Wednesday, February 07, 2007

'You're Screwed'

So what happens when, for the first time during the current housing bust, a homebuilder puts their homes on the auction block? A CBS 13 video looks at how the Standard Pacific homes fared at the West Coast Home Auctions sale in Elk Grove.

An excerpt from the video:

Reporter: He showed up out of curiosity because he already owns a home in the development and he's not happy about the auction.

Homeowner: You're buying it at $600,000 or $580,000, and all of the sudden they sell it for $430,000.

Reporter: Actually, they sold it for an even lower price: $410,000.
...
Homeowner: It hurts because if you bought it for $580,000, what are you going to do in 2 years, if you have a 2-year fixed on your house and you go to refinance and you don't have value in the house? You're screwed.
Previous story here.

Hat tip to a Sacramento Real Estate Statistics blog reader. Read more at SacRealStats.

35 comments:

Lander said...

Thanks to Gywn for bringing this to my attention.

rocklin renter said...

But if you didn't buy then you may never have been able to buy!

hemorrhoidforhousing said...

Ah...aint that to bad. Down here in the Bay Area in Pleasanton where I live they just reported the median price dropped 8.1% from December 05 to December 06. So alot of people just saw about median of $65,000 in so called equity evaporate.

The correction is in full swing and from Redding to San Diego.......LOOK OUT BELOW!

Gwynster said...

Thanks Lander. I had to go snooping to see what happened. It's like a car wreck that you can't take your eyes off of.

Mr Gwynster used to work for a MB back before he went back to grad school. Needless to say he says folks are going to really be pissed at the new comps. I hope those buyers are prepared for lots of crap if not outright vandalism from their new neighbors.

Bakersfield Bubble said...

Where is real or sippin?

No bubble huh?

The median stat numbers are hiding what is really going on.

Real said...

Where is real or sippin?

No bubble huh?


As I have said over and over again - it is about Location, Location, Location. New housing developments are always a gamble. I personally would never buy into a neighborhood where you know the overall appearance will only go down from the moment you buy. That is why you see established neighborhoods maintaining their value and the newer ones suffering. On a positive note for those that bought in the newer developments, if your neighborhood does not deteriorate, if a few years time you will not longer be the new development and your home prices will start to rise.

wannabuy said...

No home prices will be rising in California by June.

With sub-primes going, there goes the 1st time market. (The savings rate or home price/income doesn't let anyone in this state be a 1st time with a prime.)

We've seen this before. Prices go up to 8X median income and then drop to 6X median income. Oh wait... they went up to 11.4X median income. A wee bit further to fall this time.

Got popcorn?
Neil

Embdddsgnr said...

I'm gonna side with Real on this one. There is some depreciation in the nicer areas (say, American River Dr., many parts of E. Sac., etc.), but not huge amounts. For fun, I Zillowed the area bounded by Howe, Watt, Fair Oaks Blvd. and the river. There are a few million-plus sales, but a quick guesstimate shows most sales in the last year were ~$700K. For the houses that had previous sales data, it looks like around the end of the last boom they were ~$300K. Is that about a 2.3x increase over about 15 years? Totally unscientific, I know. I have friends who bought in new ticky-tacky stuccobox Roseville tracts around 2000, for less than $200K. Now their assessed values exceed $500K, and sales in their (track home, remember) areas have been insane, $550K, $600K, etc. A 3x increase in half the time?

If the American River area homes followed the normal inflation rate (what, 4%?) for the last 15 years, then should the median out there be about $550K? They might drop a bit, but that area will not be tanking.

Maybe we're all right, it just depends where you look. . . .

James said...

We've seen this before. Prices go up to 8X median income and then drop to 6X median income.

Median income is a meaningless number as we now have what amounts to a permanent underclass in California that will never ben homeowners. We are at an overall ownership rate of 61% and we will not go much higher than that. As to 1st time home buyers, they currently make up 27% of all buying activity - so having the number fall by even 50% only impacts the total amount of sales by 13.5% overall - hardly a killer.

What is refreshing is to see all the new construction end so the supply side of the equation has dried up pretty quickly. With new home starts drastically slowing, it will help to prop up existing home sales. If you are counting on a 50% pull back in prices, you are going to be waiting a long, long time.

James said...

Sorry, for transparency sake James = Real, I was checking email using my other account.

hemorrhoidforhousing said...

There will probably never be a 50% drop in overall prices but there may be a drop of 50% of the gains over the last 5 years. So there may be a situation where the 2000 price was 250K and with the boom inflation the price jumped to 450k. A jump of 200k in 5 years. 100k of that may disappear in the next few years.

I think your transparency is realatively easy to see through real..you are the contra to what is being expressed on this blog and it seems to me you are affiliated with the REIC. Am I wrong?

AgentBubble said...

James/Real,

Two areas that I've been following are Elk Grove and Rancho Cordova (Annatolia). Elk Grove is slated to get a 7,000 new home project, and the Annatolia area was planning on an additional 20,000 homes until the project was halted earlier this month by the Supreme Court. Like the previous poster said, I think it depends on where you're looking. Blanket statements like "the market will drop 40%" simply will not ring true in my humble opinion.

Last year, prices were mainly affected by the high invetory levels. This year, I think the wildcards are new homes and foreclosures. Generally speaking, solid areas like American River Canyon and East Sac are not going to be adversely affected by either, whereas Elk Grove or Natomas will probably take a beating. I think a third wildcard will be inventory. It's still too early to tell where it's headed, because we're at a point where it generally starts creeping up anyway, so I am hesistant to put much stock it the current levels.

Looking_in_EDH said...

huh!

Say that again ... James/real states that the loss of 13.5% of the buying population is hardly a "big deal".

Remember that home prices are set on the margin. It is the few % that actually sell that determine market price.

I think the lack of the 13.5% can have a substantial impact ... which by the way is going to be compounded by an increase in supply (of probably an equal %) due to the flipper in trouble population being forced to dump properties on the market.

Not a pretty scenario ...

lexi said...

So.. the first time home
buyer is priced out of the
market. Investors are pretty
smart and have pulled out of
the market so who does that
leave? Existing homeowners.
With the higest inventory of
vacant homes for sale in
50 years (taken from CNN)
you need those investors or
first time homebuyers. There
is only one way to get them
to jump in. Lower housing
prices... MUCH lower prices

Gwynster said...

Real, are you related to Marina Prime fom the Patrick.net blog?

AgentBubble said...

lexi,

I ran some vacancy stats for the 4 county area...Back on 10/13/06, there were 5,935 vacant listings out of 16,096 total (37%). Right now, we're at 4,996 out of 12,848 (39%).

lexi said...

The stats I'm using from CNN
are for the whole United States.
If an investor bought a house
and said it was going to be
a primary residence so they
could have a lower interest rate.... would that not show in
your statistics?

Real said...

I think your transparency is realatively easy to see through real..you are the contra to what is being expressed on this blog and it seems to me you are affiliated with the REIC. Am I wrong?

I am not affliated with any real estate agency and I tend to think of realtors as the "slimey uncle" to the used car salesman. I am a home owner - not even a real estate investor - and I post simply because I find the real estate market to be pretty interesting. I actually work in technology venture capital and have lived around the world. Once you visit other countries (especially Europe), the idea that homes in Sacramento as unaffordable become pretty laughable.

AgentBubble said...

And because I love to throw out numbers, here are some more for you to think about:

% of vacant homes sold

2005 - 11,621 out of 34,220 (34%)
2006 - 10,335 out of 22,964 (45%)

Jan 2005 - 781 out of 2094 (37%)
Jan 2006 - 694 out of 1488 (47%)
Jan 2007 - 648 out of 1220 (53%)

AgentBubble said...

lexi,

My stats are only for El Dorado, Sacramento, Placer, and Yolo counties. As for the investor part of it, I honestly don't know because our MLS just has two spots to indicate a vacant listing.

lexi said...

Well, I'll take those numbers
at face value. But whose going to
buy those empty houses? The
first time buyers is outpriced
and the smart money investor isn't
buying ... so are homeowners
just going to keep trading houses?
And.. all the ones that have
yet to come on the market by
people who bought with subprime
loans that can't keep up or can't
refinance. The inventory will
start increasing as that happens
and then there will be even less
homeowners in the mix.

Patient Renter said...

Lexi made some good points. The investors are gone. First time buyers aren't buying and will have less ability to buy as lending standards are tightened. So when inventory goes up again, what will cause it to go down? The only answer is lower prices.

"As I have said over and over again - it is about Location, Location, Location"

True, but location location location didn't save anyone in Northern California from getting killed during the last bubble cycle in the 90s.

lexi said...

It is location, location,location.
Like El Dorado Hills over orangevale or a house with
a view over a house with a baseball
field behind it. But as far as
locations that are untouchable
in California.... like San Francisco, Newport Beach, San
Diego.. wouldn't Sacramento be
pretty far down the list? And
real, you sound like you are rich.
How can you relate to the prices
that Sacramento people are facing
if your pay scale is off the charts. I can see why you don't
think there is a bubble. For
you .. it's all cheap housing.

Embdddsgnr said...

There was a new poster named Real,
who wondered, "What's the big deal?"
But the Landers they said,
"Don't you see all the red?
No contrarian view has appeal."

Perfect Storm said...

I agree location is important, that is why South Sac, Oak Park, Del Paso Heights, Norwood Area, Rio Linda, Foothill Farms, and Northhighland will all lose 50% to 60% if their value in the next two years.

These areas are going to be a blood bath of lost equity spilling over the streets.

Look out below, this market is crashing like an out of control rocket.

50% decline by 2009.

Jeff said...

Real-

Regarding your comments about Europe v. Sacto affordability being laughable, I tend to agree. I see places in Michigan, Florida, even places in Oregon which are much less desirable than Sacto but either the same price or even higher, which boggles my mind. There are other fundamentals which affect Sacto RE market, including salaries. Surprisingly, Sacto has a pretty low salary base. Instead of being seen more part of the Bay Area job market, we’re thrown into Stockton, Modesto, Fresno, etc. But that’s just one aspect of the differences. Until that mentality changes and salaries move dramatically higher, homes will still be unaffordable here but somewhat “affordable” as compared to other markets in the US and abroad. The people who benefit are the ones moving from the Bay Area to Sacto and bringing their $$$ gained from higher salaries, stock options and home equity with them.

Jeff said...

RE: location, location, location, even in SoCal which I think is a great location got killed in the 90s RE crash (and SD is in a freefall now), so I believe that comment has lots its value in a declining market.

Cmyst said...

Here's something interesting about sub-prime mortgages and their effect on HSBC (a British banking company - I think they also have a 5% interest savings account available online)

http://news.independent.co.uk/business/news/article2251430.ece

Sippn said...

Back to school folks... don't forget socal had a part of the aerospace slowdown and in the middle of base closures in the 90's.

embddds... watch Zillow, on my street I have to really search to find the comp across the street, shows my house as an empty lot after 3 years. Zillow doesn't care if theres a crack house next door.

Did it show you all the $1.4-2.5 million dollar homes selling in that area you looked at - amazing!

Actually, I find SacBee has a really neat function that will go back by zip up to 2 years and give you a list of prices, addresses, footages - much quicker/cleaner than zillow.

Lexi - All investors haven't pulled out of the market, just the amateurs (see dotcom bubble).

Gwynster - MB - you're talking over their heads, but using their words anyway!

OH - builders press release today said highest sales month since mid 2005 in Sac area - not including auction.

Patient Renter said...

sippn:

"Back to school folks... don't forget socal had a part of the aerospace slowdown and in the middle of base closures in the 90's."

Good news for this RE cycle then, huh?

"OH - builders press release today said highest sales month since mid 2005 in Sac area - not including auction."

Also good news. I'm sensing a pattern. Are you expecting good things from the RE market in the near future, or are you merely interested in discussing things that would appear good for housing?

lexi said...

Lexi - All investors haven't pulled out of the market, just the amateurs (see dotcom bubble).


Maybe, but those amateurs are
stuck holding a huge inventory
of homes they can't sell. Since
they were hoping to flip them and
the market slowed, and they can't
sell, most of them won't be able to
rent out for even close to
what the mortgage is. So with
the largest amount of empty houses
in the market in 50 years (cnn)
those amateurs are the exact reaon
the market is going to tank. They
are the reason, combined with
those subprime loans and low
interest rates that home prices
skyrocketed, and with the subprimes
and amaeurs disapearing.. they
will be the exact reason it tanks,
umm I mean corrects.

Patient Renter said...
This comment has been removed by the author.
Patient Renter said...

Sippn:

"Back to school folks... don't forget socal had a part of the aerospace slowdown and in the middle of base closures in the 90's."

So what are you implying with this meaningless statement? This bust can't or won't be as bad as the one in the 90s because we don't have layoffs and high unemployment?

Maybe you can explain why the current lack of unemployment (such as we had in the 90s) didn't seem to stop prices from falling as far as they have, but how a presumed continued lack of unemployment will somehow magicallt stop prices from dropping any further? Feel free...

Diggin Deeper said...

If one tracks the value of the dollar since 2000, it would take at least 40% in overall wage increases plus an additional 19% in compounded inflation (at 3% per year)just to break even in today's dollars. I know most people on this blog have probably done better than this but I surely haven't. I feel a lot richer, though, because my house is worth a lot more than it was in 2000. In fact, with the interest only note I pay, I have enough left over to spend a week in Hawaii this year. My daughter will be entering college this year so I'm awfully glad my home equity line is available because I'm really not saving much each month. Oh well, its not a bad to be in. My neighbor's got two kids in school and he bought his home just two years ago. Must of had some maney though, because he just put a new Hummer in the driveway and completed his pool this year. I've still got a couple years fixed on my note so I probably will take advantage of this free money for as long as I can and refi sometime next year. Life's pretty good as long as the equity in my house holds up.

realsblog said...

If someone waht to buy a home, and he said I need the lowest price. May I tell them to contact with you?