Tuesday, May 22, 2007

'A Grapes of Wrath Market'

From News10 (hat tip Jeff):

Foreclosure activity in the first quarter of 2007 set a record in Sacramento County. And one Sacramento zip code may be the hardest hit in the entire state.
...
A News10 analysis of statistics and property records provided by DataQuick Information Systems and ForeclosureS.com shows that in the first three months of 2007, more than two percent of the homeowners in zip code 95832 defaulted on their mortgages...At 22 defaults per 1,000 homes, 95832 may lead the state in foreclosure activity for the first quarter of 2007.
...
95832 is commonly known as Meadowview, a predominantly lower-income community. But many of the homes in the process of foreclosure sold for up to a half-million dollars or more less than two years ago.

One third of the 57 homes in default in the first quarter of 2007 are in a subdivision called "The Meadows." Developer JTS communities marketed the project as a relatively affordable alternative to new home subdivisions in Elk Grove and Natomas. But many of the buyers clearly were still reaching beyond their means. And when their loans adjusted above the initial "teaser" rates, there was no equity to fall back on.
...
It's hard to find a block on a street in the Meadows without a foreclosure. Real estate signs litter the neighborhoods. A casual inspection shows many of the homeowners in default walked away from their homes well before the auction date.
...
Richfield Way...may be the hardest hit street in the hardest hit zip code. Of 23 houses on Richfield Way, five went into default in just the first three months of this year. "It seems like I post (an auction listing) every other day on Richfield," said Bryan Moulton, an auctioneer with RSVP Auction Company.

At a recent courthouse auction, a five-bedroom, four-bathroom 3,500 square foot house on Richfield Way that sold in July 2005 for $526,000 was offered by the bank for $295,000. There were no takers.
From the El Dorado Hills Telegraph:
Dear Miki:

My daughter is going through foreclosure right now because of one of those damned sub-prime loans she took out. The house isn't even worth what she bought it for a couple of years ago.

I told "Melanie" she couldn't afford the house before she signed her name, but why would she believe a mother who loves her when there's a fast-talking broker with a sharpened pencil?

Mom


Dear Mom:

It was easy for those considered by lenders to be risky borrowers to hop on the smorgasbord of sub-prime loans.

A flourishing real estate market promised quick home appreciation, and who knew that just about the time an adjustable rate mortgage was ready to re-adjust; it would do so in a Grapes of Wrath market...

36 comments:

Perfect Storm said...

Funny Zillow still has Richfield running like everything is a ok. I think the housing market was getting bad the last twelve months, but now I think things are about to get a whole lot worse.

smf said...

Richfield? So that's what that street is called!

I still tell people how insane things got here by telling them how some idiot (JTS) decides to place $400K+ (at least when I saw the signs) homes next to (and I mean right next to) a really bad area.

Guess it was all a dream anyways and I am not surprised.

Lander said...

Who can forget that sign right off I-5? I shook my head in disbelief every time I passed it.

norcaljeff said...

Perfect, it goes to show you the online tools don't even begin to show how bad things are.
I just watched this piece on Channel 10. 1/3 of the homes in the Meadows are gonzo! On one street, Richfield, 5 homes done in less than 3 months. 2027 Richfield sold new in late 2005 for $526K and it went to auction for half price...with no takers. Freaking amazing!!! It makes Hilltop of Lincoln Crossing look like a walk in the park. I thought the Mustang up on blocks with no wheels was a nice touch at the end :) kinda says it all for EG.

norcaljeff said...

Regarding the poor sad letters to the EDH Telegraph, they like to blame the mortgage companies with the subprime loans, but I see 2 points here. Her credit was subprime and thus was lucky to get into a home in the first place. If she did this in 1999 she would be called a genius. Second point, buying with a 30-year fixed rate loan 2 years ago would still make the home worse less now then it did then, so I really don't see the point.

smf said...

This is really nothing compared to the other disasters. You have to go out and SEE where these houses are.

Just imagine one of the worst, Rio Linda looking part of Sacramento, and then someone plopping brand new 3500 square feet homes in that TERRIBLE area.

Very similar logic would be someone building a luxury condo tower in Del Paso Heights.

This was waaaaay beyond stupid for location, made stupidier by price.

Cow_tipping said...

And the sacramento market is only down 10% YOY.
Cool.
Cow_tipping

Perfect Storm said...

smf if you take a drive around Rio Linda you will see small builders putting up 2400 sq foot homes on small lots right next to homes with chicken coops.

Gwynster said...

Just the title itself made my morning

smf said...

Perfect Storm:

There are many, many areas that have houses built around the wrong location. I have seen 4200 sq.ft. homes surrounded by 1500 sq. ft. houses. I did a trip around the McClellan area, where you could see the same, with the now obligatory 'Bank Owned' signs.

That was my first sign of how insane this bubble was, when people were building waaaaay too much house for a particular neighborhood, and asking waaaaay too much money for them.

Gwynster said...

SMF,

What's your take on the Southport and Woodland developments?

Cmyst said...

Every time I go to Rio Linda, it reminds me of the part of downstate Illinois where I grew up. And it does have it's advantages, and I am only being slightly snarky here. My ex, for instance. He runs a small plumbing biz, and he used to leave toilets and hot water heaters out on the front lawn. Not to mention his obsession with buying used cars and tinkering with them. He would have been much, much happier in Rio Linda. In fact, a co-worker once asked me why we hadn't bought our home there.

I think the people who build like this in Rio Linda really *want* to live in Rio Linda. They may not have a good grasp of economics, or understand that most people who can afford to pay that kind of money are not Rio Lindans by nature. Rio Linda is basically rural, trades-oriented, conservative.

OTOH, Del Paso Heights and Meadowview are decaying urban/suburban, unskilled labor or unemployed. While it is true that there are large minority populations in both areas, a cohesive culture does not seem to exist beyond the confines of small neighborhoods in these areas where sanity and community try to hold the line against a total descent.

Obviously, no sane person would build a half-million $ home in *any* of these areas. I can't think of a better way to insure that you will be selling to people who will default on their loans!

smf said...

What's your take on the Southport and Woodland developments?

Partly dead in the water. Some people started to live in these less desirable areas because the prices were a little cheaper.

One of my first indications of trouble were in W. Sac., when a national developer was doing an apartment complex, changed it to condos, and then changed it back to apartments after their marketing department told them that the condo market was 'dead'.

BTW, we are still doing some residential housing work in W. Sac.

Sippn said...

But if you're looking for that "best" price deal, Meadowview is it.

What... are you guys getting picky on me?

Gwynster said...

Hmm interesting.

I'm really hoping to not buy in West Sac. It's a nice commute for the downtown state worker crowd but it sucks for us UCD types because of the causeway.

I wish we'd get some decent developments in Woodland.

Brian said...

Re: southport

In my opinion, I think Southport will be better off long term than Natomas (not saying much) and most of Elk Grove. However, I'm partial because I love my Nugget.
When discussing W. Sac you really need to distinguish between W. Sac north of the Port/Barge canal and Southport below it.

WatchingTheBubble said...

I remember when I moved back to Sac in 2004 and my cousin was buying a home in "The Meadows" as a first-time home buyer. I asked her if she was concerned about the location and if she'd be better off spending that same amount of money in a more established neighborhood. She said, "Why would I want to buy somebody's old used house that's smaller when I can get a larger new one for the same price?"

I just shook my head. Whatever happened to "Location, Location, Location"?

I used to drive through "The Meadows" just for kicks to see the cinderblock and wrought iron fences erected around these new homes. Even in 2005 they were offering incentives to buy -- I think they had to in order to compensate for the fact that the neighborhood was going down fast even as JTS was still trying to sell homes. And I could never get past the fact that it was down the street from John Still Middle School and not far from Meadowview Road. All I could think was that these buyers were so hungry for a piece of the American Dream that they didn't realize -- or didn't care -- that they were getting the sloppy seconds of real estate.

Gwynster said...

I always think of the old W. Sac as Bryte and Broderick and the newer south portion as Southport.

The old city is toast as it is really infested with gangs. I'd never consider anything north of that canal on Jefferson.

norcaljeff said...

What about Patterson, CA? In the middle of nowhere, literally, and those places are going for over $500K because they are "close the the bay area," about 2 hours close LOL.

Gwynster said...

We have a Patterson like place out here named Dixon. It's miles from anything except UCD which is still a commute.

Most of the people who bought there recently were commuting to SF. I had someone try to rent their albatross to me for 1800 (lol yeah right) because the commute to Dannville was too much for her everyday.

My co-worker is convinced they can can still get 450k for an old 3/2 WW2 starter in Dixon. Her husband is an agent.

She admits that there are lots of empty houses in Dixon but that's great because it means that people are sticking to their asking prices and not budging until they get what they want.

I told her that I'll be buying those brilliant empties from the courthouse. She's a nice person really but damn she's an idiot.

Lander said...

Comment by Ben Jones
2007-05-23 14:21:55

‘At 22 defaults per 1,000 homes, 95832 may lead the state in foreclosure activity for the first quarter of 2007.’

I think that’s as high as I have ever heard about. In the North Carolina neighborhoods that got slammed a few years ago, the ration was around 1 in 150.

norcaljeff said...

I'm not a Dixon apologist but at least it's close to a city for crying out loud, and near Davis (not that I think that's anything special). Patterson is 500 miles further than BFE.

Gwynster said...

Patterson is 500 miles further than BFE.

LOL too true

aggiealum said...

1638 La Paloma Davis, CA, 1600sqft, asking $699K. I live in Davis and would like to know if there was a recent environmental release of some dangerous fumes or something?

Gwynster said...

LOL Davis is nuts.

Here is the Zillow on it
Sale History
07/29/1999: $255,000
10/11/1995: $219,000
No other sale data is available
2006 Property Tax $3,986
Total assessed value: = $286,794
Assessed value bldgs: $196,820
Assessed value land: + $89,974

The people here are dillusional. I see marks up like this come on the market and then dissapear without a sale.

A lot of people here are retiring and trying to get as much as they can while they can. The rest have no clue what is waiting for them in 3 to 5 yrs.

Lets just say I will out in the lawnchair sipping daqaris watching it all unravel. I encourage others to join me. Bring score cards so we can rate the best performances.

realjc said...

I love that people have no clue about Dixon. It's a hidden gem. Great place to raise a family with great community spirit and support. Also, Dixon is hardly in BFE. You have Vacaville eight miles to the West and Davis five to the East. Dixon is pretty self-sufficient in most needs anyway.

Gwynster said...

It may be a hidden gem but it sure isn't worth 3x 1999 prices which is a lot of the inventory there is priced at. And yet people wonder why our young families are feeling the state.

I know I talk about demographic shifts all the time but I love seeing the data reported by MSM.

Report: California faces looming skills gap as college grads look elsewhere
http://www.mercurynews.com/business/ci_5967711

norcaljeff said...

New housing data today show month over month, homes prices fell 11.1%. Yee haw!

realjc said...

I agree with you about the housing prices, but that is happening everywhere. My reaction to your post was to contradict your opinion of Dixon being like Patterson and being BFE. I live in LA and Sacramento housing prices look golden compared to Southern California.

Gwynster said...

Realjc,

I grew up in OC and did grad school in LA. I can honestly say I have no clue how (or why) anyone stays there.

As far as Dixon goes, my coworker just got my panties in a wad with her denialitis. It's an ok place but so is a whole lot of the nation. I just don't get how it's "worth" 3x more.

Gwynster said...

NorCalJeff,

I saw the data and did a little salsa number on top of my desk. Most of the news outlets are crowing about the national MoM sales numbers but what they aren't talking talking is the national YoY which is down 11% and that almost all the sales were below 200k which means that those sales sure aren't happening here.

Pasted from Ben's Uber blog

From the WSJ online:

Only homes priced less than $200,000 had stronger sales in April. The sharp increase in sales will help home builders shed some of the huge inventory of unsold homes and could limit further cuts in new construction… Despite the April sales surge, the median number of months that a new completed home has been on the market jumped to six months, the highest since July 1993… Builders will need to maintain aggressive pricing strategies AND lower production levels to shed these inventories. Any recovery in home-building still lies well in the future. –Nomura Economics Research

Also:

We have cautioned that double-digit gains of new-home sales are VERY unreliable monthly data points. (It is mostly due to the way the builders self-report their sales to Commerce)… Whenever new-home sales jump double digits, it usually reflects a mean reversion from the prior (or subsequent) month’s reportage. Indeed, over the past 15 years of data, we found that a mean regression followed nearly every double-digit monthly gains. Typically, the subsequent month’s data was significantly lowered — flat to negative in nearly every case. –Ritholtz Research & Analytics

I think I know what is happening but I need fresh population data to say for sure.

realjc said...

I live in LA for only two reasons. One is the 75 degree year round weather and the other is I live one block off the beach. However, it's time to say adios to SoCal and move back home to the Sacramento area. My dilemma is I can easly afford the Sac area prices and want a house soon. What do I do? Continue to rent or buy?

Cmyst said...

It's a dilemma. Personally, I would prefer to wait until I am sure that most of the air is out until I buy. I'm not getting too excited for another year, and realistically it will probably be longer than that. OTOH, I'm no spring chicken. I just about have to buy in 5 years, or I won't have time to pay it off before retirement.
Another thing you may want to think about is renting in a relatively "safe" area while you re-adjust to Sacramento and get a feel for the various neighborhoods now. That way, you're settled in (you don't need to unpack a whole lot) and you have time to really look around without being stressed.
OTOH, you could always save some FB's bacon and give them their dream-come-true retirement bonus check!

norcaljeff said...

RealJC, you just answered your own question.

Sippn said...

Gwynster - WSJ??? - I didn't know you were that boring! If you're really a stats geek, check out BLS. The big bump in sales was in the Southern states under $150K - probably Katrina Cottages. but who wants to live there anyway?

Meadowview Mansions - thats the future!

Realjc - Dixon almost gots horseys too! Don't forget if you move here, UPS (and everybody else) doesn't pay their drivers herere as well as LA.

Gwynster said...

LOL so I'm a weird chick. I read everything I can get my hands on.

I did see that most of the movement on new homes was under 200k which means it wasn't happening around here.

Out of all housing news this week, I still got the most pleasure out of the pot house bust in Gold River >; )