Friday, January 12, 2007

SL's Water Cooler - January 2007 (part 3)

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25 comments:

Sippn said...

"...The problem is that any place that has homes selling for less than 300k is, at this point, a bad area...."

So what you're saying is that there are enough buyers out there to drive the price of a decent neighborhood to at least $300,000 or that those sellers will not sell below this price.

anon1111 said...

If I could buy a 3/2 in a decent neighboorhood in California for under $300,000, I might actually consider staying.

waiting_for_the_fall said...

The only homes right now under 300k are in mobel home parks.

JR said...

Waiting FTF,
A friend is buying a 3/2 2car 1700 SF home in Lincoln Crossing right now for $325,000. A nice one-story house. The borrower lost a good job and is bailing out for the outstanding loan amount. It sold for $430,000 a year ago (12/2005). In 7/2003 it sold for $257,000. Think about it. 2003 was an overpriced market and we are approaching those values already.

The market will continue to adjust downward for many years, so just hang in there. Once the sub prime foreclosures start, the mortgage fraud is exposed, and the new lending guidelines are adopted, all the high risk, stupid buyers will no longer be in the market. Then only qualified, sensible, intelligent buyers will set the offering prices. In the meantime, there is no sense competing with the 100% LTV sub prime buyers. They have nothing invested, and have nothing to protect. They have wreaked havoc and will pay the price. They will lead the real estate market into ruin for many years. It is unfortunate, but it always happens in the bubble build up. It is no different this time.

Sippn said...

JR you had me until you said "qualified, sensible, intelligent" all in one sentence...

If that were the case we'ed all buy the equal of a Grey Toyota Corolla.

You forgot, ego, emotion, etc. etc. and I'd like mine to look more like a Black 750 BMW with a big flat screen in the back seat!

Pass the Grey Poupon please!

Cmyst said...

"So what you're saying is that there are enough buyers out there to drive the price of a decent neighborhood to at least $300,000 or that those sellers will not sell below this price."

Not any buyers any longer to speak of, but sellers either won't or can't lower their prices at this point. I suspect that will change in the next year or two, because there will be people who need to sell (estates, job transfers, retirement moves)and have enough equity in their homes to drop their price.

JR said...

In 2005, I remember looking for houses to buy and musing there was nothing available under $400,000. Today, it is amazing how many homes are for sale in that range. I am waiting for them to get under $300,000, which is starting to happen.

Wait until the foreclosures start rolling in. Go to this site

http://www.sddt.com/Finance/EconomicIndicators.cfm

to see the increase in foreclosure velocity in San Diego today. Enter 1986 as the "start" year, click the button, and look at history. That is where we are all headed. The foreclosure market acceleration is greater today than any time in the last 20 years. Look out below......

Anonymous said...

The folks hoping that we have found a bottom and now breathing a sigh of relief at some of the recent news that sales have picked up and inventories are coming down are not seeing the big picture.

I would submit that the sales spike last quarter was our first Suckers Rally. People who know that November/December are traditionally weak sales periods jumped into the market thinking that it should be the bottom and that things would rebound in the spring. These are people who are still generally optimistic on the value of Sacramento real estate... they are also Suckers.

I would submit that the real driver of up/down pricing pressure in the Sacramento market has entirely been supply vs. demand imbalance. Too much speculator/investor demand during the run up and now too much supply, coupled with the loss of speculator/investor demand coupled with speculators/investors now looking to rapidly exit the market by selling.

Here are some observations on inventory and where we may be heading in our imbalance.

Using the nice (although not recently updated) graphs at Lyon Real Estate,

(http://golyon.com/pricingtrends_f.htm)

It is easy to see that the normal low point in "re-sale" inventory occurs around December and that inventory rises going into the spring. This is a recurring trend year after year and there is no reason to expect a change for 2007. By comparing re-sale inventory from January last year to now, it is interesting to note that most counties in the Sacramento area are near 150% of where they were last year. If you project out that trend-line, what does that say about where inventory will be in July and August? With last year bringing record inventories it would seem that we are well on course to more than shatter every previous inventory record.

Here are some numbers:

1-14-07 MLS listings vs. 01-2006 (% change)

Placer - 2601 / 1742 (149%)
Sacramento - 8833 / 5933 (149%)
Yolo - 787 / 513 (153%)
El Dorado - 1449 / 1074 (135%)

We currently have last years May inventory levels in January!

Is there any chance that demand will somehow rocket up to meet this ever growing supply? The Suckers hope so, the rest of us will hold onto our hats as the bottom drops out this spring.

Perfect Storm said...

It should be interesting to see how inventory will be reduced in order to recreate the housing myths that caused the bubble in the first place. The lending market has just begun to tighten due to defaults and fraud. Less money to loan means less home sales.

The situiation is pure economics nothing more nothing less. The past five years were fueled by perceived price increases forcing people mentally to obtain non-traditional loans in order to buy a home they could not afford. This scenario caused false appreciation in the housing market. Now that we are going to have at least a 20% default on subprime mortgages nationwide and that percentage will be much higher for the Sacramento area we are in for some serious price declines. The price declines we have had thus far are minor compared to what will play out over the next few years. The only way this process of declining prices will reverse is with significant wage increases i.e infaltion. The other wild card is to wait and see how much fraud there was in the subprime loan market. With stated loans who knows? This situiation could worsen to a point of causing serious economic troubles for this Country.

Look out below, were in for a bumpy ride.

Sippn said...

Anon, PS

Pure economics (as you said) will also include the increase in new home sales and resultant decrease in new home inventory that was reported on in this blog in January.

Don't forget the 15 quarters of increased interest rates that flattened mid year (it takes 4-6 months to have an affect)

Sippn said...

JR

Great chart from SD. Looking back a couple decades (1982), we certainly benefited from a very low trustee deed rate and where we are heading looks like more the norm...not a happy norm, but the norm looks like double the current rate.

Plus no adjustments for population increase - this is just raw data. It would look a little softer now. But I do see your concern for the high rate of change.

JR what price do you think real investers (not flippers) will come in in mass and purchase as rentals?

jeff said...

Anyone know what's going on with the Venu condos in Roseville? Seems like lots of repairs going on and lots of vacant units. Quick history lesson: These were going for over $400 a square last summer, I"m thinking the developer abondoned this place of went bankrupt.

paranoid renter said...

>>>>>>>
JR what price do you think real investers (not flippers) will come in in mass and purchase as rentals?
>>>>>>>>>>>

In order to be cash-flow positive today, a good 2 bed/2 bath condo shouldn't be more than 150K. Assuming that there is potential for appreciation the max would be 200K. Otherwise, think about it - on a 150K condo with a 30 year fixed, you would pay approx. 900. Then there's property tax about 150/month. Then there's HOA - the new ones are running at about 200/mo. Then there's mello-roos. Another 70 or so/mo. And finally there's maintenance costs - let's put that at 50/mo. That's 1370 per month for something you can probably rent for 1300/mo. So you'd be in the red until hopefully at some point prices start to rise again - and this is at 150K. Impossible to get a 2 Bed/2 Bath condo for that price right now. They are running around 250K - 300K.

You can do a similar analysis for single family homes.

JR said...

Sippin, The market will bottom just like it did in 1995. Investers will have a 20% down payment and demand a cash on cash return (after all expenses) at a return equal to the interest rate. So if they have a 6% interest rate, then 6% cash on cash.

There will be no negative cash flow accepted, because there will be no appreciation for 10-years, perhaps 15 years if the market gets real ugly.

There are many, many foreclosures in the pipeline, so we will have a lot to chose from. The foreclosure buyers will not pay a premium for abandoned, beat up houses. Once a bank gets it, the value drops 20% just for fun!

I will probably start buying again in 2009, although I am looking at multi unit properties that are returning 10% cash on cash. They are not very high quality, so it is a tough choice, vs. T-bills at 5%.

jeff said...

5-10 years before a recovering found...http://www.pe.com/business/local/stories/PE_Biz_D_forecast13.2c666ce.html

Perfect Storm said...

From Broker Universe. “At least two more midsized subprime firms, both non-depositories, hurt by buybacks, are considering selling their shops. (One, we’re told, is owned by a large publicly traded company.) We’re still checking out the particulars and hope to have confirmation next week. As one SoCal mortgage executive told us late last week: ‘If you don’t have liquidity, you’re gone.’”

It looks like two more subprime liar loan outfits are on there way to bankruptcy. They say they are trying to sell, but who would buy an already insolvent company. HR Block is trying to sell "Option One", however no takers.

Looks like another domino is tipping over in the housing market collapse.

Anonymous said...

Read the email discussion one blogger had with the Chief Servicing Officer at Option One. An interesting dialog.
See http://tinyurl.com/yx8uyc

Perfect Storm said...

This is a comment from an Orange County Appraisar.

This is really just the beginning. I do pre-forclosure work for a large and reputable portfolio lender. I no longer do regular appraisals as there is a complete lack of legit clients who actually want the market value. Calls by brokers to comit fraud are a daily occurence. Scary thing is that after they call me, they just call someone else, who will eventually ablidge. I would say that 80% of licensed appraisers in Orange County are either totally incompotent, which means they actually think its their duty to give the broker the value that he wants, or are total fraudsters, which means they know how to pump value to make deals work, and still get past the review process. I do foreclosures all over OC and now am finding multiple REO properties within the same devopments. From San Clemente, Dana Point, Laguna Niguel, to Fullerton, Orange, Santa Ana, and Newport Beach. There are tons in Coto de Caza and the whole 241 corridor, Lake Forest and Laguna Hills. Its always the same: House purchased in 2004 or 2005, with zero down, lender is usually an OC subprime outfit. This is happening real fast, and its scary to think what the bottom will look like. I guarentee however, that the bottom will not be reached for several years. In the end, I think we are very likely to see 2002-2003 price points all across the county.

Draw your own conclusions.

norcal ray said...

Perfect Storm,

looks like Sac and the rest of Calif are going to get hit hard. That is what you would expect after all the reckless lending and speculation. Look for an increase in REO's, inventory, and bank losses. It is going to get tough for the flippers and the ARM crowd real soon.

Anonymous said...

Whoever invested in real estate and did not sell in the last few years is going to get burned.

There will be no spring rebound.

Anonymous said...

As of:

01/15/2007 12,465 $315,000 $399,999 $569,000
As of:

01/08/2007 12,218 $318,500 $405,000 $569,000

By not buying last week I just saved five grand, according to houisng tracker.

Inventory is on its way up, here comes the spring sting. Don't buy now and catch a falling knife, unless you want to be in debt forever.

patient renter said...

A mortgage fraud ring in Southern CA has been uncovered and will result in a loss of 1.2 billion also throwing 5,000 homes into forclosure. This is huge, but is certainly only 1 scam out of countless others.

http://www.emediawire.com/releases/2007/1/emw497285.htm

Perfect Storm said...

Sacramento has its own ponzi scheme in Lincoln Crossing.

jeff said...

I'm checking craigslist everyday, seem same properties listed over and over, little sales turnover. Despite the end of year buying, things have really slowed. I'm seeing prices decrease about $3-6K every 3-5 weeks, easily. Both the low end and high end seems to be suffering. Plumas Lake prices are really unreal, the asking prices on the new stuff hasn't really budged and yet Lincoln, which is a a better area, is seeing significant price depreciation of late, similar to what we saw last Spring and late Summer.

Sippn said...

Jeff - check MLS on Sacbee.com. You'll see stuff go into pending. me thinks craigs list is mostly 2nd rate for real estate.