Sunday, February 11, 2007

House of Dreams or Nightmares?

From the Auburn Journal:

There you are, living in the house of your dreams. It cost you $500,000, but you're only paying $1,100 a month after you 100-percent financed your home with an interest-only pay-option adjustable rate mortgage, known as an ARM. Then the market changes. Your completely financed home, after the market has cooled, is now going to cost you almost $4,000 a month for your mortgage. Welcome to the world of some of Placer County's residents.

According to DataQuick Information Systems' latest report, default notices, the first step in the foreclosure process, have risen 262.4 percent in the fourth quarter of 2006 in the county, exploding from 149 notices in the fourth quarter of 2005 to 540 in 2006. Placer's rise is the second highest increase in the state, according to the La Jolla-based real estate statistics research firm.

To combine with the default notices, median home prices in the region continued a downward trend according to the latest figures released at the end of the year by the Placer County Association of Realtors. The median home price for the county in December 2006 was $439,700 with 302 homes sold in the month. The median sales dropped 9.3 percent from 2005 when the median price was $485,000 with 315 homes sold for the same month.

"I see a decline for Placer County. One of the things lenders are doing, because Placer County was one of the fastest-growing markets appreciation wise, is they put a review on the appraisals," said Mark Champlin, owner of MAC Real Estate Services in Auburn. "Almost every lender is putting a second review on the appraisals because Placer County went up so fast and it's subject to change fast."
...
"Mortgage defaults have definitely increased. I used to look at the paper and see one every once in a while, now I look in the Journal and I see three or four," said Kathy King, a mortgage broker with California Mortgage Advisors Inc. in Auburn. "It's kind of scary because Auburn hasn't historically been a big area for foreclosures."

The reason for the increase is because interest rates were low for a long period of time and consumers were getting loans that normally would be out of their reach, King said. Consumers who got 100 percent financing on negative amortization loans and other adjustable-rate mortgages are starting to feel some discomfort, and more could be on the way.

"1.5 trillion in loans will be adjusting this year (nationwide). They're going to adjust a lot, some will adjust two percent," King said. "It's going to be an interesting year to see what happens with foreclosures, that's for sure."
...
"I feel sorry for those people who got into a house that was priced high and got interest-only loans and are now upside down on the mortgage," [former Auburn mayor and city councilwoman Cheryl] Maki said. "Because they're first-time buyers, a lot of them, and they're trying to buy a home and it's a fortune."
...
"Anybody who bought a home in the last two years cannot refinance, they have to ride that storm out," said Champlin, a licensed real estate and mortgage broker since 1979. "I can't refinance anybody, I get calls all the time. They are coming out of a 4.75 (interest rate), it had a three-year window on it, and the reality is they're looking at a 6.5 (rate)."

38 comments:

Sippn said...

But, but, but... agent bubble said in his last article that 1700 of the 1833 "distressed" listings were under $500K.

I guess the Auburn Journal didn't check their facts!

Hey it made a nice story!

Patient Renter said...

sippn: Are you criticizing AgentBubble or the Auburn Journal with your comment? Hopefully the former....

Default notices are just ONE of the indicators of a distressed property according to the data that AgentBubble pulls.

Sippn said...

Sorry, I'll be clear. I'm criticizing the Auburn Journal for bending it a little. They used a $500K example when 7 of 9 distressed homes were puchased for under $400K

Agent Bubble showed us some facts. The foreclosures are happening in the lowest price ranges, and also mostly not in new subdivisions.

Actually, when I reread the rest of the article, it was pretty good.

I'm just hiding here from my teenagers.

AgentBubble said...

patient renter

sippn: Are you criticizing AgentBubble or the Auburn Journal with your comment? Hopefully the former....


Out of curiosity, why do you hope sippin is criticizing me?

As for the article itself, I ran some Placer Counter numbers comparing Dec 05 with Dec 06 and here's what I got:

Dec 05
336 sales
Average $/SF 231.38
Median $/SF 224.79
Average SF 2106
Median SF 1957
Average Sales Price $470525
Median Sales Price $425000

Dec 06
361 sales
Average $/SF 264.38
Median $/SF 256.84
Average SF 2003
Median SF 1840
Average Sales Price $513446
Median Sales Price $460000

I get just under a 9% median sales price drop. However, the more interesting stat I notice is the 14% decrease in average $/SF and median $/SF.

Placer County Distressed Stats

226 listings out of 2400 total listings.

Year Built
2005-2007 - 37
2000-2004 - 80
1995-1999 - 26
1990-1994 - 16
1985-1989 - 15
1980-1984 - 12
<1980 - 39

Price
<300,000 - 32
300-399K - 71
400-499K - 52
500-599K - 35
600-699K - 14
700-799K - 15
800-899K - 2
900-999K - 1
>999K - 4

Steven said...

Agent Bubble:

Thanks for the Placer County data!

AgentBubble said...

I just realized I have the wrong years on my data above. Dec 05 should be Dec 06 and vice-versa. Sorry for the confusion.

lexi said...

Hey, they (Auburn Journal) were just giving an example...
Does it matter if the homes were
in the lower price range? I think
not.. when they default it will
bring everyone's home prices down,
not just lower end market.

Patient Renter said...

"Out of curiosity, why do you hope sippin is criticizing me?"

I mispoke. I meant that I hoped he wasn't criticizing you. All is well.

AgentBubble said...

patient renter--no harm, no foul ;-)

Dr Housing Bubble said...

$1,000 a month to $4,000 a month isn’t so bad. You can easily get cash advances off of your credit cards and give Cash Call a ring. The memo is out that debt is the new black and you can go all the way to the bank with that!

The seams are coming apart quicker and quicker. California is a facing a new epicenter and this isn’t on the San Andres Fault. HSBC has cautiously warned that the subprime market is going to cause a lot of problems in their portfolio. Keep in mind that in 176 years of history, HSBC has issued very few warnings. Considering they are the 3rd largest bank in the world maybe we should listen.

And folks did by taking New Century Financial down last week after they announced they may have to buy back some bad loans. Maybe these folks seeing their rates reset from $1,000 to $4,000 can give HSBC or NEW a call, I hear they’re drooling for subprime loans.

Dr. Housing Bubble

Sippn said...

Former, latter - he meant flatter!

OK so here's the plan...
Sell the Denali and the MB... oh wait - return the leases for $1,000/month savings, make you own coffee for $300/month savings, cut back to one CATV box for $150/month savings, Cancel the kids personal trainer for $240/month, do your own nails, make your own dinner, mow you own lawn, tell the church you can only do 5%, clean you own house, cancel a few phones....

Lenders never had those items in mind when they created payment/debt ratios.

Just my thoughts.

Is that too much suffering?

The most poular vehicle owned by persons with $1 million net worth and above is..... F150 Ford, white, 1-2 years old.

norcal ray said...

The most poular vehicle owned by persons with $1 million net worth and above is..... F150 Ford, white, 1-2 years old.

Even that car is too expensive for me and the gas mileage is not good. A Honda Civic is more economical.

Sippn said...

See Ray, thats why you probably have so much money...its not how much you make, its how much you keep.

Dvo said...

I agree, norcalray.

Near-new white Ford F150? Ugh. How very American of them.

You think if you're at a $million$, maybe now you can afford to 'suffer' through cushy space-age hybrid-ness to help Team Earth? Maybe spend SIX instead of FIVE for the Fair Trade Latte'?

Oh, right. There is no Team. Get your Own bootstraps, ya socialist.

but...

Balance of Trade! Ponzi Debt Abyss from the bottom to the top! Child poverty! Laughable Fiat Currency! Casey Serin! Gun Crime! Fat and Stupid and Quiet Desperation! Tens of millions uninsured! A - TRILLION - dollars for Iraqi Fubar!

prepare for the
Great American Meltdown
It's Already Underway.
*rainman voice: 'Nightmares. Definitely House of Nightmares.'

And, Ironically, methinks it's Just Exactly what we Need. I believe it was Nat King Cole who said, 'Straighten Up and Fly Right.'

*rant off

Gena said...

Placer County is not the only County where this happening. All the counties are suffering the same issues. I am finding that anyone who bought in the past two years is upside down. It's rough to have to say to a Seller, who wants to sell, "I'm sorry but your home is worth less today than what you paid for it." It's the times and this too shall pass...

norcal ray said...

sippn,

you are right, it is not how much you make but how much you keep. A person can have fun in life and still save money every month.

and dvo, giving back to society can be a good use of funds and rewarding. With all the getting, get some understanding too.

Coltster said...

kind of stinks I just bought my 1970's 4 bed 2 bath in rosemont for $317,000 in sept 04.

I saw the prices hit $400k and felt great about things- now the price is almost back to where I bought it and were just at the beginning of the market starting to go down- anyone with a good backround want to honestly estimate what the rock bottom of my price will be before it actually starts to appreciate again one day?

Patient Renter said...

"anyone with a good backround want to honestly estimate what the rock bottom of my price will be before it actually starts to appreciate again one day?"

I can give you my guestimate and the reasoning for my guestimate. First we have to assume when the bottom will occur. Judging from history, a real estate cycle lasts 11 years with the price drop occuring for maybe 6 years before hitting bottom. It's very safe to assume that this bubble will take at least as long to play out given that it was several times greater than any previous bubble in history. Also consider that historically, on average, home prices appreciate at the same rate as inflation... and this is largely indisputable.

So, if you have any idea what your home would have sold for before the current bubble (maybe, say in 1999-2000) start with that and add 4% a year for inflation, projecting out maybe 5 years from now (since we're only less than a year into negative prices so far) to see what it might be worth at the bottom.

I think

Cmyst said...

For the first time in a long time -- and believe me, I have been browsing the Bee MLS every Sunday for about 2 years now -- there were over 75 listings in the areas of North Sac (Carmichael, Fair Oaks, Orangevale, Arden/Arcade, etc.) that I habitually browse, between 250-300K. A year ago, there were maybe 5. Maybe.
I even went and checked out one for 275K. It obviously needed some work, which I expected. But the yard was too small, and it needed a new roof as well -- and the neighborhood, while not dangerous, was looking a little sad. (It's important to note that this house also had some positives: near end of dead-end street, so little through traffic. Right next to a very nice, very large park. Very close to public transportation, and shopping.)
I also drove by a house out here in EDH a couple weeks ago, which was listed for right around 400K. That's too much for me, but it was close by and I wanted to see if it really looked anything like the listing photos. Nice house -- it also needed a little cosmetic work, but very nice views and in older part of EDH with mature oaks and vegetation, plus not right up on the ridge and therefore not as "windy".
Things are definitely headed in the right direction if I'm actually out doing drive-by's again.

Sippn said...

Coltster

prices for 4/2 Rosemont homes have been $285-385K for past 4 months, depending on size, location, condition, etc.

Its close in, new high school, light rail - it will be pretty solid.

In fact, I'd bet over the next 10 years, better than inflation with the move of UCD med school from Davis to 2 offramps down the freeway.

Jeff said...

coster: $250k best case.

coltster45 said...

Yea- I figure it will bottom between 250k and 275k also Jeff.

Hopefully the bottom comes in the normal 6 year pattern- so 2011 we may start to boom again you think?

It's nice that the economy is pretty solid in sacramento and employment is sound. During the last down cycle in 1990-1997 unemployment was high and the Mather air base was closed down-- that killed the rosemont area and rancho cordova area in terms of real estate. We're talking 8,000 stable government jobs removed in a small area. People could not give thier home away. I did not experiece this but some older gents in my area have told me.

It feels like we are not going to get the 'double whammy' that kills RE prices like the last time- we just have to deal with the surplus inventory that the flippers are trying desperatly to remove from their portfolio's.


Whenever someone puts a house up in my area and prices it just right (5% below the rest in the area) I see the house sell quick.
Price is king and there are definatley still shoppers....

which then again makes me think this 'great bubble' might not deflate as much as I am thinking., and some other fellow bloggers are thinking.

Now- for people in elk grove/natomas, etc who bought those new developments - for some reason I think they might take it in the rear harder in the short term- I am saying that as a gut feeling - not sure- but it just feels like those new developments were laced with flippers and newbie homebuyers who may have gotten in over their heads with rotten morgages.

I am in the market for anything in sac in a solid area that I can put 20% down on and have the rent pay my morgage- how long till you think I find a house that fits this criteria?
---
If I rent my rosemont 4/2 bath house I can get $1550 as there are a few rentals in my area I investigate.
My morgage tax and insurance is $1900 - I would lose $350 a month.

I wish the market were easier to read so I could know what do with by $$$.

Perfect Storm said...

This market will median out around 180K easily in the Sacramento area. Were headed for a two recession and massive job loss especially in the real estate sector.

Resmae mortgage bit the dust. If sales are doing better why do more and more mortgage companies go bankrupt. Answer is real estate market is getting worse daily now.

These areas will have a 60% decline in two years. OAK PARK, SOUTH SAC, NORTH HIGHLANDS, NORWOOD AREA, DEL PASO HEIGHTS, RIO LINDA. Plus each of these area's crime rates will increase dramatically, and thats bad because they are already near third world status anyways.

Gwynster said...

Hell, I had a break-in last night and I live in "prime" Davis - no kidding.

When people get hungry, expect to see the crime rates soar in places that you didn't expect.

The DH and I are fine but it was a wake up call. I'm guessing they were looking for laptops and flat screens - things easy to move and transport fast. They spooked and ran out the back door so they got away with nada.

As to prices at the bottom? I think Perfect nailed it. Figure median household income x3. That's where they'll have to settle if you want to rent the place out and not take it in the shorts. Now do we get fast drop or a little drop and the long spiral upwards with inflation covering the rest remains to be seen.

Embdddsgnr said...

My property isn't distressed
but I can't sell, just like the rest.
I can probably hold on
'till this bubble is gone;
I guess I'll just hope for the best.

Diggin Deeper said...

I think Perfect Storm is right on. IMHO, markets are markets whether they are stocks, bonds, commodities, or tulips. Unabated straight up equals unabated straight down all the while trying to find a levelling point. Why fight the tape when its clear that hundreds of thousands of people who bought homes during the boom had no business doing so. Until they shake out completely, the finanacial institutions take their lumps, and the new home builders drastically scale back their projects, this market continues on its present path. To get in the way of it is foolishness at best. Undercurrent fundamentals such as carry trade, trade deficits, falling dollar,
consumer debt, and burgeoning money supply are more troubling to me than the real estate market. However, real estate is a true byproduct of the fundamental deficiencies mentioned. Someday the piper gets paid and until that time the grandstands have a perfect view of the playing field. I've heard comments about how land in Sacramento is as scarce as San Francisco. Really? Drive around, any direction, and a well adjusted adult can see for him/herself that addage is bunk. Same with location, location, location. If one wants location buy a home overlooking the ocean, or at the foot of a ski slope, or on a pristine river. Watch the big picture because the little speck we call Sacramento will have to frantically paddle upstream to break even. Again, just an opinion of many.

Coltster54 said...

I think perfect storm is a little off- 60% decline in 2 years- that is a little ridiculous- its not like houses are stocks where everyone can hit the sell button - like in the nasdaq bubble.

Many people bought high and will have no choice but to hold on and they do.

The government publishes a website that shows housing price here:

http://www.ofheo.gov/HPIMSA.asp

If you look at the data for sacramento during one of the toughest economies and recession- 1990's the overall median price only went down 20%

In the 80's downturn it only went down 5%

During the 80's downturn the economy was solid and had a soft landing unlike the early 90's during the economy very hard landing.

I am feeling the soft landing scenario- not because I am optomist but that is just what the figures are telling me so far.

Yes I think in the short run there will be some idiots who got in over their heads being shaken out- but when they are toast I think the market will stabalize.

60% drop- wow- that is worse than the great depression when people were starving. A 4.5% unemployment rate is extremely far from starving that is the best employment base on record for the last 20 yrs.

lexi said...

I personally think when housing
hits bottom.. it will equal
a 40 percent decline from the top
in August 05. Although that is
the biggest decline in history..
this bubble was the Mother of
all bubbles. I was qualified
in 2001 for 215K for a fixed
loan. I did not buy..
In 2005 I was qualified for
500K with an interest only arm
pay option. My income did not
go up much.. I almost bought at
that scenerio. I realized if the
interest rates went up, I would be
unable to refi and would have to sell and if prices went down I'd
be sh#t out of luck. Good thing,
even though I'm no expert I could
figure that out!

Gwynster said...

I'm sticking to my 3x median income. Now I'm also expecting our median income to stay flat for the next 4 yrs too.

Add to that the number of people relocating out of Sacramento. Sure we had some inmigration from the BA - mostly from low wage earners responding to economic pressure in the BA. That inflow does not cover the outflow of the middle-class families relocating to the flyover states. There is definately a loss of dollars for someone as a result, just not sure who. My focus is on families and how they respond to economic pressure over time. How the ecomonies respond to change is for someone else to figure out.

I was offered another position sadly and so I won't get to see how our current studies end up. I was really looking forward to seeing how all the data played out.

Diggin Deeper said...

If the $1-1.5 Trillion reset number is right and the average household mortgage note is at an average of $150,000, then upwards of 6-10 million households will be affected by the reset. If we are talking 10 million households and 35 million people as worst case, this probably makes a strong case for very slow growth and/or recession as over 10% of the total population in the country will be affected by higher mortgage rates. Hmmmm wonder how we're going to spend our way out of this one?

HappyinSF said...

Colster,
John Lockwood covered Rosemont in a recent post. He showcased many houses currently listed between 270 and 290k. So it looks like houses are allready near what you think/hope will be the bottom. He likened Rosemont to Antelope as the first time buyer, sub 300k, area to check out. If you are in it for the long haul (10 years or more) and have no problem paying your mortgage and saving for any problems down the road, you'll do just fine.

Diggin Deeper said...

Just to be fair, the actual average mortgage is about $184,000 using the most recent data from the OFHEO for 2006 so the numbers aren't quite as bad as originally thought. The average note in California for 2006 was $270,000.

Gwynster said...

Median household income in Sacramento county $46,296 in 2003 call it $53,000 appr adjusted for inflation.

Ok now when homes are 3 times the median, my checkbook comes out.

As far as Rosemont, you can easily find a nice rental there (3 or 4 br) for 1100 to 1350. No incentive to buy there.

paranoid renter said...

gwynster,

You might be waiting a looooooong time (like eternity). Santa Barbara has a median income of ~50K and a median home price of ~1 million. If they can command a 20X multiple, surely Sacramento can command a 5X-7X multiple.

Perfect Storm said...

Good old Santa Barbara, a few thousand millionaires and a 100,000 low income service workers and students. Plus a lot rich people just own second homes in Santa Barbara.

Perfect Storm said...

Good old Santa Barbara, a few thousand millionaires and a 100,000 low income service workers and students. Plus a lot rich people just own second homes in Santa Barbara.

Perfect Storm said...

I think perfect storm is a little off- 60% decline in 2 years- that is a little ridiculous

I said these areas will have a 60% decline in two years. OAK PARK, SOUTH SAC, NORTH HIGHLANDS, NORWOOD AREA, DEL PASO HEIGHTS, RIO LINDA. These areas have the all the ameneties for the most deperate crack whore.

Gwynster said...

PS did mention the off-price area.

And Patient, I'm not sure comparing SB to Sac works. That place has been so out of wack, even the surrounding area are experiencing insane run ups.

I used think of the CA economy as the worm Ouroboros, eating it's tail. Now I think of it as Saturn consuming it's young.