Sunday, September 16, 2007

"On the Verge of a Landslide"

From the Sacramento Business Journal:

Sacramento could be on the verge of a landslide -- that is, a dive in the once-soaring price developers paid for land -- if indebted landholders are forced to sell or are foreclosed upon. Brokers and appraisers agree that land has lost much of its value from the days when prices topped $600,000 an acre for unimproved land within approved growth areas. But "value" has little meaning when buyers and sellers can't come to terms on price, which has largely been the situation in Sacramento since home prices started falling. Sellers are waiting for a market rebound and many homebuilders are abandoning land deals, just hoping to survive.

That has left experts guessing at the magnitude of the impact on land prices. But the standoff between buyers and sellers can't last, some say. Park Place Partners Inc., the Irvine-based land brokerage, is tracking several owners who have debt on their property. "These guys carrying the debt will have issues," said Jim Radler, of Park Place's Roseville office. "In some cases, these issues will be magnified by a long slump. If they aren't able to renegotiate a deal, they will have to walk. ... We anticipate the banks will get a hold of some property."

That would put land in a similar state as housing -- foreclosures that drive down prices, resetting the value. Radler stressed that such a scenario is only a prediction, but he feels it's reasonable under today's conditions. He expected foreclosures on land holdings, including lots owned by homebuilders, to happen within the next six months.
From the Stockton Record:
As the housing market sinks deeper into the biggest slowdown that local real-estate brokers can remember, the few agents who specialize in foreclosures are hopping busy. Kevin Moran, an agent with Coldwell Banker Grupe of Stockton, was involved in some foreclosure deals in the mid-'90s real-estate downturn brought on by a statewide recession, but he's in it exclusively this round because he sees much bigger opportunities. "It's the tip of the iceberg," he said of the growing mass of foreclosures in San Joaquin County.
...
Moran's boss, Jerry Abbott, said five of his 80 agents currently are handling some foreclosure homes, representing about one-third of the approximately 350 current listings for Coldwell Banker Grupe, one of Stockton's biggest real-estate firms. "I expect it to jump up to 50 percent by the end of the year," he said. A year ago, the firm didn't have any agents handling foreclosures, which started to surge last fall.

16 comments:

Sittin' Out This One said...

Land slide....

The first step in signigicantly lowering the cost of building a house.

Add the decline in commodities, more competitive labor and

Whoosh, there it is: Back to $120/sf or lower. 2,000 sf house for $240,000. It is within 20% of the at now. you can see 2,000 sf houses for under $300,000 all over the MLS today.

Diggin Deeper said...

"But the standoff between buyers and sellers can't last, some say."

No and it won't. Homeowners, builders, and banks are being hit from all sides. When buyers balk for as long as they have, land prices have take a hit as well. As we've all heard, costs in California real estate are more land based rather than construction based.

Builder's get desperate, banks get a dose of reality, and the homeowner has most of the pricing foundation (propped up by banks builders, and realtors) sliced out from under them. It's classic market behavior. As I mentioned before the market could care less if builders overpaid for land, or banks want prices that buyers won't pay, or suggested prices by realtors that delay the inevitible. In the end the homeowner capitulates and prices accelerate to meet what buyers are willing to pay. And there still appears to be a wide gap between the two.

Rob Dawg said...

All the smart builders purchased "options." Agreeing to buy at a set price within a certain time. Letting those options expire is going to leave a lot of "last generation" farm kids digging out dad's old overalls and tractor keys.

Raw land for the purposes of development has a value. it has been set by the market. It is zero. Seriously. For a developer to recieve land free and have to pay taxes at $300k-600k/acre is to take on a liability. For the farmers' heirs their admittedly low holding costs are nothing compared to declining values the longer they hold. They are just damn lucky I don't have my way with taxes. I'd consider land use rezoning as a material cchange in the property triggering a reassesment of the improvements.

Cmyst said...

So, does this mean that in about 6 months the asking prices for houses may drop really far?

Gwynster said...

LOL

Rob, that has a very Discordian feel to it -Ave Eris!

I'm not sure we agree on the reassessment but I'd sure as hell like to watch how it would shake out from the safety of the blinds >; )

Diggin Deeper said...

Most successful realtors will be those that hone their skills in the area of foreclosure. Negotiating with a bank is bit different than negotiating with a homeowner. I'm wondering if there are better commission margins in a bank owned vs homeowned transactions, as there's no listing agent to comp for part of the commission.

The days of listing/selling agents doing business as usual are basically over for now.

Gwynster said...

OK here is my dumb FB of the day
MLS# 70098132

Good flippin' luck

smf said...

"So, does this mean that in about 6 months the asking prices for houses may drop really far?"

Overall, yes. Reported, no.

Why?

Easy.

It is how the NAR et al will compare it.

For example, if you compare 2007 to 2006 it looks bad. But if you compare 2007 with 2005 it looks horrific.

We know that right now we are 20% below the peak price. But compared to 2006, it may be 'only' 10%.

So next year, when we are further down, the statistics will show how close we are to the bottom (compared to previous year) because prices are only down 8% from the previous year.

Repeat and rinse till the bottom is reached.

By that time, the overall drop from peak could easily hit 50% or more.

It is in how it is all reported. I clearly recall my shock at finding out that the NASDAQ had dropped 75% from peak.

golfer_X said...

Sittin

Your cost for "building" as house are a lot on the high side. Most of the average stucco crapboxes cost between $40 and $60 a sq/ft to build (excluding land costs). A nicer tract home with better materials and fixtures will cost $60 to $80 sq/ft to build. My best friend is a super for one of the larger builders. Those are the numbers he gave and I have had a couple of other builders verify those are about right. Land cost are the variable that I don't have and depending on location I imagine that it can vary a lot.

AgentBubble said...

Those costs may seem low to some, but I think they're pretty accurate. We built a fully custom 2550 sq ft home in 2002 and it cost us $305,000. Land was $100K. I talked to our builder a few months back about doing another home, and he said we'd be closer to $100/sq ft for building (mainly becuase the city/county fees went up so much), but with land so expensive it just didn't make any sense.

golfer_X said...

Customs are far more expensive to build than tract homes. You're right, customs will cost $100 sq/ft minimum and can go to the sky's the limit. But tract homes are far far cheaper to build. You get pre-fab trusses, you get a crew out doing the plumbing and electrical for 12 homes at one time etc etc, this cuts the costs way way down.

Cmyst said...

Gwyn said:
"OK here is my dumb FB of the day"

If you go to MLS and look at the pictures, there's one of McKinley Park. I used to park right about where that picture is, eat lunch, and do my data entry. I'm real familiar with that house and that neighborhood, and it's a beautiful house. But you're right, they must be smokin' something strong to think anyone's going to offer anything over half their asking price.
I really wonder sometimes where the sanity went in Sacramento. When I first saw the picture, I was thinking "Wow, that house in Davis looks just like that one I used to sit outside at the park!".

smf said...

Gwyn said:
"OK here is my dumb FB of the day"

Ah, yes, I know the area as well...since my parents own the pink house with the dogs...

The price is justified, since they have granite in the kitchen, you know, THE SAME ONE I HAVE IN MY HOUSE!

God, at least we could have had imagination run wild in some of these houses. But noooooo...

The price is actually not too bad for that area, but it is close to WTF.

norcaljeff said...

Golf, don't forget the cheap illegal labor pool too.
As for land costs, Pardee bought Natomas flood land for $600K/acre, that's not an option, that was paid with cash, or worse, financed. Their entire project will be unprofitable out there. I wish they were a public company, I'd short them to $0. What a waste, their RE developers should all be fired.

Rob Dawg said...

Pardee is owned by weyerhaeuser (WY).

Gwynster said...

My point was bought in 06 and doubled down on the asking price - not the smartest.

I looked at purchasing a home a few doors down from there in 99', it was just under 180k. So an increase from 180k to over a mil in 8 years? No way is that remotely justified.