Monday, February 19, 2007

Sacramento Housing Market Underwater: 1 in 5 Homes is a Short Sale

From USA Today:

Here's an alarming fact about Sacramento's housing market: About one of every five existing homes on the market is a "short sale." That means the home is worth less than the value of the mortgage, and the lender is willing to accept less than full repayment of the loan to avoid foreclosure, says Tracey Saizan, president of the Sacramento Association of Realtors.

That, in turn, puts pressure on the remaining 80% of sellers, who have equity in their homes, to cut prices. The median price in the state capital, one of the most overheated metro areas during the real estate boom, fell 4.3% in December compared with December 2005.
...
"There is a sense that we are going through the tunnel, and the light at the other end is sunshine, not another train heading at us," says Greg Paquin of The Gregory Group.
From the Auburn Journal:
Citing shifting economic factors, Auburn Harley-Davidson owner Bob Holmes has scrapped plans to move his North Auburn dealership to a Bowman parcel. The plan would have seen construction of a 30,000-square-foot store and service facility at the corner of Luther and Bowman roads.
...
Holmes withdrew his application last month but stated that once the project makes economic sense again, he would re-apply...Citing the recent financial difficulties on a 55-story condominium and commercial project in downtown Sacramento as an example, Holmes said that it's a difficult time for a development to move forward because of the slowing housing market and economic conditions in northern California.

Businesses like boat, auto and motorcycle dealerships depend on discretionary income to remain high and with the housing market continuing to soften, the Auburn Harley-Davidson focus will be on the Locksley Lane location.
From the Sacramento Bee:
Holding back: The builder of one of two planned downtown condo towers hasn't sold a single unit in months. But that's strictly by design, says Craig Nassi, the Denver developer behind the long-awaited Aura project at 601 Capitol Mall.

He says he reached the sales threshold he needed for a construction loan last fall. Since then, he's held off sales in the expectation he can get higher prices for the remaining units after construction begins. "We do that on every project," Nassi says. "You get a lot more money (for condo units) later in the game."

Nearly 200 of the project's 268 units have been sold, according to Hanley Wood Market Intelligence....Nassi says he expects to finalize his main construction loan from Corus Bank of Chicago by mid-March. When will construction start? "The next day" after the loan is finalized, he says.
From the Sacramento Business Journal:
Centex, the region's eighth-largest builder last year, is one of at least 10 homebuilders in Sacramento that have had a change at the top ranks, a turnover rate that's been pushed by the market.

"The builders are shuffling," said Angel Ahumada, founder of Integrity Recruiting of Roseville, which specializes in placing executives and mid-level managers in construction industry positions nationwide.
...
Most of the turnover occurred during a stretch that saw new-home sales in the region drop from 14,095 in 2005 to 9,588 last year...New division presidents have taken the helm in the past year at KB Home, Meritage Corp., Morrison Homes and Pardee Homes.
...
Some of the first moves by the new leaders have been to trim the work force. Construction-related jobs fell by 1,500 between December 2005 and December 2006.
...
Richmond American Homes reduced its Sacramento staff, including division president Jim Gillette, who was hired in December 2005 and then departed about nine months later, said Mark Butler, Northern California president at Richmond American. Gillette is now working as a real estate consultant.

Butler, based in Richmond American's Pleasanton office, said the company hasn't pulled up stakes in Sacramento but has reduced its land holdings. "Our goal is to keep buying land," Butler said, adding that the company has not closed a deal since early 2006. "(But) the next deal we do has to reflect today's sale price and incentives."
From the Stockton Record:
The coming layoffs of about 100 Stockton-based workers at Washington Mutual should surprise nobody. A good number of those people work in WaMu's sub-prime lending arm, Long Beach Mortgage, one of the nation's biggest sub-prime mortgage lenders.

Sub-prime loans are not your traditional 30-year, fixed-rate mortgages. Anything but. They are loans aimed at higher risk borrowers, people with little to put down, and people who, to be honest, might be buying more home than they can afford.
...
But funny-money loans? It probably will be a while before we see what we saw at the height of the boom. In the first quarter of 2005, 42 percent of all mortgages in San Joaquin County were interest-only loans.

The heady times started heading south by the end of that year. Regulators have become more and more outspoken about the dangers of the sub-prime, put-'em-in-a-house-at-any-cost industry. Financial institutions loan money. They should not be in the real estate business and that's what might happen if a bucket of mortgages go south, regulators warn. And they might. Foreclosures are climbing. In the fourth quarter of 2006, foreclosure notices in San Joaquin County reached their highest level in at least 10 years.
Also from The Record:
The rising number of foreclosures in San Joaquin County isn't helping home sellers, because that pumps up the competition, makes it tougher to sell and depresses prices. Still, builders, brokers and industry experts said that even with defaults climbing, the impact may not be significant because homes-for-sale numbers have plummeted in recent months anyway.
...
David DiDio, mortgage broker with Greene Dream Homes and Loans in Stockton, said the foreclosures downturn should end soon, adding that the last foreclosures upswing a decade ago lasted about a year and a half. The housing market has picked up noticeably recently, he said, "so by spring, we'll be out of this, because most of these homes will be able to sell."

86 comments:

Marc Brinitzer said...

A couple of weeks ago, an agent I work with told me that 20% of the Sacramento inventory was REO's and short-sales. That number has probably grown if short sales now make up 20% by themselves.

Unfortunately, that number will grow. Each week I get calls from people representing that part of the iceberg that has been hidden from view. That is, people with ARMs that are resetting to a higher rate and payment. Their equity is gone. They can't sell, refi or afford the payments.

On the demand side, lenders are lowering LTVs, raising Fico requirements, eliminating programs like "wage-earner stated income" which will reduce the number of buyers.

We have a ways to go before we get through Paquin's tunnel.

Sittin' Out This One said...

A friend of mine asked me to review her retired mothers plan to buy a house when she moved into town. She has $400,000 cash to spend. I ran the numbers for her:

Rent at $1400/mon = $16,800/year
Earn 5% on her $400,000 = $20,000/year
Buy a $400,000 and pay $7,000/year in Tax, Ins, HOA.
It is likely the house will drop 10% in value in 2007, per forecasts, so subtract $40,000.

Renting vs buying for 12 months saves her $67,000 by waiting 12 months. Her retirement income is $23,000/year. The prudent difference is equal to three times her income.

She got the message.

Patient Renter said...

About one of every five existing homes on the market is a "short sale."

"There is a sense that we are going through the tunnel, and the light at the other end is sunshine, not another train heading at us," says Greg Paquin of The Gregory Group.

It's too bad that Greg had the misfortune of being quoted in the same article as the short sale stat. He basically looks like a fool.

Patient Renter said...

"David DiDio, mortgage broker with Greene Dream Homes and Loans in Stockton, said the foreclosures downturn should end soon, adding that the last foreclosures upswing a decade ago lasted about a year and a half"

Maybe this guy can ask Lereah to keep his fingers and toes crossed for him. Even if the forclosure spike only lasted a year and a half, we just barely got started.

Wishful thinking as usual.

lexi said...

1 in 5 homes for sale are short-sales...?with this just
the beggining I can't even
imagine where prices will end up
and how it's going to effect the
economy. I'm afraid to buy a house
even if the price was great, untill
things settle down and the market
looks stable.

Sippn said...

As Tom Sullivan might say..
"real estate is on sale"

A friend of mine has been renting forever, just found a REO (bank owned home) about 15% less than current market, can get into it for a couple hundred dollars more than rent, no down. Had been priced out of the market. (seller already has several offers).

Saw a big expensive one a month ago at about $1 mil, about $150-200K under replacement cost, sold in 3 days.

There are some opportunities out there.

Sippn said...

Lexi, its the sheep syndrom... most people won't make purchase decisions until interest rates start moving up or home prices start moving up again.

lexi said...

Sheep syndome... hmmm..
like we're the sheep and
the wolf would be the realtors
and mortgage lenders. Yep,
you're right. Actually,
I would welcome higher interest
rates.. it's the purchase price
that's out of line. If I buy
with a high interest rate and
a low home price I can sell in
3 or 4 years... If I buy when
home prices are high but interest
rates are low then I'm screwed.
I think most fence sitters are smarter than given credit. The
sheep sydrome caused this housing
specuation and the sheep syndrome
will make it correct.

Patient Renter said...

"most people won't make purchase decisions until interest rates start moving up or home prices start moving up again."

Prices are not going up now, they're going down. Higher interest rates will negatively effect unafordability (even more than now) driving prices down even more. No matter what, falling prices will stay and buyers will wait it out.

mnadim22 said...

I actually want rates to rise so we will have more cleaning. I do not mind paying 1% more in order to get 200K discount.

Please raise the rates Helicopter Ben

Jeff said...

sipping. are you calling the bottom here? talking like that is pretty ballsy.

lexi said...

Anyone who thinks this is the bottom is a fool. This is just
starting... Prices have not
become affordable. With credit
becoming even tighter to buy and
inventory rising with foreclosures
and short-sales.. prices will continue to decline. Opportunities
are in the eye of the beholder.
Buying now could be thought of as
an opportunity to become the next
FB.

Gwynster said...

Opportunity is in the eye of the bagholder?

**winks**

Sippn said...

Jeff - since you asked -

You all are looking for one bottom to the market - fine - call me when it happens. There will be many bottoms depending on what you are looking for or what RE you are into.

High end ($1 mil+) close in - it just slowed - I don't believe it declined.

New homes - it may be premature but in our region they had the best month in 19 - I think they found their "bottom" - otherwise, they'll slow it down some more.

Resale $250-500K, it may be 6-18 months before the closed median price reflects a "bottom"

BUT, BUT, BUT

Many buyers create their own "bottom" by either purchasing a foreclosure, bank owned property or the old fashioned "make an offer" on a property they like anyway. Short sales and repo sales are happening now - but you won't see them reflected for 60-90 days in the stats.

Obviously tract builders have been creating their bottom with pricing and incentives and have results.

It also depends on the area and the local inventory including new const. The further away you are, the more whipping you will take.

Lets wait until mid March and look back at February MLS "pendings" aka new escrows and builder sales and see if the sales quantity continues...

But you 2 who want higher interest rates - coupon clippers or CDs? (I mean bond coupons).

lexi said...

Sorry.. I don't clip coupons.
Maybe if I did... I'd have so
much money I wouldn't care if
I paid 75K to 200K over what
a house in Sacramento is
really worth.

paranoid renter said...

>>>>>>>
New homes - it may be premature but in our region they had the best month in 19 - I think they found their "bottom" - otherwise, they'll slow it down some more.
>>>>>>>>

I don't think they have necessarily found the bottom. They know that it's going to be a loooong cold winter when it arrives (which may be a year or two from now) so they are aggressively pushing whatever they can through.

I've seen this play out in the dot com bust, and if this is even half as bad, things will get very ugly. That's why I think the gummint will have to step in and do something before things get ugly -- like lower interest rates. Otherwise we risk deflation and falling into depression in which case none of us renters will see any good of this either...we might not have jobs!

Bakersfield Bubble said...

1 in 5 and we are only in the 1st innning of this ball game. What happens next year 1 in 2?

Sippn said...

Lexi - I just can't figure out why one would want higher interest rates.

Speaking of the dotcom bust - nobody needed to have a dotcom stock - that was optional. With housing, not so optional.

There is a lot of stock market investing that doesn't rely on fundamentals either. "Technical" investment analysis is nothing more than watching a trend line, nothing to do with net worth.

SF looking at 10x median price to median salary.

Fundamentals only set the bottom, don't seem to be limiting the top.

The public tract builders, maybe 1/2 of our new home market, does not have any land to produce homes here in the future, so if this doesn't work, they're not committed. They won't have much left to dump in 2008 unless they buy more land, bosses won't let them do it unless its profitable.

These guys can't operate indefinately without profits.

paranoid renter said...

>>>>>>
These guys can't operate indefinately without profits.
>>>>>>>>

True. The way this was done during the dotcom bust was:

Method 1: If you don't have cash, declare bankruptcy, clean the balance sheet, and start over with lower costs for everything (from people to raw materials). Smaller players simply get acquired by larger folks (that have money).

Method 2: If you have lots of cash, take a huge one time charge to write off your current inventory (overpriced stuff anyway) and then you can sell that for cheap, plus start over with a clean balance sheet just like the folks in Method 1.

I expect that to be the way things play out with this bust as well.

paranoid renter said...

>>>>>>>>
Speaking of the dotcom bust - nobody needed to have a dotcom stock - that was optional. With housing, not so optional.
>>>>>>>

Yes, it's optional. You could choose to rent like some of us are doing.

Also, with dot com stocks there were people whose retirement monies were in mutual funds that invested in those stocks so many people who didn't even know there was a bubble going on were impacted by it.

My car mechanic used to talk about how much money he was making in the stock market. It's no different with this bubble.

Bubbles are a simple way of transferring money from poor to rich. The poor get in at the end by which time the rich are already exiting sitting pretty on piles of money.

paranoid renter said...

By the way, there has to be another bubble after this one to save the economy. Anyone want to try and predict what it will be? It has to be something that can absorb many of the job losses that come from real-estate and mortgage and loan industry.

Maybe it will be healthcare. The nation will suddenly realize what a shortage of qualified nurses we have.

Embdddsgnr said...

There has always been a shortage of qualified nurses. I predict the next boom will be in biotech. Whether pharmaceuticals, assistive devices/therapeutics. . . wait, did you say absorb the job losses? Never mind. . . .

I once asked a nurse I know what the difference is between a CNA, an LVN, and an RN. She said, "The CNAs clean up the poop. The LVNs push pills. . . and clean up the poop. The RNs push pills and clean up the poop, but can describe the psychological effects of shittin' in your own bedpan."

Diggin Deeper said...

"Bubbles are a simple way of transferring money from poor to rich. The poor get in at the end by which time the rich are already exiting sitting pretty on piles of money."

Well said and a perfect example of this real estate bubble. The next bubble? How about water? We take it for granted but in most of the developing world potable water is in extreme short supply. Maybe an even bigger story than oil when you consider man can live about two weeks without it.

Oops CPI number came in a bit hotter than expected. Most of it came from the grocery store (up .7%), airlines, and medical costs. Wait til the corn crop hits and the ethanol companies start using huge amounts to make fuel. No wonder tortillas are in short supply in Mexico. Food costs are likely to soar throughout the year. But that's ok because their numbers are stripped out of the CPI and don't really count on the inflation scene. Will only add to the downside pressure of the housing market.

paranoid renter said...

The only way a biotech boom can help would be to increase immigration in large numbers with that skill and hope that that translates into more economic growth - kind of like the y2k/dot com bubble. Now if that happened, all the arriving immigrants would need homes and that would keep real-estate buoyed!

Patient Renter said...

"Oops CPI number came in a bit hotter than expected. Most of it came from the grocery store (up .7%), airlines, and medical costs."

Don't forget that this administration changed the way CPI is measured. According to the Clinton era calculations, we're officially in a recession right now.

lexi said...

"Housing slump all but over
Greenspan: Wizardry, wisdom and a surprising admission
Jacqueline Thorpe, Financial Post
Published: Thursday, February 15, 2007
The worst is behind the U.S. housing market, but Alan Greenspan, former chairman of the U.S. Federal Reserve, did not rule out an outright decline in prices before the economy has absorbed the huge glut of unsold new homes still on the market.

"It's hard to envisage going through a period as expansionary as we have without some decline in home prices before it's all over, but I don't look for anything really significant," Mr. Greenspan said yesterday."

Wow, I guess if Alan Greenspan
and David Lereah say it's all
good now, we should all go grab
our check books and buy, buy, buy.
Wasn't it Alan Greenspan who told
everyone they should switch from
fixed mortgages to adjustables
in spring or summer of 2005? That
was the worst advice ever. They
are all trying to convince the
bubble sitters to hop on the Titanic. Thanks, but no thanks.

Real said...

Wow, I guess if Alan Greenspan
and David Lereah say it's all
good now, we should all go grab
our check books and buy


While I am sure Lexi has the same pedigree as Mr. Greenspan (wasn't Lexi Fed Chair under Carter?), I think I am more inclined to go along with him on this matter as it is in line with what I have been saying. Now, Greenspan is not always right - a lot of his policies to shift investment from the stock market caused the housing bubble in the first place - but his comments are the common sense deduction from all the available data points. Now, the sacramentolanding echo chamber will reveberate with angry renters not wanting to hear this message, but it is the fairly obvious conclusion.

As to the 'economy is going to hell in a handbasket' and the 'weak dollar' crowd, I would ask you to look at the price of the dollar vs. any other major currency but European currencies. Take SA, Taiwan, Japan, etc and tell me how weak the dollar is when we have appreciated over the last 12 months. In short, I understand the renters want the market to crash 50% so they can buy - but their major problem is that they only internalize data points that lead to that belief which is why when people like Greenspan make common sense statements, they are shocked.

lexi said...

Alan Greenspan and David
Lereah have an agenda..
Alan Greenspan doesn't want to
go down in history as causing
the big housing bust and David
Lereah is the NAR spokesman.
I don't. I've actually decided
not to buy indefinitly. I
COULD buy even in El Dorado
Hills at this point and have
a nice home but I feel I'd lose
too much money in the coming
5 to 7 years. If things were
really good the NAR wouldn't
have to spend 40 million dollars
to convince joe 6 pack to buy.
If I'm wrong then I still feel
I made the right decision to
keep renting as I'm paying quite
a bit less than the mortgage I'd
have owning even considering the
tax write offs. All the "Experts"
can't convince me otherwise. After
all.. I saw the bubble coming
and either they didn't or wouldn't
admit it.

Diggin Deeper said...

IMHO it was Greenspan who got us into this mess in the first place! In order to cushion the blow of the dot.bomb debacle, he was the one who dropped rates so low a monkey with a piggy bank and a smile could buy a home and a Hummer with no money down, no job, and the only needed ability was to be able to sign your name 75 times on a mortgage doc. At least he spoke a sentence last week that the rest of the world could understand. Most of time his gibberish left the Washington power base scratching their heads trying to figure out if he was answering their questions or giving them a line of academia BS. As far as Lereah is concerned, he's nothing more than that monkey with a smile and not nearly as dangerous as Greenspan was. As long as the international community keeps buying our debt, Greenspan's charade continues. The US needs about $3 Billion per day from foreign investment to finance our trade deficit. Last month the foreign community bought $15 Billion (just little shy of the $90 Billion needed), the lowest total since January of 2002. If foreign investment doesn't step up in the months to come, Helicopter Ben will have to start dropping dollar bills all over Washington. Real estate prices would then become irrelevant.

paranoid renter said...

>>>>>
Last month the foreign community bought $15 Billion (just little shy of the $90 Billion needed), the lowest total since January of 2002.
>>>>>

Where can I find this data? I want to learn more.

Diggin Deeper said...

Here you go Paranoid Renter

http://biz.yahoo.com/ap/070215/foreign_investment.html?.v=1

It's called the Treasury International Capital System and publishes data on foreign investments made in the US each month.

Diggin Deeper said...

"I would ask you to look at the price of the dollar vs. any other major currency but European currencies."

Once again, selective data produces the results intended. Why not add in the New Zealand Dollar, Australian Dollar, the Canadian Dollar, Thai Bhat, the Scandanavian Krones, the British Pound, South African Rand, Indonesian Rupiah, the Mexican Peso, the Brazilian Real, even the obscure little Icelandic currency. How many more do want? We probably could fill the page. Your selection of the Yen is amusing. Without factoring in the carry trade, the interest rate the yen rose to .5% yesterday. Japan is coming off one of the great deflation stories of the 20th century and you want to place their currency against the dollar? The Yen is probably the most undervalued currency in the world due to their artifically low interest rates. Maybe you'd like to place the Yuan in the same basket? Please do. It would spur a great conversation.

Real said...

Diggin Deeper: please explain to the forum how 'Balance of Trade' is a more relevent number than 'Balance of Payments'. If the Balance of Trade was a meaningful number, the nearly $1T negative that we posted last year would have sent the US sailing into a great depression. Meanwhile, the balance of payments - which reflects goods and intellectual services (patents, financial services, profit margin repatriation, etc) was close to $0B last year. That is the only number that really matters.

Real said...

In my post I clearly stated that other than European currencies (so save your kroners), the US dollar appreciated. Some foreign currencies will trade more closely to the Euro given their history (Australia, New Zealand, etc) but these are very small trading partners of the US which is why I focused on Asian currencies. However, here is a more comprehensive list of our trading partners:

Over the last 12 months:
Canadian Dollar, US dollar appreciated
Mexican Peso, US dollar appreciated
Hong Kong Dollar, US dollar appreciated
Taiwan NT Dollar, US dollar appreciated
China – pegged (so it does not count)
Venezuelan Bolivar – pegged (so it does not count)

Also from your list:
South African Rand, US dollar appreciated
Indonesian Rupiah, appreciated over the last 9 months

So, you may be having fun doing your freshman year macro economics 101 class while smoking some dope and listening to some old Bob Dylan tunes thinking the world is coming to an end and only you are smart enough to see it, but the real world does not work that way son. Also, the next time you throw out a list to try to discredit an argument; you might want to actually check the data to see if you are correct. I give you that advice for free – might come in handy during your sophomore year.

lexi said...

Why Do I feel like Real, Paranoid
Renter and Sippn is really just
David Lereah frantically typing
on his computer trying to maintain
damage control?

Diggin Deeper said...

Real, you're right I should have clarified that these currencies have appreciated against the dollar since 2000. The real facts are very simple for even a scholar like you to understand. You can take almost any major currency against the US Dollar over the last 5 years, notwithstanding your precious Yen, and the results are unmistakeable. You can resort to your childish name calling, probably because the thorn drives a little too deep, but you cannot make the numbers sing your way. Every time you present your thoughts you conveniently leave out a host of important information that changes the bottom line and it really does take your credibility down with it. It's amusing to watch your demeanor change as it reveals how young and inexperienced you must be.

Gwynster said...

I'm pretty sure Paranoid is one of us Sac housing bears.

Real and Sippin seem to be in Baghdad Bob mode. Occasionally they give real data. You just have to watch for it.

Real said...

Real, you're right I should have clarified that these currencies have appreciated against the dollar since 2000.

I would have to question your basic understanding of appreciation vs. depreciation, but nice try at changing the time frame to fit your incorrect statement.

You can take almost any major currency against the US Dollar over the last 5 years, notwithstanding your precious Yen, and the results are unmistakeable.

Actually, the dollar has DEPRECIATED vs. the Yen over the past 5 years - once again, refer to the free advice I offered to you in my last post.

Just grabbing a few currencies:
Over the Past 5 Years:
Mexican Peso, US dollar appreciated
Hong Kong Dollar, US dollar appreciated
Taiwan NT Dollar, US dollar depreciated
Venezuelan Bolivar – US dollar appreciated
Argentina Peso – US dollar appreciated
Iran Real – US dollar appreciated

Now that you have been proven to be incorrect in your argument, will you please just admit that you were wrong and simply shut up? I think you should be able to scrape up some bong residue so why don't you go do that, put in some Pink Floyd and leave economics to the adults. Thanks!

Diggin Deeper said...

Once again, selective information garners intended results. I guess we'll have to put Iran into the major currency category. As for for Argentina, what's a poor country like Argentina playing on the big currency field with inflation disaster they've experienced over the last several years. And Venezuela is a real treat. You really did pick some winners here. Each of them poses a severe shock risk to the dollar's supremacy. You really don't expect the adults on this blog to allow you to selectively present your argument based on this lot? I really thought you might go into "research mode", as scholarly as you are. No, facts are facts, Real, as disappointing as they may be. Your desperation is laughable, and with each post, you drive the auger a little deeper with your unmeasured response. My humble advice is not to join the playing field unless you have the proper gear.

anon1137 said...

I think we all need to calm down. Not one of us, even Greenspan, knows what's going to happen in the next 1y, 2 y, or 3 y. Who predicted that home prices would rise 100% between 2000 and 2005? If any of us could predict the future, we'd all be hanging out on the French Riviera instead of Sac-o-tomatoes. There are to may ifs - if China doesn't sell US bonds, if immigration is stable, if Osama stays in his cave, if the levees hold, if the state doesn't go bankrupt, if Israel doesn't nuke Iran, . . . .

Another thing to remember is that Greenspan is looking at the *national* housing market. The CA central valley could decline 10% this year and if the east coast and FL stabilize and the midwest improves, the national market would still have improved and Greenspan would have been right. (Besides, he's probably trying to affect buyer psychology because he knows his behavior after 9/11 started the bubble and he's starting to worry about his legacy.)

Real said...

diggin deeper: what a fitting name you have chosen for yourself. Rather than admitting you are wrong, you simply spew more stupidity ever digging a deeper hole....

Now that you have shown your 'knowledge' of currency exchange rates and inability to look up simple data points, could you please move back to my original request to explain why balance of trade is more important than balance of payments? I am hopeful that your knowledge of the subject comes close to the mastery you have shown for FX, I will prepare myself to be dazzled.

Sippn said...

Sorry I missed the party, someone's gotta do the work, ya know!

Who said "renting" is not spending on housing. Living in a car is not spending money on housing. If you're renting a house, you're just paying somebody else to buy the property for you.


Please don't compare Greenspan to a Realtor, Greenspan just suggested consumers try variable rate loans instead of fixed, they're cheaper by 1/4% or more. Greenspan didn't say go lie on your loan applicaiton and get a 100% loan with a 1st year buydown. Did he say variable or adjustable? Way different products.

Back to housing, if you're renting, you are supporting prices, your $1500 may only be supporting $250K, but it won't go below that.

Diggin Deeper said...

Real, for the sake of the Blog, I don't think any further dialogue with you is necessary at this point.

lexi said...

Renting IS spending on housing.
It's like taking none of the
decline or repair risks and getting
it on a monthly sale price.
Not to mention not having to
pay the sales and escrow when you
decide to sell... which on
a 400k house is around 29k.
Greenspan suggested for people
to try adjustable loans at one
of the lowest interest rates
in years. Why would you want to
risk that .. you could spend a
little more and get fixed or
take a big risk and get a little
off and do a adjustable. Why did
he suggest this.?. to keep
the market on froth mode. If you
look up real estate on Craigslist..
you'll see you can rent a nice
house in Folsom or wherever for
a price that's way under what it
would cost to buy. Facts are facts. I think if people want to
buy.. if they have money saved up
and are planning to stay for at
least 10 years and can easily afford the payment, then they
should buy. If you don't fit
in that scenerio... you're taking
a big risk.

paranoid renter said...

>>>>>>
I'm pretty sure Paranoid is one of us Sac housing bears.
>>>>>>

Where the rubber meets the road, I'm definitely a bear. Didn't buy in early 2004 when prices were 25-30% lower than today and now definitely priced out. But I'm also paranoid...I could be wrong about not buying and could have priced myself out for life.

ralphk said...

Paranoid..."I could be wrong about not buying and could have priced myself out for life."

I moved to Folsom too late in the game to jump on the wagon so sometimes I too wonder if I shouldn't have taken the plunge. Then I slap myself on the forehead and am grateful I'm not upside down in a cookie cutter house that I resent and can't sell.

If California prices go down in the next year or two, great. If not - I have no plans to retire here, maybe I'll just buy land in a more affordable state.

Sippn said...

Renting in Folsom is a real deal right now.... long term lease? pets? smoker ug. Deposits are required there also.

When Intel and Kaiser get back to expanding soon, watch rents and prices rise again.

Anatolia said...

sippn, I am with you. Way to go

Jeff said...

Sippin, now you're predicting tech stock appreciation? Intel is in really bad shape, laid off a ton of people. Don't rely on them to carry the Folsom RE market. In fact as the slow down in chip making continues, it's going to kill RE in ElDo co. and Folsom.

Dr. Brightside said...

Silicon Valley is obviously much stronger than Sacramento now. How long will it take to work it's way over like it has in the past?

http://drbrightside.blogspot.com/2007/02/bay-area-luxury-housing-hot.html#links

Dr. Brightside said...

Straight from the Desk of Mike Lyon. The real data. Keep in mind sales = closings (lags 60 +/- days) so pendings indicate market activity and future closings after bottoming out in the fall. The trend is quite positive.

"TRENDGRAPHIX-For Immediate Release

TRENDGRAPHIX’s latest report shows that sales decreased 26 percent during the month of January for the Tri-County region of Sacramento, Placer and El Dorado Counties. January 2007 sales were 18 percent lower than January 2006 sales. Pending sales increased by 28 percent from December 2006 to January 2007.
.......January 2007 inventory of 10,317 homes for sale is 18 percent higher than January 2006 inventory. This is still below the regional inventory record high of 14,547 set in July 2006. This month’s Tri-County totals are 29 percent less than the regional’s record high.

Sacramento County
....Pending sales increased by 24 percent from 866 pending sales in December to 1,078 pending sales in January, which should create an increase in February closings...

Placer County
Pending sales increased by 38 percent from December to January...

El Dorado County
Pending sales have increased 34 percent during the month of January...."

Sippn said...

People used to read the newspaper

2/6/7

"Intel just recently announced the first fundamental change in the way electronic circuits are produced since the 1960s. That's a major breakthrough. Intel will be replacing much of the silicon dioxide in its chips with an alloy of an element called halfnium. Halfnium is far less likely to leak electricity -- and that has huge implications for producing chips with ever-decreasing sizes."


Intel is just an example.

Dr B, can't link it right now, but will review.

Did you know that Pleasanton is the job center of the Bay - made up all the Silicone Valley job loss.

Perfect Storm said...

TRENDGRAPHIX’s latest report shows that sales decreased 26 percent during the month of January for the Tri-County region of Sacramento, Placer and El Dorado Counties.

So you agree the market is tanking.

Sippn said...

yea I've been trying to bring their attention to the pendings increases for a week or so.



Got the link up on the bay lux homes.

"Bay area buyers can't find enough homes between $1-5mil." ... similar here $1-2 mil close in. Starting to get slim in the far eastern county. Still lots to see in El Do and Placer, but market showing much life. Lincoln had 7 or 8 1.2-2.2 mil homes go into escrow in the last few weeks.

If I mow their lawns, I can pay my 97% neg arm and live like a king.

Sippn said...

P storm - I'm sure you're comparing it yoy - why not compare it to 2002?

lexi said...

So basically, housing prices
are not the problem. The problem
is we need a ton of more millionaires and then the housing
problem will be solved. :)

Perfect Storm said...

““Chris Flanagan, managing director and head of global research for JP Morgan Securities, said approximately 35 percent of all subprime mortgage borrowers could have a difficult time meeting their loan obligations when their adjustable-rate mortgages hit their first adjustment period.”

“‘These are consumers who were getting into 100 percent loans when home prices were softening,’ Flanagan said.”

Hey, I got news for you, buddy. There were plenty of PRIME borrowers taking out 100% financing, as well. In the not too distant future, we’ll all be talking about the carnage in the Alt-A sector.

Sittin' Out This One said...

Eventually sales will stop sliding and as affordability increases sales will increase. In 2004 it seemed like everyone was talking about the real estate market and how much their homes were worth. Now, it seems like everyone is talking about how much homes are dropping in value.

My neighbor’s daughter bought a home in Natomas in early 2005 using 100% 80/20 sub prime mortgage. It was a 2/28, meaning the rate resets on March 1, and the 20% second is already at 10.25%, up from 5.5% in 2004. They cannot handle the rate reset. There is simply not enough money coming in to meet all the bare bones obligations. They decided to sell and have listed it, but values are down below the mortgage amount. With the sales cost, they are upside down by over $100,000. They are in financial and emotional disarray, to say the least. The probability is they will have to walk away from a situation that was initially so joyful

On the flip side, one of my wife’s friends has been home shopping. She found a nice home in Elk Grove for $350,000 and put in an offer for $320,000. The seller accepted it, but it turns out to be a short sale and the bank insisted on $350,000. She had her heart set on the deal, because the seller was going to leave the stainless steel refrigerator and W/D set. Oh well. She was smart and kept looking. This week a neighboring builder made her a deal on a nicer home for $305,000 and threw in $45,000 on “incentives”. The home is a little nicer and brand new. Consider this: the bank that would not lower their price on the Elk Grove home lent $420,000 to the previous buyer on an 80/20 sub prime loan. The fact that both homes are equivalent means essentially the market has adjusted from $420,000 to $260,000 ($305,000 less $50,000 incentives). $160,000 drop from $420,000 is 38%.

And the “party” is just getting started.

Sittin' Out This One said...

Maybe these laid off workers in Concord can trot over to Silicon Valley and get some of the jobs in that stronger economy...

"About 250 jobs are being eliminated in Fort Mill, South Carolina, and 70 in Concord, California, according to a memo from Lynn Greenwood, a senior vice president of communications for the No. 5 U.S. bank’s home and consumer finance group. Wells Fargo is the largest U.S. subprime mortgage lender"

“As a result of changing market conditions — such as moderating house price appreciation — effective Feb. 16 we tightened our credit policy for a portion of our nonprime lending business,” Greenwood wrote. “This decision directly impacts our nonprime loan volume, which in turn impacts staffing levels in the areas devoted to managing these loans.”

"The cuts are the latest retrenchment in the subprime sector. Defaults are rising as flatter or falling home prices make it harder to refinance adjustable-rate mortgages whose rates reset higher."

Sippn said...

Sittn - a good example of a buyer searching for and finding the "bottom"

Perfect Storm said...

The fact that both homes are equivalent means essentially the market has adjusted from $420,000 to $260,000 ($305,000 less $50,000 incentives). $160,000 drop from $420,000 is 38%.

Pending sales like that make sense.

Diggin Deeper said...

If its one in five short today, it would appear that the number gets worse in the coming months as it takes at least 4 months for the bank to take back a home. Wouldn't be surprized to see the number approaching 30-40 percent as the year moves on.

ralphk said...

diggin - I think the number will exceed 30 - 40% as a percentage of homes for sale.

My clients are reporting more foreclosures than they have ever experienced. The smaller clients have been forced to create separate depatments to handle the flow.

As the numbers increase, REO's will have to drop in price to compete with builders. Price war?

The casual reseller (not the those forced to sell due to job transfers, etc.) may be forced out of the market because they can't compete in price.

Ah, who knows. If I could remove the human travesty, as a business/economic model this is fascinating.

I'm old enough to have experienced a couple boom/busts. I've done well with 3 out of 4 homes.

This boom/bust is unlike anything I've seen.

Diggin Deeper said...

Ralphk

Not to mention the pressure it will put on the rental market as homes that can't sell are put up for rent to soften the blow. I too, have seen the boom/bust periods as you have and this one, imho, is by far the biggest real estate bubble this country's ever seen. Over the years California overall has been somewhat immune to huge swings in pricing, and that probably drives the hopes of many who believe it will hold up under any circumstance. I don't think I can go along with that thought based on the number of homes that were sold without equity or the ability to withstand rising mortgage payments.

Gwynster said...

Ixnay on Intelay saving the dayay

They are laying off people and will continue to do so. I have a double handful of friends who work in the ivory tower. Managers are having their staffs removed and are being hidden in the ranks, hoping they can miss the cut.

There is quiet talk about relocating a major portion of the staff to other campuses. I know of 6 couples personally that are begging to get shipped out to AZ. Now one is "comfortable" at Intel right now.

Real said...

Gywnster, not to mix facts into your hyperbole but as I mentioned before, I work in venture capital and work with the people at Intel extensively. At the Folsom Campus, a vast majority of the changes have already occurred such as:

1.) Sale of a communications division to Cortina
2.) Sale of cellular division to Marvell
3.) Manager reduction
4.) Company wide downsizing

On the up side, the Folsom campus is inherited the following projects:
1.) Graphics – a new business at Intel
2.) Penryn development – first A0 silicon to boot 5+ OS’s. Should guarantee additional projects at the site
3.) NAND flash development (via JV with Mircon)

So, I know your 6 ‘friends’ are scurrying around making you think all 7000 people at the site will soon be out of work, but the facts are that the Folsom site is likely to expand in the near term as Sippin had suggested.

Patient Renter said...

The idea that Intel can keep this area afloat or save the day is ridiculous. ANYONE who has lived in this area for a long time knows that intel goes on massive hiring sprees and later they go on massive layoff sprees. That's simply the way the company works. Getting excited about one particular hiring spree merely shows you have a short term memory or simply don't know the way that Intel operates in this area.

I'm not saying this is good or bad (although I've chosen not to take a job there), but it's certainly not the mark of a company that will keep our area afloat over the long haul.

Diggin Deeper said...

"but it's certainly not the mark of a company that will keep our area afloat over the long haul."

Not having been in this area for too long, what industry will keep Sacramento afloat other than state govt and Davis closeby? There really doesn't appear to be an industry dominant growth pattern. Is it just a bedroom community for the more populated Bay area?

paranoid renter said...

>>>>>>>
Not having been in this area for too long, what industry will keep Sacramento afloat other than state govt and Davis closeby?
>>>>>>>>>>

I moved to Sacramento in 2003 because of a job. When I was thinking of buying in 2004 this is the first question that came to mind. What sustains the Sacramento economy and why is the area growing so much. Here are the observations I made during that time:
- The only real industry in Sacramento is the government.
- At some point people started cashing out home equity from the Bay Area and started moving east.
- That created a community that needed all kinds of services - restaurants, barbers, etc.
- A lot of jobs were created due to home building (flooring, wiring, etc.)
- This will continue as long as there are lots of people who want to move here from the Bay Area. These cannot be high-tech people since they won't find jobs here.
- Basically, if real-estate was to take a beating because people stop moving here from the Bay Area, the whole thing will unravel on itself because all the people employed by the housing growth will have to move elsewhere for work.

When I was thinking of buying I used to walk around the neighborhood asking people where they were from and what they did, etc. The bulk of people at this new development were people that had moved from the Bay Area and worked in home building related activity.

As a result, I concluded that this is too much of a risk. Once real estate starts to fall, I expect everything to implode.

However, there is the paranoid side of me that says my analysis could be totally off. :-)

Real said...

The idea that Intel can keep this area afloat or save the day is ridiculous. ANYONE who has lived in this area for a long time knows that intel goes on massive hiring sprees and later they go on massive layoff sprees.

Okay, so you are backing off the idea that Intel is imploding, that is progress on your part. Now, given Intel has about 7K employees at the site, how many HH's does that constitue with incomes above say $60K/Year? Even if the Intel employee is the sole wage earner, they are likely pulling in $60K+ and most of those households are likely pulling well in excess of $100K with 2 wage earners working. Now, how impactful is 7K employees? Well there are roughly 270K homes in the region and about 10k existing homes on the market - I guess whether 7K is significant depends on the person analyzing the problem.

lexi said...
This comment has been removed by the author.
lexi said...
This comment has been removed by the author.
lexi said...

Even if the Intel employee is the sole wage earner, they are likely pulling in $60K+ and most of those Real: Intel households are likely pulling well in excess of $100K with 2 wage earners working. Now, how impactful is 7K employees? Well there are roughly 270K homes in the region and about 10k existing homes on the market - I guess whether 7K is significant depends on the person analyzing the problem."


Yeah, and I bet they all have
two luxury cars that they are
paying on, credit cards maxed
and eat out at all the great
restaurants. Meaning... like
most of America and that great
commercial... they are in debt
up to their eyeballs...somebody
help them? Ooops... what? They
can't refi again? Crap

Thursday, February 22, 2007 11:

paranoid renter said...

With all of this talk on wages I feel compelled to point out that during the boom construction workers and workers doing other things related to housing (electricians, pool builders, etc.) were raking it in. Plenty of $$ per hour and big bonuses. Those excesses will evaporate with the slowdown, so many of those 6 figure income households won't have that kind of income anymore.

Diggin Deeper said...

Lexi, you hit the nail on the head. Wealth created by credit availability leads but one direction. If Sacramento has to rely on government employees as the basis for growth its probably already capped the real estate market. These are slow growth incomes that won't allow price appreciation to advance beyond the means to pay. If Sac overbuilt to take on the Bay area crowd and they no longer want to come this way, inventory lingers, then subprimers go belly-up, and prices keep falling until the deal seems to good to be true. It just doesn't appear that Sacramento has a strong enough and diversified foundation to withstand this downturn.

ralphk said...

Everytime I hear how the growth was so greatly fueled by the influx of bay area buyers I get this mental picture of, well, empty bay area cities.

Gwynster please correct if I'm wrong, but isn't the median household annual income in Folsom some where around $75 - 80k.

Diggin you're right on this is temporary wealth created by credit much more so than Intel employees and bay area transplants. $75 - 80k income does not a $500k house buy.

Diggin Deeper said...

Off topic, Gold looks like its wants to push through the $700/Oz barrier. The gold bugs think it could go conservatively to $1500/Oz. It sure has made a nice run from the mid $200's to present day value. For the life of me I can't figure out what's driving it up so high.

Looking_in_EDH said...

Don't count on Intel to make much of an impact.

Just look at the Intel stock price to get an indication of what the market sentiment is on Intel's future. This stock is essentially at 1998 levels!

In case you haven't noticed, semiconductors is not what it used to be. With chip-development in China and (soon) India, the expectations of healthy margins are diminished.

I don't agree that Intel can have much growth in the Folsom area -- in spite of the claim that they are adding headcount in the various divisions (I saw mentioned somewhere above).

Patient Renter said...

"Okay, so you are backing off the idea that Intel is imploding, that is progress on your part."

You should read more carefully. I never made any previous statements about Intel... of course you seem pretty good at misreading things.

anon1137 said...

Diggin Deeper = JR ??

fess up!

lexi said...

The Chicago Tribune reports from Illinois. “Housing analyst David Seiders told Chicago-area builders Thursday that the federal estimate of 3.5 million homes for sale at the end of 2006 is ‘grossly understated.’ ‘There is a big inventory overhang out there, and it’s bigger than anybody understands,’ he said.”

“In an annual forecast on the local industry in Addison, Seiders, chief economist of the National Association of Home Builders, cited the high level of sales contract cancellations in 2006. Many homes marked as sales in government data ended up back on the market too late to be counted as inventory, he said.”

Looks like the Tsunami of housing
inventory just keeps getting bigger. He went on
to predict flat prices for a few
years after affordabiltiy gets under control. How do you get
affordability under control? Prices have to come down or everyone needs to suddenly make
alot more money. Bubble area's in
California are on the road for
big price declines.

Diggin Deeper said...

anon1137 said...
Diggin Deeper = JR ??

fess up!

JR? Is that JR Ewing or Just Renting :)

anon1137 said...

DD - so are you or are you not the person who used to post here as JR? Same writing style, same market perspective.

Diggin Deeper said...

anon1137, No, I've never posted under any other name other than Diggin Deeper or an anonymous poster before the rule change. Maybe we just have similar views expressed in similar ways.

lexi said...
This comment has been removed by the author.
DP said...

Hey, first time poster. I'm glad I found this blog. Can't afford a home in the Bay area. If you do buy, you get this 1200SQFT home with 5000 SQFT land that is 40 years old for $800K. I started to look at Elk Grove and Sacto area for the last three months. I can because I work from home. Realtor says it's a great time to buy because it's a buyers market and that the rate is still very low. I was hearing all the right things. Low rate, Housing prices dropping, affordable NEW housing.

For some reason, I'm having this sick feeling in my gut. Stock market goes down 400 points, Lenders tightening up, increased short sales, mortgage companies bankrupt. It looks like it is accelerating.

It's kind of weird that when I wanted to buy a house awhile back, I couldn't afford it. Now that I can afford a monster house, I don't want to buy it.

This blog puts me in check with the other side of realty. Thanks!