Friday, April 20, 2007

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

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48 comments:

Patient Renter said...

Lockwood responded to my comment with a new post on his blog projecting out the price depreciation to date. It's obviously a very crude estimate of what will come in the future, but it illuminates more downside than the average buyer is aware of or willing to admit to themselves.

Of course, Lockwood's case study uses someone who theoretically bought in at the beginning of the bubble. That would have been ideal, but what about the folks who want to buy in now for the first time?

"Now, will prices go down from where they are now? Probably."

norcaljeff said...

I've been unofficially tracking new and existing home prices in the South Placer area. Seems like most of the larger incentives and discounts on new homes peaked at the end of last summer. I don't see significant price depreciation right now and that probably won't change until builders get more inventory built and unsold.
In terms of resales, people seem to be sitting tight, with little price change. The people in trouble with interest only/option and ARM loans are simply walking away, not seeing banks wholesaling that inventory yet. As long as buyers continue to sit on the sidelines we'll see more downward pricing pressure on all inventory, but as you can tell from the March home builder report, people are still buying in this market, no matter how much it doesn't make sense to do so.

Gwynster said...

Well, I'm offically armed with my prequal letter.

My target mortgage (piti) will be 1/3 of our after tax income each month for a 3/2 resale house. Let the lowballing games begin >; )

Sippn said...

Lander, are you protecting me from bad words?

Norcaljeff - Placer market seems to be holding up - closings up slightly over last year for 1st quarter, pendings also. But there are opportunities also. (of cousre nobody here is buying, right?)

Sittin' Out This One said...

NorCalJeff,

The market does seem to active up in Placer, but I must say prices have declined in the last 18 months. 2,000 sf properties went for $450,000 to 500,000 in mid 2005. You can pick up similar deals now for $375,000 (asking). That is almost 20% off from the peak.

Strangley, there has been little downward pricing adjustments the last 3 months on the resale market. However, the builders are continuing to lead the market down with incentives and price reductions. That may continue for 2 more years or so.

Foreclosures is the big news up in Placer (and Sac). Lot's of REOs. And they are just sitting. I recently saw a 2500 SF Beazer house listed for $365,000 (short sale) and it is going begging. Deutsche Bank is foreclosing next door. People are wising up and realizing this market has a long downward journey ahead of it.

The next drop in values will probably occur after September. You may see a drop of another 10% by December.

stfu said...

Wow, good going Gwen. Good luck- I'm sure you'll keep the readers of this blog well informed of your adventures as you always do!

Gwynster said...

I will. I honestly don't think I'll get any traction until Sept of next year but I do get to annoy some sellers all to hell in the meantime >; )

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

Sittin' - $375k asking, meaning net of incentives or prior to? Placer is a tough market b/c Lincoln continues to struggle and Roseville (Fiddyment Farm, Westpark) is also nasty. Any strength in sales probably comes from deep discounts (incentives, free upgrades, "limited" time only sales, standing inventory discounts). For a take on the current status of builder incentives, which were supposed to be phased out as the market "recovered," see: http://money.cnn.com/2007/04/19/news/companies/drhorton.reut/index.htm?source=yahoo_quote

I'm curious how the projects involving the 20,000+ units planned for Placer Vineyards are going to shake out. Does anyone know the currect status of the Placer Vineyards SPA? That is going to be a nightmare.

On a separate but related note, anyone know what is going on with the Fisherman's Lake master plan in Natomas (Del Paso West of 5)?

Cmyst said...

Gwynster, how long is a prequal good for?
I've thought about getting one myself, because you never know == something might pop up. There are a very few people out there who didn't take equity out of their homes and circumstances might dictate that they
sell now for a 2010 price.

AgentBubble said...

Placer County stats from MLS comparing 1st quarter 06 to 07:

# Sold
06 - 980
07 - 538

Avg Sales Price
06 - 532813
07 - 501698

Med Sales Price
06 - 465000
07 - 426000

Avg $/SF
06 - $258.54
07 - $237.39

Med $/SF
06 - $251.72
07 - $234.7

Sippn said...

Agent bubble, please recheck

http://lamps.pcaor.com/lamps/PCAOR_documents/MAR%202007%20Stats.pdf

also look at dataquick release - slightly different

Sittin' Out This One said...

STFU,

Nice name BTW.

The mark down I saw was from $485,000 (sold) to $375,000 (asking) in Rocklin, the same model selling in 9/05 and an identical model listed on 3/07. This was the resale market, so there were no builder incentives involved. I don't know about the other areas out there.

I think future housing projects should be fine a few years out. Building costs are dropping and a new cost basis will go into play on new land transactions.

Keep in mind, it is the home builders who are going to lead this market back to affordability. They did not drive the market up, because they can't. It was the bubble market 100% LTV financing that made the GF's go crazy. The home builders were no different than all of us on this blog who recognized the bubble and sold out too. Who was not surprised and happy with the windfall proceeds? What, you would sell for less? GMAFB.

However, it clearly will be the home builders, who must keep building and selling to survive, who are going to bring housing back to affordable levels.

Gwynster said...

Cmyst
This one is good for 90 days. We probably did this too early but I wanted to open a dialog on what I needed to bring to the table when. Lots of the funky products seem to be gone or the rates are very high.
I did the prequal through CW just because I trust them more then others.

We are looking at fixers, short sales, bank-owned, etc. They aren't that bad especially when compared to student sfr rentals in Davis. These things are dumps.

Gwynster said...

"However, it clearly will be the home builders, who must keep building and selling to survive, who are going to bring housing back to affordable levels."

This is happeneing in West Sacramento and a little in Woodland. Our problem is that nothing gets built in Davis so we have to wait for the some brat's parents to feel the pain and sell to move the market lower.

I'm a pretty crunchy granola liberal yet the only reason I stay here is because I want to be able to bike to work. The city policies are all about keeping property values high, they could give bupkus about real issues unless it has the possiblity of adding to their bottom line. Some day someone is going to have a Cho moment all over our city council in frustration and I will likely smile. /rant off

Bah I need coffee... I'm too grumpy this morning.

Patient Renter said...

Gwynster, you're evil. Be sure to post some stories about what happens during your lowball adventures :-)

Gwynster said...

Well- first report from the front.

According to all but one Davis RE agent, we won't see a significant reduction in prices. One admitted the Davis market had run into problems before.

I did discover that if you say the words "short sale" to a Davis agent, they will no longer try to work with you. It's like they can't actually hear the word.

I'd like to begin a study to see if the phenomenom is genetically linked to really big hair and smokers lines around the mouth.

I had more fun once I hit Woodland.

Lander said...

Placer County - March 07

PCAR Median: -15.2% YOY
Bee/DQ Median: -6.2% YOY
DQNews Median: -7.79% YOY

norcaljeff said...

Gwenster,
I still think the buyer has immense power, even in Placer Co. If you're looking at a new home, no matter what, ask for a bigger discount/incentive than what the builder offers. Also, you can still get in without closing fees, make the builder pay those, get all the appliances, W/D/R, finished back yard, finished garage and depending on the builder you could also ask for no mello roos and no HOA for 24 months. Until the banks start unloading their REOs, I'm not seeing more downward pressure until more of the ARMs reset later in this year and early 08. There are also the buyers with optional payment loans who are having problems making even the min payments. The media hasn't touched on that yet. If u lowball do it, I'm in a similar boat to you...keep us posted. And as far as your letter, you could always get another one after 90 days, they shouldn't be pulling credit reports for that since it's somewhat "unofficial" at that point.
Sittin, are you seeing less than $200/sq in South Placer? My target is below $150/sq or <$400K but I think you gotta go to Lincoln and/or Plumas for that, but even looking in Plumas I'm seeing very unreasonable prices. Most if not all of the stuff in Fiddyment, West Park, 12 Bridges and Whitney is over $400k. They built too many damn large homes. Dr. Horton is hurting bad but they cleared out almost their entire inventory in a fire sale in Jan/Feb, we gotta wait until the builders put up too many homes again later in the year. As many of you have mentioned, the builder still have to build otherwise they're not making money.

stfu said...

I agree builders will lead the charge for a recovery. I think construction costs are nearing the effective floor, and the remaining future discounts will come from land basis. The publics have taken several charges/write-downs/write-offs (to the financial types, do charges include write-offs and write-downs?) so their current land inventory already has a lowered basis so they can "afford" to lower prices now and still realize a decent margin on the adjusted basis. The race to the bottom over the last year was probably more an inventory problem than a margin problem as all the cancellations caused standing inventory to swell. There seems to be an abundance of entitled land in Sac relative to demand so once the land sellers lower their prices, my guess is that this will trigger another build cycle.

As land prices correct, and builders adjust home prices accordingly, this should realign the income to home price ratio and increase the number of households that can "afford" a home. I have no doubt that demand is still there, but the affordability is still all out of whack. Resale market will have to price to the builders, and anyone who bought during the up and up will have to eat a loss.

Builders aren't going to price their projects out of what they think they can prospectively get from the market to maintain a sales velocity that'll keep their profit margins at a level to satisfy Wall Street, so in turn, the pressure on land sellers to reduce their prices is going to be key. I think we're halfway there as far as an adjustment in costs, so my opinion is that the key indicator will be affordability and proportion of the population that can clear that hurdle to satisfy traditional lending criteria. Maybe this is just all common sense. Worst part about weekends - I forget to drink my daily 10 cups of coffee that I get for free at work.

Gwynster said...

I'm looking out west, Yolo county. I won't touch anything with a HOA or Mello Roos. 1 or 2 years paid is nice but they are like VD, the gift that keeps on giving.

Sittin' Out This One said...

STFU,

Your observations are very astute and I agree with them to a large degree. However, I think the next big downturn in values will be driven by the lenders. The builders have ruled the roost in lowering prices and the margins are cut to the bone. That created a great deal of havoc for the lenders (who were serving the builders, BTW).

Now the lenders are stuck. Their pricing is ridiculous for the most part. Wait until September to see their reductions. There is nothing like REO on the books for 6 months to pressure a lender. They will be forced to undercut the builders to make deals. Then all bets are off as values plummet.

And to answer your question about values, I am seeing lots of deals below $150/sf. 5500 SF in Catte Verdera for $839,000 by Deutsche Bank. 2500 SF in Lincoln for $365,000 by WAMU (Long Beach Mtg.) 3500 SF in Lincoln for $560,000 by Wells Fargo. 3200 SF in Lincoln for $402,000 by XX? lender. And none of it is selling and those are listing prices. You will see deals fall below reproduction costs by the time this ends in 2010.

paranoid renter said...

>>>>>>>>>>>
I won't touch anything with a HOA or Mello Roos. 1 or 2 years paid is nice but they are like VD, the gift that keeps on giving.
>>>>>>>>>>>>>>

Are there any new developments where there are no HOA dues? I would be interested, too!

Gwynster said...

PR,

Not that I know of. That's why I'm only looking at existing homes. Dealing with the HOA nazis is something I never want to deal with.

anon1137 said...

This cracks me up - the same posters who were deriding me six months ago for suggesting that the people who were buying at that time might not be imbeciles, are now talking about buying a home in the current market. Next thing you know, they'll be back on this blog trying to talk prices up.

I realize that there are many factors to a home buying decision, but I think this market has a long, long way to come down. 10% off peak prices doesn't even remove the fluff (incentives, gifts, cash-back deals) that were added on as the game was collapsing. It's going to take another 25% off, at least, to get back to real, sustainable values.

By the way, does anyone know a good REALTOR(c)? I want to get in before prices head back up and while there are so many nice homes to choose from.

Cmyst said...

Gwynster-
Which is why I'm never buying into a condo again. Added to that is that HOAs can, and do, increase and homeowners other than board members have very little to say about it.

I'm not terribly interested in new construction. Primarily because I am fearful that it is not done with pride and craftsmanship, but rather as quickly as possible using the cheapest materials allowed. It also all looks the same, and most of it is way too big. And if builders construct smaller homes, they tend to also be on much smaller lots, so you end up with a postage stamp yard no matter what size home you buy.
I've been in house after house in new developments, and even in interior decorating choices, they are all depressingly similar.

Gwynster said...

If you think I'll take today's prices you are nuts. I'm finding that low-balling is fun. Sure the agents are pissed all to hell but they have to present my offer. Offering 230K on a 340K list price on 3/2 starter is a joy >: )

I don't expect anyone to take it yet. I'm just the warm-up act.

I did find that agents hate short sales even if you are buying. My interestingly was that buyers hate them too because they take too long - oh please. The good news is that they'll sit there waiting for people like me to come along.

Shiromeda said...

fiddyment park/west park prices?

does anyone have a read on the new development in roseville in fiddyment park? we are considering moving there but the builder, Lennar, in fact seems to be increasing new home prices... is Lennar just playing us or are we missing an opportunity? I just belive the pricing is way too high for this market. please help and thanks.

Shiromeda said...
This comment has been removed by the author.
buying time said...

Perhaps we could help eachother out. When someone find a place they like, we could all submit super low ball offers for the same house. The person who actually wants it, would come in 10-15K above our offers, so their offer looks really attractive. We could really have a lot of fun with this!

buying time said...

For the record, I am almost half serious....group/mob buying in China has really become a sport. But it wouldn't be easy to do with houses....in fact almost impossible with mortagages and agents....sigh...

Perfect Storm said...

Dumb: Buying a house you can't afford with no down payment and a loan whose monthly payments will explode in a few years.

Dumber: Lending money to people who can't afford a traditional mortgage, especially when they have lousy credit ratings and don't substantiate their income.

Dumbest: Bailing out dumb and dumber, especially with taxpayer money.

No taxpayer bailout!

Perfect Storm said...

E-mail your Politician about no taxpayer bailout.

David W. said...

shiromeda -

about a month ago, prices went up 1% across the board at the pulte models in westpark as well.

stfu said...

Gwynster- I think in any new home development on the urban fringes, you're going to be stuck with some sort of Mello Roos/Assessments (someone's got to pay for all that infrastructure and maintenance). On the other hand HOAs are not an absolute given. Depends on the nature of the subdivision. Unfortunately the Assessments are often equal or greater than HOA. I think Anatolia is a great example of this. $400k home, $95 HOA, $250 Assessments. *Choke* I guess people just didn't care about that extra $300+ a month since their teaser ARM rate was so small.

My guess is that Westpark and Fiddyment are going to continue to battle it out for the same buyers, so I'd expect prices to continue to trend downwards over time. I guess it's a function of what type of deals the builders have on the land and how fast they need to get rid of homes. Any recent price bumps were probably due to the slight increase in sales we saw in the first quarter of this year. I think they'll go down again as sales continue to drop/remain flat. Lennar is into Westpark big time because prior to Lennar's consolidation of its companies, it had three different brands in there with similar products and price points (US Home, Lennar, and Renaissance-I think). Maybe they'll change up product types, maybe they'll stretch out their sales timelines, who knows. I don't think waiting out in that neck of the woods (and Lincoln, Natomas, and Elk Grove/Madeira) is going to hurt.

As mentioned by another poster, everyone who is seriously looking may be well advised to wait for ARM resets to settle out a little. According to Credit Suisse, the bulk of resets are yet to come. Wow, who could have predicted all of these crazy variables impacting a market that was naturally at its turning point? Not me! Man, I enjoy this blog- many great insights.

Gwynster said...

I don't know where anyone thought I was looking at new development?
I know the builders are going to lead the price declines but I'm not looking at anything new. I refuse to pay Mello Roos or HOA, period.

Maybe I'll just sit tight and wait for prefab houses to come down in price now that Lowe's and Ikea are entering the market. I love the Dwell homes but the price points are still too high.

dvobell said...

Gwyn,

I also hear the "Davis ain't Comin' Down" meme. Very frustrating, since Davis is the only city in the Central Valley in which I could stand to live (Bike to work, rich smart semi-socialist city mindset, Endless Teletubby Greenbelt, Minimal American Corporate Plastic Hell, etc. etc. etc.).

Encouraging: The 1000sf dump the wife and I sold last summer is back on the market already -- FB, anyone? -- for 75K less than they paid. I kid you not. Tempting to lowball that one and move back in....*schadenfreude*

But for the sf/bd-ba we want, and being not just Davis snobs but West/North Davis snobs, we're still hopelessly priced out of the dream Streng.

We could run roughshod over Woodless-land, but the wifey just flat-out refuses. That's where we first bought in in 2000, and it was misery. Eat out? HA!

I guess time will tell. Please don't let our options be West Village or nothing...

Anyhoo, moving in to the big 4/3 Beige Stucco Rental this fall for le$$ than it would have cost to stay 5/1 interest-only 'owners' on our old puny dumpy demonstrably-depreciating former digs will lessen the pain somewhat.

You know, Gwyn, the scary thing about lowballing those Woodless-land houses -- somebody might just take you up on it!

Patient Renter said...

Gwyn: I really like what you're doing. It's striking a bit of low-side reality in the hearts of the sellers you send bids to. If only we could multiply you and do this sort of thing all over, as someone else suggested up abote. If nothing else, I think this sort of thing could soften the expectations of individual sellers.

Cmyst said...

Gwyn:"Maybe I'll just sit tight and wait for prefab houses to come down in price now that Lowe's and Ikea are entering the market. I love the Dwell homes but the price points are still too high."
Do you have any links for those? I crave more alternative housing news, while waiting for the bubble to deflate.

Cmyst said...

NM, I googled it and found links. And I have to agree with you, the Dwell housing is spectacular. Why can't any of the home builders design stuff like this? Blows away any preconceptions that I had about "prefab".

Gwynster said...

Cmyst,
I've been following prefab housing for what feels like ages. I hate mobile homes but the prefabs like what you find on the Dwell site are wonderful.

Dvo,

Unlike almost everybody on Ben's blog or here, I'm not rich but I am a cynic. I'm just a really fiscally conservative with my money. I trust nothing and no one.

I'm open to Woodland because I can get the price per sqft I want and it's not a huge commute. I'd rather buy in Davis but we'll see what develops.

ps Davis re agent suck >; )

Gwynster said...

Just some links from the last day or two

Condo developer seeks extension to buy land
http://www.sacbee.com/101/story/160000.html


Housing woes slam budget
http://www.sacbee.com/111/story/159210.html


Top cities to do business in
http://www.inc.com/bestcities/best.html?size=0&year=2007
California is no longer in the top 25 anywhere.

Gwynster said...

For those that missed Paladin's appearance over the weekend on Ben's blog, I copied the 2 major posts on my crappy little blog
http://gwynsters.blogspot.com/2007/04/little-report-from-paladin.html

All is well and he's kicking butt!

Patient Renter said...

I posted several times recently on Ben's blog asking wtf happened to Paladin and nobody responded. I also e-mailed the man since I noticed his site never seemed to get finished and he never responded. Good to know he's still alive and kicking, though it's a shame his site isn't finished.

norcaljeff said...

Gwyn: I mentioned new home builders because they are offering the best prices and offers. With an existing home, you'll deal with a dilusional owner and a bigger baffoon of a real estate agent. Plus you have closing costs, RE fees, etc. New homes offer the best value and will probably be the case for a while.
In terms of HOA and MR fees, I know Fiddyment doesn't charge either HOA or MR, I can't recall which but not both. It will be almost impossible to avoid these fees in a new developement, and some of the places which are less than 20 years old.
Sittin:
Where are you seeing 2500+ sqft homes in Lincoln for $365K or less. I saw some homes near $375K in that size last August, but those are long gone now.

Gwynster said...

I agree about the dillusional owners. I rode around with the DH last night to look at a neighborhood we wanted thought about (off Loyola) because a very nice woman was interesting in having us rent her home for 3/2/2 br 1400 sgft house for almost the same as our 2/1 streng dump.

Homes in the neighnorhood for sale are 450k to 530k. They're flipping nuts. For that kind of money, you can get a huge McMansion in Southport. I've seen them for as low $140 sqft.

Patient Renter said...

New home sales numbers are out, analysis over at CR. The numbers are killing even the most bearish projections:

"As an example, Fannie Mae's chief economist David Berson projected new home sales of 975K for 2007. Berson was one of the most bearish of the main stream economists, and unfortunately, his forecast is 'no longer operative'."

tgif332006 said...

KCRA 3 IS CONTINUING ITS MORTGAGE FRAUD INVESTIGATION.

WORD IS THE STORY AIRS TONIGHT, THURSDAY MAY 10TH AT 11PM.