Friday, November 23, 2007

Forbes Labels Sacramento "Worst" Housing Market

From Forbes:

Worst U. S. Housing Markets

1. Sacramento, Calif.

Over-building and speculation helped the Sacramento housing market become one of the fastest gainers in the country during the housing boom. It's now in a near free-fall.
From the Sacramento Bee:
Think back now to mid-2004 when Sacramento County's median sales price for resale homes broke through the $300,000 barrier. It was a sensational moment. "Housing prices hit milestone," The Bee reported. The newspaper account said it took 13 years for prices to climb from $100,000 to $200,000 – and only two to "rocket" to $300,000.

Now it's just as sensational seeing it slide back below $300,000. That's what happened in October, according to La Jolla-based DataQuick Information Systems. Half the resale homes that closed escrow last month in Sacramento County were priced below $295,000. From a buyer's viewpoint, that's an encouraging sign of growing affordability that will eventually revive this market.
From the Stockton Record:
Thousands poured into dining halls for free Thanksgiving meals on Thursday, and some organizers said this year was especially busy. St. Mary's Interfaith dining hall was packed by 11 a.m., with a line into the parking lot. "Definitely more crowded than last year," said Julian Cisneros, as he chewed some turkey. Organizers there expected to serve about 1,500 meals, 300 more than last year.

"It's the cost of living increase," said Mercedes Moreno, St. Mary's director of program services. "Some folks are getting laid off. Our economy is affecting everyone." Ted Van Allen of the Lodi Salvation Army said the housing market might be to blame.

51 comments:

Cow_tipping said...

We're #1 ... yeaaaaaa ...
Cool.
Cow_tipping.

Caleb said...

"Sacramento is #1 lowest market, blah, blah blah..."

Well, just go looking for a house in a desirable part of Sacramento and you won't think that for long. The impression given off by these type of headlines is that *anything* real estate related in Sacramento is suffering massive depreciation, which to this point just hasn't been true.

Just for the record, the only numbers which matter to someone buying or selling a house are local numbers. Not everyone cares what's happening in Elk Grove.

Cow_tipping said...

Flippersintrouble.blogspot.com has the numbers of actual houses and where they previously sold at and what the wishing $$ is now.
I dont see any neighborhood is exempt from the crash. The bank isn't going to go ... Ohhhh youre buying in 92831 (greenhaven) not 95828(rancho) OK here is a million $$.
They are all related, EDH drops 50%, you can reasonably have folsom drop 50% too cos these 2 haven't changed relative to each other, like EDH now has 2 new train tracks that run from its center to SFO without going through folsom or greenhaven. Dream on. Its all local, and your local is related to other peoples local. If your local isnt dropping where everywhere else it is, maybe they struck oil or somehting in your area. Or maybe it will drop later. Or maybe there are no sales to establish a comp ... :-)
Cool.
Cow_tipping.

Patient Renter said...

"you can reasonably have folsom drop 50% too"

Yep, of the homes I "track" in Folsom, only one has sold recently. Get this, it sold for 23% less than the previous sale price 10 months earlier!!

Edward said...

patient renter, I would suggest that you stop tracking Folsom,as it appears that there is considerable downside to that area for the foreseeable future.

If I were you, I would look at Sacramento,because I hear from other commenters that "things are different there".

head.attached said...

Edward,

If you're going to pick on Folsom for the asbestos then you have to nail Sacramento for flood risk.
Really, there aren't many places around here where a family can be safe from undue risk AND send children to a good school AND live in dignity.
Even the so-called desirable areas are problematic.
But maybe Land Park won't flood. Maybe there'll be a drought and NO water will come down from the Sierras! That'll be great for RE values around here.

SheWrestles said...

Another hypothetical is this:

If all the housing in the area was suddenly 'affordably priced' (for example, all current $400K homes dropped to $250-300K), would people move here to buy up the oversupply?

SheWrestles said...

2801 Southcreek Dr in Lincoln

(MLS# 70120493)

3482sf, just came onto the market at $599K.

"Lots of upgrades!!! Very nice floor plan. Large 4bd/3bd/3car with over 70k upgrades. Originally designed as a 7bd 4ba. Overlooking backyard and greenbelt. A must see..."

Even *if* you were willing to give them dollar-for-dollar credit for their 'upgrades', they'd still be asking at least $100,000 over the current market value.

Yes, homes are selling in TB, I get that, but the ones that are outrageously priced haven't been invited to the dance.

smf said...

If all the housing in the area was suddenly 'affordably priced' (for example, all current $400K homes dropped to $250-300K)

Waaaay back in 2003, my $348K home was NOT considered affordable by any means. The $250-300K homes are STILL NOT AFFORDABLE to most.

And it is not an issue of financing, IT IS ONLY PRICE!

I don't care how far have already come down, but homes are still not affordable to most.

And till they come down to reasonable affordability levels (the low 100's), no new people will be moving to Sac.

Edward said...

Re:head.attached,
I did not mention anything about asbestos in Folsom or EDH.I consider it a non-issue.I do agree with cow_tipping and patient renter however, and I should have included a ";-)" on my original post for clarification of my position.

Cmyst said...

smf said :"I don't care how far have already come down, but homes are still not affordable to most."

I have come to this conclusion, also, after a struggle with myself.
There is a house on the market for 218K, and it is the style of house that I prefer. For the past week, it's been on my mind, and I came real close to contacting the agent on it.
However:
1) the immediate neighborhood is ok, but just one block over there are both apartments and duplexes down an entire street; most look ok, but some are kind of seedy.
2) Zillow says the average household income in this area is 46K.
3) it's an REO, so no problems will be fixed and it will likely be hard to get the agent out to let me look at it. There's a stipulation that I must pre-qualify using Wells Fargo.
4) in 2001, this house was valued at 150K, and from the sound of the blurb on it, absolutely no upgrading or even maintenance has been done on it. (It last sold for 265K in 2005).

It's a better deal than a slightly smaller house of the same style, same lot size, same neighborhood listed for 329K with only slightly better street appeal and also no upgrading inside. 329K is absolutely crazy for this neighborhood.
But 218K is still too much. Most people who could afford that will take one look at the Dukes of Hazzard house three doors down (in a tightly packed neighborhood) with the 6 old big-wheel trucks parked around their house, and scratch that house right off their list. I really feel for the people on that street, because most of the houses are very nicely maintained, but that ONE house is making the whole street look awful.

Patient Renter said...

Cymst, sounds like you should pass on that one.

KTM 300 said...

I have been a reader of this blog for the past year, and I’ve found the information here very valuable. I have listened to a variety of opinions, regardless of the knowledge and motives of many of the posters. Now that I’ve apologized for any ignorance on my part, I have a few questions regarding fundamental issues in the Sacramento housing market. My questions are based on my untrained casual observances, and all responses are welcomed. Happy Holidays to all of you.

1) With the recent price declines, the median household income in Sacramento still will not buy the median priced home in Sacramento. Ok, I know that price per square foot is what I should be looking at, but this is still an interesting statistic.

2) The median priced home in Sacramento is five to six times greater than the median income.


3) I live in East Sacramento, and the rent multipliers for SFRs are in the low 20s and up. From what I understand, a rent multiplier greater than 10 implies negative cash flow? How could any investor see any cash flow in these SFRs without a huge amount down? Does anyone think that they with make up the negative cash flow on the residual? After how many years?

4) House prices in Sacramento went up about 122% from 2000-2005. If we are seeing a 25% reduction, that does not seem to be much overall.


5) The only neighborhoods that seem to be coming down in price, are the neighborhoods that, in which, people who have the ability to buy would not want to live in. Meaning your kid’s toys stolen off of the front porch, your wife in fear of walking from the car to the front door, etc. I’m not talking about the Fab 40’s or starter castle neighborhoods, just a decent middle class area where people mow their lawns.

6) We’ve seen this issue over and over on this blog. How is it that someone who has enough skill, education, talent, etc, to qualify for a $500, 000, $700,000+ home says with a straight face that they did not understand what he/she was signing? It takes a salary of $200,000+ per year, to make the math work on deals like this. Look around, how many people in Sacramento make $200,000 per year? And the one’s that do are not driving trucks or checking groceries, or CPA’s, Lawyers, many Doctors don’t make $200, 000.


7) Where is the money? Sooner or later the math catches up. How long can this continue?

KTM 300 said...

One more thing…

Where are the jobs that support the home prices in Roseville, Rocklin, etc?
I just don’t believe that all of those nice homes are being paid for by people who work in all of those wonderful malls that are in the area. Maybe they all work for Oracle, Intel, until the next round of outsourcing, layoffs etc?

Has anyone ever met a BAT? Bay Area Transplant? Not me, but it does not seem possible that someone could be in their 30’s, 40’s sell their San Jose home, then pay cash for the Rocklin home, the SUV, BMW, and not have to hold a job? What about retirement savings?

I’m not a jealous person; to me jealousy shows a lack of character. All I want to know is what I’ve missed or done wrong? Please someone tell me what it takes to join the party. I’ve paid all of my bills, have a good job, but something just seems to be missing.

watchingthebubble said...

ktm 300,

You have totally captured much of what I've been thinking all along in this housing bubble. DH and I make very good money -- think multipliers of the Sac household median -- and when we moved back her in 2004, we couldn't believe what people were asking for houses and that people who made far less than we did were paying those prices. I've posted on this blog and others time and again the story about the doctor who delivered me who advised us to stay out of this market because it was being funded with "funny money."

I still remember a story in the Sac Bee about a landscaper making $40K a year who bought a house in Elk Grove at $400K a year. I thought to myself, how in the heck can someone earning $40K afford a house that is ten times his income? If I recall correctly, his wife didn't work. I wonder if the Bee ever did a follow-up story to see if they still have that house.

Nope, 25% decrease in price isn't nearly enough to make me even consider buying in the Sac Metro Area. I live in Elk Grove, and there are parts where people really care about their homes and others where they not only don't give a good GD, they don't care if they disturb you, either. The other day I noticed my neighbor, who has a car up on blocks in his driveway, also wears what I thought was a large Armitron watch around his anklet. Goes to show you how much I know. It took me a while to figure out he's on house arrest, a la Martha Stewart. Not a good feeling.

My husband and I are waiting to see how the various neighborhoods shake out, but we still have moving back to Denver on the table since we'd get far better neighborhoods and schools for a lot less money and a nicer house to boot.

I sincerely hope that my neighborhood in Elk Grove where I rent will improve, and I'm working towards that goal with my neighborhood association. My husband, on the other hand, lost it when he found out our neighbor wears an ankle bracelet that isn't gold with charms. As he put it, "We didn't have these problems in Colorado."

paranoid renter said...

>>>>>>>
Has anyone ever met a BAT? Bay Area Transplant?
>>>>>>>>>>>>

I have met many. Almost all of them sold houses and put a huge chunk down on a house in this area. They tend to be people that work in construction related industries (plumbing, electrical, pools, etc.), so now that the downturn is hitting, their incomes will evaporate. However, they do have the ability to "hold on" for a few more years than the Sacramento native that bought during the peak.

My prediction is that they people will start moving to other areas as they find all their home equity (that they transfered from their Bay Area homes) is starting to evaporate at the same time as their incomes.

alba said...

ktm, I've been focused on Roseville, Rocklin, area for over 2 years. The more I've learned about the economics of the area, the more it seemed the factors are much broader, with more impact than the housing factors of this area. It's like the more you learn, the more you realize you don't know. I suggest waiting out the macro factors that will give us all an indication of when to seriously do our homework on our spcific housing situations. Keep your eyes on Paulson, hide your money, and read those like diggin' that direct our focus on what's really happening. It's also entertaining and educational to read from those representing the implicated industries, and the forever-late government (responders of special interest, or income, not citizens). Hopefully, you'll (we all will) still have a job when it's time to make a move.

PeonInChief said...

ktm300--

On your #4. Prices actually doubled between 2000 and 2005. However, they won't drop by 100%. They'll drop by about 40%, although that may take some time. (It's possible that some neighborhoods will only drop 30%, while others drop 60%, but we'll leave that until we have more evidence.) If a house is worth 100,000 and the price doubles, it's worth 200,000. But the price only has to drop 50% for the house to be worth 100,000 again. So a 22% drop is pretty hefty--not enough yet for it to be sensible to buy--but pretty steep.

KTM 300 said...

Chief,

Thank you for clearing that up on my #4. When I see these asking prices, I fire up my Excel template, the same one that everyone else has, plug in the numbers, and just wonder how prices remain so high. The finance companies use the same software, often a derivative of Excel. I’m not so sure, when I see a for sale sign, if the property is really for sale. Because the asking price implies that the seller possibly fishing for the right fool to make an offer, if the property is really for sale then a price should reflect the market. Maybe sellers are looking for someone with an inheritance, or a couple who had parents, on both sides, to help out with the down payment? Maybe I need to take a class on how to use a spreadsheet? Right after I learn to take a percent. Ok, I will.

KTM 300 said...

cow_tipping,

Chances are that some oil company, or the rancher, who sold the property to the builder, has retained the mineral rights to the property that the house sits on. That would be the way that it would work for me. Now if a Volcano were to erupt, or a flood happens, you can be sure that the property would be my baby.

Cow_tipping said...

Yea ... someone else thinks the house prices will end up at or below 99 prices ... who you ask - Peter Schiff ... So in sac and other CA areas, bye bye 2005 peaks, hello 99 prices (which BTW is still a .com bubble crazed prices in CA)
And here is the problem I have in my little tiny grain of sand sized speck out of the universe.
In charlotte Housing bottomed out closer to mid-end 02 atleast going back to 96. So a return to 99 will mean its higher than the bottom it hit 2001/2002.
Another biggie now: Inflation adjusted or not from 99 ??? and if its inflation adjusted, is it the bigus Govt number or actual inflation numbers indexed to gold. ??
Cool.
Cow_tipping.

Cmyst said...

ktm -

Your entire post summed up the way I felt, and still feel -- but at least now I know it's NOT me and something really is screwy with housing.
I am grateful every day that when I sold my old condo, I didn't believe my RE agent or mortgage broker about how much I could afford. My daughter and I were out looking at rental homes today, and she confessed to me that she had been sure that I was making a mistake not to buy. She understands now that renting costs half of what it does to buy. I showed her today how to look up tax information on rental houses, and also information on the last sale of the house, etc. to guard against renting from a deadbeat flipper.
I, too, make well over the Sacto median household income and the neighborhoods where my target houses are located have median incomes about 2/3 of mine and just a little over Sacto median. I should be able to afford these houses. And I can't.
But I may have lucked out this weekend, because I found a rental house that is exactly the kind of house I want to buy, in exactly the kind of neighborhood I want to live in, for exactly the rent I'm paying now. I talked to Sig, and he isn't going to freak out about us moving as long as there is a fenced in yard for the doggies -- which there is.
And if this works out, it's "bye-bye Sacto RE market" because I will have exactly what I want NOW instead of waiting years for sellers and banks to get real about the fundamentals.

KTM 300 said...

Cmyst,

It is extremely frustrating when you run the numbers, set up your own amortization tables, and see what the results are with respect to price/payment and income ratios are. Amortization is not new math. And when you have arm chair real estate agents, and other experts, tell you that this is the time to buy after you’ve just done the calculations, it is difficult not to become enraged.

Another thing that is mentioned, and quite often, is the mortgage interest and property tax deductions. One must write the check first before one can take the deduction. Some people seem to think that when a home is purchased, that somehow one becomes a silent partner with the government. One can only deduct interest and taxes against income that you’ve had withheld, or paid in through estimates. This is done on Form 1040 Schedule A. For the most part, take one’s itemized deductions and subtract that from gross income, compare that to taxes withheld and estimates, the difference is the amount owed or refunded, unless one qualifies for some type of credit, but for most people who purchase homes, refundable credits don’t apply.

A $300,000 home is not a starter home, if not, then how many move up homes are there in Sacramento that are $300,000? At 1.2% in property taxes, that is another $300 per month in cash outflow that many people don’t even bring up when discussing home prices. This means that if one is in the 25 percent tax bracket, one must gross another $400 per month in order pay the monthly property tax.

Things are “not different this time” and stuff will not “just work itself out”. The investors behind all of these mortgages were told to expect a certain return on their investments for the amount of risk that was taken. I don’t know how the bad loans are going to be frozen, or restructured without someone getting burned or maybe a margin being trimmed.

There is no such thing as something for nothing.

Folks, if I’ve said something wrong here please feel free to correct me.

BMac said...

cymst,

how do I find out if my absentee, non-english speaking(russian), bay area (SF), landlord is a deadbeat? She paid $435k for this 1600 sq. ft. sh!tbox in May 2005 in Southport right before I started renting it. I am curious if she has been making her mortgage payments or if I should expect an eviction notice from the bank for xmas. Amazingly it doesn't matter that much since wifey just passed the bar exam!!! and we'll probably be moving somewhere else as soon as she lands a job.

HOUSE2008 said...

Hard to argue with that. Recently, I've seen two homes that I've been looking at tanking 80K & 40k respectivly within 3 mo. Now here comes the winter a traditionally slow selling season. I wouldn't be suprised to see these very same homes drop another 30-45K in three months. Some realestate agent once told me I don't know if it's true but, if the home isn't selling onc drops the price of the home by like 2k a week! Yikes! That's a lot of moola.

Cmyst said...

bmac -

I don't know how you'd find out if your landlord is making her mortgage payments, but you can find out if she's making her tax payments. That can be a clue on how current she is with her mortgage.
To do that, you put the info into Zillow, click on the house address when it comes up, hit "home info" on the left side and scroll down. This will give you the parcel #.
Then, go to http://tinyurl.com/26zsmp
(bookmark it when you get there)
and enter the number into the boxes. This link is only good for Sacramento Co., but I looked up information on my current rental in EL Dorado Co. once so I think it's just a matter of finding the URL for your local county tax assessor's and entering in the parcel # no matter where you live.

PeonInChief said...

Two things:

1. Housing is much stickier coming down than going up. The desperate will pay any price, take any mortgage, to buy a house. Sellers take much longer to reduce their prices. And the banks are hoping that they'll make something close to the original mortgage on the sale. (The exception here seems to be some of the more unstable neighborhoods, where the banks are just dumping the stuff. Of course, no one is buying.)

2. As for tenants and foreclosure, one of the most irritating things is the lack of information as to what tenants can or should do in the event their homes face foreclosure. First, it appears that there is no way to find out whether a notice of default has been filed but to go to the county assessor's office or subscribe to foreclosures.com.

Second any lease is voided by the foreclosure, so having a lease won't protect you for the term thereof. And you only get 30 days to move, no matter how long you've lived there. (That's because the tenancy exists only from the moment that the bank took back the building.)

The bank must give you a 30-days notice terminating your tenancy. However, you must move within the 30 days. If you don't, the bank can file an unlawful detainer action against you and you will have great difficulty renting a new place.

In some cases the banks have offered "cash for keys," but the amounts on offer have been laughable. $500. C'mon! If they want you to move within two weeks, the offer should be more like $5,000.

The bank does not owe you your security deposit. You have to try to recover that from your former landlord.

I sent an email to my assemblymember, Dave Jones, suggesting that the state should pass legislation to give tenants some minimal protection in these situations. Specifically tenants should get at least 90 days to move and should be given relocation expenses. This would at least give tenants time to find a decent place and keep them from losing so much money in situations not of their own making.

And the county assessor should be required to notify residents in non-owneroccupied buildings that a notice of default has been filed.

PeonInChief said...

Cmyst--

Check out that house you like with the assessor before renting it. Really. The line at the end about information being accurate but not guaranteed is standard in for sale listings. What you want to make sure of is that an NOD hasn't been filed on it already.

But, yes, it is a VERY COOL HOUSE.

BMac said...

cymst-

Thanks! I found it on the yolo assessor's site. Very interesting stuff. Turns out the Net taxable value is $448k! ROFL. The closest comp right now would be $300k. With school bonds and flood protection assessment that's a $6358 tax bill. That's over $500/month on top of a $436k mortgage, which would be at least $2600/month @ 6% w/out PMI or more like $3000+ w/ a piggyback loan or PMI.

The interesting thing is that the "total assessed value" increased from $439k to $448k this year from previous years. Does this indicate that perhaps her two year teaser was up and she was able to find someone to value it high enough (BS!) to get refinanced at an even higher loan value? Or does the assessed value have a way of increasing another way?

As always, thanks to the Land(ing) crew for the continued education.

drwende said...

bmac -- The site you need to consult to see if a landlord in Southport is up-to-date on mortgage payments is not the tax assessor's site (which only tells you about tax payments), but the Yolo County Recorder at http://www.yolorecorder.org/recsearch/index_html

Search for your landlord's name and be careful to set the dates to go back further than a week or so. You will not be able to see the address of the properties your landlord owns, so you need to rely on the date of purchase to identify your home.

What you're looking for is a Notice of Default (NOD). That's what the bank sends as the first notification that the borrower is behind on payments -- typically by about two months.

An NOD is not a foreclosure. Some borrowers work their way out of an NOD, though the chances of this for a landlord (rather than an owner-occupant) are pretty slim.

If you see a Notice of Trustee Sale or anything with a similar name (counties use different names/abbreviations), you have a problem. That's a foreclosure.

If you see nothing but grant deeds and trust deeds, everything is fine. The grant deed is what transfers ownership of the house, and the trust deed is the mortgage. You may see two trust deeds with the same date for a single property -- that just means there is a first mortgage, probably for 80% of the property's value back in spring 2005, plus a HELOC piggybacked for another 10-15% to avoid paying PMI.

drwende said...

bmac -- I left out a step! Yolo Recorder will only show that there is a default on SOME property, but not which one. If you find an NOD, Google your landlord's name or your address (try both separately) -- there's a service that prints labels for potential buyers to send to defaulting owners, and its labels are Googled, so it's a good source of information on the addresses of defaults and foreclosures.

Your landlord may also not own multiple properties, which would simply things!

You can also go to the county recorder's office and look at the actual NOD, which will tell you the address. I think you might even be able to call the recorder's office and ask if there's an NOD on that parcel number.

Sorry about the confusion -- I haven't tracked properties in California in a while. (Arizona does give addresses, and a full .pdf of the document!)

NervousBuyer said...

A forum for more talk about housing in Sac:

http://www.honesthousingtalk.com/menu/index.php

sacramentia said...

The Forbes article was really a dumb article. When articles this simple can sell magazines, I think it's a sign the bottom is near.

ktm300 - cool post..

1- 5x-6x Median Income - How can this be? Here is an example of how it works in a market like California with population growth exceeding housing construction, prop 13, etc.. Assumptions = The median first time buyer is 28, with a median household income of 57,000, who moves every 5 years. In 1997 he buys his first home with 10% down for the then median price in Sac for 138k at 10% down. He has spent 2.4x annual income. In 5 years, the median price has gone to 219k, he moves and takes his 95k in equity to the next home, still staying under the 3x annual income rule. Another 5 years down the line, the median home price is 310 (source this article) and the buyer has 185k in equity, he takes the equity, plus 3x his annual income which hasn't really changed in the last 5 years and can now afford 357k and maintain the 3x rule. If you take out the equity, it looks like he is buying at 6.25x income source and data Median Prices in Sac 1997 138 2002 219 2005 374* 2007 310* age median equity mortgage income 28 138 13.8 124.2 57300 33 219 94.8 124.2 57,300 38 310 185.8 124.2 57300 source for median income and price levels: 'The coming crash of the housing market' (2003) - Talbott. Given the current environment it is a great read - this guy was calling the situation 4 years ago! *this article for the source data.

2- GRM is gross rent multiplier, the way to really evaluate a property is using cap rates and net operating income. Example:
350k home, rents for $2k / month. Taxes and other expenses are $600 mo.

GRM = 14.5 (350k / 2,000 x 12)
NOI = $1400/mo = 16,800/yr ( rents minus all expenses except debt service )
CAP RATE = NOI / Purchase Price = 16,800/350,000 = 4.8%

So this example would give you a 4.8% return on your capital if you paid cash for the property. Then the question becomes - How much risk will an investor take for a 4.8% return? Or how big of a 6.75% mortgage will 1400/mo support ~250k. So if you have 100k that you are looking to invest you can park it here based on the assumption that at some point in the future housing values will go up again.

Cap rate / Borrowing rate = required down payment to break even.

I'm not saying that most investors follow this, in fact, I think many don't and are blinding accepting negative cash flow hoping for appreciation which doesn't anyone out who can do math.

PeonInChief said...

I hate to keep posting, but here's an interesting little wrinkle on tenants and foreclosure that you all might want to know about. If the tenant signed a lease or rental agreement prior to the time that the landlord purchased the building, the lease is not voided by foreclosure. That's because the tenant entered into the lease before the landlord took out the mortgage.

What that means is that if the tenant signed a lease with a previous landlord and that lease still has time running on it, the tenant cannot be evicted until the expiration of the lease. If the tenant has a month-to-month rental agreement signed with a previous landlord and the tenant has lived in the building for more than a year, the tenant must be given a 60-days notice to move.

What I don't know and would love to find out is whether or not these rules would be in effect if the same landlord refinanced the mortgage. If, for instance, a landlord signed a lease or rental agreement with a tenant and then refinanced to a new mortgage on which she or he defaulted, would these rules apply?

And I wish that I believed in hell because a special circle would be reserved for FBs who do the following. Knowing that a notice of default is about to be filed, the landlord signs a year lease with a tenant. The landlord then informs the tenant that foreclosure will be coming in short order. The tenant cannot stop paying the rent or move, as s/he has signed a lease. If s/he did quit paying rent or move, the landlord could demand rent payment and then file an eviction action, ruining the tenant's credit.

lexi said...

Sacramentia.... equity. In california most people suck out their equity to keep up their standard of living... and moving and selling a home at 6 percent every five years really helps the
equity dwindle. Plus, the problem
comes when you can't entice first
time buyers into the mix. No one
wants to live in a dump and pay twice the money in mortgage when they can rent a really nice home
for half price... so once you lose
the ability to attract the first time buyer into a losing market the
bottom of the housing pyramid scheme collapes.

sacramentia said...

lexi - I totally agree that this is a massive pyramid that is supported by the first time buyers. It is what it is and I don't think the pyramid will completely unwind without massive changes to tax policy like no more writing off mortgage interest and elimination of prop 13.

Your point is well taken and why locking rates on the sub-prime/lower cost properties will help the market so much.

A lot of people live off equity _most_ of the people are not and have low LTV ratios. I read somewhere that the average loan balance in California is around 325k.

However, I'm not buying yet...

Gwynster said...

"how it works in a market like California with population growth exceeding housing construction"

The reason we have so many vacancies is because we _don't_ have population growth. The Sacramento area had large-ish 3% growth in 97-98 (showing on USC in 99-00 respectively) and we have had a significant outmigration problem since then.

The builders built for people who never came. We've gone over the data something like eighty bagillion times.

Buying Time said...

Just to throw in my 2 cents here...albeit a little late. There are many BATs where I live (in EDH). I would say 2/3 of the 30 or so moms in my group are transplants.

As far as income multipliers versus equity ....I would say its a little of both. I believe it will always be a more exensive to live in California...and that includes housing. Will incomes fully reflect this in places like Sacramento....I kinda doubt it. Previously I think equity helped bridge this gap to some degree. However the fundamentals are so out of whack now that equity and income combined cannot get you a reasonable home....unless you are moving from a more expensive location and bringing that equity with you(such as the BA).

Gwynster said...

Yes but with the prices in the BA starting to drop, how many will try to move back?

Fanchew said...

Interesting article in the WSJ on subprime relief. Found a way to read it behind the subscription wall too.

http://www.ajc.com/business/content/business/stories/2007/11/26/WSJ__SubprimeRelief.html

(Yep, still alive and following this blog though my real estate obsession has waned as the market crash deepens)

sacramentia said...

Gwynster -

We do have some growth. Here's a link to your blog where you posted data showing positive population growth every year. http://bp0.blogger.com/_ryHfSOO5iA8/RtUqo9F2CtI/AAAAAAAAAAw/3HKt_j_0GyY/s1600-h/4counties.jpg

The rate is shrinking but not the total.

Cow_tipping said...

Population growth ??? population growth is somehting every city in the country is claiming. Every city has projects that talk about it as though its fact. And no 1-2% either.
What I think is that, there has been 10%+ house flipping/hoping to flipping. That isn't actual population growth ... just in case people forget, its house count growth ... not population. Evidently 25% of the CA purchases in the last 5 years were due to this. I call this the "Carleton sheets" phenomenon.
The second is the explosion of illegals. 100 Million or so over 50% of which are in the last 5 years. This of course is true growth in population, as is evidenced by 60 of them living in a 5 bedroom McMansion near you. I call this the "Jose Cuervo" phenomenon.
Take your pick, that is the 2 secnarios. The only thing to pick is the ratio of the first to second.
Cool.
Cow_tipping.

smf said...

"We do have some growth."

All the percentages have to match to make it positive growth.

Replacement (not growing) population growth is 2.1% per year. Anything less than that will eventually send you into declining population.

But the problem is, and I am just using simple numbers, is that for the year, 10,000 housing units were required, but 20,000 were built.

That is a very big problem.

Diggin Deeper said...

When you look at the US real estate market, with prices down 5%since last year, this country hasn't experienced overall price declines since the market of 1925-1933. Over that period US real estate prices dropped 30%. We're only a two years into this downturn at best, and when you couple the massive subprime resets that are coming in '08 and '09, with tightening credit or even lack thereof, a real problem sets in. It's hard to believe that those areas that overbuilt, and lacked TRUE wage and population growth, won't set a high bar in overall price reductions, Sacramento included.

With inflation rising and home asset values falling, the consumer will struggle to catch up. The higher commodity inflation goes, the lower home prices must go to meet NET median income required to buy a home. If inflation carves out 8-10% of discretionary income per year, home prices must fall to meet median income PLUS an addtional 8-10% per year to account for the inflation that keeps eating away at the paycheck.

Imo, we've switched from a low interest, easy credit, low inflation society to a artificially low interest, toughening credit, inflation based society. It's happened almost overnight. Something will have to give and my bet is that home prices have much further to drop before the qualified buyer will be in a position to step up and buy again.

head.attached said...

In my darkest hours, and there are many, I believe that the people who own these expensive houses will be mortgage slaves until their dying days, and that because of their choices I am forced to rent. If not for the incredible greed of the many, there could have been room here for everyone. But no.

I'm trying to decide this year whether to leave California, treat it as a lark, move on. Or to stay and fight. I'm leaning hard towards the former.

Thanks ktm 300 for putting it all out on the table.

sacramentia said...

smf - you lost me... How does 2.1% growth equal zero growth?

Gwynster said...

I'll explain. Let take a look at what our population "growth" is all about, shall we?

Table 5: Estimates of the Components of Population Change for Counties of California: July 1, 2005 to July 1, 2006

Sacramento County 11,138

Woot! That looks pretty good, now lets take a closer look:

Births 21,396
Deaths 9,883
subtotal 11,513

Net International Migration 7,083
Net Internal Migration -7,458
subtotal -375

So inmigration vs outmigration is a wash but hey! in 20 yrs or more those babies will need homes.

Now lets look at housing from the USC
For the period ending
July 1, 2005 532,819
July 1, 2005 542,499

So we built 9,680 new units from 7-1-05 to 6-30-06 for a buying public that didn't appear when we rubbed the magic "if you build it, they will come" genie bottle. But wait, it gets better!

USC estimates for the period ending 6-30-06
Total housing units 542,527
Occupied housing units 500,292 92.2%
Owner-occupied housing units 306,047 61.2%
Renter-occupied housing units 194,245 38.8%
Vacant housing units 42,235 7.8%

So we were overbuilt in 2005 and we kept on going in 2006 and into 2007. It gets even worse if you account for median household size adjusted against the existing housing stock. I did a longish post on it a while back but I can't remember which thread it was in.

So there you have it... we did it all for the babies >; )

smf said...

"How does 2.1% growth equal zero growth?"

That is because two babies are made to replace two people, a mother and father. You add the .1% to account that some babies may not make it.

Hence, you could be adding to the overall population, but not replacing those who are dying.

If your population levels are therefore NOT increasing, future housing demand may be LESS than what is currently available.

Japan fits a perfect example of this.

http://en.wikipedia.org/wiki/Sub-replacement_fertility

Cow_tipping said...

Hey, all those numbers include houses that were built on the premise that they will be Owner Occupied. Yes like all 7 or 8 of Casey Serin's houses. Of all brilliant things he was able to accomplish I'd rate this as the best. Owning 8 houses he still managed to find a house (his sister in Law's) that he had to pay rent on. That I believe Ladies and gentlemen is a stroke of genius.
And - The population counts all include varying amounts of Illegals. I would presume most of them would run and hide when people come to count them. However I believe they count people not by going house to house ??? but with ???
Whatever method they use, may include some/most of them.
So, there are definetly more houses than what Gwynster has calculated.
There are definetly more people than anyone has calculated. However the net result is, no one left to buy, cos the "new" aren't buying, heck they're not even employed and the old ones probably already own 1-3 just to flip.
Cool.
Cow_tipping.

sacramentia said...

Gwynster - Thanks for running through that for the eighty bagillion and first time. Very interesting.

smf - I don't think you get percentages and how the relate to fractions/rates. But I think I get what you are trying to say.

Thanks!

norcaljeff said...

Blowing thru the $300K figure is a good start. If median income is really $57K in Sacto then we're looking at $171-199K for a fair price. That's 3 - 3.5 times income which is what lenders in the recent past used. With very tight credit and the popping bubble, we're on our way back to low $200s. No fancy calculus math needed :)