Tuesday, November 06, 2007

'I've never seen this many bank-owned properties and so many foreclosures'

From the Sacramento Bee:

Scared by growing numbers of bank-owned houses and for-sale signs in their neighborhoods, a handful of local cities are launching moves to help homeowners threatened with foreclosure. Their initiatives so far are limited to offering advice. Nobody's opening up the checkbook to bail out homeowners.
...
"We don't know how far this is going to go," says Jim Lynch, community enhancement manager in Citrus Heights. "We've had housing setbacks over my 35 years, but I've never seen this many bank-owned properties and so many foreclosures."

Rancho Cordova, home to 175 foreclosures since January, plans a December workshop looking at solutions for homeowners in default...Folsom officials also have begun talking with Neighborworks. The city has seen 90 foreclosures since the start of the year, according to Foreclosures.com....Sacramento, with 1,740 foreclosures since Jan. 1, has ramped up code enforcement efforts to deal with vacant housing.
...
[Reed] Flory [Rancho Cordova's housing services administrator] said the city is especially concerned about its new Sunrise Douglas subdivisions, south of Highway 50...[M]any of the homes there came onto the market in 2005 and 2006. Those were peak buying years for borrowers now facing adjustable-rate mortgage resets and falling home values. Rancho Cordova City Councilman Ken Cooley recently counted 79 homes for sale in Anatolia and fears some may be "fire sales" by troubled borrowers.
From the Sacramento Business Journal:
One of every nine property tax bills have been reduced compared to last year's assessed value in Sacramento County, the latest sign of a slumping housing market.
From the LA Times:
Gov. Arnold Schwarzenegger on Monday ordered all state departments to draft plans for deep spending cuts after receiving word that California's budget is plunging further into the red -- largely because of the troubled housing market. State officials have warned the governor that the likely deficit for next year has jumped from a few billion dollars to as much as $10 billion, threatening to wipe out the progress Schwarzenegger has claimed in getting the state's accounts in order.

In response, Schwarzenegger's finance department has ordered agency directors to formulate plans to cut budgets by 10% for the spending blueprint the governor will unveil in January, according to administration officials who spoke on condition of anonymity. That would mean substantial cuts in all state programs, including education, transportation and healthcare, the officials said.
From the Appeal Democrat:
Yuba County officials and a developer on Monday cited a weak housing market as one reason for delaying – and possibly scaling back – plans for Woodbury, a major development east of Highway 70 and south of Erle Road. The Sacramento developer, Reynen & Bardis Communities, has not renewed options to buy some of the 1,600 acres planned for Woodbury, which would include 6,250 homes, as well as stores, parks and schools, said Randy Margo, assistant county administrator.
From the Modesto Bee:
Engineering firms are feeling the slowdown in Northern San Joaquin Valley real estate just as much as other businesses. Officials with Modesto's Mid-Valley Engineering said they've cut 19 employees in the past few months, and other firms indicate they're also feeling the effects of a business slowdown. "We're paring down some because of market conditions," said Bob Lawson, chief financial officer at Mid-Valley, which has about 150 employees...Lawson and directors at other engineering companies said their slack is directly related to the dramatic downturn in real estate in the region.
Mike Lyon's North State BIA presentation [pdf]

27 comments:

smf said...

Rancho Cordova City Councilman Ken Cooley recently counted 79 homes for sale in Anatolia and fears some may be "fire sales" by troubled borrowers.

He must have seen the inventory in a good day, metrolist notes 166 houses for sale in Anatolia.

Anatolia is a nightmare right now. They have some good models, but current builder pricing will just kill the flippers.

And they are already getting clobbered.

Foreclosure.com counts 48 foreclosures and 69 preforeclosures in the area.

TwoWheelsBetter said...

Lyon's presentation is interesting. He calls a "future bottom" at 10-15 percent below current prices, claiming that those prospective buyers able to negotiate such discounts now are in effect buying at the bottom. He's been among the most "real" of the industry crowd, but I might take "over" if forced to bet on whether future declines will be over/under 10-15%

He also suggests that the core areas of East Sac, Land Park, Davis, and Fair Oaks are near bottom now and will be the first to recover. I dunno. My Land Park neighborhood near McClatchy High is only now starting to leak, with many homes for sale, some featuring "New Price" signs and with square foot prices retreating significantly away from the $400-500 peak we saw in '05 towards the $350 level we saw around '03 or '04 (I sold at the then-unheard of level of $315/sq. ft. in Dec of '02). There are now some decent 1,500+ sq. ft. 3bdr homes for sale (not yet selling) in the 495K-550K range. For those of you looking for $125/sq. ft. that's still outrageous, but my sense is that the worst/best is yet to come in Land Park.

Gwynster said...

Davis is cracking nicely. Besides, even compared to ED and Folsom, our properties are tiny Sh!tboxes. Davis is really beginning to remind me of old EG in the 80's. Remember when it was a nice little white flight city with good schools?

Patient Renter said...

The houses in El Dorado aren't a site to behold either.

Now, EDH on the other hand...

:)

Sippn said...

2wheelsbttr - don't know as much bout ur hood but what Lyon is saying about core areas seems to be happening - stuff priced well is moving. People with money are picking through the good homes, making their deals and leaving out the trash - or they're starting to.

So what thats going to do is further lower the median price - as junk will never sell unless steeply discounted, and the good stuff has been adjusted some also, the average will drop. Does that mean the home you are wanting will drop futher? good question.

Bad news for bad news. . . Alexis is at it again. . .

"...foreclosures overall have dropped 12 percent since August," according to a report from Foreclosures.com. (from the BJ)

G - I don't know if there's any hope for Davis becoming affordable, I don't study it anymore, but whenever I look, there's just not much available and the prices are still way higher than 2003-2004.

The affordable homes that get built occasionally, are sold by lottery to some lucky buyer who later sells it at market prices "congratulations, the developer has just handed these 2 lucky buyers a retirement bonus, courtesy of city code" Might be easier to just write them a check.

The real key to affordable housing in Davis is for the UC to develop their own land (faster) and take charge of their future - OR - shrink the U and reduce demand.

The city council has always had a hard time balancing the needs and greed of homeowners vs. the needs and wants of renters - both alreay have housing, its just a money tug of war.

Gwynster said...

The city council of Davis is worthless and pretty much corrupt IMO. I have zero use for them. Any concern they have for renters is lipservice only while they build up their personal RE reserves. But I have to say they really mirror their voting population in their morass.

**yes I misspelled that correctly**

Just finished voting. I really hate this town but with gas prices going up, I'm stuck here.

paranoid renter said...

All this while the dollar hits the dust and oil hits $100!

For now, home owners are getting screwed, but it looks like the dollar may start falling faster than home prices at which point savings in the bank account start losing purchasing power.

SheWrestles said...

...stuff priced well is moving. People with money are picking through the good homes, making their deals and leaving out the trash...

We're seeing the same in Lincoln. Even though more foreclosures are popping onto the market every week, the ones that have been sitting for a while are selling once the prices hit a certain mark - $375K seems to be the magic number here on homes in the 2400-2800 sf range.

One thing I've noted about a few of the recent REO listings is that they are being priced at attractive numbers ($50-75,000 less than those that have been sitting 6+ months), so it appears those banks are looking to move them sooner rather than later as opposed to the banks who seem to be playing the 'I can hold out longer than you can' game.

Diggin Deeper said...

"Gov. Arnold Schwarzenegger on Monday ordered all state departments to draft plans for deep spending cuts after receiving word that California's budget is plunging further into the red -- largely because of the troubled housing market"

To me, this is the most troubling part of this blog, as it directly affects the local economy and Sacramento real estate in general. The only way to get a true 10% budget cut is to let people go from their jobs. Add layoffs and a soft local economy, due to government downsizing, and you're basically torching what's left of this market. If the state has to cut, so does the county and the city. I don't know how many people are state government employees in this town, but I've got to believe that even if they let 5% go, its impact will be significant

Gwynster said...

Dig,

We will see a wave of early retirements before we get to big layoffs. Right now what they will do to fill that 10% is to not fill their current openings, cut back on some internal programs, and reorganize. Kiss COL and merits goodbye....

I know of one person here who is praying for an early out package so she can sell her place while the gettin' is good and get out of CA. Repeat that many times over and you have more inventory and a reduced tax base from individual spending which begets another round of cuts.... you get the idea.

Diggin Deeper said...

Gwyn:

Let me see if I get this right. I handshake you out of your job, pay you a year's salary, and let you go. What have I saved and have I effectively reduced my outlays for the year?

That may be a way to soft land the impact, but retirements and cut backed programs have to produce something more meaningful than costs that will end somewhere down the road. Having said that the caveat is "we're talking about the govt. here"

PeonInChief said...

The way early retirement works is this: they give you service credit on your pension, not additional salary. So if you're 60 years old and have 25 years of service, you get an additional 3-5 years of pension credit. This increases your pension benefit, so that you can retire earlier. Then the agency can either leave the position vacant or hire a worker at the low end of the salary range.

The problem with that at this point is that there are lots of people who are so close to retirement age that they'd just rather wait for the raises to kick in and then retire. Tech workers will get an additional 5% in a couple of years, which would increase their pension base more than the service credit.

I expect the state worker retirements to begin causing problems in about 2010.

alba said...

diggin deeper,
You save a great deal of pain. Layoffs, or early retirement programs are usually announced and completed in the same quarter, or by the end of the fiscal year. The company takes the write-off immediately, and can usually annotate the loss as an exception in their earnings (loss). If it were a public company, the stock would also go up immediately.

On the other hand, the financials are slowly leaking out their pain, and have tried to ensure it doesn't appear to impact their true assets. We've seen a few, like Citi and Merrill, but even they haven't really disclosed their real pain, because they don't know how deep the cuts are. Just a few months ago, WaMu sad they were too disversified with retail banking to be impacted by bad loans, warehousing, etc, and they are down 10% today.

The pain in housing and foreclosures will hit when the financial institutes are ready to take real write-offs for their investments backed by bad loans. So far, we've only seen lower-priced homes, likely because they were purchased by folks who could only afford them by buying opt-ARMs, etc. The ATM effect, people with jobs and decent credit, dipping into their largest asset, taking out cash with ARMs, has yet to hit. There's plenty more of this type of buyer, with far more liability than the unqualified. Recession, loss of jobs, will just make this more pervasive.

alba said...

Lyon knows that RE is like investing in a stock exchange; volume, volume, volume; high or low; it doesn't matter for the middleman. The RE market is stuck with homeowners thinking they'll get more "next spring." Lyon's job is to get it going; down or up doesn't really matter.

The foreclosure.com business model doesn't appear to be working because she makes money teaching people how to buy homes at auctions, but the banks haven't begun to let loose on the price. Even following foreclosures on a monthly basis (like me) hasn't paid off. The banks have found a way to hold on, or unload, without the fire sale at public auction. That should change eventually.

Diggin Deeper said...

alba amd chief...Ok I'll buy...but the continued pressure due to massive credit and default losses, will put additional pressure on Govt coffers. Future defaults will continue pressuring revenues to a point where contraction in real dollars occurs. We've all seen how the major financial companies spill their troubles. You get a little dose, then a bigger dose, then only God knows what they give you next. The same method of easing us down happens with government. We're seeing 10% today, but I have a hard time believing that's all there is.

Agree, lower revenues at the govt level, through lower wage base rehires, could pick up some of the slack. But the only effective way to address decreasing revenue is to eliminate jobs. We've had years and years of good times and Sacramento has layered in plenty of overkill not to shed some of its skin. I think Arnold will find the fat and trim it during these times. He may be a centrist politically, but he's Austrian by birth and education, and Austrian economics are far different than what we're using today.

Gwynster said...

"Then the agency can either leave the position vacant or hire a worker at the low end of the salary range."

Bingo. Or they take 7 jobs and reclass into 4 which is common. That will usually hit the feadcount reduction.

There will also be reductions to the general budget which means no more food at working lunches, no iphones (huge faculty screaming matches on this issue at UC), reduced training budgets... add it all up and eventually it's real money.

Gwynster said...

Dig,

The wave of boomer retirements coming is staggering. UC has been building it's earnings base through research funding. Next they will be hiring a lot, and I mean a freakishly large amount, of new faculty at dramatically lower wages then the departing faculty. Wash and repeat for admins.

I have no clue how the State of CA will cope.

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

Thanks for the info Gwyn...hiring at lower wages kind of plays right into the hands of those claiming there's been no real wage growth for many years...and that further pressures the RE affordability issue.

Can anyone find a bright spot to cling to in this market?

Professor Shays said...

Gold.......

Gwynster said...

I'm a gold naysayer and I have to agree with the Prof.

Professor Shays said...

Looks like CNN (Money) has the Sacramento area in a projected 25% decline, projected out 5 years.

See: http://money.cnn.com/galleries/2007/fortune/0711/gallery.real_estate.fortune/9.html

Diggin Deeper said...

Prof...have been in it now for 3 plus years...the mania begins soon after the naysayers see its glimmer, Gwyn ;)

Don't forget about silver...it's running neck and neck with gold and just broke $14.85 resistance...it's setting up for a moonshot especially if the Fed continues to bury the dollar with low interest rates

SheWrestles said...

Another *5* years of decline totaling 25%??

I may need to dump mine and get out now...

PeonInChief said...

No, it's not 25% from the peak, it's 25% from June. That means more like 40% from peak.

Gwynster said...

It was 60% from the peak so they've downgraded a little bit.

We tried to tell you....

SheWrestles said...

Hmmm, I picked mine up for somewhere between 40-45% off-peak, so maybe I'm not in quite as bad a shape as I thought.

Or maybe the numbers are even more screwy - ack.

I only saved about 30% off the original price, but depending on who you believe, this property peaked a lot higher in 2006. I *guess* that makes sense, given that newer, seriously overpriced homes sold around the corner during that time.

I remain unconvinced that this area can support the pricing across the board at the present levels or even with a 10-20% depression, but what's absolutely killing everyone who purchased here within the past 3-4 years is the continuous building which plagues the area.