Tuesday, September 25, 2007

'I Just Thought Things Would Work Out'

From the Sacramento Bee:

Driving around Sacramento's urban core, you'd never guess there was a housing market slump. New lofts, three-story row houses and condominiums conceived during the housing boom are nearing completion in neighborhoods ringing downtown...At least eight housing developments with about 500 units are either under construction or just completed in the central city. Across the Tower Bridge on the West Sacramento waterfront, another roughly 250 units either have hit the market or soon will.
For years, city leaders pushed unsuccessfully for more homeownership downtown. But the finances didn't make sense for developers until the housing market boom pushed prices high enough to cover the extra expense of building on small, inner-city lots. When sales prices topped $300 a square foot a few years ago, developers rushed to get into the urban housing business. Projects started in those heady days are now ready to open.

The builders hope that their products -- and locations -- are interesting enough to sell in tough times. "It's a scary market," said developer Mark Friedman, a partner in Loftworks, which is building 32 brownstone-style row houses in midtown at N and 26th streets.
From CNBC (videos here and here):
These days people here are losing money, as Stockton has become infamous as "The Foreclosure Capital."...Over the weekend several foreclosed properties held open houses. We were there. And so were the flippers! After all that's happened, a new wave of speculators has descended, hoping to take advantage of the 10%-15% below market values these homes are selling for. Their plans? Fix 'em up and sell 'em at a profit! To whom, I haven't a clue.
[T]hen there's the dental assistant, a single mother of three, who doesn't want us to reveal her name, but who has to be out of her repossessed home in 14 days. She has nowhere to go and no creditworthiness to qualify as a renter. What happened? Her $2,000 mortgage payment (which she had to work two jobs to cover) reset after two years, and it shot up to $3,800. I asked her how she thought she could take on the loan, knowing the rate would rise. "I just thought things would work out."...Her three kids want to know why notices keep getting posted on the door.

Should we feel sorry for her? I sure did. Should she be bailed out? Not if it keeps her in a house she can't possibly afford over the long run. That's not fair to the people who did stay within their budgets, people who have seen their home values plummet as their neighbors go into foreclosure.
From the Stockton Record:
The sea of foreclosed homes in San Joaquin County and its flotsam of tall weeds, partying teens and green pools are testing neighbors' patience and code enforcers' limits..."It's a real sticky situation in making sure our code enforcers aren't overworked. It's very difficult for our staff to track down the folks who are taking off," Tracy Spokesman Matt Robinson said. "They're just walking away from their homes."
One burning question these days is: Why have foreclosures sledgehammered the Stockton metro area more heavily than about any place in the country?
Locals and many Bay Area people began to get priced out of the market. In order to buy, households often went after low introductory teaser rates on loans for which lenders asked little or no employment/income documentation, said Leslie Appleton-Young, chief economist for the California Association of Realtors. Lenders routinely reported that for the first time, adjustable-rate mortgages and exotic loans were more common than fixed-rate loans.

Meanwhile, investors added to the price spiral by competing for homes, sometimes buying sight unseen via the Internet and looking to "flip" them for tidy profits within a year or two. Real-estate agents and brokers reported that up to 30 percent of home buyers were investors. "And then when prices quit going up, it was like musical chairs, and there was no place to sit down," said John Knight, professor of finance and real estate at UOP's Eberhardt School of Business.


smf said...

"Over the weekend several foreclosed properties held open houses. We were there. And so were the flippers! ... Their plans? Fix 'em up and sell 'em at a profit! To whom, I haven't a clue."

Did I not say this not too long ago? Foreclosed homes are not coming close to clearing the backlog.

A good chunk of them are being bought by flippers hoping to cash in with their 'instant equity'.

By next spring all the remaining investors will be falling over each other to sell their white elephants. And they'll be competing with banks, too.

That'll be fun!

Perfect Storm said...

"Plenty of people have been coming through the Tapestri Square models, which opened two weeks ago. It's unknown how many of these lookers will turn into buyers for the narrow three-story houses that range in price from $450,000 to $850,000."

I think they are all just looking and eating the free cookies.

Housing/Mortgage Doom 2007

Foreclosure hell 2008.

Were right on track for a 50% decline by 2009.

wrong moves said...

"Hoping things will work out" seems to be the new "What I can afford".

Just wanted to share an example of irrational behavior I learned of this morning. A young couple whose wife works at the same college as mine recently bought a REPO 1400 ft2 house for 325K. What I know is it needed, not wanted, new floors and paint. So my feel is that it was not a pristine property.

Two things. They lowballed the bank, the bank refused, so they offered full asking price. Dammit, this behavior is part of the problem. For me anyway.

Secondly, the buying wife's words were, according to SWMBO (she who must be obeyed) was "If there is a semester where I don't have at least 4 classes, we are screwed".

So we can see, there are no savings involved. If one semester puts you that close to insolvency, then maybe you can't afford it.

What was their hurry? Can't they read print or watch CNN/Fox News/Sesame Street. Seems everybody is now on the same sheet of music.

Now we know 2 houses that will probably be back on the market before too long. The other one I know of is a 100% sure thing. It is a major cause of the "D" word. It had Forclosure written all over it when it was purchased Dec. 06.

Common sense is not a common commodity.

anon1137 said...

"What's their hurry?"

Ticking biological clocks. You get some resources, you get a nest, you reproduce. It's called life, dude. There isn't a housing bubble big enough to ever stop that.

smf said...

"Great investment opportunity in Costa Rica"

Thank you for proving to us how global this bubble was.

Professor4closure said...

I'd hate to have to count on classes making their enrollment minimums determining whether or not I could make my house payment. The good news for your friend who teaches at a college is if it is a community college, our enrollments increase as the economy gets worse. The fortunes of being "full-time" is I don't have to worry about my classes making enrollments. If one doesn't, well some poor part-time faculty member gets their class taken away and given to me.

wrong moves said...

@ 1137
Do they have resources? Not much.

Nesting for offspring? Yeah, I'd love to start that looking at what I'm sure is an 80/20 ARM.

Still think they should have waited.

@ Prof
Exactly what my point was. She's basically a temp. No guarantee of steady work.

With 4 classes, she is bringing home about 25K a year. Hubby does not make much either. How do they afford 325K?

Shoulda waited IMO.

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

25K at a CC? ouch!

Just for contrast, UC is 63K/yr starting, teaching 3 or 4 a year plus you are expected to carry quite a bit in research funds and sit on at least 1 committee.

Super, duper top researchers can negotiate more but I will tell you that 63k is pretty standard for starting faculty (academic senate)