Saturday, June 30, 2007

Nothing But Shattered Dreams

From the Lodi News-Sentinel:

John Smith [Name Changed by Request] says he was duped. The 31-year-old Galt native thought he was buying into a dream when he and his wife purchased their home at The Villas of Lodi in November 2005.
...
Yet as soon as Smith moved in, his dream and his neighborhood began to crumble. The homes that had been snatched up so quickly at the peak of the housing boom sat empty for months at a time, with their owners nowhere to be found.

Green lawns turned to brown, left unkempt in the hot spring and summer months. Tall weeds began to sprout in place of neatly landscaped front gardens. "For sale" signs popped up throughout the neighborhood, replaced later by "for rent" signs. Pigeons began to roost on top of abandoned homes, leaving a mess below.

Smith's vision of a vibrant community of homeowners — as promised by builder KB Home — vanished. "There's just not a lot of homeowners here," he said this week, noting that his neighbors now consist of renters, from a trio of exotic dancers next door to a group of five young men nearby who throw loud parties late into the night.
...
Smith and a few of his neighbors acknowledge that they bought their homes at the worst time possible. (Home prices have slumped since 2005).

But they also contend that KB Home misled them about what kind of community they were moving into — a now blighted neighborhood they say threatens to drag their home values even further down. They say the home-building giant promised to not sell to out-of-town investors — people who likely would not live in the homes or take close care of them...Reached for comment this week, a KB Home spokesman said his company can't always control who moves into one of their communities.
...
The Villas are not the only community in the region that has seen out-of-town investors buy and then abandon homes, due to the sluggish market. "For sale" signs dot many Lodi and Stockton neighborhoods. And foreclosure rates in San Joaquin County are the highest in the nation, according to RealtyTrac, which publishes a nationwide list of foreclosed properties. As of this week, there were 1,952 homes in foreclosure in the county, according to Web site.
...
The experience has frustrated Smith along with neighbors Christine and Darin Parvin to no end. The three feel stuck in the neighborhood, unable to make a return on their homes because of the slumping market, but also because any potential buyer would be turned off by the blighted homes that surround them.

"I'm so mad. I'm just mad," Smith said, standing next to his dining room table covered with stacks of e-mail copies and letters he's written to KB Home, the city of Lodi and print-outs on the region's housing market. "My property value has dumped ... I've got the worst of both worlds," he said.
...
Smith, a clean shaven man with short brown hair and an intense stare, is now separated from his wife, at least partly because of the ordeal at The Villas. He said he wants to leave the city, his neighborhood and shattered dream behind. "I want to say I really like Lodi," he said, standing at the end of Tuscolana Way, where he estimated more than half the homes are for sale, in foreclosure or being rented. "(But) there's no charm out here."
...
Some conditions at The Villas have gotten so bad that John Smith has taken to manually turning on his neighbors' sprinkler systems to water burned-up lawns. He and neighbors Christine and Darin Parvin say they have little choice but to take matters into their own hands, literally.
...
They, like Smith, feel misled by KB Home and are ready to leave Lodi. "In Lodi, you expect a community to serve the small town feel," Christine Parvin said. "But after you move in here, you find out the neighborhood is 80 percent Bay Area investors."
...
Mandy Joachim said she's been hit by three burglaries since she moved in, two to her car and one to her garage...and worries more crime could come to the neighborhood. "I think a lot of it has to do with the empty houses," she said, standing in front of her home this week.
From CBS 13 (also video):
Denise Turner looks through her fence in disgust. “It's completely green and brown, like a swamp,” said Turner. She says she has noticed more homes like this throughout her Elk Grove neighborhood and she is blaming the recent increase in home foreclosures. “There's got to be more than one home around here that has pools that are like that,” said Turner.

Turner says she's worried about the mosquitoes lurking nearby when she's hanging out with her family around her pool so she called the mosquito vector control. “They said they'd been inundated with phone calls about abandoned pools,” said Turner.
From ABC 30:
The Atwater Fire Department typically gets triple its average number of calls on the Fourth of July, and this year officials have a new concern. Abandoned houses pose a serious fire danger with dry grass and dead shrubs. That's why city officials are taking steps now to minimize the risk as the 4th of July approaches.
...
Fire Chief Ed Banks and Mayor Joan Faul are especially concerned this year because of the number of abandoned homes with dead, dry lawns. Like many Valley cities, foreclosures in Atwater are on the rise. The people who moved out left bone dry lawns behind, creating a major fire hazard.
...
The Fire Department has been contacting property owners and realtors to have the lawns tended to before the fourth of July. But in some cases no one is taking responsibility.

Chief Banks says, "We may have to take matters into our own hands. It may come to the point where we have to hire a contractor to take care of the problem."

24 comments:

Sippn said...

I remember when this thing first started getting strange, when "buyers" in west sac and natomas were complaining that they couldn't flip their homes successfully. The "buyers" interviewed on TV was a Elk Grove RE agent and her husband, using owner occupied loans. To do that meant representing to the seller that they were going to live there. I'd bet that is the issue in the KB subdivisions, the liers were the buyers.

Look at this guy Casey Serin, 8+ owner occupied loans.... where's the law?

Perfect Storm said...
This comment has been removed by a blog administrator.
cba said...

Builders, to their long term detriment, did little to turn the speculative buyer away.

During the latter part of the boom, many builder sales offices had signs that read "no investors," but no real enforcement.

Sippn said...

So CBA, what would you suggest? The buyer signs a loan document stating they are owner occupied, committing fraud, nobody seems to care. Who is responsible?

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

This illustrates pretty clearly that the demand during the boom had nothing to do with migration to the central valley. Just local and out of town investors selling empty houses to each other. So Sippn, what is going to happen to all this inventory? Prices will drop until the investor comes back and then we do it all again? Who's going to live in these houses?

smf said...

"Who is responsible?"

For the most part, everyone, and I mean everyone. I have seen only very few examples of people taking full advantage of people to get them into houses.

Nobody was doing their due diligence in the latest part of the bubble. Not the lenders, the brokers, the buyers, etc.

If the party had continued for those who got in trouble, they would not be complaining.

And the one who got in the most trouble where those involved in RE.

We have a client that has done residential construction throughtout the entire US. In 2004, they wanted us to convert an apartment building into condos. In 2005, their marketing people told them that that market was dead.

So why did other builders continue?

HappyinSF said...

Sippn, CBA,
I recommend making some sort of ridiculously large tax on second/multiple homes making them very unattractive investments (although at current rents I don't know who would be stupid enough to buy a rental property anywhere in California today). Let's turn houses back into homes again. Your residence should see enough appreciation over time, people should invest in stocks instead. We've seen what that Bay investor can do to the equilibrium of a small town, and now the are screwing the residents of the Midwest.

Sippn said...

Happy in SF - part of the demand was due to investors, 20K+- per year in regional population growth over the past 40 years was the other part.


A few minor changes to lending requirements would control the abuse.... a little documentation, a few % down.

cba said...

sippn

My point was only that when demand (fueled in part by speculative buying)exceeded normal supply, builders went out and significantly bid up the price of their raw material (land) to heights that now make it impossible to operate profitable on land purchased during 2004-2006. Most builders would prefer orderly markets rather than booms and busts, IMHO.

Builders only influence on the markets is supply. Builders do not create demand nor do they have any direct influence on interest rates. I think for the most part, builders will find the market faster than resales and for the most part, they have reacted quickly with significantly reduced permits and starts. I do believe that the inventory of new homes will quickly normalize at 5-6 months supply, but new homes still only represent 20-25% of the Sacramento market, so you can still(will) have an excess of total inventory.

SacramentoCrash said...

Values will drop to 2002 levels.

That is the last time that this market was in a state of balance.

It is going to get bloody before it gets better.

anon1137 said...

The same thing happened during the last boom, in the late 80s - early 90s. We bought in a new subdivision and a group of local school teachers bought a couple of the houses and rented them out, in violation of the CC&Rs. They thought they were going to make a killing. A year later, in 1991, home values started to tank. One of the investors (a HS teacher) got a divorce and moved into his rental. He was the biggest a-hole in the neighborhood. I think he's still living there, retired, in the place that was going to make him rich. The other house was bought in 92-93 by the person who was renting it, at less than the original sales price.

smf said...

"My point was only that when demand exceeded normal supply, builders went out and significantly bid up the price of their raw material to heights that now make it impossible to operate profitable on land purchased during 2004-2006..."

Raw material prices on everything went up during the boom. The typical excuse used was that it was because of China. Only after the bubble burst did the material prices start coming down. It wasn't China and India after all, it was mostly internal consumption.

"I do believe that the inventory of new homes will quickly normalize at 5-6 months supply"

You can't really get rid of a house already built. And if the builders built to match the level of speculation, you have about 20% more houses out there than required. This might take years to unwind. There are still speculators out there taking advantage of buying low and selling high. Read the auction stories for evidence.

"new homes still only represent 20-25% of the Sacramento market"

But there are plenty of areas were remodeled homes are ready to be flipped.

cba said...

smf

I was referring to the inventory owned by builders. KB Homes, for example, as of the Q2 end had appprox 500 homes comleted and unsold and approx 1100 started and unsold companywide (out of approx 11,000 total started) in 316 selling projects.

I am not implying that this will normalize the market, only that one segment of the problem will have its house in order.

Sippn said...

CBA - KBs inventory looks very, very small, divide it by project, its about 1 months inventory including under construction. They look like one of the publics that cut back.

Gwynster said...

Sippin,

Where did you get 20K+/year over 40 years for population change? Is this based on the 4 counties or just Sacramento?

smf said...

"KBs inventory looks very, very small, divide it by project, its about 1 months inventory including under construction.

Interesting...happened to read this today:

"KB Home differs from many other homebuilders because it doesn't build a house until it has a buyer under contract. Other companies complete construction then seek buyers."

http://www.vvdailypress.com/news/home_1664___article.html/homes_smaller.html

Seems to me that trying to gauge the market according to how KB Homes is doing will not give us an accurate gauge.

Perfect Storm said...

“Some analysts are now projecting it could take as long as four years for builders to sell off excess inventory. Homebuyers can expect more discounting this year, according to Greg Gieber and other analysts.”

“Like other homebuilders, Los Angeles-based KB Home has struggled to find buyers as would-be purchasers wait for prices to tumble before jumping into the market. Homebuilders incur losses every day a new home stands empty. They have tried everything from slashing prices to tossing in free kitchen upgrades to entice buyers.”

Sippn said...

G - I just googled it and got pop numbers forthe last 4 censuses - probably SMSA - "regional" who cares about the "city" of Sac? Its not the city that makes things happen here.

Sippn said...

G - http://www.censusscope.org/us/m6920/chart_popl.html

Actually just Sac Co. according to their data - over 1 mil growth in 40 years, 25K year avg.

Guess I understated a little.

Sippn said...

SMF - Its not the flippers who remodeled homes, real "fixers" and tried to make a profit from their sweat who I dispise, its the ones who bought a place in line from the builders, closed with 100% ltv owner-occupied loans, and left everybody to rot....


Still happens, look at the IPHONE opening yesturday, you can buy them on EBay today for a small premium....

smf said...

"its the ones who bought a place in line from the builders, closed with 100% ltv owner-occupied loans, and left everybody to rot...."

Real flippers perform a valuable service. Speculators do not. We agree on this one.

I recall when the first stories started to come up, there were some who would buy two homes, hoping to flip one later.

norcaljeff said...

If this guy was really from Galt it shouldn't have surprised him that his Lodi neighborhood would look like that, it pretty much was that way all long. In this instance, I agree with Sippin, it's all about location and Lodi is simply the wrong location, period. Like putting lipstick on a pig.

HappyinSF said...

What are you talking about??? Lodi is in the Bay Area. Didn't you know, every place north of LA is the Bay Area, people will commute. They will be extending BART to Lodi and Sacramento any day now. These prices are totally justified.