Friday, November 16, 2007

Mike Lyon: 'No one has seen this before'

From the Sacramento Bee:

A persistent housing slump that has relentlessly driven down home prices has now wiped out at least three years of home equity gains across much of the Sacramento region...For buyers, who have driven home sellers and much of the real estate industry mad by patiently remaining on the fence, it's fresh proof of a market getting ever more warm and friendly.

That's especially true in suburban neighborhoods with plenty of new construction. "I've got two sets of buyers looking at property in Lincoln, 2,943 square feet listed for $325,000," said Viki Benbow, a Coldwell Banker real estate agent. "It's like $106 or $107 a square foot. Those houses three years ago were selling in the mid-$500,000s."
...
DataQuick estimated that 27.6 percent of the region's existing home sales in October involved foreclosure properties. It was 35.9 percent in Sacramento County.
...
October ended with 15,716 homes still on the market in El Dorado, Placer, Sacramento and Yolo counties, according to Sacramento-based TrendGraphix....The number does not include foreclosures that have taken place but aren't yet on the market. DataQuick said 65 percent of homes that went into foreclosure between Aug. 1, 2006, and July 31 have not been sold yet.

In the first nine months of 2007, more than 6,500 homeowners have lost their residences to foreclosure in the eight-county region. That wild card concerns Lyon Real Estate's Michael Lyon. "No one has seen this before," he told a gathering of area home builders earlier this month.
October Home Sales by County
October Home Sales by Zip

From the Sacramento Bee:
Last week came another move in the continuing downsizing of the region's building industry. Arizona-based Meritage Homes closed a Sacramento division it opened in the late 1990s. The builder laid off about a dozen people and merged its operation into the Concord-based East Bay division, said Bay Area region president Dennis Welsch.
...
On another front, Lennar Corp. is halting sales at its 75-home Ironcrest project in West Roseville, said Sacramento division president Jeff Panasiti.
From the Modesto Bee:
Median home prices declined in Stanislaus, San Joaquin and Merced counties from October 2006 to last month. In Stanislaus, the median price dropped from $365,000 to $304,250, a decline of 16.6 percent. San Joaquin County prices, where the median was $340,000 last month, declined by 19 percent from $420,000 in 2006, and Merced County fell from $340,000 in October 2006 to $260,000 last month, a drop of 23.5 percent.

38 comments:

smf said...

I see, not wanting to overpay for an asset now becomes 'sitting on the fence'...OK, then...

Still, to keep repeating myself, there are not enough people in the US to purchase (or even rent) all the homes that were built.

"No one has seen this before"

That why I still cannot say how this whole mess will end up.

Still has not stopped others from predicting the bottom.

Diggin Deeper said...

"No one has seen this before"

Sure they have...but its been awhile...

Use the dot.com bubble as a guide...same fundamentals will equal the same results. When the dust cleared, stock prices had tumbled beyond fair value for a short period of time. I fully expect we'll see that in this market.

Rob Dawg said...

"No one has seen this before"

No: "No one has seen this in the housing market before."

If you cannot tell the difference then here; hold this bag for me. ;-)

Diggin Deeper said...

"Still, to keep repeating myself, there are not enough people in the US to purchase (or even rent) all the homes that were built."

Someone has to account for the excess and pay the bill. And not just once... but every month those unoccupied homes remain unoccupied. These debts don't miraculously go away.

Rob Dawg...I'd bet if you looked into the first half of the 20th century you might find that it has happened before in real estate.

norcaljeff said...

When builders stop building they stop making money. A good short play.

What many people are forgetting is that all the people who bought years ago at low prices and are currently in their homes who have planned to stay 8-12 years but spent all their equity. So even if they are not upside down on their loans and are making their payments, they are feeling a lot more poor than they did a year ago. This will spread to the rest of the economy because they don't have money to spend on Christmas, vacation, Starbucks, etc. BTW, Starbucks just reported for the first time a decline in coffee sales for the US.

Sippn said...

TY diggin -

late 60's through about '71-2(I was a kid) Large defense industry slowdown - here about 20,000 layoffs, Rancho, Orangevale, El Dorado Hills, Cameron Park became empty housing. Mike Lyon was a kid also in Davis I think. He right, he DIDN’T see it.

'81 - 22% interest rates

’91 - Kuwait invasion by Iraq

somewhere in there we closed bases and sent away 10’s of thousands of service families, closed down the defense industry again in the late ‘80s through early 90s

The difference between a stock bubble and housing bubble is that a stock certificate minimum value is similar to toilet paper. When you purchase stock, you don’t create jobs.

Each bust is different.

NORCAL - didn't keep the oil wells from being capped in Texas during low prices.

smf said...

"I'd bet if you looked into the first half of the 20th century you might find that it has happened before in real estate."

There have been plenty of examples of LOCAL bubbles, but this one takes the cake by far.

It wasn't just local.

It wasn't just the US.

This has been a HUGE WORLDWIDE asset bubble.

How this will end is anyone's guess.

But since something of this extent has NEVER happened before, there is no crystal ball that can give us a good idea of how it will unwind.

Diggin Deeper said...

"The difference between a stock bubble and housing bubble is that a stock certificate minimum value is similar to toilet paper."

Are you kidding...Could you repeat that? I suppose the mortgage paper your home is written under represents the same?
You only own fractional values of a company when you own its stock. You only own fractional values of your home when you have a mortgage.

Man, some of the things you come up with are just hard to take ...others are just impossible.

Diggin Deeper said...

Sippn...the dot.com bubble was made up of many companies that had real intrinsic value with brick and mortar. They were punished because of the same "exhuberance" you find in this bubble.

Diggin Deeper said...

smf...it has occurred before during the 30's and 40's on a scale that affected the entire US, and the world. We just use the word recession, today, because the D word is not one to throw around lightly.

mbc said...

"A persistent housing slump that has relentlessly driven down home prices has now wiped out at least three years of home equity gains across much of the Sacramento region..."

I would say that the current correction, now 2 years old, has wiped out (so far) one year of equity gain (2004 to 2005) if we are now back to 2004 prices. There was no equity gained from 2005 to now, so three years gains have not been erased. Before this is over, though, it will be three years - probably more.

RealRant said...

smf said - "Still, to keep repeating myself, there are not enough people in the US to purchase (or even rent) all the homes that were built."

I agree. That's why there's such a dramatic difference in October's numbers for Lincoln, Natomas, & Elk Grove (all areas with an over-abundance of new construction) versus 95864 which includes Arden Park, Garden of the Gods, Arden Oaks, Sierra oaks, Siera Oaks Vists, etc (all areas with little to no new construction). Trying to predict the exact bottom is impossible. We won't even know we were there for three to six months after the market has established positive direction. That's why I said I'm going shopping in the areas such as 96864, 95825 and 95608. A statement which drew not only laughter from this crowd, but actually outright anger in some cases. The fact remains that, unless you're norcaljeff, there are deals out there that make sense if you know where to look and how to buy. Vacancy is *THE* key indicator of supply. So, have another look at the numbers in the areas that I'm looking at. I'd love to know what everyone except for norcaljeff thinks. Anyone who makes a blanket statement like, "a Realtor who thinks his house is worth more now that it was in 2005..." without even knowing the original purchase price, the area, the sqft, the lot size, or the comps, clearly is either bitter about his own situation, or has another agenda. Or maybe he just hates Realtors, which is fine with me. Problem is... some realtors are worthy of his disdain and others are not. That's the problem with blanket statements. For the record I completely agree with norcal's current post. The reduction in equity and wealth has already begun to effect consumption and I wouldn't be surprised to see the holiday retail numbers really get hammered this year.

RealRant said...

Take a look at the Sac BEE's October Sacramento Region Home Sales and Price Trends. Hmmmm... Why do you think 95864 looks flat to positive while areas like Lincoln, Rocklin, Natomas, Elk Grove, etc. are dramatically in the negative? The answer is partly in the supply side. Economists generally agree that vacancy (the number of vacant homes available for sale) is a much more reliable indicator of supply than the number of homes currently listed for sale in MLS. First of all, many homes listed in MLS are not vacant. There is someone living there who will have to move to new shelter if and when that home is purchased by someone else. So, while that house represents inventory for sale, it is not actually new supply. The only source of new supply is new home construction.

Now take the sub-prime mortgage crisis and the negative news associated with it. To be sure, it's effects are negative across all neighborhoods and will continue to be so for some time. When this negative effect is applied to areas with a large number of vacant homes, the huge glut of supply that follows has a profound effect on volume and pricing. In areas with lower numbers of vacant homes (less new supply) it has a large negative effect on volume (the number of homes sold in a given time). But the negative effect on pricing in these areas is far less dramatic that that of the outlying (overbuilt) areas.

Trying to predict the exact bottom of any market is impossible. We won't even know we've been there for three to six months after the market has turned around. That's why many investors are already going shopping in the areas such as 96864, 95825 and parts of 95608.

The problem with the housing market news that the media puts out is that, while it is likely to be correct in a broad sense, it can not be reliably applied to specific neighborhoods without an in-depth understanding of that neighborhood's specific history and trends. To be fair, the news media is necessarily generic and broad. Compounding that fact is that sensational and overly negative news sells better.

So, if you're buying for your own shelter, and you plan to stay there for a while, find a place you like and negotiate from the cat-bird's seat. Get the best deal you can, move in, and enjoy. If you're an investor, get clear on the specific criteria that you'll use to identify potential deals, do the math to determine the purchase terms you'll need to make the potential deal a winner, and then get active in your search. Keep a weather eye on vacancy in your target areas and stay out there looking. There are good, even great, deals in any market. But there are more of them in a downturn. Happy hunting!

Diggin Deeper said...

"The problem with the housing market news that the media puts out is that, while it is likely to be correct in a broad sense, it can not be reliably applied to specific neighborhoods without an in-depth understanding of that neighborhood's specific history and trends. To be fair, the news media is necessarily generic and broad."

What a weak sense of REALity, Realrant. When information is broad and widespread, fresh and continuous, pinpointing every frothy corner of the country, we get the "pump a dump" realtyspeak that has proven to be self serving at best. The truth is that it CAN be reliably applied to every neighborhood in Sacramento because Sacramento is one of the top "frothy" areas mentioned in most articles read. And those that remain safely behind some locked gate, may only remain there until they, too, are touched by the exhuberance that created the problem

Sell it to those who'll buy it...

Tyrone said...

if you're buying for your own shelter, and you plan to stay there for a while, find a place you like and negotiate from the cat-bird's seat. Get the best deal you can, move in, and enjoy.

If that "best deal" isn't a mark-down of 30-50%, forget it; you're just a sucker, otherwise. Price-to-rent ratio has a long way to come down in Sacramento.
June 07:..... 28.7
15-year ave:. 19.4
Correction:.. -32.2% (needed)

You're very close to entering the Housing Bubble Hall of Shame®, Roy (realrant).

Tyrone said...

Ahhhh, heck. Welcome aboard, realrant. You've been induced to the Housing Bubble Hall of Shame®.

Congratulations!

http://realestaterecord.blogspot.com/

Gwynster said...

Ty, your blog is classic! Thanks for the mugshot of Vivian Hoang.

Please be sure to not only get a mugshot of David Crisp when his time comes, see if you can find a clip of him doing the "perp walk" too >; )

ps. I love it when realthores come here to try to drum up business. They always manage to make themselves look worse.

Perfect Storm said...

realrant,

If your going pitch at least say something other realtor losers have not said. Oh by the way this is my pitch.

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

Caleb said...

Maybe Real can calm the rhetoric down, and perhaps the anti-Realtor rhetoric can calm down and then all the ponies can laugh and play merrily together??

sacramentia said...

tyrone,

Here's the letter I wrote to Fortune after they released the article that you are quoting the 19.4 avg GRM number from.

Dear Shawn,

I think your story is misleading in the way that you have used the average rents and 2x the median home price to make broad assumptions of the market. For
example you show that the 15yr average P/R ratio in
Sacramento is 19.4. This means that for every
$1000/month in Rent a house should cost $232,000, and
a $2000/month rental home should cost $462,000. There
are several homes right now that meet that criteria,
however your article states a broad market decline
based on a $702,000 home, hardly average in
Sacramento.

It appears that you used the 2x median data point
because at the median data point the data did not make
a negative story. In fact, it would show that the
prices of builder discounted homes and REO's have
reverted to the mean 19.4 P/R ratio in your article.

Regards,

RealRant said...

Hey diggin deeper re: What a weak sense of REALity, Realrant...

Not trying to sell you anything. Please apply this info. to 95864. Does it track the same profile as the state median? No. How 'bout the Sacramento metro median? Oops. No again. I understand and agree with your point that everyone and every neighborhood will be effected. But fortunately, or unfortunately depending upon where you live, the effect will be more dramatic in areas with a higher vacancy rate. The number of forclosures in the areas I'm looking at is lower as well. So I wouldn't hang my hat on the foreclosures bringing the vacancy rate up all that much in 95864. Relax! I know you don't agree. I'd much rather debate this with someone like you who's obviously intelligent and who disagrees. Who wants to preach to the choir?

RealRant said...

Hey Tyrone. Re: If that "best deal" isn't a mark-down of 30-50%, forget it...

So I want everyone to remember that Tyrone says that the median price in 95864 needs to be $194,000 before anyone but a sucker would buy. Hey... do I get some kind of membership card or T-shirt for the Housing Bubble Hall of Shame? What are the criteria for induction?

RealRant said...

Hey gwynster. re: I love it when realthores come here to try to drum up business...

did you mean realtwhores? Nice. Why is it you think I would come here to try to get business? I know that none of you would ever do business with me. Why would you? You don't even know me and none of you believe that you should do anything but watch and wait right now anyway. Depending on where you live and/or where you want to buy, I might agree with you. I know it's hard for you to understand, but I truely believe what I'm saying and I come here precisely because you do not. It's fun, engaging, maddening and humorous all at the same time. If I was coming here to try to drum up business, I'd be almost as stupid as you think I am. Plus... you know I make it more fun for you anyway.

SheWrestles said...

If the 'bottom' is on the order of 50% of max, I will be *thrilled*.

RealRant said...

Hey Perfect Storm. Re: If your going pitch at least say something other realtor losers have not said...

Relax. I'm not pitching. What is it exactly that makes me a loser? At least Tyrone makes a sound argument with the price-to-rent ratios. And he did say 30 - 50% decline. If you pick 30% that puts the median in 95964 at $271,600. That's a number that may be a little closer to reality. BTW 30% below current market (not below asking price) is already achievable on some properties in 95864 with the right negotiation tactics. So I'll put you down for a $194,000 median in 95864 by '09.

RealRant said...

Hey Caleb. Re: Maybe Real can calm the rhetoric down, and perhaps the anti-Realtor rhetoric can calm down and then all the ponies can laugh and play merrily together??...

I love the anti-realtor rhetoric. It's all ice cream and candy down here with my empty head in the sand sipping koolaid and chanting affirmations.

RealRant said...

SheWrestles. Re: If the 'bottom' is on the order of 50% of max, I will be *thrilled*...

And you will be thrilled if the areas you want to buy in are the boom towns like Natomas, Elk Grove, TB, Lincoln, Rocklin, Roseville, EDH, etc. Should be a veritable smorgasboard for you. You'll do very well even in Fair Oaks, Folsom and O'Vale.

anon1137 said...

The RE agents are coming unglued on bubble blogs. Can't be long before they're selling their caddys on the corner. As someone on this blog said back in '04, that will be the "real" buy signal.

Great blog, Tyrone!

stfu said...

Honest question(s). Why do realtors always put their pictures on everything? I truly feel embarassed for them. Can you imagine lawyers and doctors doing the same? How can you take someone who puts their picture on a "business" card seriously? Chide me for these questions, but what's the deal, really? F'in A.

Diggin Deeper said...

Don't you just love it when this blog amps up while fresh meat is hanging on the rack?

It would be one thing to layout interesting and provocative thoughts on where we've been, why we got here, and where we're headed. It's quite another when you're presented with a knife and fork and a box of canned "Spam".

Diggin Deeper said...

stu...that's one of the "must do's" in Realty 101...face and name recognition has been a key precept in real estate for a long time. There are others. Like a proficiency for coming up with cutesy ad jingles for your Sunday pullout. something like "This Street is Paved with Gold" or "Enjoy the Luxury of Tuscany". And of course you must memorize a littany of oneliners used to handle buyer objections...the classic being "It's always a good time to buy".

What might be most interesting is that blogs like this will continue to give readers the confidence to do these deals on their own. I used a standard California RE purchase agreement on a home I sold a few years back. Got it from a local stationary store. It's just not that difficult to do it yourself.

Sippn said...

Realrant - at least you got their attention.

Diggin - when your home devalues $100k, you still have to live somewhere. The stock @ $0 is worth a sheet. Many in the stock bubble had never turned a profit.

PE ratios vary widely - those are
"fundamentals" - low 10-15 for smokestack idustries, 20-50 for growing segments.

Price/income ratios vary per market - always. Nebraska - likely very low as there is no potential growth there, high income earners /potential earners leaving regularly. CA? stats opposite creating the larger spread.

Remember its the top 60% of income earners who own, not the middle.

Tyrone said...

Remember its the top 60% of income earners who own, not the middle.

Therein lies the problem, today. Bottom earners were getting loans and becoming "homeowners". Just ask this strawberry picker...
Strawbery Picker Gets $720,000 Loan

Or how about this nobody...
Dave is a college student and waits tables after school. He makes maybe $11,000 a year, yet he bought the Draper house for more than $700,000.

All of this must be purged, thus the comment about about prices coming down 30-50%. Don't take my word for it, go listen to Peter Schiff--he's been right about this collapse, so far.

Cow_tipping said...

Top 60%, I believe that even if true is top 5% and middle 55%. And needless to say, its not true. Those people always had access to credit and more than likely didn't get trapped by this landslide phenomenon of loose credit. The ones that seriouly jumped at it were those that considered themselves as ones who had been "denied".
Cool.
Cow_tipping.

stfu said...

Diggin, thanks for the clarification on realtors' love of self portraits. I still don't get it though. Whenever I get handed one of those picture cards I always wonder if the person on the card is promoting their business savvy or if they're merely trying to sell an image.

As for readers doing deals on their own, I've personally witnessed a third party jumping into the ring now that things are getting a bit sticky and messy. This is a great market for consumer debt and workout attorneys who have re broker's licenses (there are many since you don't need any further educational requirements once you pass the bar in order to take the broker's exam). A few folks I know are representing complex debtors with their money woes, and are also brokering the corollary short sales. There's blood in the water and the sharks are out in full force. I'd also guess an increasing number of realtors will be forced to brush off their E&O policies in the near future. As my hero once stated, "win-win!" (for lawyers).

Cow_tipping said...

Hey realtors are seriously trying to pump and dump. Why ??? they are the ones who hold most of the dead wood. Realtors have in recent times bought several homes with the idea of flipping it.
So, just like I hold 10 busted motorcycles and think its a "great investment" ... they hold 10 houses and need to pump and dump to move the dead wood.
Cool.
Cow_tipping.

Diggin Deeper said...

Sippn...I'll stand by what I posted...

norcaljeff said...

Remember back when the stock market was doing well, Sippin was trying to say that the money from RE had to go somewhere. Then when the market turned crappy in August he was then hinting it had to "go somewhere" insinuating it would go back to RE. LOL What a joke. Obviously 60% of the brainpower didn't end up in hands of the RE bulls' heads. Like the dorks in school, I’m hoping if we ignore him he’ll just go away. Diggin, stick with your views.