Listing Service data. Year-to-year, sales prices were up slightly, 2.4 percent, from $415,000 in July 2005. That's far different from the previous five years, when sales prices bounded between 25 percent and 40 percent annually. That's for the county overall.

In Stockton, Tracy and the Manteca/Lathrop/Ripon/Escalon region, the median sales prices fell from June to July leaving year-to-year sales prices down. In Stockton, for example, the July median sales price of $360,000 was a $10,000 drop from June. It was also down 2.4 percent from $369,000 in June 2005.

From the Modesto Bee:

Northern San Joaquin Valley home sales prices dropped again in July, continuing the downward trend that began in the winter. Stanislaus County homes sold for a median $371,500 in July, down $4,000 from June and off $20,500 from December's record high. Merced and San Joaquin county sales prices also declined, according to sales statistics Wednesday by DataQuick Information Systems. Merced fell to $362,000, and San Joaquin dropped to $438,500...

Some cities are faring better than others. Modesto isn't one of them. DataQuick statistics show sales prices have dropped below last July's levels in most parts of Modesto -- particularly in the northwest part of town where this July's median $359,000 price is nearly 11 percent below last year.

Finally, this woman in Lodi apparently thought that the 2005 Santa Claus housing market was still delivering $100,000 presents in 2006. Oops!

Her house has been on the market for only three weeks, but Lodi resident Trina Reese is skeptical as to whether it will actually sell. "Houses just aren't selling," she said. "Last year houses down the street were selling at $650,000 within a week or two, but now it's a buyer's market." She added, with the home's current price at $750,000, she probably won't be able to sell.

And then there is this:

But homes remaining longer on the market have yet to face a drop in prices, according the Lodi Association of Realtors, which lists the current average home price for Lodi at $387,793.

So true. According to the chart in the Stockton Record, Lodi price appreciation is at a whopping 0%.

Buyers on Strike: 'We Don't Want to Lose Equity Overnight....'

From KCRA:

After trying to sell his home in Folsom for nearly a month, Mark Tortorelli said he wasn't surprised to hear about this latest market slowdown. "Last year it probably would have taken about three days. This year it might take up to three months, I guess," Tortorelli said. In fact, instead of a "sold" sign out front, Tortorelli's real estate agent recently added an offer of free housekeeping and free pool service for a year.

But while some sellers are getting creative, many are apparently deciding to simply cut and run..."We're starting to see people have to sell for less than they purchased for. This is bringing about what we call short sales where we're actually having to work out issues with the bank and in some cases turn it back to the bank again," said Tim Thompson of Keller Williams Realty.

What's driving the price slide? Experts blame rising interest rates, fewer Bay Area transplants and investors who've moved on to greener pastures.

Tortorelli said he'd like to move back to his home state of Washington, but if prices continue to drop, he may have to handle his own housekeeping and pool cleaning for a while longer. "I'll have to go to plan B ...(which is to stay)," Tortorelli said. Sellers and real estate agents keep waiting for buyers -- particularly first-time buyers -- to jump in and buy. But the organization that put out Wednesday's report said so far, there's no sign of that happening -- that buyers seem to be waiting to see how low prices will go.

From the Sacramento Bee:

State Assembly candidate Kevin Jeffries of Riverside County could have bought a Sacramento-area condominium last month in anticipation of winning his election in November. The would-be legislator was smart to wait. "Some of the places we were looking at a month ago have already been discounted $10,000," said Jeffries, a Republican running in the 66th District. "We don't want to lose equity overnight as soon as we start escrow on it..."

The survey revealed a market still rapidly cooling from an unprecedented four-year boom. Though the same is happening nationally, the slowdown is most pronounced in the West, where Sacramento ranks among the hardest hit. It seems pretty clear to me that buyers in Sacramento are more or less on strike," said G.U. Krueger, chief economist with Irvine-based housing investor IHP Capital Partners...

Some area real estate officials said 11 straight days of triple-digit July heat contributed to the sales slowdown. Home builders said the growing market share of cheaper new condos also contributed to the price decline...

July also saw the biggest drop yet in year-over-year sales of existing homes in El Dorado, Placer, Sacramento and Yolo counties. The month's 2,877 sales were down 41 percent from July 2005. July marked the 16th straight month in the four counties that sales of existing homes were down from the same month a year earlier, according to DataQuick...

Buyers who once felt pressured to take any home they could afford before prices climbed higher now say they're willing to wait. "In terms of time we don't feel rushed any more," said buyer Mark Aizenberg, an investment officer with Wachovia Securities in Sacramento. Aizenberg, seeking a capital-area home in the $500,000 to $600,000 range, calls himself thankful that he didn't buy during the past eight months. "We're basically now not compromising on layouts and getting 800 square feet more house for the money," Aizenberg said. "I feel prices are going to come down significantly more."

From Lyon to Bear: As Sales Plummet 45%, Lyon Says Values May Drop Another 10%

When it rains, it pours. From the Sacramento Business Journal:

Declining demand and buyer hesitancy pushed existing-home sales down 45 percent in Sacramento, Placer and El Dorado counties in July, compared to the same month last year. Sales have also dropped 34 percent through July of this year with 11,648 transactions in 2006, compared to 17,804 last year, according to a market report by Lyon Real Estate.

Looks like Mike Lyon, CEO of Lyon Real Estate, is changing his tune. Back in October 2005, he predicted 12% appreciation for Sacramento County in 2006. Here's what he has to say now:

Generally, resales are priced $50,000 to $100,000 above what the market will bear and that is turning sellers away, said Mike Lyon, the company's chief executive officer.

He predicted the decline in house value that has gone on through this year will likely continue for another 12 months, until the current oversized inventory is sold off. But the homes might not sell, he added, unless sellers realize buyers are no longer paying the boomtime prices of the past few years. He said values have been falling and may drop another 10 percent by this time next year.

"Sellers are still in denial," he said. "But if you're not serious about selling, if you're just fishing, this is the dumbest time to gamble on the market. If you have to sell, sell. If you don't have to sell, don't." He added it could be two more years until homes start to rise in value again.

Sacramento Sellers "Cut and Run," Median Price Drops 5% YOY

Soft landing or hard? From the Sacramento Bee:

Sacramento County posted urban California's steepest year-over-year fall in home prices during July as more buyers waited out a slumping market and sellers showed increasing willingness to cut and run.

Median sales prices for both new and resale homes and condominiums fell 5 percent below July 2005 levels, according to La Jolla-based researcher DataQuick Information Services. For existing single-family homes, the largest segment of the market, prices fell 3.2 percent below July 2005 to $353,250...

July represented the second straight month that Sacramento County sales prices fell below last year's levels. Among urban areas, Sacramento joins San Diego and San Mateo counties and the city of San Francisco with median home prices now below where they were a year ago.

DataQuick's newest statistics, gathered from county property records, clearly show the growing advantage to buyers in a market with falling prices and a record inventory of 15,474 homes for sale. That's more than twice the inventory of July 2005.

In El Dorado, Placer, Sacramento and Yolo counties, July also marked the 16th straight month that the number of sales were down from the same month from a year earlier. March 2005 was the last month showing higher sales than the previous year.

Kamikaze Condo Converters?

"In California, the condo slowdown has been particularly pronounced in San Diego and the Central Valley, where rapid urbanization attracted a number of investors who are now rethinking their strategies, according to Michael Carliner, an economist with the National Association of Home Builders."

Or not...

"Homebuyers may be turning sour on condominium conversions in a cooling real estate market, but five Sacramento County apartment owners are pressing for still more. They're seeking approval for 700 new conversions."

"The moves seem to fly in the face of lagging buyer enthusiasm nationally for apartments converted to for-sale condo units. Locally, some apartment owners who won conversion rights have held back on sales plans, while others who went forward have seen slow sales. From Florida to Folsom, some owners of conversion projects have begun a reverse trend of converting condos back to rentals."

"But investors from Los Angeles and the Bay Area say they're pressing ahead in Sacramento County, even though buyers already can pick from an abundant supply of new condos and sales incentives. These apartment owners hope to compete on price in an expensive market, and say if they falter now they'll be poised for the region's inevitable housing rebound later..."

"Apartment owners converted about 2,500 capital-area apartments to condominiums during the housing boom, according to real estate company CB Richard Ellis. Homebuilders, meanwhile, have sold nearly 5,000 new condos in the region since December 2003. With new condos representing at least 26 percent of new home sales so far this year, according to the Folsom-based Gregory Group, conversions from existing apartments are often a second choice for buyers. Experts call condo conversions a sign that real estate markets are peaking."

Sacramento Reduced (Even More)

Once again, the Sacramento metro area had the highest percentage of reduced listings among housing markets monitored by the Bubble Markets Inventory Tracking blog. Here are the Sacramento numbers since the beginning of 2006:

8/13: 44.4%
7/13: 42.9%
6/13: 39.7%
5/17: 35.0%
4/11: 32.1%
3/18: 32.6%
2/18: 30.3%
1/30: 30.5%

Trend? How high will it go?

Real estate agent Julie had this to say to Sacramento sellers:

One of the most interesting things that happened over the weekend was a counter offer one of my clients received on a home they made an offer on. Now remember that we live in "Glutville" when it comes to homes on the market. Even the recent HousingTracker numbers for Sacramento continue to show inventory growing each week and asking prices dropping. My buyer's offer was 5.7 percent lower than the asking price. The seller and his astute agent who I think doubles as a lender, countered our offer at full price. They sent a note with the counter saying since they listed the home the seller has lowered his price $30,000 and feels my buyer should understand why he wants his current asking price.

Attention sellers - please understand your price reductions to get buyers attentions is not their issue. In today's market buyers have negotiating power and because we can't count on double digit appreciation the purchase price has become very important.

According to HousingTracker, Sacramento asking prices have declined to their lowest point since the site started tracking data one year ago today. (Happy Birthday!) By the way, the creator of HousingTracker just launched version 2.0. The new site features some nice graphs.

A Pacifier for "Anxious Sellers"

From the Sacramento Bee:

The silence was a long one, nearly an hour without a soul at the door in that elaborate weekend ritual called the Open House. Inside the Folsom home, real estate agent Susanne Wolter breathed the sigh of an entire industry coping this summer with more sellers than buyers. "You have to be patient and stick it out," she says...

Open houses, on the wane during a housing boom of numerous offers and sales too quick to stage them, are back in vogue -- and multiplying -- as sales have slowed and days on the market keep climbing...

But many real estate agents say opening the door for a few hours on the weekend isn't the rage because it helps that much in selling a home. It doesn't. Rather, open houses are increasingly a tool to pacify anxious sellers who want to see the agents doing something -- anything -- to sell the home. And the agents themselves are willing to go along as a way to troll for scarce buyers to represent...

Whatever the reason, that peculiar institution that lets people visit the homes of others to gawk, get decorating ideas and occasionally fall in love with the place and buy it is on a roll in the capital region. "There are gazillions of them," says Leigh Rutledge, president of the Sacramento Association of Realtors.

Sitting on the Bubble

Are bubble sitters driving down the market? From CNNMoney:

Convinced home prices will fall? So are a lot of other Americans. Some - known as bubble sitters - are acting on their conviction. They're cashing out by selling their homes and renting, figuring they'll return to the market after prices have fallen. Bubble sitters also include those people who have never owned a home and are waiting to take the plunge, along with folks who are relocating and holding on to their cash until the market in their new hometown softens...

Bubble sitting has contributed to softening in housing markets, especially in new homes. Builders have reported slowing sales and they're offering numerous incentives, rebates and discounts in order to move inventory. Just this week, builder Toll Brothers announced they expected sales to decline substantially for the year.

Some blame the home builders for encouraging fence sitting. From the Sacramento Bee's New Home Section:

Jo Sterling, owner of Sterling Creative in Sacramento, said she wishes builders would stop offering incentives because they can make potential buyers stay on the fence rather than buying a home. "Buyers start playing the 'what can you do for me' game and start looking for the best incentive plan and wait to buy," said Sterling, who has nearly 30 years' experience in the advertising and public relations field. "I think that one offer to pay heating and cooling costs is a really good idea. It doesn't devalue the home."

It also doesn't upset builders' loyal customers who may have purchased a home in a community a year earlier when no incentives were offered. If the Joneses got $100,000 off on the same floor plan I purchased just after the grand opening, I'd be pretty mad. But if my neighbors got a deal on their utility bill, then, hey, more power to them. Pun intended.

"Incentives have always been a cyclical thing," said John Orr, president and chief executive officer of the North State Building Industry Association. "The national companies want their local offices to move product, and they're doing what they need to do. But cutting prices is always a risky thing to do."

Speaking of price cuts, Sacramento Centex is launching a "new" pricing program:

Centex Homes today will launch a new pricing program aimed at providing homebuyers with the best value available. The program will be in effect at the builder's Sacramento-area communities through Aug. 27. "For the next couple of weeks we are giving homebuyers a special opportunity to save up to $150,000," said Patrick D'Arcangelo, vice president of sales and marketing. "By combining 15 brand-new neighborhoods throughout the Sacramento region with award-winning quality and unprecedented savings, we'll be providing a win-win situation for homebuyers."

I certainly didn't see that one coming.

Stockton Makes the Top 10 Foreclosure List

The screws tighten:

Stockton landed on the top 10 list of the nation's cities with the highest foreclosure rates in the second quarter, according to a report released Wednesday. The Central Valley city was No. 8 on the list, with 1,228 homes in some stage of foreclosure. That's 1 of every 154 homes, or 2.3 times higher than the national average, according to RealtyTrac, an online marketplace for foreclosure properties.

Modesto's Roxanne Myers is caught in a refinancing dilemma, she said. She has an adjustable-rate mortgage that's about to go higher, so she wants to refinance. However, she also can't afford the monthly payment on a fixed-rate mortgage, she said. "It's scary," Myers said. "I'll probably get another ARM that's fixed for five years. "I don't want to sell, but that may become a reality."

Many borrowers who run into trouble have relatively low incomes or scuffed credit records. But housing counselors say they are also hearing from a growing number of middle- and upper-middle-income borrowers who borrowed heavily to finance spending or buy a house they could barely afford. NeighborWorks Homeownership Center in Sacramento, Calif., says that 38 percent of the borrowers it's seen this year have "moderate or above-moderate" incomes, up from 24 percent last year.

The 'Perfect Storm'

From the Fresno Bee:

Hundreds more homeowners in the central San Joaquin Valley are in danger of losing their homes to foreclosure this year because their houses are not gaining value fast enough, a real estate tracking company says. And some in the industry say the numbers could increase as more buyers -- especially those who purchased homes in the past year -- default on variable interest rate and interest-only loans.

The number of default notices sent by lenders in April, May and June climbed 55.7% in Fresno County over the same period last year, according to Dataquick Information Systems. Similar increases were recorded elsewhere in the Valley: 60% in the four Valley counties surveyed by Dataquick -- Tulare, Madera, Fresno and Merced.

"There has been a dramatic increase," said Bill Pfeif, a real estate agent in Fresno whom lenders use to sell distressed properties. Lenders did not contact him in the robust market of 2002 through 2005. That changed in 2006; Pfeif has seven lender-approved listings and expects more. He said rising interest rates combined with an abundance of homes for sale, liberal lending policies and stagnant prices have created a "perfect storm" for foreclosures. "The table was absolutely set," he said. "There is absolutely no way it couldn't have happened..."

Pfeif said the numbers are likely to grow because many buyers used high-risk adjustable-rate or no-down-payment loans to finance their purchases. Higher rates have driven the costs of those mortgages up. "If you have a reasonable amount of income and are financially set, it is not a big deal, but if not, that variable thing will kill you," he said...

The situation is more dire in other parts of California, where home prices are higher and where values have tumbled. Statewide, default notices climbed 67.2% over the last year. In Placer and Sacramento counties, where median-home prices in June fell 6.2% and 1.3%, respectively, from last year, the number of default notices more than doubled. The number also doubled in Riverside County and nearly doubled in San Diego County. "It was a really great party, and this is the hangover," Pfeif said.

From CNNMoney:

As signs mount of a slowing real estate market, the "vultures" are beginning to circle. But home prices may still have to fall further to create the bargains they crave...Jonas Lee, a co-founder of Redbrick Partners, makes his living by buying residential properties at the right price. Lee hasn't noticed any wholesale bargain hunting yet, though he says the general slowdown in markets nationally should create buying opportunities for vultures. Lee says that there could be some bargains soon in some once bubbly markets, such as South Florida. Another market that Lee identifies as ripe for a fall is the condo segment in the District of Columbia and its upscale suburbs. And he's eyeing California's Central Valley cities, including Bakersfield, Stockton and Modesto.

Hey, There's Always McDonald's

One school of thought says the Sacramento housing market will not collapse because the local economy is relatively strong. Just how strong, you ask? Well, here's one local real estate broker's take:

Just how good are the opportunities for finding work in our region? I was picking up a double-bacon-cheeseburger at the drive-up window of McDonald's last week and noticed a sign in the window that they are paying $10 an hour for new hires. I take comfort in knowing there is another career opportunity for me if this one doesn't work out.

Elk Grove: From Hot to Cold

More news on the so-called fastest growing city in America. From the Sacramento Bee:

On 1,900 wide-open acres, where valley oaks and grasslands make a spectacular setting during winter fog and summer sunsets, developers plan nearly 8,000 more homes, a civic center and five schools for one of California's fastest-growing cities. But this time builders are facing an entirely different experience. East Franklin was built on the boom; Laguna Ridge is beginning as that boom rapidly recedes into history. "We would have loved to be in the market two years ago," said Laguna Ridge project manager John Hodgson, president of the Hodgson Co. in Sacramento...

In their contrasts, East Franklin and Laguna Ridge represent a microcosm of the capital region. Builders who sold 17,155 single-family homes at the height of the 2004 boom in El Dorado, Placer, Sacramento, Sutter, Yolo and Yuba counties will consider themselves fortunate this year to sell 12,000. Statewide, developers expect to build as few as 170,000 residences this year, compared with 213,000 in 2005.

In Elk Grove, builders who took out almost 3,000 building permits in East Franklin in 2004 now expect to sell no more than 500 homes -- if that -- a year at Laguna Ridge. A dream hatched in Elk Grove during a building boom that created fortunes and made heads spin may actually take up to 10 years to build out, after all.

"You go back two, three years, the anticipation was Laguna Ridge would be as fast as East Franklin," said Constantine Baranoff, who as associate superintendent of facilities and planning at the Elk Grove Unified School District is charged with forecasting where the growing district will build its schools. "All the hype, all the discussion, all the confidence level was just as significant. People said, 'There's no letup. People are moving and moving and moving.' "

That's all changed. Now the district, which expects about 6,500 students at five Laguna Ridge schools, has delayed opening its first high school in the area until autumn 2008. The original date was 2007...

The city also has set a limit on home building -- 1,200 permits a year. The idea is to maintain an orderly development pace in contrast to the big bang that built East Franklin. If current market trends prevail, remaining within that limit clearly will not be an issue. As the Laguna Ridge infrastructure work continues, the school district's Baranoff watches and waits. He says he'll set his timetables for new elementary schools "once I see the houses." At the moment, he said, "The only significant marketing I've seen is by Del Webb. And I don't think we'll get too many kids out of that."

July 2006 Inventory

Sacramento inventory continued to grow in July, albeit at a slower rate, according to several inventory tracking sites. Since the beginning of this year, inventory has grown by at least 72%.


Bubble Markets Inventory Tracking: 17,314
+5% (+809) in July
+72% (+7,235) in 2006

Housing Tracker: 12,023
+6% (+699) in July
+75% (+5,167) in 2006

The Sacramento Housing Bubble blog has not yet posted month end numbers. As of July 25th, the site showed inventory at 17,347. On July 28th, the Sacramento Real Estate Statistics blog measured inventory at 18,716.

This graph shows inventory for the Sacramento housing market as reported in the Sacramento Bee from February 2005 to June 2006. The July figure has not yet been released.


Sacramento Bee (for June): 14,611
+11% (+1,465) in June
+71% (+6,086) in 2006
+134% (+8,365) YOY (since June 2005)

(Note: These sites use different sources for their numbers. Please see the individual sites for more information on methodology and areas of coverage.)

In Come The Waves: Home Builder Layoffs Commence

I believe this is the first media report of local home builder layoffs since I began this blog back in January. For an excellent article about just how much the housing industry is embedded in the Sacramento economy, click here.

From the Sonoma Press Democrat:

Feeling the blow from the housing market's downturn, Christopherson Homes is laying off 18 percent of its employees over the next three to six months, company officials said Thursday. Sonoma County's largest home builder will lay off 25 to 30 workers in a range of jobs at both its Santa Rosa headquarters and its Sacramento division.

"We hope this downturn will be short-lived but we will continue to make adjustments deemed necessary," said George Casey, the company's chief executive officer...

Five years ago, the company opened a division in Roseville to expand into the Sacramento market as home building boomed in the Central Valley. But a strong, eight-year run of sales peaked last year, hitting first in Sacramento and then in Sonoma County and the market has been coming back down. Christopherson has slowed housing starts in response.

"Climbing interest rates, increases in energy costs and longstanding affordability issues in California's metropolitan areas are all factors that have combined to slow the market down. Christopherson Homes is not immune from macroeconomic trends," Casey said...

At Christopherson, layoffs will be made across the board, including production supervisors and workers in land acquisition and permitting, purchasing and sales. The layoffs will total between 25 and 30 and should be divided equally between the Santa Rosa headquarters and the Sacramento-area division. Christopherson has 120 employees in Santa Rosa and 30 in Roseville, Casey said. "You keep adjusting your overhead to your level of operations," he said.

Hat tip: Ben Jones

Related posts:
Subcontractors
Real Estate Agents (and here)
Mortgage Industry (and here)
Service Industry
Manufacturing

Can't Pay, Can't Sell

From the Stockton Record:

Second-quarter foreclosure activity in San Joaquin County took a year-to-year jump because the slower housing market made it tougher for homeowners in financial trouble to pay off their mortgages via home sales. In a report released Wednesday, La Jolla-based DataQuick Information Systems said that in San Joaquin County, the number of foreclosure notices was up almost 90 percent from a year ago, rising from 318 in the second quarter of 2005 to 604 in this year's last quarter...

Ron Cutler, broker-owner of Suntec Financial, Stockton, said he believes there's a nationwide problem developing with foreclosures resulting from questionable mortgage loan deals that allowed people to buy in a pricey housing market. Some mortgage brokers and lenders put people into adjustable-rate mortgage loans with introductory payments as low as a 1.25 percent interest rate the first two years, he said.

When those ARMS kicked in with current higher interest rates that often doubled the house payment, many of those home buyers found themselves going into mortgage default, he said. Plus, some new homeowners ran up additional debt for window coverings, furniture, landscaping and so on, Cutler said.

"It's evident those people were getting into homes that they basically shouldn't have qualified for," he said. "Now the market is starting to change. They're trying to sell their house, and that's not happening either when you have a large amount of houses on the market."

Mortgage Defaults Up 109%

"Sacramento and Placer counties were among five California counties in which mortgage defaults more than doubled in the second quarter. Statewide, default notices hit a three-year high, up more than 67 percent compared with the same period last year, a report said Wednesday. There were 20,752 California default notices sent to homeowners between April and June, a 10.5 percent increase from the first three months of this year, San Diego-based DataQuick Information Systems said."

"Last quarter's year-over-year increase was the highest for any quarter since DataQuick began tracking defaults in 1992...Last month San Diego and Sacramento counties saw their median home prices dip about 1 percent compared with a year ago. Second quarter defaults shot up about 99 percent in San Diego County and 109 percent in Sacramento County from last year."

Top 5
Sutter: 229.4%
Placer: 126.2%
Stanislaus: 109.8%
Sacramento: 108.6%
Riverside: 104.0%

**Thursday Update**
From the Sacramento Bee:

"We're seeing more people calling and coming in and wanting to know what to do," said Pam Canada, executive director of Sacramento-based Neighborworks Homeownership Center, which advises people on how to buy homes and stay in them. "They're in over their heads basically and can't be bailed out with refinancing. The real heartbreaking part is there's not a lot of solutions."

Many have mortgages that represent more than 100 percent of their home's value, she said. Others face rising monthly payments with adjustable-rate mortgages and don't have enough equity in the home that would allow them to move to a different mortgage, Canada said...

In a statement, DataQuick President Marshall Prentice said, "This is an important trend to watch, but it doesn't strike us as ominous." Prentice said defaults would have to "roughly double from today's level before they would begin to impact home values much."

But some local mortgage officials expect to see more notices in months ahead. "If we start seeing a leveling off in the market and properties start to dip, that's where you're going to see the trouble begin," John Arvanitis, president of Citrus Heights-based Sunrise Vista Mortgage Corp., said. "They aren't going to be able to get out..."

Placer County, with 276 notices in the second quarter, was up 126.2 percent from the same period in 2005. That figure, up from 239 during the first quarter, was the highest since 1998. Placer County's record is 322 notices in 1996.

Sacramento County recorded 1,352 notices of default during the second quarter of 2006, up 108.6 percent from 2005. The second-quarter number rose from 1,136 in the first quarter and was the highest since 2001. The county's record is 2,441 in 1997.

California Public School Enrollment Drops for the First Time in 24 Years

From the L.A. Times:

Over the last seven years, nearly 400 students have left the public school rosters in Santa Barbara. Enrollment in this wealthy, Spanish-tiled coastal haven has dropped as steadily as home prices have risen. It is a trend expected to continue as the median home price pushes past $1 million.It is also a trend that increasingly appears to be occurring across California.

Public schools circling downtown Los Angeles are losing students as their neighborhoods gentrify. A similar shift is underway in the Bay Area, Sacramento and Los Angeles, and Orange and Ventura counties. Statewide, public school enrollment was down slightly this year, for the first time in nearly a quarter of a century. And though officials aren't quite sure of all the reasons behind the drop, they are sure that the cost of housing is one of them...

In the 2005-06 school year, statewide school enrollment dropped for the first time in 24 years. There were 6,313,103 pupils enrolled, a decline of about 10,000 from the previous year, according to state Department of Education records.

State officials aren't sure whether the trend will continue. Projections had called for continued student growth through at least 2010, said Donna Rothenbaum, a spokeswoman in the education department's demographics unit. She said several factors could contribute, including local job losses, changes in migration patterns and lower fertility rates. But a major trigger, analysts say, is the state's sky-high housing market. Student losses appear to be highest in high-cost coastal regions, especially around Los Angeles and the Bay Area. Housing prices in those regions are among the highest in the state, analysts note...

In Sacramento, San Juan Unified School District is closing schools because of decreased enrollment, Rothenbaum said..."It wasn't that long ago that we couldn't build schools fast enough," said Hans Johnson, a demographer at the San Francisco-based Public Policy Institute of California. "Now we've switched to which schools to close."

Even in Elk Grove, the so-called fastest growing city in America, enrollment has suddenly cooled since the Sacramento housing market peaked in August 2005.