Friday, August 10, 2007

"A New Hit" on the Sacramento Housing Market

From the Sacramento Bee:

...[H]omebuyers are also finding fewer loan products available to finance their buys, say Sacramento-area lenders. They claim widespread investor concern over the rising risks of loan defaults and foreclosures is shrinking the pool of money for home loans. "There's a lot of product this week that's been taken off the shelf," said Brent Wilson, mortgage strategist with Sacramento-based Comstock Mortgage.

No one is sure how long this surge of credit tightening will continue. But it signals a new hit on a Sacramento-area housing market already coping with rising defaults, slow sales, excess supply and downward price pressure in many neighborhoods.
Also from The Bee:
All over the capital region, home builders are trying smaller lots and shaving extras to bring down prices. But some El Dorado Hills architects are unveiling the ultimate, a return to something not seen here in years. It's the $150,000 house. This is not as far-fetched as you might think. Prices for new small-lot houses already are dipping to $230,000 in parts of the region.
[B]ased on what we know to be true on sales of homes now, $150,000 is very achievable," says Kerrin West...West believes "the market for this is huge." "We've got so many folks priced out of the market," she says. "Also, on the flip side, people are making too much money to qualify for low-income housing." Should builders eventually sign on, these could be the first $150,000 new houses seen in the region since the earliest days of a housing boom that began to take shape in 2000.
From CNN Money:
...[M]otivated sellers may have to slash prices to move properties. Already, in Sacramento, 48 percent of sellers have discounted from their original listing price. Some 47 percent of Orange County, California sellers have dropped their price and more than 45 percent of sellers in both Boston and Phoenix have done the same.
From Bloomberg:
The 9,000 unsold houses sitting empty in Northern California's Sacramento and Yolo counties aren't just a headache for owners: They're a threat to public health. The danger is in their yards, where deserted swimming pools, spas and ponds provide prime breeding grounds for mosquitoes. That heightens the risk of West Nile virus....

About 1,200 of the empty houses are known to have swimming pools, said Greg Vlasek, director of government relations for the Sacramento Association of Realtors.
Real-estate agents are being drafted to help combat the spread of the sometimes fatal virus. Health officials asked agents to report vacant residences with standing water, in what the National Association of Realtors says is an effort unique to the Sacramento area.
More than 1,000 homes have been reported since the program began in May, Brown said. The average time a single-family home sits on the market in Sacramento was 52 days at the end of June, according to the Sacramento Association of Realtors. The selling time tripled in the past three years.


Diggin Deeper said...

"Homebuyers are also finding fewer loan products available to finance their buys, say Sacramento-area lenders."

Looks like the whole world is facing this problem. According to Countrywide, the market for selling their loans to investors has completely dried up. Same with WaMU.

When lenders cannot sell loans into the investment community, it doesn't take long before these companies run out of money to lend.

norcaljeff said...

There's no way they'll build $150K new homes anytime soon. What's it gonna be? One bedroom, 200 sqft, optional electricity and no roof?? And built entirely with illegal immigrant labor? Hey, I've got a nice cardboard box in my garage if anyone is willing to give me $150K for it :)

smf said...

OK, let's repeat this again:

More demand, less supply = higher prices

Less demand, more supply = lower prices

This worldwide RE boom was not like the period after WWII and the boomer generation, where plenty of housing units HAD to be built to meet demand.

The demand for housing that occurred was not related to significantly more people moving into an area, but was based on the expectation that the price of the commodity would be much higher later.

So, you have a lot of supply, which is still overpriced. And the smart investor does not invest in a depreciation asset.

Did I make it a little clearer?

Patient Renter said...

"The demand for housing that occurred was not related to significantly more people moving into an area, but was based on the expectation that the price of the commodity would be much higher later."

SMF is absolutely correct. Dean Baker has supported this position with data from the Census Beaureu. Population did not grow abnormally, but supply did.

smf said...

"Population did not grow abnormally, but supply did."

And the added on part is:

If the abnormal rise in prices was due to a 'fake' demand, where should prices go once the demand goes back to normal?

Hint: the phrase is 'return to mean'. And for a good example of what it looks like, see a chart of Nasdaq from 1990 to today.

Tyrone said...

I look at like this...

Much Less demand +
much more supply +
Muss less credit available +
Much higher standards applied to loans =

If you purchased within the last few years, you're screwed.

Janell said...

smf said...

"Hint: the phrase is 'return to mean'. And for a good example of what it looks like, see a chart of Nasdaq from 1990 to today."

do you mean this chart?^ixic;range=19901001,20070809;indicator=volume;charttype=line;crosshair=on;logscale=on;source=undefined

looks like its up ~600%

Cmyst said...

Something that has been bugging me lately is the breathless news of Lincoln being the fastest-growing town in California, and Elk Grove being in the top 20.
Cause I seem to recall that it turns out that a lot of the homes in those areas are investment properties and that in the case of Lincoln, they didn't get the influx of school kids that they were planning on, etc.
So, what is it? Boom or bust?

Gwynster said...

I would say the spread on the Nasdaq should be 1997 to 2007 _ real dollars.

cole said...

these guys who write for the Bee, run around with their heads up their behinds...they have absolutely NO IDEA what is going on...

basically this woman, WHO IS NOT AN ARCHITECT, is pushing what already exists in Midtown...a home facing the street and a garage off an alley with a unit above...BIG DEAL...this has been pushed for the last 30 years all over the country...

What's with Sacramento? are they really 25 years behind everybody else?

norcaljeff said...

Lincoln no longer is the fastest growing city in the US. In fact, it's completely fallen apart so much that they are stopping the construction of at least 2 large schools.

SacramentoCrash said...

I saw this coming in early 2004 and posted quite frequently on an Elk Grove website.

All those people on the Elk Grove site ridiculed me as a "Chicken Little".

Well, they were wearing rose colored glasses supplied to them by the greedy developers and lenders.

They banned me for calling it as it was.

What you guys are telling us through the comments section is that it is much worse than the mainstream media lets on.

When I call cycles, they should have listened instead of fallen prey to the smiling real estate "New Home Consultants".

So you all in south county were forewarned way before this bubble inflated.

SacramentoCrash said...

The larger iceberg lies ahead.

I will use the New Media / Internet sector as an example.

People don’t realize how much business is going out of this area and offshore.


Graphic design firms in Sacramento charge $50 to $150 per hour for straight forward sites and for easy site revisions.

Compare that to $7.50 to $15 per hour for top designers in India.

Great designers, very hardworking and willing to produce top notch output.

Another example:

During the recent bridge collapse in Minneapolis KCRA interviewed their content writer that is based in all places - Minneapolis.

A little digging revealed that a significant part of the content is being generated at Internet Broadcasting's office in Minneapolis (lower cost centralized market).

Another example:

One southern California internet portal recently went to India for writers ($3.50 to $5.75 a hour) versus $35 to $50 per hour (includes benefit costs) in LA area. Hard to say if this one is going to work.

Three examples of the types of high paying local jobs that can migrate out of this area due to high housing costs and high salaries needed to pay the housing alligator.

SacramentoCrash said...

Here is the TinyURL: