Monday, September 10, 2007

Current Sacramento Housing 'Recession is the Worst One Ever'

UPDATE - From Inman News:

Wendy Shapiro, a resident in Roseville, Calif., said she purchased multiple investment properties after selling her home in San Francisco and moving out to the Sacramento area. "I bought a fourplex in Red Bluff; I had $500,000 in the bank and a 700-plus credit score," she said. But her real estate investments have become a money pit. "Unfortunately, I put all my eggs in one basket. Now my daughter is going to college and I don't know if I'll be able to keep her there."

Shapiro, a nurse, said she had planned to gradually sell off the properties for a profit, but now she is faced with a decision on which properties to "walk away from," she said. "I am a single mom here working my butt off, and I thought I was doing the right thing."

Rental prices have dropped substantially in areas where she owns property, Shapiro said, as many investment properties are competing for rental income. "Rents have dropped everywhere because people who couldn't sell houses are now trying to rent them. I can't even sell one house," she said. Buyers are on the fence these days, she said, and the credit crunch isn't helping out with sales.

"It's just hell. Will I be able to sleep at night knowing I just walked away from $400,000 to $500,000 ... and all my time?" she said.
From the Sacramento Bee:
About a year ago, Susan McDonald began to see dead lawns, weeds and vacant houses in her new Elk Grove neighborhood built nearly overnight during the housing boom. The blighted scenes seemed an ominous indicator, a housing downturn tightening its grip on her suburban surroundings. Months later, as that downturn continues to deepen across the Sacramento region, thousands more empty homes and their unkempt lawns have become the ugly face of rising foreclosures and bank repossessions.
Many real estate agents estimate that about 40 percent of the 10,000 single-family houses for sale in Sacramento County are empty. In the short run, that poses aesthetic problems for many neighborhoods. In the long run, so many empty houses are also likely to prolong the housing recovery, analysts say.
Thousands more owners will face difficulty in coming months as their adjustable-rate loans reset to higher payments. At the same time, many investors, who represented one in every four sales in Sacramento County at the peak of the boom in 2004, are still trying to sell their empty properties..."There are so many new homes here and so many investors from the Bay Area," McDonald says. "When we pull up the owner's names, nine times out of 10 they live in the Bay Area..."From 2001 to 2005 we had just a flood of people from the Bay Area. That was when the market was really hot," she says. "Now everybody is losing their shirts and renting or walking away."
From the Sacramento Business Journal:
On the list of big-city status symbols that Sacramento can't quite seem to land, add the condominium tower. The most ambitious project to date, John Saca's 53-story twin Towers on Capitol Mall, died in June when the California Public Employees' Retirement System bought out Saca's interests...BCN Development's 38-story Aura project at 6th Street and Capitol Mall is technically still alive, but stalled.
Don't feel too bad, though. In cities where condo towers have been a hot trend, the condo markets are becoming glutted thanks to overbuilding. Sacramento may have dodged a bullet.
From the Stockton Record:
Soon after the City Council celebrated its adoption last month of a plan to build homes downtown - City Manager Gordon Palmer said it "set a vision" for the city core - it became clear even strident civic action could not match the force of the housing market's collapse.

Following the plan's adoption, Grupe Investment Co. Inc. President Kevin Huber confirmed the postponement of downtown's most-ballyhooed housing project, the construction of more than 150 condominiums and townhouses on the south bank of the Stockton Deep Water Channel.

It was a significant setback for City Hall. Since announcing the project last year and predicting that homes could be built this year or next - or, later, in 2009 - civic boosters have pointed to it as proof developers could build and people would live in the city core.

Not in this market, Huber said. "It's hard to say when we would start at this point," he said. Before the council adopted its housing plan, it came out last month that Stockton's foreclosure rate is among the highest in the nation. Houses sit vacant, and home sales have slumped. The market is "as difficult as I've seen it," Huber said. To start a housing project here at the moment would be unwise, he said.
From the Sacramento Business Journal:
Eva Garcia has been selling real estate in Sacramento for 44 years...."I think this recession is the worst one ever, worse than the one in the '90s, because of the fraud on the part of too many lenders. But we're OK. We have a steady flow of customers. Some of our customers are the children of people we sold homes to a generation ago. We advise people not to sell now unless they absolutely have to. "
From the Chico Enterprise Record:
People are asking "When is the housing market going to recover?" What they usually mean is, "When are prices going to start going up again?" This is the wrong way to look at the trend. The current period of stagnant sales and dropping prices is the recovery. It's the last few years that have been unhealthy. Things got so bad that the market contracted that dread malady, the bubble.

At the height of the bubble, ordinary, everyday Chico houses were selling for $300,000. That's just plain madness in a community where $50,000 a year incomes are the norm.
The deflating of the bubble ought to teach us that what goes up what must come down. But we will never learn. It won't be long before we've embarked on a mad dash after another supposed source of riches.


Patient Renter said...

"People are asking 'When is the housing market going to recover?' What they usually mean is, "When are prices going to start going up again?" This is the wrong way to look at the trend. The current period of stagnant sales and dropping prices is the recovery."

Amen! Cheers to the author.

Bakersfield Bubble said...

Lander quit being so negative, does sippin have to start runnning this blog? LOL!!!

Diggin Deeper said...
This comment has been removed by the author.
Diggin Deeper said...

I don't think it can be called a recovery until we find a bottom.

It's hard for me to believe that if 30-40% of all job creation in the country was due to this real estate boom, why haven't we seen hundreds of thousands of jobs falling off the roles during the last 12 months?

This is very different from the last downturn...and more dangerous imo. The market in the late eighties fell due to statewide job losses (aerospace and defense in particular). Now we have a bursting bubble that will eliminate the excess jobs it was responsible for creating.

Recovery is still a ways off...

Jacob said...

Most of the job losses are from temp workers to illegal workers, neither of which will show up when companies report layoffs and such.

David said...

I've worked in an industry that gets me exposed to building sites on a regular basis and I can tell you for every legit job lose that shows up 10 other people lost a job. These aren't all illegal immigrants either. The building business is probably the biggest under-the-table type employer in the country. This bubble is going to hurt not only this country, but all the people "back home" when all the remittances stop.

SacramentoCrash said...

So what are you all projecting?

30% - 2003

40% - 2002

50% - 1999

The market has already slipped 10 to 20%

Bakersfield Bubble said...

Local moguls finally charged by the State:

lexi said...

I predict 2001 one prices will be
the bottom, maybe 2000 but I just
don't see them at 1999 again..

Sippn said...

Eva Garcia "I think this recession is the worst one ever, worse than the one in the '90s, . "

She already forgot the fraud of the early '80s, the 20% mortgage rates...

But thats OK, the guys who wrote the bond models from wall street never knew real estate sometimes declined.

Joseph said...

I hope the people of CA suffer massive foreclosures. Where are your liar loans now? But yet you may still get the government to bail you out. The rest of the country may be that stupid.

paranoid renter said...

It's still boom time in Roseville. Lots of people at the malls and restaurants are overflowing!

Market may be bad, but it only affects those overinvested in real-estate.

If the lady hadn't bought as much real-estate and just put her excess cash in the bank when she moved here from SF, she'd be in great shape.

paranoid renter said...

By the way, I bid 300K on a 1630 sq ft home in Roseville listed at 375K, which is a short sale. The bank has not yet responded to my offer (been more than 2 weeks!); the house hasn't sold yet either and has been on the market for more than 2 months.

Gwynster said...

Nice offer

I was in SF over the weekend. Bloomie's was a ghost town, Nordstron's with ok traffic, and Macy's was full of people fighting over a discounted $20 shoe. No one was buying the big stuff. It was all bargain shopping.

Cmyst said...

I think Roseville attracts the mall crowd from the entire Sacto metro area.
I recall when the Downtown Plaza was the big draw -- ah, memories.
The perception is that Arden Fair and Sunrise Malls are dangerous. They've become the "Florin Mall" since it was torn down.
Of course, the gang-bangers shop at the Galleria, too. Whatever place is the trendiest, or promotes itself as the most luxurious, will attract all sorts of people who place style over substance.

Diggin Deeper said...

This monster bubble created it's own subeconomy that drove a good part of US growth over the last several years.

Based on newly created paper wealth this subeconomy had only one lynchpin required...RE prices had to continue to go up even if was just enough to keep creative financing plans from imploding.

There's no job demand, and just like we've seen from Countrywide and IndyMac, there's no need for excess jobs either.

If David is correct stating that for every reported job loss 10 more are also lost, this number could go 7 figures. Keep in mind that if it was predominantly illegals and under the table jobs (which I don't buy), without these people working, we're taking care of them as they struggle to survive.

Joseph, I don't know where you're from, but if California's economy tanks because of the subprime mess, it's taking the economy of the US with it. It's too big with too many people not to affect what's going on elsewhere.

Mike said...

"By the way, I bid 300K on a 1630 sq ft home in Roseville listed at 375K, which is a short sale. The bank has not yet responded to my offer (been more than 2 weeks!); the house hasn't sold yet either and has been on the market for more than 2 months."

PR I think you might get a chance to get your home very soon. The rate of price drop in Roseville/Rocklin area is accelerating. See my comment in Sac Stat blog.

Mike said...

Here is better link to my comment about Roseville

smf said...

"but if California's economy tanks because of the subprime mess, it's taking the economy of the US with it."

Of course, aren't some other locales whining about the 'investors' having left their market?

After all, it was mostly 'investors' from very few states that drove up prices thru the US.

SacramentoCrash said...

Some people will keep spending until their credit limit has been reached.

What ever happened to that guy in Rocklin (featured in the Bee)that built a fancy backyard that included a beer tap and TV and BBQ Grill.

Was this a milder form of housing ATMitis?

SacramentoCrash said...

Here is the link:

Bill Arnold pours a cold one from a bar that is part of the covered patio-and-pool backyard he built with money borrowed against the growing equity in his Rocklin home.

During baseball season, Bill Arnold sometimes watches his beloved Dodgers from a private luxury box: the backyard of his Rocklin home.

Covered patio, 32-inch television, beer tap, grill and swimming pool - all paid for by borrowing $100,000 against his ever-increasing home equity.

"We continue to be amazed about the value of our house," Arnold says.

It seems everyone in Arnold's Coppervale Ridge subdivision has a stake in the great American real estate boom. It's made them wealthier. It's created jobs. It provided security when big employers downsized.

For some homeowners, equity is a cushion against economic uncertainty.

When Bill and Jan Arnold and their three children moved into Coppervale Ridge, they knew the market was strong. They just didn't realize it was this strong.

Their previous house, a mile away, didn't even double in value in the seven years they owned it. Their new place is a different story.

Three years ago they paid $460,000. A recent appraisal came in at $780,000.

Sitting on a gold mine, the Arnolds decided a year ago to build a backyard entertainment complex.

Jan, a tech consultant, was nervous about borrowing $100,000 against their equity, but Bill said it was a no-brainer.

"We took out less than we could have," said Bill Arnold, who sells TV advertising time.

Will the good times end soon? Arnold doesn't think so. The "better quality of life, better school districts" will keep values up in Rocklin. Besides, the government will keep interest rates low enough to "keep the boom going," he said.

"I don't think it can last forever," he added. "But people have been saying that for some time."

Luckilly his wife put a brake on how much he could tap the kitty for.

ralphk said...

Sacramentocrash...I remember looking at the pictures in the story and thinking not only was the guy foolish for spending that kind of money, he also got screwed for $100k.

Diggin Deeper said...
This comment has been removed by the author.
Diggin Deeper said...

I wonder what a followup on Bill would reveal? Was he smart enough to finance using a fixed mortgage?

Since the home ATM has been turned off, consumers have had to rely on more traditional plastic...

Bankruptcies to quadruple in 2008 and credit card delinquencies are soaring...Seems that we're destined to keep buying things we don't need and can't afford...

AgentBubble said...

More info on the Rocklin house:

Sold 3/4/02 for $459,000

3/4/02 - Original loan of $300,700 (there may have been an original second loan, but it's not showing in the tax records)

7/16/04 - Refi of $540,000

2/28/05 - Loan of $70,893 taken out

11/29/05 - Loan of $101,710 taken out.

Home is 3,771 square feet.

Recent comps:

2305 SPANISH Trl - 3771 sq ft, listed at $599,900 as a short sale.

6504 TIMBERLINE Way - 3489 sq ft, listed at $519,900

6111 Eaglecrest Way - 3609 sq ft, listed at $605,000

6016 Little Rock Rd - 3503 sq ft, listed at $649,900

2207 Solitude Way - 3820 sq ft, listed at $709,900

2234 Solitude Ct - 3821 sq ft, pending at $699,900

2127 Big Sky Dr - 3906 sq ft, sold for $647,000 on 7/30/07

2121 Big Sky Dr - 3609 sq ft, sold for $680,000 on 6/20/07

Diggin Deeper said...

AB...thanks for the update. Looks like his wife couldn't keep him from dipping into the till. He's playing catch up from this point on.

Oh well, sipping a brew and watching a ballgame when it's 110 out is great way to spend an afternoon...


smf said...

I remember ('cause we did it) the REAL AND LOGICAL reason why people started to refinance and get money out.

In 2002, we refied from an adjustable 7.5% 30 year loan into a 15 year 5.5% loan.

With the lower interest rate, we could take money out and still pay about the same.

We did, and sunk ALL of it right back into the house.

Of course, with a 15 year loan we were paying MORE but the overall payments were much less because of the short term period.

Hence, we could easily take money out of the equity, and still come out ahead over the overall life of the loan.

Several people I knew did this as well, with a starter home that was around $100K at the time.

This was corrupted into the mess we are in now, as people took money out, almost assuming that they would not have to pay it back.

Diggin Deeper said...

Smf...I did basically the same thing but sold out in the summer of '04. If you are a long termer in your home, it worked out great, as long as you're downside was having no choice but to stay put.

SacramentoCrash said...

He is upside down at $712,603 of debt(if all loans are still in place) on a house worth $600,000(+/-)

The article didn't mention his whopping refi and the other $70,000 subordinate loan (might be a loan rate replacement).

His wife must be pulling her hair out!

Sales people should stick to sales and not try to be financial wizards especially with their home.

Patrick Hake said...

I just made an interesting discovery. It may be something that has already been discussed, but I will share it anyways.

The auction coming up at the end of the month, held by US Home Auctions is using many listings that were formerly in Metrolist MLS.

Many of the homes previously listed as bank repos in Metrolist are now indicated as being withdrawn or temporarily off the market and are now on

This may explain the inventory drop in some areas. The homes are not gone, they are just no longer listed on the MLS.

Makes me wonder what will happen if a lot of these homes don't sell at the auction. Maybe there will be an inventory spike after the auction.

Oh, and what is up with the 5% buyer fee for the auction. I am going to watch the 11 Placer County homes included in the auction and see if they actually sell for less than there MLS asking price with the 5% added. I suspect that the auction is more of a shell game than anything. Why would the banks suddenly sell for so much less than they were asking in the MLS, when they have otherwise been unwilling to negotiate?

Diggin Deeper said...

"I suspect that the auction is more of a shell game than anything."

From your comments it would appear that the whole inventory shuffle is a shell game. Pull it off here, park it over there, jam it in an auction with a reserve plus 5%. That's not going to fool the serious buyer. They have probably seen the same homes over and over, just through different venues.

The real estate industry is still practicing damage control by manipulating the true figures that are stacking up on MLS, the banks, forclosure reports, etc.

At some point the weight of this mini-bubble gives way.

smf said...

"At some point the weight of this mini-bubble gives way."

At some point the whole RE industry will have to come face to face with the realities of the internet age.

For the most part, a house buyer has at his fingertips a wealth of information to make their home buying decision.

The RE industry after this might be as different as the music industry was FORCED to become after the internet.

The smart ones will try to get in at the bottom of the changes that WILL occur.

Patrick Hake said...

"The real estate industry is still practicing damage control by manipulating the true figures that are stacking up on MLS, the banks, forclosure reports, etc."

I think the important word here is "control". I don't think any one organization has control over the current situation, including the government. By its very essence the current market conditions are out of control.

If there is one group who has control over the current situation it is home buyers. Until prices reach a point where there are more interested buyers than there are sellers, the market will not reverse course. No amount of spin will change this fact.

When this will occur is impossible to say for sure.

Gwynster said...

I went to the last big 400 property auction. I wrote up a long post on it a while back.

I watched a house I was interested in in Woodland sell for less then it's 02 sales price. Most everything in the crappy areas were snapped up by newbie investors for 40% to 65% last list price. In several cases where the bidding when on for a while, the audience began to laugh. So much for the shock and awe of RE.

This next one only has 1 house in Yolo I'd even remotely consider.

I seem to remember that Marshall & Field was going to be back out in Nov with another big auction.

Gwynster said...


Speaking of homes selling at auction, can anyone check what
MLS 70056020 sold for? It's definately now occupied and being worked on.

Hake, the write up was in the July Water cooler, midways towards the bottom. The part about shills bidding up house then coming back to the last high bidder seemed to be common.

Patrick Hake said...

Gwynster, the property at 622 3rd St in Woodland sold for $262,500 after being listed for $324,900.

That is a pretty substantial discount from asking, almost 20%.

I plan on checking the tax records for the auction homes in Placer County about a month after the auction.

I would like to verify a few things: The number of auction homes that actually sell, the price they sell for and the difference between what they sell for and the asking price in the MLS, factoring in a the 5% auction fee.

I should have my answers sometime between the middle of October and the beginning of November.

I am having a hard time figuring out the logic behind the banks being stubborn on prices when listed in the MLS, while at the same time being open to low bids in an auction.

Gwynster said...

Ok so the bank took the 250K offer plus 5% fee. Check the 02' selling price and we're at early 03 prices.

Here more of what I saw at the auction:

Property 322
Seller Code WAMU-FNAMS
Seller Number 696643915
Street 8531 Hermitage Way
Location Sacramento, California, 95823
Beds 4 Baths 3 Sq. Ft. 1692

Guy standing next to me was bidding. We're against the wall with doors and his competition was way across the room. Closed at 232k to mystery bidder. Within seconds the auction staff come to him to tell him that the winner backed out and he could have it for his last bid. He eventually gets the house for $202.5K.