Monday, November 26, 2007

Real Estate Market "Weakness...No Longer Confined to Housing"

From the Sacramento Bee:

It would seem like one of the best locations to build a shopping center: Elk Grove Boulevard at Interstate 5, in one of Sacramento's fastest-growing suburbs. But retailers have been slow to flock to Stonelake Landing since it opened last March...[T]he Elk Grove center is 45 percent rented and has lost two tenants that had signed leases.
The weakness in Sacramento's real estate market is no longer confined to housing. Commercial real estate is starting to soften – more so in retailing, less in the office and industrial markets. Projects are slower to lease up, and rents are coming down. Developers and lenders are becoming substantially more cautious about proceeding with new projects.
[Garrick] Brown, the Colliers analyst, said certain pockets of the office market are getting hit particularly hard. They include South Placer, where it seemed practically every office park had a mortgage broker or some other business connected to residential real estate. "Suddenly, vacancy is hitting the 20 percent mark," he said, referring to South Placer.
Smaller, entrepreneurial tenants have become a big concern to developers. No longer able to finance their stores or restaurants through their home equity, they've gone missing in action.
"Real estate was great the last 10 years," Brown said. "You would build a shopping center and it'd be 100 percent full before you opened up. "That time is gone. We've just got to ride out this slow period."
From the Sacramento Bee:
Pressed by falling home values, high gas prices and a credit crunch, many appear to be buying at cheaper stores, shelving their plastic and trimming their shopping lists.
"Up to now we've been immune to the economy. We've grown our sales every year," said Debra Caselli, co-owner of the 9-year-old Calla Lily Linens in Sacramento's upscale Pavilions shopping center. "But things have changed." Calla Lily's repeat customers include some of Sacramento's "megawealthy," Caselli said, who buy everything from $8 imported soaps to $200 cotton bed sheets. They used to come to the store with long shopping lists. "Now they are cutting the list down to immediate family," she said, predicting Calla Lily sales would be flat for this holiday season compared to last.
From the Redding Record Searchlight:
It's a great time to buy. That's the chorus coming from real estate agents and builders everywhere as they attempt to prop up the sagging industry. The housing market has cooled, rates are low and inventories are up. That means more choices for buyers, the National Association of Home Builders (NAHB) notes.

But how many can afford to buy in Shasta County? Well, according to the NAHB's own housing affordability index, not many. In Shasta County, 20.3 percent of the homes sold in the third quarter of 2007 were affordable to families earning the area's median income of $52,700 a year, the NAHB reported last week.


Cow_tipping said...

Oh but I thought The high end was doing great ...
What .. its not ..
Wait, isn't it all high end ???
No ...
Everywhere you looked they were building "Luxury McMansions".
Almost like city govt's would ignore the affordable house permits and trip over themselves to find people who'd bui;d high end. Everyhting was luxury this or that. Even "Luxury condominiums".
If that's not like saying "sweet shite" ... I dunno what is.

smf said...

The high end will ALWAYS do better.

And I mean that.


There are certain levels of high ends and plenty of high end wannabes.

Most of those with money know HOW and WHEN to spend. They wouldn't go around and BELIEVE that they are hot stuff because they own RE to flip.

What this market had was plenty of wannabe high end people. These are people with Tiffany tastes and Target budgets. These are people who are proud to state how much they SPENT, as opposed to how much they SAVED.

These are the same people who are/were impressed with the SIZE of a house, as opposed to its QUALITY.

These are now the pretenders who shopped a Pavillion's, and now are 'forced' to go back to Target/Walmart.

Cow_tipping said...

In some cities like parts of Charlotte NC, where I used to live I am almost certain that city planners would only approve high end housing developments in certain neighborhoods in the last few years. Condo's were 300K, like 1000 sqft $300K+ base $$ and $1200 a year HOA fees. Like multi storied buildings with elevators and tiny ass bedrooms with paper thin walls ... you're hoping you're neighbor isn't ... ahem vocal y'know.
Once again, Luxury condo's - isn't that like having sheite flavored ice cream.

David said...

The thing I really hate about all this is that some of us actually did the right thing the last five years and we are going to get dinked just like everybody else as this voodoo economy falls apart. We are a nation of over consumers and our leaders just kept telling us to consume more this whole time. The government went from having a surplus to having a HUGE deficit, the savings rate went negative, and nobody seemed to care.

Makes me just want to up and leave:(

Cmyst said...

The corner hairstylist in EDH now has a sign out front that announces that they take walk-ins.
I've seen pole-posted signs for people seeking odd jobs like gutter cleaning and leaf bagging.

paranoid renter said...

Makes me just want to up and leave:(

Where will you go? It's the same everywhere - may be worse some places than others (I assume you're talking of going to a different country). According to Scott Adams (author of Dilbert), you can safely predict the future if you assume that people in general are greedy, stupid, and lazy!

Bubbles & busts are just one of the ways wealth is transfered from the poor to the rich. The rich typically have the resources to invest in things that are beaten down, and when things pick up, they get out. Those of us in the "noise" continue to plod along. A few folk get hurt real bad, but other than that it's business as usual.

Check out Dean Baker's blog
and take a look at his book titled "the conservative nanny state" available for free at

Still Waiting said...

Okay, a bit off topic here, but I've been wanting to ask the experts here....What is going on with MY "ironclad" zip? We've been carefully (neurotically) watching the market where we wish to buy. Near downtown Auburn (zip 95603). The yoy declines and medians were starting to give us some optimism. EX: from June to setember, YOY price declines were -10 to -17% ($399k-$344). THEN: October Stats showed: median price is right back to where it was in June, and the YOY for October median price at 7.9% (no typo, that's positive!). We're still seeing 1000sqft homes selling for $335/ft. Can anyone guess what the future is??? Yes, Auburn is unique, lots of recreation, and a nice downtown charm....but can it remain ironclad?? Any opins greatly appreciated.

HOUSE2008 said...

Still waiting..

Be patient. Very patient. Your chance will be coming.

NervousBuyer said...

Auburn doesn't have a lot of movement, so a couple of sales here or there will seem to indicate large swings.

My guess? The people in Auburn who don't need to sell right now are probably content to keep their listings open until someone willing to come up to their number comes along.

$335/sf sounds like a lot, but check out what's selling right now and that'll be your best indicator as to whether Auburn has been immune from what's happening area-wide.

Diggin Deeper said...

Report: Foreclosures to hit metro areas

"The biggest losses in economic activity are projected for some of the nation's largest metropolitan areas. New York is expected to lose $10.4 billion in economic activity in 2008, followed by Los Angeles at $8.3 billion, Dallas and Washington at $4 billion each, and Chicago at $3.9 billion.
The report estimates U.S. gross domestic product growth in 2008 will be 1.9 percent, coming in about $166 billion"

When you squeeze the big metro areas and pump fewer dollars into their economies, you usually end up in a recession.

Nearly half the growth in GDP during the boom was attributed to buying, refinancing, or remodelling the home. Now real estate is dead, 1/2 the jobs created are no longer needed, and we desperately need a new catalyst to take its place. Instead we're getting hit with several negative forces that exacerbate the problems and drive the market even further into the ground.

As for the ironclad zips, Auburn won't be one of them, imo. It's too far removed from job centers. As we begin to push toward $5 per gallon gas, commute considerations will soon become an important factor. Some of the ironclad zips are likely to change over time as people congregate closer to areas that provide "in town" access to jobs and services. It may not be as far off as some people think,

Diggin Deeper said...
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Diggin Deeper said...

Home price drop largest on record: S&P

"NEW YORK (Reuters) - Prices of existing U.S. single-family homes slumped 4.5 percent in the third quarter from a year earlier, matching a record decline from the previous period as the housing downturn deepened, according to a national home price index on Tuesday."

Simply unprecendented in recent history. The value of the US home just doesn't go down unless it's overpriced to begin with.

And then some news on the consumer...

Consumer confidence tumbles in November

"Consumers' apprehension about the short-term outlook is being fueled by volatility in financial markets, rising prices at the pump and the likelihood of larger home heating bills this winter,"

The backbone of the world's economy is beginning to falter. Higher prices are beginning to take their toll.

Diggin Deeper said...

And just so we don't lose focus ont the problem...

Mayors warn worst of mortgage crisis ahead

"The Global Insight report forecast U.S. homeowners would see property values fall by $1.2 trillion in 2008, with almost half of those overall losses coming in California."

Another 1.4 million household to lose their homes on top of the losses that have mounted so far...there's no way this bubble remains confined....

anon1137 said...

DD - and the vultures are swooping in to feed on the roadkill: Arabs buying Citigroup, Chinese buying Bear Stearns. Oil at $100/barrel, dollar at record lows against the Euro, US troops in Iraq quagmire, recession on our doorstep. Thank you bush-cheney for a job well done.

Diggin Deeper said...


The only way some of these financials get out of this is to offload some of their shares to foreign concerns. I just hope they don't sell their souls in the process.

Just an opinion but this has been coming on for a few decades now. You could span 4 or 5administrations, laying enough blame on each one for their contributions. Isn't it really the fact that we've let things get out of hand both governmentally and from a personal standpoint over a 25-30 year period? While Bush/Cheney have added to the mix, to single out any particular administration for all of our problems? Just one person's voice, but things don't happen that fast in the world of politics. Decisions made today, can affect the public years and years later.

One could argue all day about the last budget "surplus" we had. Funny how we have a surplus one day, and once a new administration takes office, they're greeted with a recession and forced to take the blame. And that was prior to 9/11.

Buying Time said...

Speaking of filling stores...its getting downright depressing at the EDH Town Center. Was there last night showing our German visitor around....seems that existing businesses are closing their doors faster than new ones are opening.

And they still have two new sections of retail being built.... I imagine they will eventually have to lower rents to get tenants.

smf said...

One could argue all day about the last budget "surplus" we had

The last surplus we had was because of the tax revenues gained from the .com bubble. It was a 'phantom' surplus that was not meant to last.

Unfortunately, governments assumed that both bubble WERE meant to last and spent accordingly.

Ironclad ZIP codes are phantom as well.

Diggin Deeper said...
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Diggin Deeper said...

It's not even confined to our borders...

An excerpt from the Economist:

"As international investors wake up to the relative weakening of America's economic power, they will surely question why they hold the bulk of their wealth in dollars...The dollar's decline already amounts to the biggest default in history, having wiped far more off the value of foreigners' assets than any emerging market has ever done."

What does a country do when each month they get a statement of how the dollar has zapped away hundreds of $millions, if not $billion from their coffers?

Finally a bank that says "no more"

HSBC Holdings in Europe takes a $45 Billion hit (their TOTAL exposure to Cdo's and Siv's) in order to put the problem to bed once and for all. Whatever's recovered from these instruments will drop to the bottom line from this point forward.

Contrast our banks...

Citbank holds approximately $83B in total exposure. They choose to play hide and seek, moving these instruments to off balance sheet entities (like Enron did) and will parcel out the losses quarter by quarter. It's no wonder the world's losing faith in our finacial institutions.

smf said...


Other countries 'may' lose faith in our institutions...


...most countries have essentially suffered from the same bubble madness that occurred here.

If the US was the only place where the bubble happened, it would be easier to predict a final outcome.

But even in China, the government has been furiously attempting to stamp out rampant speculation.

Ireland has suffered the same fate, as have many other places. Abu Dhabi, Dubai, et al are going thru a massive bubble right now. Remember the story about the price rise in Vietnam?

The other places are complaining about the US are probably trying to deflect attention from their own similar failings.

Who knows how many local bad loans they hold.

Diggin Deeper said...

smf...the world starts and stops each day with the USD. We as a country have basically exported our troubles worldwide, and the world is tired of having to put up with our fiscal improprieties. I recall one of our past Secty of Treasuries once saying when asked by a foreign dignitary about the falling dollar. His reponse was, "It's our dollar, it's your problem". How profound.

China's new found wealth, and it's bubble, is directly correlated to the US consumer. Ireland's issue is now the same as ours when it comes to real estate...easy credit, low supposed inflation, big bubble. But let's not forget that it all started right here.

smf said...

"But let's not forget that it all started right here."

It certainly did.

"and the world is tired of having to put up with our fiscal improprieties"

They can complain all they want, but being a foreigner myself, I have seen the exact same conduct from foreigners as Americans given the same opportunities.

I have made plenty of fun when relatives have come to visit, and something that they love to do, is go shopping.

SacramentoCrash said...

Jim Cramer said the Fed will reduce the rate another .75% in December.

What are they trying to do?

See if oil will hit $150 a barrel and gold will hit $900 an ounce.

The Fed is playing Chicken with an oncoming train.

David said...

"The Fed is playing Chicken with an oncoming train."

Our entire economy is based on continued growth. The world is finite and we can only grow so much until something runs out. The oncoming train is oil, water, soil, metals, and other resources. One will give out (run out) and the whole mess will coming tumbling down. Most collapses of civilizations in the past can be tied in some fashion to resource depletion and we have made it the national religion to consume.
If we don't consume the economy will collapse. If we don't stop consuming the whole civilization may collapse. Interesting choice.

Patient Renter said...

"Unfortunately, governments assumed that both bubble WERE meant to last and spent accordingly."

Yep, if the ratings agencies (Fitch) bet on the bubble increasing indefinately, why not the government? Equally stupid as it turned out.

BTW: The HSBC thing might prompt other foreign banks to follow, until eventually the big boys here at home have little choice but to follow suit, and book their losses. It appears HSBC will live to fight another day. Citi?

Gwynster said...

Cramer is an idiot. Seriously, he's just so pathetic these days.

We have fed members calling for a raise to rates at the next meeting as well.

Diggin Deeper said...

david...I couldn't agree more with what you posted. that's what you call transparency. After I read that piece I found an HSBC office in Woodland and am thinking seriously of moving everything their way.

Gwyn...let's hope someone at the Federal level has the b**ls to do what's right, albeit that a rate increase will screw the financials to the wall. There'd be some real bloodletting but its becoming pretty clear that the fix is doing nothing to stave off the inevitable.

alba said...

smf, the financial markets are global, and they have followed suit around the world by leveraging (rapaciously ripping out) equity in homes to fuel the financial markets. The outcome appears to be a housing crisis, but the financial institutions are at the root of the problem. They're just higher up on the food chain, with more potential, on a macro level, to impact us all, and the price of housing.

alba said...

still waiting,
I have some interest in 95602, and I've seen similar resiliance. What you have in Auburn is not unusual, nor will it be shielded from the growing economic impact. Hang in there.

Auburn doesn't have a slew of production building, particularly within the last 3 years, and at the lower end...the current (early, first) victim in this housing downturn. Auburn has some newer higher-end building and selling, that skews these statistics. The higher-end homeowner will likely be more impacted by the ATM effect, versus subprime. Resets within the next 18 months will have a stronger impact in this sector, having more of an effect in Auburn, than subprime exploitation.

At the lower end in Auburn, NOD, NTS, and REOs are growing significantly. This will eventually impact comps also.

alba said...

I see a 3Q07 $3.4B charge from HSBC, and not $45B. You might want to take a look. I also found that in 2004 they acquired Household International for $14B, called "the subprime lender to America's poor." I know by chance they also fund risky loans at the higher-end of the market right here in Rocklin. I'd say they're also still hiding their true value of assets.

alba said...

Ok, I now see they've placed some of the value ($45B) in 2 SIVs on their balance sheet. Was it the entire investments of these 2 vehicles? Or was it to counter claims by those that want to take over the board?

from Forbes...

norcaljeff said...

I wouldn't say Cramer is an idiot. He's worth several hundred million and was influential in getting the Fed rate cut in the last 2 meetings. You can't say for sure a rate increase will occur. In fact, from last week to just this week, we went from a rate increase or hold to a definate cut. Market is reactiing accordingly. I still think the consumer is over extended. This might be their last Christmas fix before reality really hits next month when the property tax bills and credit card statements show up in their mail boxes.

Gwynster said...


To me he's a shill for the markets and his mannerism, ugh. He's a poster child for meth recovery programs.

I'm waiting for the Colberteque parody of his show to reach Comedy Central because he's already lost that much crediblility IHO.