Monday, November 19, 2007

'We would've waited, but they told us we had now'

From the Sacramento Business Journal:

Meritage Homes, the nation's 12th-largest homebuilder, is the latest to cut costs in Sacramento by consolidating operations...The company follows others that have consolidated to cut costs, including Warmington Homes and Standard Pacific Homes....

All homebuilders have gone through layoffs. But Greg Paquin, president of new-home analyst The Gregory Group, said the closings and consolidations have been the unexpected effect of the housing slump. "It's a new phenomenon," he said. "We haven't seen this type of contraction before."

It could be a signal that the current slump is deeper than past recessions. Some builders say the relatively strong economy now compared with the previous housing slump still bodes better for the industry.
From the Sacramento Bee:
If you bought a house in the Sacramento area last year, chances are your annual income came to about $80,000. But your loan application said you earned a good deal more. A Bee computer analysis of more than 61,000 Sacramento-area mortgages over two years reveals striking discrepancies – gaps as high as 25 percent – between what homebuyers earned and what was listed on their loan applications.

Behind the discrepancies was a cascade of "stated income" loans that didn't require proof of borrowers' incomes or assets. Although statistics aren't available on the volume of stated income loans, experts say these mortgages pumped a considerable amount of air into the area's housing bubble – and helped bring about its collapse. By putting people into homes they couldn't afford, stated income loans contributed mightily to a culture of loose lending and a wave of foreclosures that's washing over the Sacramento region.
The Bee's analysis of census data shows that the region's homebuyers earned a median income of $84,000 last year, but the area's mortgage applications listed a median income of $102,000.
As the area's home prices have dropped 20 percent in two years, construction has stalled and unemployment has risen above 5 percent. Neighborhoods around the area are affected. The region has the nation's fifth highest foreclosure rate, with 6,500 homes lost since January. The housing slump has spawned a new breed of Sacramentan – the foreclosure refugee – and thousands more will be born next year, when another round of mortgages reset and the crisis deepens.
From the Vacaville Reporter:
They came, they saw, they bid. And when the proverbial smoke cleared following Sunday's housing auction, 18 new homeowners emerged victorious while their existing neighbors in a luxurious Vacaville development were somewhat less enthused. "We welcome them to our neighborhood. We're just upset that it's affecting our property values," said Kris McLean, one of the original homeowners in the upscale Meadow Woods subdivision off Fruitvale Road.

The concern expressed by McLean and a host of original homeowners in the exclusive DeNova Homes development is that the discrepancy in prices - what they paid versus the "steals" newbie owners snagged at auction - would significantly and negatively impact their property values.

Case in point - McLean and her husband paid top dollar for their $786,000 property in April. "We would've waited, but they told us we had to ... buy now," she recalled, addling that there was no allowance for haggling over costs.
From the Vacaville Reporter:
The busted housing market has taken its toll on real estate agents, mortgage brokers, home furnishers and construction workers who live and ply their trades here. Hundreds of homeowners are in foreclosure, and nearly every owner has seen the value of his or her property decline.
But it helps to keep things in perspective. For one thing, Vacaville, Dixon and, to some extent, Fairfield have fared much better economically than many cities and regions of late. Unemployment remains steady and below 5 percent, and is expected to stay that way.


stfu said...

I wonder if Meritage realizes how ridiculous their "guarantee" is, and I didn't even get to the fine print (wow, 14 days!):

That's the same price guarantee as clothing store Banana Republic. Appropriate, no?

Diggin Deeper said...

"McLean and her husband paid top dollar for their $786,000 property in April. "We would've waited, but they told us we had to ... buy now," she recalled"

Like leading lambs to slaughter, they just go where their lead...or in this case... they do what they're told.

Hmmm...Bought in April when all indicators were confirming a market in distress. Home prices were in decline.

Absolutely no sympathy here....

Just one word comes to mind...


Cow_tipping said...

You moron's couldn't see the bubble comming from a mile away ...
Now like good little liars break into the cheapo houses of your neighbors and start breaking things, then after they move in, start slashing their tires, breaking their wondows etc. After all its "their fault".
Before any of you debtor morons read this blog and take me seriously, remember ... you buying the place for pumped up $$$ pumped up the bubble too, in other words, you created it.

smf said...

...have fared much better economically than many cities and regions of late. Unemployment remains steady and below 5 percent, and is expected to stay that way.

Isn't that special? Every place has a good enough economy that they should be able to ride the downturn just dandy...


Why was the economy good? Was it because of housing? Did the high valuations give their local governments comfort to spend some more? Well...?

Reminds me of the banks. They figured that their liar loans were OK, because when (not if) the owners defaulted, the rising price of the underlying asset would more than cover the debt.

That was not true.

Now that the $400K asset is valued at $300K, they are surprised at their $100K loss, assuming that their asset cannot decrease in value further.

So in their books, only the $100K loss is currently figured out. And then later they express shock when their asset value goes down to $200K.

Some people are forgetting to connect the dots. That's where you get the surprise when the local economies start sputtering.

Diggin Deeper said...

smf...right on! Take housing out of the equation, and you take the economy with it, along with all the excess jobs it created. Those areas that were completely over grown, including Sacramento, are the ones that suffer the most. Imo, Sacramento will take it hard, because there's no backbone industry that will propel wages high enough to prevent its fall.

Bakersfield Bubble said...

The whole Valley is screwed - from Bakersfield to Sacramento!

smf said...

Umm...why not San Francisco, also?

From a little data, the Central Valley has at least had population growth.

It is my understanding that the BA basically has ZERO population growth. So how do you justify the price and inventory rise with 0 population growth?

sacramentia said...

That pretty much sucks for McLean, but the reality is if the next house sold for 876k, they wouldn't right a check to the developer.

The indicators are bad, the economy here in Sac has probably tipped into recession already, but my experience when out doesn't match. The restaurants are packed, lots of new cars. It just doesn't feel like an economy in distress. Maybe I live in a bubble.

Then again, I'm sticking to my theory that unless you had the skills to make a ton of money during the run-up, you probably don't have the right skills to call the bottom of the market either.

The general opinion seems much more negative than the reality right now.

Sippn said...

". . .The Bee's analysis of census data shows that the region's homebuyers earned a median income of $84,000 last year, but the area's mortgage applications listed a median income of $102,000.

You would have to assume 66% of all homeless bums also applied for a loan to assume median area income would equal median income of mortgage applications. Stats 101.

Dataquick just got slapped for overblown numbers in Colorado - had to have an intern do a physical count - whooops! Can't sell these surveys with dull numbers!

Cmyst said...

The article did say the median income of "homebuyers" -- not area median, which is still significantly less than 84K. It seems to me that if you take the homebuyer's median income earned that it should roughly match the median income stated on mortgages...unless, of course, those are no-doc stated income mortgages, and everyone knows you're supposed to inflate your income on those.

Diggin Deeper said...

Goldman paints bleak picture for housing, financials

"Goldman Sachs issued a gloomy report on the U.S. financial services sector, saying housing prices are likely to fall a lot further, write-downs will mount and some mortgage insurers and guarantors will be forced to raise capital just to survive."

Like a vacuum, credit availability will be sucked away as financials gather up cash to keep their businesses afloat. And if credit is tougher to come by what will that do to mortgage rates and real estate prices?

The TIC report(Treasury International Capital), often overlooked, has now posted 2 consecutive months with a combined net negative purchase of US Treasuries by other nations. Shortfall total for the last two months is something in the order of $80 Billion. We can't run this ship without $80-90 Billion PER MONTH of treasury bond sales.The bottomline here is that other nations are not buying this stability ruse any longer. If continued shortfalls in debt purchases by foreign countries continues, how will US Treasuries be priced in order to stop the bleeding and attract new capital? And how will that affect mortgage interest rates and real estate prices?

OPEC nations are talking about pricing their oil in a basket of currencies and diversifying out of the dollar. Smaller nations have already done this. Why should any country be burdened with the inflation the dollar is causing their economies? If nations continue to want fewer and fewer dollars in their economies, this paper goes back to where it came from. What affect will these excess dollars have on mortgage rates and real estate prices if we have to take them back?

Sippn said...

Diggn - you bring up a good point - it takes credit availability to maintain housing prices at ANY level - otherwise we'll revert to the pre mortgage era circa 1800's.

Cmyst - yea I did mis read that but you get my point - even if everybody was telling the truth, stated income borrowers have a different profile than full doc.

Cmyst said...

I read that OPEC summit news and it was chilling.
But you can't expect other nations to continue to subsidize our currency failure, especially when many of us have diversified out of dollars and into other currency.
What a mess, and most people have no clue what is hanging over their heads.
Great synopsis, Diggin.

Gwynster said...


It was realtyTrak, which you love to bash since they are the folks who track foreclosures. They changed the way they count properties to get rid of the duplicates from 2nd and 3rd liens. We talked about this 2 months ago.

DataQuik are your people, by and for the RE industry.

PeonInChief said...

What's most interesting to me about the Bee article is that the median homebuyer income is high enough that many of these folks should be able to absorb an increase in their mortgage cost. It wouldn't be pleasant or pretty, but most of the homebuyers were making a lot more than the woman who was making $35,000 a year.

What this means is that many of the people who are going into foreclosure aren't doing so because they CAN'T make the payment, but because they don't see much point in sacrificing for a house that may lose 40% of its value and cost much more than renting the same property for a very long time.

I think this means that many, if not most, of the ARMs will go to foreclosure.

SheWrestles said...

Just so that I'm on the same page with the posters here, when they talk about the area having a median income of $80,000 they are referring to household income, correct?

Because if the average individual home buyer is earning that much, there shouldn't be many problems at all in the $400-500K sales range.

Diggin Deeper said...

"I think this means that many, if not most, of the ARMs will go to foreclosure.

Ralph lined it out pretty well the other day when he stated something to effect that
bankruptcies and foreclosure will likely be the norm and not the exception.

I didn't quite buy that but am coming around to at least see that it could happen.

Diggin Deeper said...

"But you can't expect other nations to continue to subsidize our currency failure, especially when many of us have diversified out of dollars and into other currency."

Countries have every right to protect their economic integrity.

If you have divested out of those dollars, Bravo! It's the only way to offset the diminishing purchasing power of our currency. What we're witnessing today is unprecedented in modern times. The reserve currency status of the dollar is now in question, and confidence around the world is waning. The last time this happened, the British pound lost its reserve currency status and that severely depressed the British economy.

Imo, real estate is no place to be until this mess has settled down.

smf said...

We have a combined income of $130K and have a hard time justifying moving up into a $3000+/month mortgage payment. Just because you have the money doesn't mean we are willing to spend it.

Now, the dollar decline issue is a little harder to gauge, as there are plenty of other countries out there (including the Middle East) who are right now living the same type of bubble that blew up here.

Diggin Deeper said...

"there are plenty of other countries out there (including the Middle East) who are right now living the same type of bubble that blew up here."

True, but they have a choice about whether to accept the dollar or not. We don't. And any bubble they are living in WAS created by the dollar. We're stuck. We have to accept it's purchasing power as it pertains to our everyday life. Until such time as Raley's takes euros for payment, we're basically at its mercy. Other countries will be able to sidestep it's decline, we will not.

Gwynster said...

The numbers to watch are:

MHI = median household income
FHI = median family income
PCI = Per capita income

For instance, sacramento county for the period ending 6-30-06:
MHI 53,930
MFI 62,523
PCI 25,596

The article is citing a combined income, just very vague on how it is determining income.

ralphk said...

Diggin..."I didn't quite buy that but am coming around to at least see that it could happen."

From a trade e-publication this morning:
The 623,399 U.S. bankruptcies filed during the first nine months of 2007 represented a 40% increase over the 444,789 cases filed over the same period in 2006, according to data released Monday by the Administrative Office of the U.S. Courts.

Diggin Deeper said...

Any way you cut the income issue, it doesn't look like any of the three categories you've given, Gwyn, will promote home buying at present pricing levels. It's gotta go down big in order for those numbers to work. And then you have to change sentiment. Just because you can afford something doesn't automatically mean you're a buyer.

ralphk, like I said, I'm open to where you're going with this.

Gwynster said...

"It's gotta go down big in order for those numbers to work."

You are preachin' to the choir Hon >; )

ED and Placer county incomes don't look much better.

People mived here because it was perceived as affordable. They begin to move away as they realize it isn't.

ps. willing to compile data from a nice location outside of CA for food and housing >; )

PeonInChief said...

The homebuyer income stats in the Bee article are from Census figures, and represent the median household income. The writers get confused in the article, though, between the median income of homebuyers and the median income of the community. First the median income of the community incorporates both tenants and long-time homeowners, and both these groups may have lower incomes than recent buyers.

But the census figures cover larger areas than just neighborhoods, so those figures aren't directly comparable either. To my mind, they make the basic point, but don't have enough facility with numbers to understand where their comparisons work--and where they don't.

Diggin Deeper said...

And if those numbers don't work Zogby did a little survey and questioned 115,000 Americans about migrations outside the US. Here's what they found:

1.6 million U.S. households have already made the decision to leave

1.8 million are seriously considering and likely to leave

7.7 million are somewhat serious about leaving and may do so

3.0 million are seriously considering purchase of non-U.S. property

10.0 million are somewhat serious about purchase of non-U.S. property.

Looks the world is our oyster....

Cow_tipping said...

Ha ha, I love it when stupid people lose, and lose their ass ...
I had 2 co-workers. One of whom was a jerk and the other appeared to be listening to me about the bubble etc when much against what I had screamied in his year for the past year, he decided to buy a house in Charlotte NC in feb 07 for 465K cos his wife was pregnant. OK renting a house instead of his apartment was still an option but ...
Now I heard from the other jerk co worker about this guy.
Evidently they were giving 1/2 price options up to 50K, and seeing that, he called the sales office acting like he was a new customer. They also mentioned that the prices are 100K less if he will close by EOY on a ready to move house. His house was 40K options and now they say 100K off. So he's out 120K. So armed with this info he walks to the sales office to confront them. Evidently there is a new person there. He tells her he bought this and that and what ever and how they slash the $$ now. She looks up somehting in her papers and tells him, yes God bless your heart dear, you're the only one who bought a house from us in the last 1 1/2 years. Get this, it gets even worse.
If you were Upside down to the tune of 120K, you'd walk right ... except, he cannot, he's employed by BofA and his loan is from BofA and they never re-sell it and its direct deduction from his pay check.
I heard he's resolved to let the bank have the house if he were to be laid off.

PeonInChief said...

smf, if you were as devoted to house magazines as I am, you would know why a decline in the number of people doesn't necessarily equal a decline in the number of households, which is how fewer people can take up more space. Many urban centers, particularly New York, San Francisco and Boston, have seen an increase in the number of multi-unit buildings converted to single family homes occupied by one or two people. Some people get really greedy and buy up the houses next door too. (They use them as guest houses.)

watchingthebubble said...

Heard on Forum this morning about the OPEC nations diversifying the currency used to price oil.

Think I could get Governor Schwarzenegger to pay this lowly state worker in euros?

I hope my union rep is reading this . . .