Tuesday, November 13, 2007

At Least the Pot Growers Mow Their Lawns

UPDATE - RealtyTrac's Q3 2007 Metros Report - Sacramento:

  • Properties with filings: 9,241
  • YoY Change: 408%
From the Associated Press:
Stockton, about 83 miles (133 kilometers) east of San Francisco, had the highest foreclosure rate in the third quarter among the top 100 metro areas, with one foreclosure filing for every 31 households, RealtyTrac said...Stockton had 7,116 foreclosure filings on 4,409 properties during the quarter, an increase of more than 465 percent from the same quarter a year ago, the company said...The California metro areas of Sacramento, Bakersfield and Oakland were also among the top 10 metro areas with the highest foreclosure rates, garnering the sixth, ninth and 10th spots, respectively.
From the Central Valley Business Times:
Your home mortgage may be completely up to date, but if there are foreclosures in your neighborhood, your home’s value is dropping, says a new study by the Center for Responsible Lending. In its new report [pdf], released Tuesday, CRL says the “spillover effect” is impacting 44.5 million homes across the country...Published research … indicates that a foreclosure on a home lowered the price of other nearby single-family homes, on average, by 0.9 percent, the report says.
Sacramento and San Joaquin counties in the Central Valley are among the nation’s top counties facing declines in house values and local tax bases due to subprime foreclosure, CRL says. Sacramento County is facing the potential of 9,257 homes being lost of foreclosure due to the subprime mortgage meltdown. In turn, those homes will lower the value of 404,930 homes in Sacramento County, the report estimates. The average drop in home value will be $4,966, the report says. In San Joaquin County, 6,200 homes will plunge into foreclosure in the next two years, impacting the value of 172,395 homes. The average drop in home price will be $7,074, the report says.
From the Associated Press:
California's Central Valley has been hit particularly hard. Thousands of homes were snapped up by San Francisco Bay area speculators who hoped to flip their homes and turn a quick profit. They were caught short when the housing market turned. Many investors and other buyers are now trapped by falling home values and adjustable rate mortgages that are resetting to higher rates. Some speculators have tried to rent their properties. Others simply walked away from the homes they bought just a year or two earlier.
In the Franklin Reserve neighborhood of Elk Grove, a suburb south of Sacramento, homeowners are fighting inner-city problems such as gangs, drugs, theft and graffiti. During the boom, the suburb sprouted 10,000 homes in four years, attracting investors from the San Francisco area. Now many houses stand empty, weeds overtaking lawns, signs lining the street: "Bank Repo," "For Rent," "No trespassing—bank owned property." A typical home's value has dropped from about $570,000 to the low $400,000s.
Franklin Reserve resident Susan McDonald said two of the homes on her block were turned into indoor marijuana farms. Both caught fire last summer after the pot growers tapped into the city's electric grid with faulty wiring. But McDonald, who has lived in the community for three years and is president of the residents' association, jokes that they make better neighbors than some. "The pot growers, they mow their lawns, they take out their garbage," said McDonald, an executive at a local bank. "There's been gang activity. Things have really been changing the last few years."
From the Elk Grove Citizen:
Foreclosure signs are showing up at a heightened rate around Elk Grove with trustee notices filling the classified ads, but some real estate agents are saying not to fear, the buyers market is here.
Team Leader of Keller Williams Realty, Mindy DeMain, said the trend is something buyers can take advantage of and that the state of the housing market isn’t as bad as some may think. “Right now, you can go buy that house that was your dream home three years ago but you couldn’t dare afford it because it was $600,000, $700,000; now it’s $400,000 and you can afford that house,” she said.
[Kris] Vogt [branch manager for Coldwell Banker] and DeMain agree on the idea that there is a misconception among some people and even the media that this can’t be a positive time for those interested in buying a home for what it is worth on the market, something that couldn’t be accomplished just last year. “If the first-time buyers don’t start buying soon they are going to miss the bottom,” DeMain said. “Investors are really starting to focus on purchasing and once investors start purchasing the property, the values will start coming up.”
With the bottoming out of the market unclear to most forecasters,...longtime Elk Grove real estate agent, Lori Mode, of Keller Williams Realty...predicts that it could happen at the beginning of 2008. “It will level off at some point next year,” she said.
From Reuters:
The U.S. housing market's skid is nowhere near over and could extend for another five or even 10 years, according to one of the most-watched housing economists. Robert Shiller, a Yale University economist and co-developer of Standard and Poor's S&P/Case-Shiller Home Price Indices, told Reuters that declines in home values in the most vulnerable markets could well double the losses recorded thus far.

What's more, Shiller, who is also co-founder and chief economist of the financial firm MacroMarkets LLC, said predictions for a bottom within the next year or so are probably wrong, with price declines in 2008 possibly worse than those seen this year..."The bottom is hard to predict," he said. "I do not see it imminent and it could be five or 10 years too."
Areas most vulnerable to home depreciation are those that rose the most during the market's heyday, plus those at the center of the crisis in the subprime mortgage market, Shiller said. California and Florida are high on this list.
From the San Jose Mercury News:
Meanwhile, along with Detroit and Sarasota, Fla., [Lawrence] Yun [economist for the National Association of Realtors] said California's inland counties are among the three worst performing markets in the country. "I am closely monitoring the inland counties of California," including Riverside, San Bernardino and the Sacramento area, he said. Subprime mortgages were used to finance a high percentage of home sales in those areas in recent years. On the other hand, the inland areas are "continuing to create jobs at a respectable pace" he said, which might soften the landing for home prices there in the face of high foreclosure rates.
CBS 5 Video: Manteca Looks At Entering Housing Market

From the Sacramento Bee:
Sheila Bair, chairwoman of the FDIC, proposed last month that lenders simply freeze interest rates on so-called subprime mortgages carried by people who live in the homes they bought and who have been current in their payments so far.
[W]hile a few people who borrowed more than they could afford would get relief, others who sat out the housing boom because they were more prudent would be penalized. While they saved money for a down payment on their first home, the higher interest rates caused by the bailout would mean higher housing payments for the same-sized loan, further postponing their ability to get into the market.

And that's not all. One of the effects of foreclosures is downward pressure on housing prices. The bubble financed by these easy loans pushed the price of housing out of the reach of many prudent first-time buyers. The current decline, while painful to some, is a correction that eventually will make homes affordable again and bring more people into the market. Freezing interest rates at below-market levels would prop up the price of those homes. That's great for anyone who already owns a house, but it's a blow, again, to those who sat out the boom hoping that they could buy a home when normalcy returned.
[C]onsumers who simply gambled that the market would continue to soar and that, after a time, they could refinance their unaffordable loans at a fixed rate, are not victims. They are adults who made a bad decision. And they should not be rewarded at the expense of renters who restrained themselves amid the frenzy and are waiting for interest rates and home prices to come back within a range they can afford.


Diggin Deeper said...

A very revealing set of articles here.

Of all the academics weighing in on this bubble, Schiller is probably the one I read and respect. At least he knows better than to go out on a limb and make ridiculous bottom calls that most others chance.

And the continuing spin from the realty side...

"“Right now, you can go buy that house that was your dream home three years ago but you couldn’t dare afford it because it was $600,000, $700,000; now it’s $400,000 and you can afford that house,” she said."

Really? The questions are will they sell at $400,000 just because they were $600-700K a few years ago? Were they worth $600-700K from a value point a few years ago. Do you "dare afford" that home today if it's true value is only $300,000 or ?. Until this market finds it's floor, we won't know those answers.

Has "fair" value" pricing found its way into the California real estate markets?

ralphk said...

hmmmm.....should I listen to Schiller and wait five or more years or a local self-serving realtor that states the bottom is here? Tough decision.

Well, maybe not. If $400k is the bottom, with a downpayment, conventional lending, annual income far above the Sacramento median, little debt I still can't afford the monthly payment. I guess I'm just doomed to be a renter.

Cmyst said...

An interesting thing is happening to me. As prices drop further towards my target range, I've become more resistant to buying and less interested in constant MLS checking.
My age, an uncertainty to the Sig's career options which may take us out of the area, and other factors are making me look very closely at whether buying is a practical option even if prices drop well into my range next year.
I'm getting to the point where a place would have to be the style of home I want, no major rehab needed, and very well-maintained and priced well below market for me to seriously consider it. When my hunt started 2 years ago, houses looked reasonable to me that I would not look twice at now.

SheWrestles said...

This is a great time to be a renter in Sacramento.

You're smart with your money, that's why you're reading this blog. It can be hard to be patient, but if the career situation is up in the air, I wouldn't dream of buying anything right now...with the possible exception of a fire sale in the $75/sf range.

Hold onto your dollars.

bubblemachine said...

The number of realtors who are still drinking C.A.R. flavored Kool-Aid is absolutely disgusting. They will do anything sell a house, but never tell the buyer that it will lose $100,000 in value by this time next year.

Buying Time said...

Kudos to the Bee for giving prudent buyers and affordability some nice press.

PeonInChief said...

Cmyst, this is the difference between window-shopping and planning. When you're window-shopping, all sorts of things look really cool and you think, I want that. But when you're planning a purchase, a different part of the brain kicks in and you think, it would be nice to have a spa in the bathroom, but I don't want to spend that much square footage on it. Or, that kitchen would be really nice if I spent $20,000 on it, but I don't have the time, energy or inclination to spend that much just for (insert favorite kind of countertops here).

And of course, rents are predicted to rise no more than 6% over the next five years, so renting is a better option for quite some time. Our time frame is seven years, so buying makes no sense for us at all. And if you have a decent credit rating, landlords these days will be happy, happy, happy to rent to you. (Were it not that I had found a place I really like, it would be almost fun to go rental-hunting at this point.)

Patient Renter said...

You would think that Sheila Bair, chairwoman of the FDIC, would have a better grasp on loan financing than she appears to have.

Freezing interest rates is not doable. The only reason ARMs were originated in the first place was because they could be sold off, and the only reason they could be sold off was specifically BECAUSE the rate was set to adjust, giving the investor a profit.

Asking the investor to forgo their profit is akin to asking an investor to not excersize their puts on a falling stock because it's going to cost the put writer. Tough beans. That's speculative investing for ya.

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


Got the subprime blues?

This article is the way the situation looks from an outsider's perspective...

This one will give the reader a interesting information on what's known and not known about the real estate bubble and the credit crunch......

WatchingTheBubble said...

Sac Crash,

If I didn't know any better, I would say you're speaking in race code. I live in Franklin Reserve and have observed much of what you say. However, I don't see it as a matter of race so much as a matter of socioeconomic class. I'm sure you agree. There are a lot of successful people of all colors in Elk Grove, and they're pissed off, too, that they've spent upwards of a half-million to live in a neighborhood on a downward spiral.

When there's a problem neighbor in Franklin Reserve, nine times out of ten it's a renter whose landlord lives in San Jose and the property is being managed by one of the local slumlord property management companies such as HomePointe. Section 8 (or whatever they call it now) renters have been able to rent 3500 sq ft homes for the full extent of their $1600/mo vouchers in Franklin Reserve.

However, Franklin Reserve neighbors have been taking matters into their own hands -- mowing and watering lawns for vacant houses, cleaning up trash, etc. I don't think the area is beyond redemption, but it's going to take a lot of work, and it looks like Franklin Reserve Neighborhood Association is gearing up for it. Note that you don't hear about any other Elk Grove neighborhood association or HOA in the news. If they sit on their hands and watch the downward spiral, they're doomed. At least FRNA is doing something.

SacramentoCrash said...

Well since you are so concerned, I took the comment out. It is not talking in race it is having NO CLASS that I am most concerned about.

Those knuckle draggers come in all ages, colors and socioeconomic class.

watchingthebubble said...

Sac Crash,

You didn't have to take the comment out. I just wanted to make sure I wasn't taking it out of context. Your supplemental comment makes me see that I wasn't.

When you start talking about housing patterns, inevitably you discuss race and class, since most housing patterns are tied to race and class. Franklin Reserve is kinda different because many affluent people of color moved there (albeit, from the Bay Area) BEFORE the renters, etc., so it is very diverse economically across racial lines. There are two gated communities in Franklin Reserve as well as one isolated island of an area accessible by Rosanna off of Bellaterra that has million dollar homes, and they are all racially diverse. I can imagine that those folks are really perturbed to be surrounded by declining neighborhoods.

It's just way too easy to paint the entire area as completely ghetto if you don't drive around all of it. Trust me, there are a lot of streets in decline in Franklin Reserve -- I used to live on one - but not all.

I can say anectdotally that most African American professionals who live in the Sacramento area that I know either live in Elk Grove or Natomas.