Monday, August 13, 2007

"Brutal Summer" for Sacramento Homebuilders

From the Sacramento Business Journal:

Dunmore Homes has told subcontractors on its projects to stop construction indefinitely, citing weaker-than-expected sales. But while job sites are inactive for now, the company is far from closing its doors, said owner Sid Dunmore. "Building has gotten a little ahead of sales," he said. "We've got to slow down a little bit and catch our breath. For the past week or so, that's what we've done. When we resume building depends on how sales go."
Also from The Journal:

First it was incentives, then price cuts. Now, homebuilders dealing with a brutal summer for new-home sales are starting to adjust floorplans, hoping to economize on building costs and offer buyers cheaper alternatives. "The word is they're coming out with newer, smaller plans because people aren't qualifying for the larger ones," said Kathryn Boyce, an account executive with Hanley Wood Market Intelligence....

Lenders have tightened up as a result of the subprime meltdown, meaning builders are competing more vigorously among a smaller pool of qualified buyers. Apart from further price drops, homebuilders have few options other than to adjust their product to fit the market, Boyce said.
...
Adjusting floorplans also would allow the company [John Laing Homes] to rebid, with the likely result that subcontractors will reduce their prices to reflect today's tighter housing market, ...[Mark Levens, vice president of sales and marketing] said.

From KCRA (also video):
More and more foreclosure signs are popping up across the Sacramento region -- all pointing to a struggling housing market. In most Sacramento neighborhoods you can find homes that have been abandoned by foreclosure. In one ZIP code, there are 63 homes that have been foreclosed on and now the bank is trying to sell them.
From the New York Times:
The north end of Clarks Fork Circle in Stockton tells you all you need to know about the depth of the mortgage worries here. On a curve in a handsome new residential development, four of five homes are for sale, at least two of which have already been repossessed by a lender. “Bank Owned!” advertises a flier for one home. “New Low Price!” shouts a sign planted in a different lawn.

Once considered a safe alternative to the overheated Bay Area real estate market, Stockton and its streets are now filled with “For Sale” signs and evidence of foreclosures. While hundreds of thousands of people nationwide are being affected by troubles in the lending market, Stockton has the highest foreclosure rate of any city in the country, according to RealtyTrac, a real estate data firm.

“It is disturbing, there’s no question about it,” said Mayor Edward J. Chavez, who himself has two houses on the market, with no sales in sight. “A year to two years back, this area was seen as being affordable compared to other areas, the Bay Area, the South Bay. But what was once a vibrant market has kind of hit a brick wall.”
...
Art Godi, 71, a longtime Stockton real estate agent and the former president of the National Association of Realtors....said, the prices are falling as much as 10 percent to 12 percent a year.

36 comments:

smf said...

"The word is they're coming out with newer, smaller plans because people aren't qualifying for the larger ones,"

And the mistake gets compounded, because now they are offering a smaller product to make it 'affordable'.

Yes, people can't wait to live in 1100 sq.ft. townhomes with no backyard to maintain! (sarcasm off)

Sailor38m said...

Yes, people can't wait to live in 1100 sq.ft. townhomes with no backyard to maintain! (sarcasm off)

Exactly what I thought, great now will try and sell a 1000sq.ft home with no yard for 250k. Whatever keep the dollars rolling in is good with builders. Sad thing is people ill california will jump at the chance to buy a house for 250k even if it not worth a third of the price.

Diggin Deeper said...

smf...you've said it before. They're assuming they have the marketing numbers right...are there enough qualified buyers in the area to consume what they intend to build? What do you do with all the 1800-2500 sq ft new homes sitting empty and waiting for buyers? Or how about all those little empty condo boxes that are for sale now at prices well over $200K? There's too much finished inventory for some builder to execute this strategy. Somebody will say there's pent up demand. Where?

serenity said...

Just out of curiousity, if you were to buy a brand new house in placer county with 3800sqft, what would you all offer to the builder to take it off inventory?

we are seriously looking at making an offer in this wild and crazy market, but we want to consult with the wise minds of this blog first. I am curious to hear your thoughts on all perspectives of making an offer in this current market for a brand new home.

smf said...

"They're assuming they have the marketing numbers right"

I highly doubt they have the number rights, but are only assuming that since bigger homes are out of most people price range, a smaller home will get them to buy.

This was used to justify condo construction at the beginning. Since homes were so expensive, condos provided an entry point for home buyers. Of course, we know where the condo market went.

I have already started to hear from clients that construction costs are going down. No surprise here at all.

It was again assumed that prices were up because of China and India demand. But from cursory reading, supply has been able to easily keep up with demand. It was pure speculation that has driven up prices in the last few years.

It was the higher demand at home that was making the prices go thru the roof. We did see material costs here that rose 30-40%, causing additional costs to be added onto construction.

And remember, builders HAVE TO keep building to make money. If they stop building, they might as well completely shut down their shop.

smf said...

"I am curious to hear your thoughts on all perspectives of making an offer in this current market for a brand new home."

Wait if you can. When additional troubles are brought to light, the builders will be much more willing to negotiate in price.

In my opinion, there has been way more higher end and larger homes built than possible. As I have stated before, mention me where in 1997 could you buy a 3000 sq.ft. track home?

Sailor38m said...

I live in Hanford, Ca. I have been watching the prices out here climb since I transfered here in 2001. I saw the writing on the wall in 2001 and refused to buy.

The house im renting (1200mth)is 1640sq.ft plenty of house for my family. Same size house sold for 98k in 1999. the house next door is the exact same house and has been on the market since 2005. They are on thier 6th realtor and down to 250k from 345k starting price.

IMO it's still 100k-130k to much. When prices get back down to $70.00 sq.ft or less I will start looking again. Got a feeling I may have a long wait though.

Sippn said...

I was laughing when these guys said $150 per foot.

Don't know about Hanford, but near Sac you're looking at $50 plus per foot for land and $10-15 for permits so expect a one room fiberglass studio and $10 per week to service.

anon1137 said...

Re: the foreclosure story, there was a very interesting article in the 8/12 LA Times on lenders' strategy for disposing of foreclosed homes. It gave me more understanding about why there are so many green pools around. Turns out that banks are in no hurry to unload these homes. They want top dollar and seem to be using a go-slow approach in order to support existing price levels and possibly prevent additional foreclosures. Some are even renting homes to avoid selling at low prices.

Also, see the 8/12 OC Register article on subprime misery in Santa Ana. There's a table in the article that shows, by county, total $ outstanding mortgages and % that are subprime. LA area is huge with subprime. Sac has $12.5B total, with 3.9B of that subprime, 15th in the state on a %-age basis. We can probably use this table to predict where the greatest drops in median home values will be.

Sippn said...

anon 1137 - Actually, a brilliant idea. The lenders might as well put it in a portfolio written down to the current value, rent it for 10-15 years and harvest the appreciation on the other end. A japanese investor did that in 2-3 SAc area subdivisions in the last cycle and did quite well.

Sippn said...

Dear flaky borrower:

We know we sent that foreclosure notice, but wait, save that moving cost, we can rent it to you for that old teaser rate - and don't worry about the taxes, they're covered!

Just sign here ____________

Your lender/landlord

smf said...

"The lenders might as well put it in a portfolio written down to the current value, rent it for 10-15 years and harvest the appreciation on the other end"

Brilliant idea! (Heavy on sarcasm)

First of all, lenders are lenders, not landlords.

Second of all, sometimes it is better to write off a non-performing asset, and use the money available to actually invest in something that will give you a return.

And what makes you believe that home prices will actually go back to 2005 in the next 10-15 years? Some people have waited 7 years for some stocks to reach their 2000 levels, and they still have a long way to go.

Sippn said...

Lenders are in the business of making money.

I don't really know banking or thrift law.

They can discount it 20-40% off 2005 values plus transaction costs (6%) and sell it to you (the royal you) or they can write it down 30%, put it into a security or entity and sell it off to the market and/or maintain an interest in the appreciation and rent. Probably easier to get rent from a subprimer than mortgage payments.

Don't forget, the lenders believe in the market over the long haul; otherwise, there wouldn't be long term loans.

ralphk said...

Sippn - based on your theory... Banks also repo cars and sell them at auction. Usually with substantial discount. Should they then get into the car rental business too?

IMO - today, houses are like cars, a depreciating asset. How would they carry that asset on their balance sheets?

Sippn said...

By your assessment, who would ever buy or lend against real property?

ralphk said...

Indeed.

Which perhaps returns us the fundamentals of lending; acceptable risk/loss.

smf said...

"Lenders are in the business of making money."

Kinda hard to do in this market now, isn't it?

Still, lender LEND, they don't property manage.

paranoid renter said...

This is an interesting article:
http://tinyurl.com/2efye8
Not about Sacramento, but the
So. Cal. housing market.

He says we'll be at 1999 prices by the time this is done! For Sacramento that's probably a 50% drop from the current prices. (?)

He also says inventory is not a good measure. You have to look at number of homes sold.

Sippn said...

PR - Yes you have to look at the number of homes sold, not just inventory.

Also "and the prime properties in Carlsbad and on the water are still rising." (location and quality)

He makes some very good points but forgot to mention the death of aerospace and base closures during the last socal housing recession

Also makes some good points regarding population fleeing socal - but that is the norm. Population growth in socal occurs from foreigh immigration. The net growth is huge.

Nobody has a model for this slowdown, so your guess could be better than mine and mine could be better than a paid expert.

Regarding "paid" experts... its starting to be a trend to "leave the think tank I worked for to express my opinion" as every new housing economist has said. Lets join the dog and pony show. Its the new sex... and it sells.

norcaljeff said...

"The word is they're coming out with newer, smaller plans because people aren't qualifying for the larger ones,"
Lame reasoning. When they are talking larger v. smaller they need to apply this to their price, not the size of the home. These guys still don't get it.

Serenity, I'd like to be able to target $125/square but I don't think the market is quite there in Placer Co. If you're looking at Lincoln Crossing you may be able to get that price, but also ask for a finished back yard, no closing costs and all appliances. Don't take no for an answer either. And don't listen to Sippin, he's in the real estate market, probably an agent, trying to pump up prices by giving misleading information. If I were you, I'd wait until next spring after $1 trillion in ARM loans will be adjusted and put more pressure on the RE market. If you buy now you could risk at least another $100K to the downside in price. Good luck

norcaljeff said...

BTW, if you don't believe me, Sippin totally took that quote about prime properties out of context, read the entire quote for yourself. The article goes on to say even the desirable properties on the water, etc fell 40% in the last downturn but his POINT was that they are going up stil, so that the fall this time will be that much worse. Nice try Sippin:

"I have many examples. I'm talking about homes in Laguna Niguel, Encinitas, Del Mar, La Jolla, Poway, Pacific Palisades.....the most desirable properties, which are still rising now by the way, fell 40 percent in the last downturn. The media needs to start asking realtors this tough question: 'How much did superior properties fall in the last housing downturn?' When I posed this question on a Carlsbad realtor's blog, he blocked my internet address.

So it's not a question of what I think will happen to prices. It's a matter of fact what actually does happen to prices. History tells us."

Sippn said...

Sorry I took it out of context. Try this:


"Ms. Berkland holds a B.S. in Computer Science from the University of Nebraska at Omaha, and an MBA from Arizona State University West. Prior to starting the Berkland Group, she was Quality Assurance Manager at the software company GTX in Phoenix, AZ, and consulted for SOTA Environmental Technology in sales, marketing, and environmental reporting. She has been researching the housing market and its impact on the economy since 2005, and has shone the light of day where economists and the media are still in the dark."

Impressive!

James said...
This comment has been removed by a blog administrator.
Sippn said...

James, that was funny - caught it before the dump.

You could be one of my peeps, but need to be subtler.

SQT said...


In my opinion, there has been way more higher end and larger homes built than possible. As I have stated before, mention me where in 1997 could you buy a 3000 sq.ft. track home?


I live in Roseville and there are a ton of McMansions out here. If you go to Morgan Creek you'd see a lot of them in foreclosure too. I've never seen so many $700-$900k homes that were banked owned before.

Sippn said...

Hey SMF: Dean Baker "Congress can just pass legislation that allows homeowners who default to remain in their house as renters, as long as they pay the fair market rent (as determined by an independent appraisal) for their home. "


Whad I say?

norcaljeff said...

Sippin, send the link where you found that bio info on Ms. Berkland.

norcaljeff said...

SQT, you're absolutely right, and its not just Roseville, but don't tell Sippin, the bust somehow skips over him.

smf said...

"Congress can just pass legislation that allows homeowners who default to remain in their house as renters, as long as they pay the fair market rent (as determined by an independent appraisal) for their home. "

The questions are this:

If the could not make the house payment, their 'rent' payment needs to be lower than their previous house payment. But would 'fair market rent' be something that they could afford?

If you make their 'fair market rent' payment higher than rent payments of equivalent homes in the same area, would you be screwing over current renters?

How many homes will fall under the governments management, and would taxes be raised to cover the increased costs of managing these homes?

Unfortunately, this situation is one that the best thing government can do is nothing except to let nature take its course. There is very few people in the US that can afford a $3500/month house payment, and very little (if anything) can be done to make the payment more affordable to them.

Sippn said...

Bio - as you wish (her blog)http://www.californiahousingforecast.com/about-us/

regarding Morgan Creek - if you can find it, took me a couple of years - the formerly million dollar mcmansions were mostly tract homes that were sold in the $500-600K range, then flipped up (and back again). The nice customs near the course are from about $1 mil.

norcaljeff said...

Sippin, funny thing is, this part of your quote on her bio isn't on that link:
"She has been researching the housing market and its impact on the economy since 2005, and has shone the light of day where economists and the media are still in the dark." You're again manipulating information on this blog and showing your "facts" are not credible and in fact, are made up. Nice try.

Gwynster said...

SQT,

Sippin is just our version of Marina Prime. I've caught him a few times and he isn't that big of bull but he sure does like to rile the locals >; )

Sippn said...

Gawd, you're right... try this

http://www.californiahousingforecast.com/consulting/

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

I'm actually convinced that Sippn is a Troll. Another character from the creator of NoNewArena and Rockbuck. I can think of no other reason why he posts on multiple bubble blogs.

michael said...

Comnments like this undermine the conversation:

Dunmore Homes has told subcontractors on its projects to stop construction indefinitely, citing weaker-than-expected sales. But while job sites are inactive for now, the company is far from closing its doors, said owner Sid Dunmore. "Building has gotten a little ahead of sales," he said. "We've got to slow down a little bit and catch our breath. For the past week or so, that's what we've done. When we resume building depends on how sales go."