Monday, October 29, 2007

"Housing Crisis Has Hit Sacramento's Economy Like a Sledgehammer"

From the Sacramento Bee:

The nation's housing crisis has hit Sacramento's economy like a sledgehammer, prompting a city government hiring freeze this month and an urgent examination into how millions can be trimmed from the budget. A report that will be presented to the City Council on Tuesday spells out the grim news: By the 2008-09 fiscal year, a city deficit could grow to between $45 million and $55 million. The city's 2007-08 budget is about $960 million.

"We were hoping for a soft landing from the housing market problems, but it didn't turn out that way," Russell Fehr, the city's finance director, said on Sunday. "We have a widening gap that will grow and grow if we don't do something about it."
...
Sacramento's financial picture has worsened rapidly, to the extent that city officials said they had not foreseen. Fueled by risky adjustable-rate mortgages and falling property values, home foreclosures have escalated at an astonishing pace in Sacramento. There have been far fewer sales of both new and existing residences than were anticipated in the city's budget, according to the report.
From the Modesto Bee:
Title companies were dealt a serious blow when the market turned, said Terry Harwell, division president of Alliance Title Co. in Stanislaus County. Transactions at the firm have plummeted 40 percent a year for the past two years, forcing the company to lay off employees and scale back operations...The downturn forced the company to reduce its staff by about 65 percent and shut three branch offices. The remaining 50 employees have taken a 10 percent pay cut.
....
For real estate agents in particular, he said, times are extremely tough. "A lot are going hungry," Harwell said...The number of people with active real estate licenses in Stanislaus, San Joaquin and Merced counties nearly doubled from 2004 to 2006, jumping from 5,800 to 11,500. They are leaving almost as quickly as they got in. This year, there are about 2,000 fewer agents with active licenses in the region than last.
...
"We are starting to see quite a few mortgage companies and a few construction firms that have folded," said Darlene Smith, the coordinator of the rapid response team for the Stanislaus Economic Development and Workforce Alliance...The changes in the housing market happened so quickly that, in many cases, the rapid response team wouldn't hear about the closures until it was too late. "So many are closing and as a team, we are not always able to find out," Smith said.
~~~
Traditional upright pianos have seen slower sales nationwide, Kyle Barker [owner of Barker's Music in Modesto] said, but the situation seems particularly dire in this region. He noted that a piano store in Sacramento recently closed, and another store in Tracy has reduced its size. He believes it's all tied to real estate. "You can't pull back fast enough," he said. This downturn is worse than in the early 1990s or early 1980s, when two other real estate downturns hit California."
~~~
Fewer people are calling the region's Handyman Connection for home repairs. Boats are not selling as quickly at Bob's Marine in Modesto. And the demand for real estate appraisals has fallen off. For these businesses and many others, the dramatic real estate decline is cutting into their bottom line as people cut back on discretionary spending and companies slash expenses. "It's affecting every type of business, across the board," said Sky Ucci, owner of Modesto Handyman Connection, the region's outlet for a nationwide chain of handyman service franchises. Ucci said retail business owners of all kinds have told him they're hurting, and many attribute it to the Northern San Joaquin Valley's real estate slump.
~~~
With so many homes on the market, one might think it's a good time to be in the business of shooting homes for virtual tours online. Think again, says Marla Giddings, 49. The business she works for, CirclePix, has seen a marked drop-off since the height of the real estate boom two years ago.
~~~
Shirley Cordero adored her job as a "variant configurator" -- in plain English, she would track upgrades that buyers wanted for their new houses. Her employer, Morrison Homes in Salida, held 11 grand openings in 2006 and "business was excellent." The downturn hit later that year and after about three slow months, she walked in and was handed her final paycheck...Cordero, 57, recently had to sell her boat to pay her monthly mortgage payment and she's had to cut spending on food, electricity and certain extras, such as tae kwon do lessons for her grandson.
From the Sacramento Business Journal:
After spiraling up for several years, the cost to build major real estate developments has stabilized, and in some cases has begun to fall. The most significant savings have been for the shorter, largely residential projects made out of wood, which along with certain types of labor has come down in cost amid the housing crunch.
...
Signature Properties...President Mike Ghielmetti said construction costs have fallen approximately 10 percent to 15 percent for wood-based single-family homes, townhomes and smaller midrise buildings. The company has even seen concrete and steel costs for taller buildings soften within the past month, though it is too soon to tell if that will last.
From the Modesto Bee:
Don't blame real estate agents for the financial mess many homeowners are in. It's not their fault prices soared so high or crashed so fast. Housing is still a good long-term investment, and this is a great time to buy a house. That's the consensus of the region's largest real estate companies -- Century 21 M&M and Associates, PMZ Real Estate and Prudential California Realty.
...
"Did the real estate agents do anything wrong? No. Did the builders do anything wrong? No," said [Larry] Matos [of Century 21], whose company has 600 agents. "I don't think there was a lot of bad advice out there. I just think a lot of people got caught up in the market conditions."
...
"Real estate agents can't promise people their homes are going to go up and up in value. Neither can we predict they're going to go down in value," said [Mike] Zagaris [of PMZ], who has 500 agents.
...
[B]uyers should beware whom they get advice from, according to [Craig] Lewis [of Prudential] . "We have people that are doing loans and they are selling real estate," Lewis said. "Quite frankly, there is a real conflict of interest. What are they really doing? Are they really trying to serve the client? Or are they really just trying to make money for themselves?"

38 comments:

Max said...

"Real estate agents can't promise people their homes are going to go up and up in value. Neither can we predict they're going to go down in value,"

Oh, man. Where to begin. :) When in doubt, go with the Simpsons:

Big cash settlement.

Rob Dawg said...

"Sledgehammer" yeah. The cute little bunny is is tickling the municipal nose and telling them that a freakin' tsunami is coming.

Let me make this plain. Not all of the various municipal Sacramento area debt issuers will be able to meet their obligations. Some will default. Out of area, Merced is another prime example. There is a plan to issue Statewide debt under the guise of water bonds but they are failing badly. Interesting times.

rocklin renter said...

Real estate agents can't promise people their homes are going to go up and up in value. Neither can we predict they're going to go down in value

But they did promise the moon and stars, and I vehemently disagree - yes they could predict that the prices were going to go down. Except they would need a whole semester in Econ 101 to do that. Or common sense. Neither of which seem to be things many agents have any grasp on.

Housing is still a good long-term investment, and this is a great time to buy a house.

Same old crap, different day.

Bakersfield Bubble said...

"Sacramento's financial picture has worsened rapidly, to the extent that city officials said they had not foreseen."

Is Jimmy Castro a "city official"? LMAO!!!!

Max said...

But they did promise the moon and stars, and I vehemently disagree - yes they could predict that the prices were going to go down.

Not saying that Zagaris speaks for all agents, but I think he captured pretty succinctly how defensive the Realtor profession must be feeling right now.

We should have his words cast in bronze and mounted at the base of the CanTree this year.

Rob Dawg said...

The Metro Sacto Region is broken. Don't misunderstand. Broken is not broke nor is it worthless. Broken means some parts may fail. Some parts will be discarded, some will be repaired, some will be deferred and some will survive and be paid for for with higher taxes. Shock, surprise.

There are differences in California. Sacto cannot afford or implement this solution. Ventura can. San Luis Obispo probably. Bakersfield is the crux. IMO it cannot pass through without a collapse/ It remains to be seen.

Bakersfield Bubble said...

Rob-

I just talked to a local, whose father left him millions, who claimed we (Bakersfield) will turn around before any other town because of this and that crap. I wanted to smack the guy, instead I agreed with him and said it was a great time to buy. :)


Also, on SLO, my in-laws live there and they are in the "real estate biz" - that housing market is toast per my FIL. He is a 45 year real estate veteran, title business. He claims this downturn will be the worst of any of the previous downturns. We just had a long conversation last weekend where he stated all the cases against SLO and why that market is headed for some serious pain. He actually scared me...

SheWrestles said...

I like the area. I plan to stay at least 8-10 years.

I just need there to be some sunlight about that far down the road. Assuming that we do close this deal (which looks very likely now), the price I'm getting it for would be $150,000 less than my neighbors who bought in 2 years ago. Sure, I could hold out and save more, but looking around the neighborhood, I see a lot of pride of home and that's very important to me. There are only a few 'for sale' signs up and only a few that have been foreclosed on - the people all take care of their yards and don't leave a bunch of cars parked on the street.

I don't think my worst-case scenario is all that bleak unless 50% of the current owners decide to sell and get the heck out of there.

smf said...

Shewrestles:

Essentially, you are sacrificing for the good of others. Seriously. We almost did the same by almost purchasing a home a few weeks ago.

Why do we really need people to keep buying?

Because the comps need to be there for the prices to keep going down.

Once she purchases, the comps are officially $150K from the high.

6 months from now, the new comps could easily indicate another $50K down.

But w/o people purchasing, those comps will not be established.

If we find a house that we would live in for the long term, we are ready to purchase at a possible loss.

(No sarcasm indicated on this post)

Max said...

The Metro Sacto Region is broken. Don't misunderstand. Broken is not broke nor is it worthless.

The whole state is broken at some level, and most municipalities are on unsustainable paths. This fact has been masked (and allowed to grow uncontrolled) up until now because of the 10-year boom. Gives new meaning to the saying: "each bubble contains the seed of its own destruction."

Most people in their mid-twenties have no memory of a recession. There are people in their mid-30s whose entire professional career has occurred during the boom. These people don't know what it's like to be out of work. These people have never packed a bag lunch in their lives. I don't think it's possible to understate how unpredictable politics will become in this state if we have a severe economic downturn.

Patient Renter said...

"We were hoping for a soft landing from the housing market problems, but it didn't turn out that way"

As Ron Paul would say, with fingers cross, I bet.

"Don't blame real estate agents for the financial mess many homeowners are in. It's not their fault prices soared so high or crashed so fast. Housing is still a good long-term investment, and this is a great time to buy a house."

I like how this reads, don't blame the real estate agents - then goes on to say, "now is a great time to buy", a statement which highlights EXACTLY why real estate agents could be blamed.

Gwynster said...

When it comes to gov workers, they will first start offering golden handshakes out to thin the herd. These are the people that weren't thinking about cashing out yet but in 4 to 7 years. Mostly, they will take the money and run because trying to sell in 5 yrs may not play out like they hoped. This will just feed the already ongoing bommer equity outmigration.

I've been waiting for this to start for 15 months.

bubblemachine said...

Housing is still a good long-term investment, and this is a great time to buy a house.

Someone should start a rehab center for delusional real estate agents. Unfortunately, like other addicts, they probably won't seek help until they (and the market) reach bottom. By that time most of them will be unemployed, bankrupt, and hanging out at Loaves & Fishes.

Jacob said...

"Real estate agents can't promise people their homes are going to go up and up in value. Neither can we predict they're going to go down in value"

They shouldn't, but they certainly did.

"Buy now or get priced out forever", sound familiar? I would only get priced out if prices go up...

Also people that were hesitant to get loans were told that they could refi in a couple years, now since they were getting 100% financing, how could they do that unless prices go up up up.

They were happy to help people get homes at 10x income that they "should have" know the buyer would have no hope of keeping unless prices kept going up.

So the realtors are in stage 2 of the housing market dying. We are past denial and firmly in anger.

SheWrestles said...

Essentially, you are sacrificing for the good of others. Seriously. We almost did the same by almost purchasing a home a few weeks ago.

Why do we really need people to keep buying?

Because the comps need to be there for the prices to keep going down.

Once she purchases, the comps are officially $150K from the high.

6 months from now, the new comps could easily indicate another $50K down.

But w/o people purchasing, those comps will not be established.

If we find a house that we would live in for the long term, we are ready to purchase at a possible loss.


I couldn't agree more. I'm very fortunate to be coming up here from SoCal and even if there's another $40,000 drop in prices, I would still be comfortable with this purchase at this time. I'll cringe if that number edges closer to $60,000 or higher but at the same time, I'm more concerned with where we can expect to be at in 5-7 years from now as an indicator of where we'll be 8-10 years down the road which is when I'd be most likely to relocate to another area.

Mine is not the 'instant equity' deal that I had hoped to find, but we're getting a really good house at a fair price and with the upfront costs being so low (between the seller, lender, and broker credits we're getting), it's the right time to make this particular purchase.

We struck the deal today, but won't close until tomorrow, so I'm still holding my breath for a little while longer.

Bakersfield Bubble said...

good luck - before you close, see this link first -

http://timothyburger.com/uploaded_images/falling_knife-708336.gif

PeonInChief said...

Actually the bigger problem with respect to government workers will come when they start retiring in large numbers. (Approximately 40% of state workers will retire within the next 10-15 years.) Many of these workers will be planning to sell their houses and leave the area and the workers replacing them will not be able to afford even 2003 prices.

This could exacerbate the downturn in Sacramento.

Jacob said...

I couldn't agree more. I'm very fortunate to be coming up here from SoCal and even if there's another $40,000 drop in prices, I would still be comfortable with this purchase at this time. I'll cringe if that number edges closer to $60,000 or higher but at the same time, I'm more concerned with where we can expect to be at in 5-7 years from now as an indicator of where we'll be 8-10 years down the road which is when I'd be most likely to relocate to another area.

Good luck, it is really hard to gauge how bad the downturn will go. But $40k is like 10% on your house right, I think that much is guaranteed.

But how low can the market go. I figure take the price from 1999 and add 15% and I think that would be the absolute bottom. Thats 3% anual appreciation then I knock off 20% since the prices will overshoot the bottom.

If the foreclosures keep rising through 08 while sales keep falling then it could even go lower.

Tyrone said...

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http://tinyurl.com/3a5hcq

From the book comments section:

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Your Yugo Will Run Forever and How to Set the Land-Speed Record With It.

See, REALTARDS are innocent. LOL

smf said...

"Many of these workers will be planning to sell their houses and leave the area and the workers replacing them will not be able to afford even 2003 prices."

Almost no one could afford 2003 prices, but they can certainly afford 2001 prices, right?

In my ZIP code (95827) it is getting easier to find 2003 rollbacks already.

alba said...

smf,
I agree. I also think, whether its a good bet or a bad bet, its better to have them dive in as soon as possible. It sure seems we may have to go through another round of investors' money, given the popularity of builder's auctions. Also, I don't want to compete with "antsy" folks with money to burn, when it's our time to buy.

smf said...

"It sure seems we may have to go through another round of investors' money, given the popularity of builder's auctions."

We already ARE. Try to find a story about auctions where an investor is NOT mentioned. This is why I still call the end of the beginning by next spring/summer. Then only a very slim majority will be bullish on RE.

"Also, I don't want to compete with "antsy" folks with money to burn"

Neither do we. And as I told my wife, I think the larger homes (3000 sq.ft.+) are over-represented in the inventory, so therefore the prices may come down even lower for those larger homes.

SheWrestles said...

Alba & Smf - you guys are spot-on.

I was definitely antsy, and that's why I'm overpaying. I didn't want to compete with investors (the ones who didn't lose their shirts in the past 2 years) either.

Sounds ridiculous, I know, but one reason I'm overpaying is to get one that hasn't been lived in yet. Even if that's not a good use of money, it meant something to me with regards to closing the deal...although it likely won't mean a thing 3 months down the road. lol

Regarding separate investment properties, there's a chance I may buy in at a later date, but for the time being, I'm better off putting extra towards my mortgage each month in order to get the quickest possible payoff.

smf said...

Shewrestles:

Do whatever you think is right for you.

One thing I should tell you. Do not expect to see the price levels we saw (10X income) in our lifetime.

This bubble was similar to the dot.com bubble, and as the .com bubble, those prices were a once in a lifetime glitch.

California Real Estate Investor said...

It's official. Sacramento has fallen the most since the credit crunch.

norcalbubble.blogspot.com

Sippn said...

Did you hear Alexis McGee yesterday?

Gwynster said...

It's a super simple algorithm. 3% annual is more like 26.7% between 1999 and 2007 on 150K but what's 11% between friends >; )

I have zero issue with giving someone 3 to 4% annual from 1999 prices. I take huge issue with a 200% to 350% increase from their 2001 price. Hell I still see future foreclosures here in Davis who bought in 03 and want 250% more. The agents listing them should be completely ashamed.

Churchill would say, we've established what I am, we're just negotiating the price.

As to Gov boomer retirements, they have already started. We're scheduled to loose 50% of our faculty and top admin between now and 2012. In June 07, 3.5% of our campus retired in one month. June is always a bloated month since most people wait until the end of the academic year but you get the picture right?

I know of one emeritus that is staying in the area. He has a RV and built a small 1 br on his lot and is renting out his old house. Everyone else, especially the staffers who are stretched incredibly thin financially, plan to sell and buy cash or rent outside of CA someplace. A few are leaving the country with their equity gains.

Perfect Storm said...

According to housing tracker inventory is rising right through October.

That's got put a damper on things, oh well!

Sippn said...

PS - what housing tracker are you looking at? its dropping and is about 1000 below August 07.

G - sad you have to teach simple math concepts again for compound interest?

Gwynster said...

Sippin,

Lord knows we all do stuff like this in our heads - I'm famous for transposing numbers or compass directions so I'm the last person to pick on someone.

I once got completely lost in VA because I glanced at a map while driving and quickly decided that as long as I drove away from the water I'd hit my north/south bound freeway east of me. Because all us west coast people know the ocean is always on the west right? LOL
(I know Buying Time is laughing at me now)

Inventory is still damn high. I was expecting a drop and I haven't really seen one.

Perfect Storm said...

Sippin,

I did not say August 07, I said October 07. Inventory is rising through October 07 according to housing tracker.

Sippn said...

G - no, no, no, you had it right, ocean to the west, pond to the east. Leave the directions to the males, pls.


PS - http://www.housingtracker.net/askingprices/metro/California/Sacramento-Arden-Arcade-Roseville/ shows dropping since August peak - Oh wait you must be comparing YOY
of course!

Sacramento is one of the few markets that did not have huge growth beween 2006 and 2007 peak inventories.

Listening to the owner of Foreclosures.com, McGee yesterday and she said something about the media and the congress sensationalizing foreclosure numbers. While the totals are high, per capita they are not near record.

Read today the a congressman is using a number 2x actual for his quotes.

Housing crisis - the new sex. It sells!

Perfect Storm said...

Sippin,

I get the feeling that your perception of the end to the housing slump will be sudden, it is quotes that you make like:

McGee yesterday and she said something about the media and the congress sensationalizing foreclosure numbers. While the totals are high, per capita they are not near record.

So what if per capita forclosures are not near the record, just wait and I bet the record will be smashed. This housing market is going down for years, I fear, Not!

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

norcaljeff said...

Assuming that we do close this deal (which looks very likely now), the price I'm getting it for would be $150,000 less than my neighbors who bought in 2 years ago. Sure, I could hold out and save more, but looking around the neighborhood, I see a lot of pride of home and that's very important to me. There are only a few 'for sale' signs up and only a few that have been foreclosed on - the people all take care of their yards and don't leave a bunch of cars parked on the street.

I don't see the logic...once your neighbor gets foreclosed on, their home will sell for another $150K LOWER than your home price, thus you paid at least $150K too much. The cars aren't stacking up in the streets yet because there's probably too many foreclosures. Just wait and see, eventually it will all go downhill, like most places without rules against your neighbor being yet another annoying neighbor with cars piling up in the streets and barking dogs crapping in your yard. You keep almost talking yourself out of this house. Just wait instead of becoming another statistic on Lander's blog.

Max, I enjoy your black/white views, wish there were more in the world like you. I miss the good ole days.

norcaljeff said...

Shew, I can tell you're not a negotiator for a living :) You wrote this on Friday:

My checkbook is officially closed, and I could care less either way. I'll be fine if we get the house, but won't be at all sad if we lose it.

Personally, if I were the realtor, I'd rather 'settle' for $11,000 on the deal instead of risking getting $0 from me, which is what will happen if this sale does not close.

What the heck happened since Friday? Play hard ball, they will cave!!

SheWrestles said...

Well, we finally closed.

To get it done, I bent and agreed to pay $400. The lender kicked in $1000. And the broker paid $6000, plus the $2000 I'd committed them to earlier for a total of $8000.

That title company...boy, what a bunch of screw-ups.

But *without* looking at the Big Picture, here's the way this played out:

1) I got a really good loan on average credit and stated income - 6.375%, 30-year fixed, conforming.

2) Someone recently paid $150K more than I did for this property, so I'm banking that someday, that value will return.

3) We're still within the 2-year fit-and-finish warranty, so one of the important items that showed up on the home inspection is covered.

4) The monies from the lender, broker, and seller are covering the first year's insurance, property taxes through Feb 2008, the first month's mortgage payment, and a good portion of the down payment I was to have put in.

I already know that I'm a statistic. It's a question of 'how bad' it'll turn out to be. I mean, seriously, if they continue this building frenzy up here, I could potentially be $100,000 down in value by this time next year. There are already brand-new boxes in Roseville's Crocker Ranch selling for what I've just paid to live out in the boondocks of Lincoln.

I may need to turn around and re-list this one right away!!

But for the time being, I'm comfortable with settling for a small victory in the move-in battle.

SheWrestles said...

I don't see the logic...once your neighbor gets foreclosed on, their home will sell for another $150K LOWER than your home price, thus you paid at least $150K too much. The cars aren't stacking up in the streets yet because there's probably too many foreclosures.

My wife actually pointed out one thing I hadn't considered. The reason there were only 2 foreclosed properties on our side of the neighborhood is that those ARMs have not adjusted yet. *gulp*

So, whereas you've got several 2003-2004 homes already in default, the cycle for the 2005s doesn't really begin until next year.

Too late now, though - sealed it yesterday and got the keys last night.

*nervous smile*

wrong moves said...

Shew - -"Too late now, though - sealed it yesterday and got the keys last night"

You have the luxury of knowing exactly what you have gotten into.

If you like the place and can afford it, why fret it.

We try to teach the young ones to be responsible and accept the consequences of their actions. You seem to be comfortable going forward so don't weigh other's opinions so much if the house makes you happy.

Congrats.