Sunday, September 02, 2007

"Like Riding a Roller Coaster - Headed Steeply Down"

From the Stockton Record:

Home foreclosures and a slammed residential market in San Joaquin County continue to make dark headlines, but there are growing signs about the negative effects of the home-market downturn on other parts of the area economy. Offices vacancies - typically lean in recent years - have jumped, as has unemployment related to the housing industry. There also are signs that consumer spending is slowing, both in retail employment and such a mark as new-car sales.
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In recent years, office vacancies been less than 2 percent have most of north Stockton, she said. These days, office vacancies have climbed to 16 percent, a level not seen since the early '90s, [Shelly] Cannon-Keely, [CB Richard Ellis] said. Half the vacancies are sublease spaces from downsizing, she said, "and we haven't had subleasing for years."

Also, now that the area's population boom has slowed, the market is much quieter, she said. "There aren't all the companies out there expanding because of the population growth," she said. "They are conservative, waiting to see what's going to happen."
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John Solis, executive director of the San Joaquin County Employment and Economic Development Department, said the residential housing-market downturn has hurt. "There definitely has been a loss of jobs with real-estate brokers, title companies and construction in the hundreds," he said.
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"It's a buyer's market but nobody's buying. In the next six months, the prices of housing will continue to drop, and nobody will buy because they don't want to buy until prices are down." There really not much place in the employment market to absorb the workers from real estate-related fields, he said.
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Ian Poth, a tile installer for a Modesto tile company, figured he's lucky to be working on the few homes still being built these days in Spanos Park West. Right now the construction field feels like riding a roller coaster - headed steeply down. "The job market is slowing down in construction right now," he said. "I got a lot of buddies out of work."
From Bloomberg:
Federal Reserve policy makers underestimated the role that housing plays in triggering recessions and merit an 'F' grade for their failure, said Ed Leamer, director of an economic forecasting group at UCLA...The Fed ought to have raised interest rates more aggressively to head off the "bubble" in home prices that grew from 2003 to 2005 and should have lowered rates by now, he said.
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Leamer said in an interview today at Jackson Hole that some former "hot markets," such as pockets of California, may see declines of 30 percent to 40 percent.
From Bloomberg:
Homes may lose as much as half their value in some U.S. cities as the housing bust deepens, according to Yale University professor Robert Shiller. "The examples we have of past cycles indicate that major declines in real home prices -- even 50 percent declines in some places -- are entirely possible going forward from today or from the not too distant future,'' Shiller wrote in a paper presented today at an economic symposium in Jackson Hole, Wyoming.
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Because price gains were larger and more widespread this time compared with past speculative booms, the risk of "substantial'' price declines is greater, wrote Shiller, also the chief economist and co-founder of MacroMarkets LLC.
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Shiller noted that 50 percent declines in the worth of some cities' homes wouldn't be unprecedented. Prices in London and Los Angeles fell by almost that amount from the late 1980s to mid- 1990s.

U.S. home values, adjusted for inflation, rose 86 percent from the end of 1996 to early 2006, the peak of the most recent housing boom, Shiller said. Economic factors such as rents and construction costs don't appear to explain the jump in prices, suggesting "speculative thinking'' and a "boom psychology'' was at work. "Extravagant'' expectations for future price increases since the late 1990s fueled the bubble, Shiller said.
From the Fresno Bee:
A real estate mystery lingers in southeast Fresno: Why would a developer build two dozen houses, sell only two and then disappear?

Few cars visit this ghost tract south of Butler Avenue, known as Ashwood Park. Weeds choke many lots. The model home complex is closed. There are no real estate signs in the yards, and no phone numbers posted anywhere. Just placards in the windows that read "available."
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It's unclear what happened to this neighborhood. Officials at Lafferty Homes did not respond to repeated phone calls...But experts say the developer likely turned the tract over to lenders because it couldn't sell houses fast enough to cover debt payments -- much as some troubled home buyers walk away from a house they cannot afford and cannot sell.
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Regional builder Dunmore Homes is pressing ahead with tracts in Dinuba but is putting one at Temperance and Dakota avenues in Fresno on hold....The company will finish grading the site but won't go any further right now, said Mike Lutz, division president. "In light of the current marketplace, we are concerned about putting more money into it and bringing it to market," he said. "We will sit and wait." Dunmore's office staff in Fresno, which oversees projects in Dinuba, Bakersfield, Merced, Atwater and Livingston, has shrunk from 12 employees to five, Lutz said.
From the Stockton Record:
Rosalee and Ernie Schimpf have enjoyed the country life east of Stockton for nearly three decades...But now they want to get on with the next phase of their lives - retirement and relocation to Colorado near their children.

This isn't the real-estate market for such dreams, so they are discovering as they try to sell in a brutally slow home-sales market that has left them feeling as if they have hit a brick wall. There have been lots of lookers, they said. They can't get any serious offers, though, for their 1,700-square-foot home, plus finished basement and a 600-square-foot workshop on two acres. They got the property appraised and initially set the price at $589,000 in May, later lowered to $549,000, a price below anything similar in the area, they said. Still, the only offer they have gotten came in at almost one-third below asking price.
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The Schimpfs said they have followed the rises and falls in the real-estate market over the years but never expected to see a downturn so severe..."We didn't know whether to laugh or cry," Rosalee Schimpf said. "We look at each other and ask, 'Could we have chosen a worse time to sell?'"
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"Buyers right now are saying the market is going to come down even more, so if we're going to buy now it's going to be for a lot less than they're asking," [Jerry] Abbott [president and co-owner of Coldwell Banker Grupe] said.
From the Sacramento Bee (hat tip Gwynster):
Tracy Trammell sold the boat, the extra vehicles and tried everything to "find a way to refinance, or do what I could not to lose the house for my children." She is in a bind all too common in Sacramento: a home losing value and an adjustable-rate mortgage with payments that jumped $1,000 a month in June.
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Trammel made her new $3,000 payment in June. She made another in July. Then she considered reality. She is bound to lose the house with this loan, a loan with one more year before its pre-payment penalty expires. When Countrywide suggested a roommate, Trammell felt insulted. She skipped a payment. It is one more foreclosure now in motion.
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As many attempts at solutions fail and foreclosures rise, arguments abound about who bears responsibility. Consumer advocates say lenders freely gave cash to people with risky profiles and now owe them waivers of prepayment penalties and options to restructure loans.

Lenders, for their part, say it's a two-way street. Staffers often find people unwilling to give up cell phone service or satellite TV to finance strategies to save their houses, Ed Delgado, a senior Wells Fargo executive, told the California Senate Committee on Banking, Finance and Insurance last month.

15 comments:

Perfect Storm said...

Leamer said in an interview today at Jackson Hole that some former "hot markets," such as pockets of California, may see declines of 30 percent to 40 percent.

Sacramento will decline by 50% by 2009 and parts of Sacramento like Oak Park, North Highlands, Norwood area, South Sacramento, and Del Paso Heights will see a 60% decline.

Sittin' Out This One said...

Perfect Storm, you may be an optimist.

Foreclosures to Go lists 397 Placer County houses filed today for trustee sales in the next 21 days. All these houses will be REO next month, offered at fire sale prices. See for yourself at www.foreclosurestogo.com

There are only 3100 houses listed for sale on MLS in Placer County today. The inventory is about to grow by 10% and asking prices will drop by 20% in the middle of winter.

The banks will not hold onto $200 million of inventory for the next spring selling season (which will not materialize anyway).

It continues to get very different in bubble land.

Sold in '05 said...

That 397 number on Foreclosures to Go (FtG) for Placer county is very large but after the initial "holy sh!t" wore off I looked a little deeper.

I checked the FtG listings in my shopping area of West Roseville, 95747 and found that of the 97 brand new late stage foreclosure listings headed for the courthouse steps, 99% of them are already in the MLS and most have been there for at least long enough for the "just listed" tag to expire. So there probably won't be a massive run-up in inventory and the banks may even breifly take them off market and then relist.

I've been tracking this zip code's listings VERY closely for the last two years and what surprised me about what the FtG website data was how many of the seemingly "normal" listings are about to become bank owned. More startling was that MLS currently shows about 550 total listings for the zip and using the FtG data more than 100 of those are in the very late stages of foreclosure. So my little upper middle class suburban area is carrying a 20% level of property listings that will soon be bank owned. That's not even looking at the ones that are "only" at the 30 day Notice of Default (NOD) level.

I'm really counting my blessings that the two offers we DID make on houses last summer were $25k too low for the high flying sellers to even counter. If it wasn't so scary for what this will mean to the overall economy, I would feel like I won a $100k lottery.

Cmyst said...

Exactly, Sold.
A year ago I was feeling good that housing prices were going to drop, that the insanity was ending. And I was very grateful that I had not bought when I sold my condo. (There was actually only one place out of about 20 we looked at that was even a possibility, and it sold before we made an offer, Thank God.)
Now, while I am even more sure that prices WILL come down at least 50%, the bursting bubble has caused stress within my extended family and whenever the general economy begins to sour it is unsettling. I really empathize with that "man, did I save a fortune, but this totally blows" feeling.

Jacob said...

"Lenders, for their part, say it's a two-way street. Staffers often find people unwilling to give up cell phone service or satellite TV to finance strategies to save their houses, Ed Delgado, a senior Wells Fargo executive, told the California Senate Committee on Banking, Finance and Insurance last month."

So getting rid of cable and a cell phone will help cover that $1000 increase in mortgage payment? That would save me like $60...

David said...

My wife and I have been looking at houses for awhile and it seems that atleast 1/2 or more in Tahoe Park and the other areas we have looked at are shortsales or are about to be REO. The few houses we were actually interested in seemed to all be owned by some idiot who bought the house for 100K six years ago and now they owe 350K and other houses of the same size are listed for 300K. You look at most of these houses and they didn't seem to put that money into the house and there are a bunch of toys in the garage. So we wait, watch them drop off the market, and become REO's. It really is sad to see, but at the same time I have no pity for them.

Sittin' Out This One said...

Sold,

I guess the 97 FtG houses in your zip code may not increase the listing count, but they are about to get a 20-30% price reduction, once the bank takes them back.

I remember living thru the 1990-1997 market correction. Income dropped 50%, then dropped 50% again. I had to move to Los Angeles to get work in 1996.

We will all make it thru the next 5 years, but the world as we know it will be very different for some of us.

Diggin Deeper said...

'Rosalee Schimpf said. "We look at each other and ask, 'Could we have chosen a worse time to sell?'"

No, you might have waited until the first quarter of '08 when the market really has to accept the brunt of this storm. Pain levels are not high enough yet to force the hand of the sellers... including the banks.

I can't understand why anyone, who had a choice, would want to wade into this market to sell their property. It just adds to the misery index and further fuels negative perception.

At least they got an offer that was 1/3rd off of what they were asking.

Right now I'm watching same store sales for WalMart, auto sales, and the homebuilders, for a clue as to whether we go into a recession due the this RE debacle or not. If we can sidestep a recession in '08, and the final wave of foreclosures prints late in the year, I just might be a buyer. If not, I doubt I'd buy for 5 years minimum.

Gwynster said...

It just occurred to me this morning as I read something Perfect Storm brought up a thread or two back-
"Since when does the real estate market become a presidential campaign issue"

My answer to that is "Not often enough".
When was the last time the domestic economy was a presidential campaign issue? So far, this may be the only good thing I've seen come out of the housing bubble.

Diggin Deeper said...

The domestic economy is always an issue in presidential elections...
it's just going to be centerpoint to all other issues in this one.

The instability that RE and the credit crunch is causing will be perfect fodder for the opposing party.

There will be alot of noise, but keep in mind, we've had Clinton/Bush economics for almost 20 years, and I'd bet nothing changes as we move into '09.

Without some serious changes made to how the consumer and the nation handles debt, we really deserve what the futures bound to give us.

AgentBubble said...

Diggin Deeper said...

Without some serious changes made to how the consumer and the nation handles debt, we really deserve what the futures bound to give us.


The issue I have is that the irresponsibility of some may adversely affect those of us that have been responsible during the last few years of the housing bubble. I really don't like paying for the mistakes of others.

Diggin Deeper said...

Agent Bubble...How true, unfortunately, we're heavily outnumbered by those that can hardly be kept from hurting themselves and others with their pay later mentality.

As is the case most of the time, they get to walk and we get to pay.

I'm beginning to think we need a long protracted recession to work off the excesses and finally get this country back to fiscal sanity. It seems that, short of an economic calamity in the near term, we'll just continue this party until the wheels come off.

David said...

"It seems that, short of an economic calamity in the near term, we'll just continue this party until the wheels come off."

One way or another the party is going to come to an end. If nothing else we are going to run out of oil sooner or later and then the fun will begin. The question is, do you want to live in a city or really far away from them?

KD said...

I'm in agreement with Diggin Deeper, we need to take personal responsibility. Until that happens no matter how the government steps in, the problem will exist. Why on earth would anyone buy something they know they can't afford. We learn basic math in grammar school.

Marla said...

Ever hear of Bonadelle's "Operation Rezone" in Fresno, CA? 5-yr FBI probe back in the 90s.
Five years was not enough for them to uncover the other side. Come check out my profile / blogs. It may answer some of the "mystery" going on in Fresno's real estate ventures.