Friday, February 16, 2007

'When I Give Them the Price, They Get Really Quiet'

From the Modesto Bee:

Record numbers of homes are sitting vacant awaiting buyers in the United States. An estimated 2.1 million empty houses were listed for sale during October, November and December. That's about 62 percent more than usual, according to U.S. Census Bureau statistics.

The glut of vacant houses is readily apparent throughout the Northern San Joaquin Valley, as bank foreclosures and former rental homes flood the for-sale market. Empty houses cause hardship for owners, who often struggle to pay mortgages and upkeep costs on property they can't sell.

For 10 months, Harold and Donna Suender have tried to sell their empty Salida house. When they put the 2,305-square-foot home on the market in April, they priced it at $515,000. But the slumping real estate market has forced them to repeatedly lower their price. This week, they dropped it again to $399,996.

"I've never seen anything like this," said Harold Suender, who bought a new home in Riverbank before the market turned. "That (near 20 percent price reduction) is a lot of money, but we have to get it sold. We can't cover two house payments forever."

The Suenders had hoped their Salida house would help fund their retirement. They bought it in 1994, then moved out in 2003. They rented out the four-bedroom house for three years, getting as much $1,650 a month.

But their renter moved out shortly after the home went up for sale. So no money is coming in, and the Suenders are paying for landscape and cleaning services to keep the house in top condition to attract buyers.

"Probably the smartest thing to do is try to rent it again, at least until the market comes back up," Suender said. "But I don't know how the rental market is now."

The answer to that is: Not good.

"The rental market is very soft and very tough right now ... and it's deteriorating," said Paula Leffler Zagaris, who leads Liberty Property Management, which handles about 1,500 rental homes in the Northern San Joaquin Valley.

Zagaris estimated that a home in Salida such as Suender's now would rent for about $1,250 a month. She said that's because so many homes that have lingered on the sales market have started flooding the rental market.

Conversely, since the oversupply of rental property has pushed down rents, many former rental-home owners are trying to sell instead. "I get at least five or six calls a week from investors who want to know how much their rental home is worth. Then, when I give them the price, they get really quiet," said Mary Prieto, a Prudential California Realty agent who sold 80 homes in Stanislaus County last year.

Prieto said nine of her current 28 listings are vacant homes. Some are former rentals, but most are houses owned by people who bought elsewhere and since have been unable to sell.

Another reason behind the surge in empty homes, Prieto said, is the region's rapidly increasing foreclosure rate. "I would say more than half the vacant homes on the market are owned by banks that have repossessed them," Prieto said.
Also from the Modesto Bee:
A developer that had hoped to build a 3,000-home community on more than 850 acres northwest of Riverbank no longer is interested. Grupe, a Stockton-based developer, had agreements to buy the acreage to build an upscale community called The Bridges....Grupe also is no longer interested in paying for the city's general plan update. It already was paying toward a promised $400,000; the entire plan was expected to cost $500,000.

"Whoa. Whoa. Whoa. I thought Grupe was going to pay for it whether they built or not," Mayor Chris Crifasi said at a City Council meeting this week.

That was the plan, but Grupe could terminate payments anytime, company Chief Executive Officer Kevin Huber said by phone Wednesday..."That's why I like the city to rely on itself for things like this," Councilwoman Virginia MadueƱo said.
...
Grupe pulled out last week, citing concerns about a slowdown in the housing market, said Riverbank Community Development Director J.D. Hightower.

28 comments:

lexi said...

I don't see how anyone can look at these numbers and not see how prices have to come down to a more
affordable level. 2001 was when prices got out of control and started racing upwards and untill prices return to around that amount and open the market up to
people who want to buy but are priced out, we'll be in a standstill. Some bubble sitters will buy but it won't be enough to
save the market and stabilize prices. Since renters are not losing anything monthly except their
rent.. it will be the owners of the vacant homes who will have to
cave on prices or foreclose.

anon1137 said...

If the Suenders bought the house in 1994, they shouldn't have any trouble getting enough rent to cover their mortgage payment, even in a soft rental market.

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

Agreed anon1137 unless they did the equity withdrawl dance.

Didn't the article say they bought a second home recently? That could affect a few things.

Patient Renter said...

"When they put the 2,305-square-foot home on the market in April, they priced it at $515,000."

"The Suenders had hoped their Salida house would help fund their retirement. They bought it in 1994"

"I've never seen anything like this"

This is the typical story where greed plays a big role. They must have pretty short term memories if they think they've "never seen aything like this"... after all, it was extreme price variation that made them think their house grew to $515,000 over the last few years, and now it is extreme price variation that is killing that hope.

Patient Renter said...

Also worth mentioning: Nobody wants to rent a house that's for sale. Why do they think their previous renter moved out after they put it up for sale? Good luck with that.

Dr Housing Bubble said...

Fence sitters are starting to become fence sleepers. No movement in the upcoming months and it doesn't seem like we'll see a spring and summer bounce. It'll be a dead cat flop.

Dr. Housing Bubble

Patient Renter said...

"Fence sitters are starting to become fence sleepers."

At least for myself, I've got my tent and sleeping bag ready (along with a new rental lease), cause it's going to be a long sleep.

lexi said...

True, the Suenders are not the
typical empty house owner right
now though. They were long
term specualtors and as such
in much better shape than the
short term specualtors that
are flooding the market with their
empty homes right now. How long
can short term specualtors who
never planned to be stuck with
these homes very long, hold on?
Everytime one cuts the price on their home or gets foreclosed on
the prices will just keep getting lower and put more pressure on whoever is still holding on. The
Suenders need to decide to either
hold on long term & rent it out
at a competitive price or cut
the selling price down to a firesale price and unload it.
Everyone who cuts there price today
will end up making more money than
someone who cuts their price a month from today, untill the bubble
inventory is gone.

lexi said...

Actually, after looking at a map
of where Salida was, if I were them
I would sell at a "priced to sell"
price and take whatever profit
they get and be happy. Sacramento
to Bakersfield is on everyone's list of most likely to decline.
(every realtor in those area's will
disagree I know)

AgentBubble said...

Just looked the property up in MLS. From the tax records, here's what I show:

12/9/94 - Paid $142,500 for house

2/21/03 - Took two loans out, one for $191,250 and one for $51,000.

10/24/05 - Took out $140,000 loan.

Based on that, I would say they owe about $360,000 on the house.

MLS Stats:

3/31/06 - Listed for $515,000
5/3/06 - Reduced to $505,000
5/24/06- Reduced to $485,000
7/13/06- Listing expired

7/13/06- Relisted at $479,950 (same company)
9/1/06 - Expired at $479,950

9/14/06 - Relisted at $429,996 (new company)
10/20/06 - Pending sale
10/24/06 - Fell out of escrow
10/25/06 - Reduced to $409,996
2/13/07 - Reduce3d to $399,996

sf jack said...

Squeeze.

Ouch.

Pain.

Chasing the market down.

I hope they enjoyed those equity withdrawals.

Patient Renter said...

Holy equity loans! I thought that was the case, but wanted to give them the benefit of the doubt. Bad moves.

Gwynster said...

Just freaking dumb. What ever happened to paying the mortgage off? For me, that's the whole point of a mortgage.

Happy Sam said...

Wow.

Look at the numbers:

Let's say they owe $350,000 (some principal has been paid off).

Listed at $399,996, sells for 90% of that = $360,000.

Commission 6% - 21,600

Uh Oh...

Pre-net: $338,400 (11,600 upside down)

Other sales costs....

pain

anon1137 said...

What ever happened to paying the mortgage off?

My friend's mortgage broker told him, it's not about paying off your mortgage anymore, it's about "debt management".

Perfect Storm said...

Notices of Default are 1 month away from shattering the previous record in San Diego County.

Gwynster said...

And I paid cash for my last car (2007 model) and the sales manager looked at me like I was from Mars.

I just don't get this. The goal is be out of debt right? I feel like I missed a memo.

Sittin' Out This One said...

Perfect Storm,

Go to this site to see the graph of San Diego Foreclosures. Enter 1982 as the year to start tracking. You will see the accelerating curve of foreclosures. It is the steepest in the 25 year tracking history.

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

Sacramento is only a couple of months behind SD.

Diggin Deeper said...

IMHO, there's more than just a real estate bubble and the Suenders are a perfect example of a consumer debt bubble that has balloned since the Fed started the printing presses to stave off the last recession. Millions took on Trillions of dollars in debt when money got so cheap. Its no wonder the savings rate in this country is a negative number. The consumer has funded the economy's "boom" with IOU's based on perceived wealth created by skyrocketing home prices. I doubt there's a handful of homeowners reading this blog that did'nt refi at least twice during the "boom". Most took out "equity free" money as their reward for becoming so wealthy in such a short period of time. It allowed them to put a new car in the driveway, remodel their homes, join their local golf or tennis club. In effect they felt rich with this new found paper money scheme. I get a real charge out of the commercial about the guy who's "in debt up to his eyeballs" pleading "Somebody please help me" How revealing a simple TV
commercial can be as to the real problem that faces many. All this foolishness was based on the premise that house prices would continue to go up creating even greater wealth along the way. As long as prices escalated, nobody got hurt. Yesterday's news claims that US housing starts have fallen to their lowest level since 1997. Prices are dropping across the country and what was wealth in the past, now is pile of notes due and payable. It doesn't appear like Goldilocks gets a free ride anymore. Keep your powder dry and "fence sleep" awhile.

Diggin Deeper said...

Sittn' out this one

Looks like it took all of five (1992-1997)years to finally shake out during the last market turndown. The labor situation during that time was poor due to base closings and loss of aerospace jobs in the area. However, since nearly 40% of all new jobs created during the most recent boom period, I would suspect job losses to lead the way again. If those figures ring true, we're in year 1 of a multiyear slow down.

Diggin Deeper said...

Excuse me, that should read "nearly 40% of all new jobs created during the most recent boom period" were real estate related.

lexi said...

The more I read (like Diggin Deepers post) the more I think
I'm going to be bubble sitting for
a while. I'd planned on 2 years,
1 year ago.. it's looking like it's
going to be a lot longer than that.
I need to find a great landlord and
dig in. I'm tied to California
for 6 more years.. I might be
like gwenster and find somewhere
"normal" to buy and leave state after that where you can live
comfortably and maybe even pay
off that mortgage in 15 years.

Patient Renter said...

Sittin' Out This One :

That graph is impressive. The rise is almost completely vertical and it's only the beginning of '07!

Perfect Storm said...

The decline in real estate is just now getting started. Liquidity is drying up and the funders are doing margin calls. Foreclosures are going to be rampant.

Realtwhores and mortgage scum baits are going to break all time foreclosure records. Good for them.

Cmyst said...

Diggin, you are so right.

Unfortunately, most people who are middle class believe themselves to be upper class, and vote and act as if they were. And it's all being supported by a huge consumer debt bubble, helped along by the housing bubble. Voluntary indentured servitude.
Yet, the band plays on, because as long as people are able to maintain the illusion of prosperity by using equity or credit, they think everything's A-OK.
Doom and gloom? Just reality. Just what gets glossed over while they feed us the really "important" stuff like Anna Nicole.
Wishing does not make it so. There must be a basis in reality. And there has been no basis in reality to support the overheated housing market any more than there was a basis in reality for the irrational dotcom stock bubble.
When I was in high school we learned in Economics class that the value of an item is equal to what someone is willing to pay for it.
Sellers are all too willing to quote that rule when prices are heading up, but they seem to forget it when no one is willing to buy any longer.
The value isn't what you owe on the home, what your neighbor got for his home, or what you need to retire on. If you don't want to sell, then don't sell. If you want to sell, then drop the price until someone is willing to buy. If you lose a lot of money, because you bought high and now must sell low, that is what happens when you speculate. That's why speculation is RISKY. If there wasn't extreme risk, there would be no extreme profit. Unlike the stock market, where you can just sit on a stock until it becomes worthless or it begins to move up again, when you BORROW to "invest" in real estate, you have to pay taxes and mortgage and maintenance on your "investment". If you think it's not a loss unless you sell it, think again and do some math.
But I really don't care -- your loss is not my concern.
And I remain able to pay around 250K to 300K, regardless of what you want or need, and I don't NEED to buy.

anon1137 said...

Re: Diggin's comment

If it's true that many homeowners, like the Suenders, have continued to tap their equity as the RE bubble inflated, this could have a real paralyzing effect on the market as the bubble deflates and more and more people go underwater. Even if they can make their mortgage payments, they will never be able to move if they owe more than their homes are worth. I don't think this happened during the previous boom-bust cycle in the 90s, maybe because it was more common to make a real down payment back then and the market didn't drop enough to put many folks underwater.

Wealth Coach said...

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