Sacramento Area Inventory Growth per BMIT:
Month-over-Month (March v. February)
2005: +6.7%Year-over-Year (2007 v. 2006)
2006: +5.5%
2007: +10.2%
Feb: +15.4%
Mar: +20.6%
10/31/06: 671/3,059 (21.9%)
11/30/06: 908/2,985 (30.4%)
12/30/06: 1,062/3,167 (33.5%)
01/30/07: 1,322/5,000 (26.4%)
02/27/07: 2,804/5,209 (53.8%)
03/30/07: 3,581/5,467 (65.5%)
From News10:
With home sales slowing down, mortgage defaults and foreclosures are hitting record highs -- and all indications are that the dark side of the housing boom could get worse.From the OC Register:
"The sky is not falling yet and if we work together, we can prevent that from happening," said Mary Harman from the California Association of Mortgage Brokers. "We are trying to provide solutions to correct things."
...
"There is a certain amount of responsibility that needs to be assumed by everybody in order for us to correct this and get the state to get back on the right track," said Harman.
[California Association of Realtors Chief Economist Leslie] Appleton-Young noted that California already is in a market slowdown that's lasted 1 ½ years. Any restriction on the money supply for subprime borrowers will make the recovery longer, particularly in those inland regions that rely more heavily on that kind of financing. Fewer subprime loans will mean there will be fewer buyers, she said.From the Orange County Business Journal:
John Laing is keeping close tabs on the impact of subprime loans in some of the outlying areas it builds, such as the Inland Empire and Central Valley, [Chief Executive Larry] Webb said. Most of the company’s luxury and move-up homes aren’t likely to be bought by subprime borrowers.
But its move-up homebuyers could have trouble selling their existing homes if the subprime market disappears. "To date, we have not seen (a problem)," he said. "We are watching it. You can say I’m crossing my fingers, and hiding under the desk."
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Chris Harrigfeld, the president of California Mortgage Associates in Modesto, [said] the subprime market is due for upheaval.Also from the Modesto Bee:
"The subprime market as it has existed in the last five years will not exist in another 12 to 18 months," Harrigfeld said. Banks won't underwrite such risky loans, he said, so lenders won't offer them. Harrigfeld said that as subprime loans default and banks foreclose on homes, they could drag down the real estate market. As those homes go back on the market, they lower prices across the board, he said.
...
In California, subprime woes aren't confined to Modesto. The top 10 U.S. areas with the highest percentage of delinquent subprime loans include Merced, Stockton-Lodi and Sacramento — all cities that had soaring home values.
An expert on the valley said valley cities may have a higher percentage of subprime loan problems because home appreciation outstripped wage growth for several years. "We would see that despite the drop in affordability, the percentage of homeownership would increase," said Richard Cummings, director of research and communication at the Great Valley Center, a Modesto-based growth think tank.
"Now you're seeing the shakeout," he said, because many of the people buying homes during the boom did so by stretching financially, including the use of subprime loans.
Many people struggling today bought their homes using ARMs or similar financing tools to "get in" on the hot housing market of the past few years, much like the dot-com boom of the late '90s. They counted on continued rapid home appreciation to help pay for a house many couldn't really afford even with a decent job. As the prices of houses climbed, many used the promotional loan rates to get into their new homes.
But those rates are gambling with fire; they're not a tool to be used casually. They are viable if you plan ahead. If.
I speak with many owners of new homes who are beginning to sweat as they watch the ARMs muscle up to higher rates, and wonder where that extra $200 or more a month is going to come from.
Remember the early 1990s, when foreclosures surged and excess housing inventory sat all over Stanislaus County? Sounds familiar.
So what's all the surprise about ARMs? In the end, you always have to pay the fiddler — or the bank in this case — for what you're buying. Simply put, interest rates flex. If you can't afford to pay more than the bottom tier of an ARM, don't take the risk of losing your home. Don't buy what you can't afford.
From the UOP's Business Forecasting Center [pdf]:
A Slowing National Economy and Housing Slump Take the Wind Out of California’s Sails but Will Not Sink the Ship
ARMs and Bubbles and Sub-Primes, Oh My!
They’ve made a comeback, frothing at the mouth, the bubble-heads who predicted that the alleged housing bubble would be the Achilles’ heel of the economy and when it burst the next recession would ensue. After tucking tail and heading off into the sunset with their bubble theory burst, the housing hysterics have made another appearance. This time it is sub-prime mortgages and adjustable rate mortgages (ARMs) that will bring about the collapse of the housing sector.
So will there be an ARMageddon? Are the sub-primal fears of a housing collapse justified? I think you know the answer. Just like the earlier declarations of a bubble in the housing market, the current mortgage related prophesies of doom are equally off the mark. The current reality in the housing market is one of continued high levels of inventories of both new and existing homes. The foreclosures that are forthcoming from the sub-prime market will add to this inventory and prolong the adjustment in this market perhaps by a few months, but are not going to be the tsunami that alarmist pundits proclaim will overwhelm the sector. Current worst case scenario forecasts for the housing market suggest California might see a 15% to 16% decline in prices over the next two years, down from their peaks in 2005.
These price declines are not insignificant, but they are hardly the stuff of which bursting bubbles are made. You may recall that in the midst of the housing boom, chicken little were touting studies declaring that some areas in California were 60%, 70% or even as high as 80% overvalued! The reality of the housing sector is that it will not look even remotely like any of the doomsday scenarios we have been bombarded with over the past several years.
From the Wall Street Journal (also map & table):
SUBPRIME MORTGAGES have been cropping up in surprising spots. Typically, these loans to home buyers with the weakest credit were concentrated in lower-income or economically depressed areas. But over the past few years, a large chunk of the subprime-loan market has shifted to higher-income metropolitan areas. In many of those wealthier areas, the delinquency rate has increased quickly. In the Sacramento, Calif., region, where the median household income ranks among the top 10th of major metropolitan areas, the portion of subprime mortgages delinquent for 60 days or more hit 14.1% in December -- more than four times the level a year earlier.According to the table, Sacramento ranked #1 in the country for change in delinquencies from 2005, in percentage points.
The number of foreclosures and "short sales" of homes equals nearly 10 percent of the total number of homes for sale in San Joaquin County, according to the Central Valley Association of Realtors.From the San Diego Union-Tribune:
Dale Gray, Chief Executive Officer for the association, said out of 4,340 total, there are 317 home sale listings for short sales, where the home is sold for less than is owed to the bank, or foreclosure, a home that has been repossessed by the bank and put up for sale again through a broker.
...
And the number may continue to grow. "They are up and we are hearing that from a lot of areas in the United States," Gray said. "A lot of these sub-prime loans... puts (the homeowner) over 100 percent of the value of the house and some of the adjustments are coming home to roost. It has gone up."
...
Anecdotal information has some home buyers remaining in the Bay Area instead of relocating and commuting for two hours from San Joaquin County. "There comes a point where it begins not to make so much sense to commute," Gray said. "Gas is $3 a gallon, wear and tear on your vehicle, emotional stress."
San Diego County placed 17th among the state's 58 counties, with a default rate of 3.3 per 1,000 homes, compared with 6.9 in top-ranked San Joaquin County.
From the Manteca Bulletin:
Three homes in Marsh Creek and Springtime Estates — two popular custom neighborhoods in East Manteca — reflect the new realities of home selling in the South County. The homes closed escrow this month but at selling prices $145,000 to $175,000 less than what owners had listed as the asking price. In one case, a home listed for $775,000 with similar amenities to one nearby that sold in late 2005 for $10,000 more ended up closing escrow at $600,000.The market from top to bottom is being hit by what Realtors are referring to as a "dumping" of homes by owners who are trying to avoid huge jumps in their monthly loan payments created by a frenzy of zero down, sub-prime balloon-style loans that were made two to three years ago. The buyers accessing sub-prime loans were gambling home prices would continue climbing so they could refinance or sell before monthly payments climbed by upwards of $1,000 depending upon the loan.
Manteca now has 523 resale homes available with 75 sold so far this year. Compare that to last year at the same time when there were 381 active listings with 134 sold as of the third week of March. The difference is even starker from the week of March 22, 2005. There were just 78 available resale homes in Manteca with 149 sold in 2005 by mid-March.
"I think it is going to take two to five years for this to completely shake out the market," said Steve Roland of The Real Estate Group.
From the SF Chronicle:
Although Congress is also moving to rein in subprime lenders, [Paul] Leonard [director of the Center for Responsible Lending] called on California legislators to take action including regulations that would prohibit lenders from making offers that buyers cannot eventually afford. "We wouldn't allow consumers to buy a toaster or some other product that had a 20 percent chance of failing on them," he said.
...
[L]awmakers in Sacramento seemed uncertain whether consumers need new protections from loan products that have also allowed millions of buyers into a market that previously was not open to them.
"A borrower comes into a lender's office and is interested in the American dream," said Sen. Lou Correa, D-Santa Ana. "And as long as real estate is going through the roof, can you honestly say that they shouldn't (take out a subprime loan)? That's a tough one."
...
Sen. Dave Cox, R-Fair Oaks (Sacramento County), pointed out that homes are lost for a variety of reasons including a loss of employment, divorce or failing health.
"I hope we don't move into a direction of calling people who default on their loans victims," he said. "I believe that there are some risks that the borrower assumes and the lender assumes on a loan that gets people into houses.
"I don't think the Legislature should get involved in bailing people out."
From the New York Sun:
The latest real estate message we're getting from one economist after another is like a broken record — in brief, that the housing slump is pretty much history, the market is stabilizing, and a lively rebound in home prices is in the cards for the second half.
Economists are known to be wrong at times, which is precisely the real estate read I get from housing expert Steven Krystofiak, who tells me: "The downturn is far from over. The worst is yet to come."
Not only that, Mr. Krystofiak, the president of the consumer advocacy group the Mortgage Brokers Association for Responsible Lending, predicts that housing prices — which were relatively flat in 2006 — will begin to undergo an extreme dive soon, spurred by more than $2 trillion worth of short-term fixed mortgages resetting at higher interest rates in 2007 and 2008.
Overall, he says, he expects home prices nationally to fall between 5%and 10% from current levels by year's end and to extend those declines to between 15% and 20% by the end of 2008.
Our housing bear says he thinks double-digit declines will be especially conspicuous in the hottest real estate markets, among them San Diego, Phoenix, Boston, and Sacramento, and three states, Nevada, Florida, and New York.
...
In recent weeks, he notes, underwriting standards have tightened considerably; it has become harder to borrow, and banks have started to pull out of loans of 100% financing. "We're getting a sneak preview of what's to come; it's the tip of the iceberg," he says.
From the New York Times:
For newspapers, February was the cruelest month. So far. Revenue from advertising was in striking decline last month, compared with February a year ago, and were generally weaker than analysts had expected.From the Sacramento Business Journal:
...
"I’m reluctant to say that a single data point is a trend," said Barry Parr, a media analyst at Jupiter Research. "But those are scary numbers, especially when we’re not in a recession."
...
The Tribune Company, whose papers include The Los Angeles Times, The Chicago Tribune and The Baltimore Sun, reported losses of more than 5 percent. So did McClatchy, whose papers include The Miami Herald, The Sacramento Bee and The Lexington Herald-Leader in Kentucky.
...
In some cases, particularly in Florida and California, they traced the weaknesses to volatile real estate markets.
...
Lauren Rich Fine, a media analyst for Merrill Lynch, cautioned in her analysis of McClatchy’s February numbers not to "overreact to just one month of poor performance." Nonetheless, she said, McClatchy’s problems were "just starting." She cited the stark comparison between California’s hot real estate market last February, when revenue from classified real estate ads was up 48 percent, and its weaker market this February, when that revenue was down 20 percent.
It's tougher for real estate agents to earn a buck this year; the days are gone when it was enough to stick a sign on the lawn and wait for offers. With sales volume and prices down, agents are having to dust off old marketing strategies and adopt some new, proactive ways of putting properties in front of prospective buyers.
...
For agents and buyers, that means an increased reliance on the Internet... As with so many other categories of advertising, a post on Craigslist can come at the expense of a newspaper ad. "I tried this avenue because I wasn't getting results from newspaper advertising," said Cheryl Rouse, an agent with Keller Williams Realty in Sacramento who has started posting on Craigslist.
...
[A]gents are having more conversations about what improvements the house needs to put it in show condition. "You've got 25 properties to compete with; how are we going to stand out? In this type of a market, that's what we are seeing more of," said Reneé Catricala, a Coldwell Banker agent in Sacramento.
...
For agents who have been in the Sacramento market only long enough to see it during the hot years, the new realities might be confounding. One message that could be difficult to swallow is that the hot market was the aberration, not the recent, cooler one.
From the Sacramento Business Journal:
Developers are seeking approval of a record number of new homes in the Sacramento region, even as sales have dropped to their lowest level in years. Through the end of last year, a total of 99,438 single-family houses, condos or townhomes were in the development pipeline in the six-county region, according to Hanley Wood Market Intelligence. That's a 13.6 percent increase from December 2004, the most recent comparable data. Over the same period, new-home sales plummeted 44 percent.
...
Excluded from that total are thousands more homes at either end of the spectrum. Unsold homes and lots in existing new-home communities aren't included because they have completed the entitlement process and theoretically are already on the market. Also excluded are parcels in master-planned areas that are still years from serious consideration for approval. Those categories boost the expected Sacramento housing stock by at least another 84,000.
...
The Gregory Group, another new-home analyst, reported that new-home sales fell from a peak of about 17,100 in 2004 to about 9,500 last year, the lowest since the company started tracking sales in 1999. At the current rate, 100,000 new homes would be a 10-year supply.
...
Brendan O'Neill, president of the Sacramento division of Beazer Homes, said building advocates are calling for what they refer to as a "20-year visible land supply," which would mean as many as 250,000 lots available for building. He said a ready supply of land for housing reduces costs during peak housing markets, attributing the run-up in home prices between 2002 and 2005 to a scarce supply of entitled land.
More DataQuick median price numbers for February via dqnews (and archived here):
The Association of REALTORS® is aware that the widely publicized restructuring in the sub-prime lending market will likely have a dampening effect on real estate sales, at least in the short term. "Being entangled in risky loans and a declining market is clearly painful for lenders as well as mortgage borrowers,” said [SAR President Tracey] Saizan. "More disciplined lending policies will be good in the long run for home buyers and the mortgage bankers who serve them."Given the mortgage meltdown, will sales peak in March as they did last year?
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Some weekend reading:
House hunting for West NileRead more at the Modesto Bee.
Vacant for-sale properties can be a mosquito haven
Last year, mosquito abatement districts contended with floodwater in their ongoing battle against West Nile virus. This year, it's foreclosures and the sluggish resale housing market.
For-sale signs, especially if standing for weeks or months in front of empty houses, are red flags for vector control personnel looking for pockets of mosquitoes in residential areas.
...
"We are calling a lot of Realtors to get access to these properties," said Lloyd Douglass, general manager of East Side Mosquito Abatement District, which includes most of the northern half of Stanislaus County, including Modesto. "If they are being foreclosed on or sold, there is no one there to take care of them."
...
With foreclosures on the rise and home sales at their lowest levels in a decade, the abatement districts in Stanislaus County are focused on unoccupied homes.
Even if owners drained their swimming pools before moving out, many pools will not completely drain, officials said. And, they added, pools collect rainwater. Mosquitoes also can breed in flower pots, buckets and tires left behind.
...
The districts said they are working with people who have moved and are having trouble selling their homes. Abatement personnel will treat mosquitoinfested pools and can leave fish in the water to eat hatching larvae. Because of the public health threat, officials are urging absent owners to continue maintaining their homes.
From Reuters:
Andrew Thompson fears his mortgage lender is poised to foreclose on his Folsom. California, home because he will not be able to make his monthly loan payment when it jumps to $3,200 from $2,100. "As of May 1, I'm dead in the water," said Thompson, already behind on payments as the deadline nears for a higher interest rate on his mortgage. "I don't think I'm going to be able to keep it."
...
The turbulence in the industry tracks Thompson's troubles, revealing how risky adjustable-rate mortgages can be for borrower and lender. "It's just hit so hard and so quick," he said in an interview in his home in Folsom, a town just east of Sacramento, California's capital.
Thompson, 36, met his mortgage payments until an accident at work in September...Expecting he would fall behind on payments, Thompson listed his house for sale late last year. It's still on the market.
...
Thompson bought it in 2004 for $289,000 and won praise from neighbors for at least $60,000 worth of renovations...Thompson is resigned to losing money on the house. He has cut its price from $360,000 to $307,000, which would provide enough for him pay off his mortgage and other debt he took on for the house and prevent a default that could mar his credit. "I would have $1,000 left over to move," he said.
But a sale before foreclosure is uncertain. Seven similar homes within a two-block radius have "for sale" signs on lawns and Folsom has an abundance of new homes for sale.
Meanwhile, analysts see the Sacramento region's inventory of homes on the market rising because of so-called short sales -- home sales at prices less than the owner owes on a mortgage, but conducted with the blessing of lenders who want to avoid a foreclosure.Deutsche Bank analyst Nishu Sood painted a bleak picture of Sacramento's homes market: "New home inventories remain elevated, while resale inventories are even more worrisome, with significant investor overhang and mounting distressed listings.
"And all of this is before the effects of the subprime situation have begun to be realized in the market. Significant further price declines are likely," Sood wrote.
From Inman News:
Problems in mortgage lending go "well beyond subprime," and the tightening of loan underwriting standards now underway is likely to push demand for homes down 15 percent and depress prices by 5 percent this year.
That's the rather gloomy forecast by analysts who follow the stocks of major home builders for Banc of America Securities LLC.
...
[T]he biggest problem facing housing markets may be the tightening of credit that's taking place as lenders put the brakes on risky loans including low-documentation and zero-down-payment mortgages, the report said.
...
Nearly half of loans awarded in 2006 with FICO scores of 680 or less and loan-to-value ratios of 98 percent or more had no or limited documentation, "which is worrisome to say the least," the report said.
"Overall, we expect that tighter lending standards will curb demand by 15 percent," BAS analysts concluded.
...
The problem of credit tightening will be especially acute in California, Nevada and Florida, the report predicted, because borrowers in those high-cost states were more dependent on loans requiring little or no down payment.
The report may even be underestimating the impacts of the tightening of credit under way, because it assumed lenders would still be willing to fund mortgages with 98 percent or higher loan-to-value ratios for borrowers with good credit. If all lenders stopped making zero- or near-zero-down loans altogether that could cut demand for housing by 22 percent.
...
BAS expects home prices to fall by 5 percent in 2007. Coming on the heels of a 2 percent price decline in 2006, the 7 percent cumulative price drop would be the largest decline in home prices since the early 1980s.
Trouble begins with a slow-motion descent toward your first missed mortgage payment. It's a queasy feeling thousands of Sacramento-area homeowners know too well as their houses slip away.
...
So what should you do if you're in trouble? Put off car payments to make the house payment? Max out credit cards and exhaust the savings account? Stop eating out and drop cable TV? Foreclosure? Bankruptcy? Short sale?
Increasingly, these are the questions of real life nearly two years after a collapse of the most exuberant housing boom ever seen in Sacramento.
...
Antelope resident Elizabeth Tufts faced two choices when, following a divorce, she found herself with a home worth less than what she and her former husband paid for it in 2004. "In my case, it was either a short sale or have the house go into foreclosure," Tufts said. The young working woman was behind on house payments and lacking the income to keep up. In an oversaturated market she couldn't find a buyer.
Eventually Tufts found her least painful ending through Derek Kirk, an Elk Grove-based real estate agent who specializes in short sales. Kirk persuaded the bank to accept less than it was owed due to Tuft's hardship.
But Kirk said too many people have a misconception they'll be approved automatically for a short sale. Banks largely aren't saying yes unless the hardship is related to a lost job, bankruptcy, divorce, death, medical crisis, relocation or some other financial difficulty, he said.
"It's got to be something that involuntarily happened to the person to put them into a worse financial position," he said.
That usually eliminates homeowners who have seen their interest rates adjust higher or took a loan they couldn't afford. It rules out people who didn't read their loan papers before signing and investors who bought a house expecting to flip it for a quick profit.
...
If nothing works, bankruptcy protection may be the ticket to keeping your house, said Sacramento attorney Peter Macaluso. A bankruptcy specialist, Macaluso said owners who used 100 percent financing with an 80 percent first loan and 20 percent second loan for the down payment can sometimes avoid obligations to pay the second, depending on how the bankruptcy filing is structured.
"In the last five years I didn't do but one or two," he said referring to home-related bankruptcies. "In the last six months I've probably done 10, and I know my fellow cohorts are doing the same."
From Reuters:
Amid the confusion, homeowners like Lupe Perez say they went neglected. Perez said she faces an imminent foreclosure on her Sacramento, California, home after falling behind on mortgage payments.From the Sacramento Bee:
"I feel conned," Perez said, noting she agreed to the loan's adjustable rate only after her loan officer assured her she would be able refinance later. But with her neighborhood's home prices down, lenders will not refinance, she said.
The 28-year-old state worker said she cannot afford her mortgage because its interest rate is at 11 percent, up from a 5 percent rate that expired late last year. She said losing the three-bedroom house will mark a personal defeat as she put $40,000 from the sale of an inherited house as a down payment.
"I'm tapped out," Perez said. "There's no hope."
"It's shocking to see the foreclosures in the paper," said Sen. Mike Machado, D-Linden. Machado is chairman of the state Senate's Banking, Finance and Insurance Committee and represents a Central Valley straining under the weight of its home loans. According to LoanPerformance.com, five Valley locations -- Sacramento, Merced, Modesto, Stockton-Lodi and Yuba City -- are among the nation's top 10 metropolitan areas with the highest incidence of subprime loan delinquencies.
Machado said he's seeing "good, functioning communities" suffering because of foreclosures. Last month, 455 people lost their houses to foreclosure in Amador, El Dorado, Nevada, Placer, Sacramento, Sutter, Yolo and Yuba counties compared with 59 in February 2006.
Following a recent committee hearing rife with horror stories -- about lenders inflating borrowers' incomes, not explaining what they were getting into and committing outright fraud -- Machado introduced a bill to crack down on the industry.
...
"I would frame it as legislatures are engaging in their traditional knee-jerk overreaction," said K&L Gates attorney Jonathan Jaffe, a San Francisco adviser to the mortgage business. "You don't want to kill the golden goose. Housing is something that helps this country. You don't want to overregulate and prevent people who deserve to own homes from owning them."
"Sometimes legislators don't understand the full ramifications of bills coming in," said Jack Williams, president of the California Association of Mortgage Brokers. "That may harm the first-time homebuyers, putting them into the permanent renter class."
From CBS 13 (also video):
Housing Market Facing Mortgage Meltdown
A national issue is really hitting California. 1 in 5 Californians don't put any money down when they buy a home. With the grim reality of what's going on in the mortgage industry, the option of "financing a home 100%" is going to get a lot harder, if not impossible.
When Kyle and Jennifer Finely bought their first home to start their family, they had no money for a down payment. Loans covered 100% of the purchase price.
"There was nothing else we could do," said Finley.
Now, many mortgage companies are taking away that option. Part of the plummet on Wall Street this week was investors who pulled out partially because they were fed up with losing money on high risk loans.
"There are going to be fewer player in the market which means less competition which means some people just won't be about to get 100-percent financing and those that do are going to pay a little more for it," said Pat Driver, loan officer.
...
With all the hysteria to jump into the housing market, many people have ended up in homes they can't afford to keep.
"It's better not to own a home than lose it in foreclosure," said Driver.
Post off-topic links, observations, and stories here. Please read the comment policy before posting.
From the Sacramento Bee:
The housing slowdown has had one other effect: The number of licensed real estate agents and brokers in the eight-county region has fallen. The California Department of Real Estate reported 25,625 agents and brokers in the area, down nearly 6,500 from September.Also from The Bee:
In another indicator of the turbulence buffeting the subprime mortgage industry, as many as 300 Sacramento-area Ameriquest Mortgage Co. employees were issued pink slips Thursday.From the Sacramento Business Journal:
A spokesman for Ameriquest's parent company, ACC Capital Holdings, would not say how many jobs were eliminated at its Rancho Cordova office, but several employees estimated between 250 and 300 were employed at the Mather Field location.
Locally, the hammer dropped in an e-mail sent to employees at Ameriquest's Mather Field offices about 9:30 a.m. Thursday, while mortgage specialists like Perry Mayfield were working the phones chasing leads for new loans.
...
"We saw it coming for a couple of weeks," said Mayfield, who's worked just six months for Ameriquest. After the e-mail announcing layoffs arrived, "Sure enough, the top guys gather us around and say, 'Unfortunately, we have some bad news.' "
By noon, the company's parking lot was nearly empty and six security guards were posted in the lobby. Visitors were immediately escorted out the front door.
...
The subprime industry "kept the real estate boom going longer than it should have, and the repercussions are what's happening now. It's pretty scary. It's really scary," said Bob Bader, head of Arden Mortgage in Sacramento.
The company a year ago had two leases for more than 180,000 square feet of office space divided into centers in Rancho Cordova and at Mather Business Park. With the announcement Thursday, the company is leaving the area for its Orange headquarters.
"You've got this enormous amount of inventory ... and it will go down -- it will go down by spring, significantly."
~John Karevoll, DataQuick analyst, Sacramento Bee, December 31, 2006According to TrendGraphix data published in the Sacramento Bee, inventory in February increased 15.6% from year ago levels and 4.4% since the beginning of the year. Other sources show inventory has continued to rise in March. It appears inventory has not declined "significantly" by spring.
Sacramento-based researcher TrendGraphix says 11,410 existing homes were for sale at February's end in El Dorado, Placer, Sacramento and Yolo counties, the month's highest tally in nearly 15 years.This graph shows inventory of the 4-county area since February 2005. Click to enlarge.
From the Sacramento Bee:
The slowdown continues.Data chart here.
Capital-area home sales and prices were generally lower in February than a year ago -- itself gloomier than the year before. February sales numbers released Thursday show a small numerical increase over January, but remained well below the 3,113 sales in February 2006, according to La Jolla-based researcher DataQuick Information Systems.
Collectively, 2,534 new and existing homes and condominiums closed escrow during the month in Amador, El Dorado, Nevada, Placer, Sacramento, Sutter, Yolo and Yuba counties. The sales reflect escrow closings of buyer deals begun 30 days to 45 days earlier.
The month's 18.6 percent sales decline from last year compared with a similar 19.8 percent year-over-year fall in the six counties of metropolitan Los Angeles and a 7.9 percent drop in the nine-county Bay Area, DataQuick reported.
...
According to Thursday's DataQuick figures, Sacramento County's median $350,000 price tag for existing homes was down just 1.4 percent from the previous year, the lowest year-to-year decline since June.
Placer County showed the first year-over-year rise in home sales since March 2005, while median sales prices for existing homes fell to $425,000, lowest since December 2004. The county's peak median price -- the point where half cost more and half less -- was $505,000 in August 2005.
From the Redding Record Searchlight:
Home values in California will drop 2 percent in 2007, the top economist for the California Association of Realtors said Wednesday.
Leslie Appleton-Young told members of the Shasta Association of Realtors that the state's inland corridor that stretches from Bakersfield to Sacramento will be hardest hit. That's because there's a glut of unsold new homes that need to sell before the market turns in those regions, she said.
...
"Four years of double-digit growth -- that wasn't sustainable. We kind of knew that because incomes were not going up that fast," Appleton-Young said Wednesday.
The biggest challenge for real estate agents today, she said, is setting appropriate expectations for buyers and sellers. Buyers have to accept that there won't be a fire sale of homes. You're not going to snag a $600,000 home for $400,000, Appleton-Young said.
From the Wall Street Journal (hat tip - TMTGM):
By all accounts, the market for "subprime" mortgages -- home loans made to people with poor or sketchy credit histories -- has unraveled with impressive speed and intensity. In some parts of California, the proportion of seriously delinquent subprime loans has quadrupled in the past year to about one in eight, according to data provider First American LoanPerformance.From the chart:
Metropolitan areas with the highest incidence of delinquent subprime loansUPDATE: From the Central Valley Business Times:
Subprime loans delinquent by 60-plus days
#6 Sacramento#7 Modesto
- Dec 2006: 14.1%
- Dec 2005: 3.4%
#8 Stockton-Lodi
- Dec 2006: 13.2%
- Dec 2005: 3.4%
#9 Merced
- Dec 2006: 12.7%
- Dec 2005: 3.5%
#10 Yuba City
- Dec 2006: 12.2%
- Dec 2005: 2.4%
- Dec 2006: 11.4%
- Dec 2005: 2.6%
Tsunami of foreclosures may wash over Central Valley
As the so-called “subprime” market – the industry that spawned the no money down home buying spree – is rocked by financial failures, the waves of the financial storm could wash over the Central Valley, says an expert on the industry.
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A CRL [Center for Responsible Lending] study reveals that millions of American households will lose their homes and as much as $164 billion due to foreclosures in the subprime mortgage market, he says.
And some of the worst may happen in the Central Valley, he says. "Central Valley metropolitan areas had among the highest projected foreclosure rates of any metropolitan areas in the country," Mr. Leonard says. "In the short run, we’re gong to see a lot of real damage … in terms of foreclosures among large numbers of subprime borrowers with concentrations in places like the Central Valley."
From the Sacramento Bee:
A meltdown in the subprime mortgage lending market might mean trouble for a Sacramento-area market many believe is slowly coming out of its housing slump. Last year an estimated 27 percent of area buyers took out subprime loans, which have higher interest rates reflecting the risks of lending to people with blemished credit histories. Now, many here and across the country are having trouble making payments, threatening the companies that issued the loans.
That has many worried that the resulting financial implosions among subprime lenders, along with newly tightened credit standards, could reduce the number of potential homebuyers.
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Contractions in the recently highflying subprime business also have implications for refinancing, limiting options for homeowners with mortgage trouble. Analysts say the lack of escape routes for homeowners under financial stress almost certainly will push more into foreclosure, aggravating an oversupply of resale houses and possibly prolonging a regional housing slump now nearly 2 years old.
"Now the ones who can't refinance will downsize, and if anything, the move-up market will see the pain," said Alexis McGee, president and co-founder of Fair Oaks-based ForeclosureS.com, a Web site that tracks foreclosures for investors.
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"We're getting this substantial credit contraction at a time when supply is at an all-time high, which is not good," said Eric Landry, an analyst who tracks the nation's home building industry for Chicago-based investment researcher Morningstar. In a note Tuesday to investors, Landry warned, "It's probable that an entire (portion) of buyers has been taken out of the available pool of homebuyers and won't return for several years."
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Nationally, mortgage officials expect the number of subprime loans in 2007 to fall 30 percent from last year. Locally, that might mean thousands fewer loans.
"That takes a whole group of purchases and stops the food chain," said John Fabish, a former lender and president of the Sacramento chapter of the California Association of Mortgage Brokers. Fabish, who now works in the risk management sector, said removing "that whole tier of no-equity folks, pretty much all first-time homebuyers, from the buying pool" can easily start a negative domino effect. "Business will slow way down. Move-ups will slow way down. If nobody's there to buy your house, there's two transactions that don't happen," he said.
From the LA Times:
Easy-money loans from New Century Financial Corp. and other lenders specializing in borrowers with poor credit helped fuel the housing boom, swelling the ranks of homeowners with people who could not have qualified for mortgages in years past.
But many of these borrowers turned out to be bad bets after all and are beginning to default, forcing some lenders out of business and leading others to stiffen their lending standards.
That could hurt the housing market by shrinking the pool of eligible buyers. In addition, many homeowners with high-risk loans whose rates will adjust upward in the next year or two won't be able to refinance into loans with better terms. That could put some into foreclosure.
"If foreclosures continue to mount — and they are already climbing rapidly — we could see a scenario similar to California in the early 1990s, where banks' sales of foreclosed properties pushed home prices down even further," said Zach Gast, an analyst at the Center for Financial Research and Analysis, an investment research firm.
In some parts of the state — including the Central Valley, the Inland Empire and San Diego — foreclosures have gone from rare to plentiful in a little more than a year. Real estate appraisers say home values are beginning to be affected.
George Hatch, a San Diego appraiser, said he surveyed a group of his colleagues last week. Almost all of them reported that they were running across distressed sales or foreclosures. "There is a flip side to exuberance, which is that every party has its hangover," said Hatch, a 22-year veteran of the business. "When your house loses $100,000 in value, that will make you sick all right."
Read more at the newly launched website Priced Out Fovever.If you are a prospective first-time homebuyer, you know that it is virtually impossible today to find an affordable house...The price of homes these days just keeps going up and up. Sure, prices may be moderating here and there, but everyone knows it's only a matter of time before prices begin to skyrocket once again. That's why now is not only a great time to buy, it may be your last chance to buy a home before you get priced out forever.
From the Sacramento Business Journal:
Lennar nails contractors with rebate request
It's common for homebuilders to ask for price reductions from their framers, plumbers and roofers during a slump, but a construction trade association says housing giant Lennar Corp. has taken a new tactic that has trade contractors steaming -- lowering prices on work that already has been done.
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Contractors and suppliers fear reductions on finished work could become a trend as builders slash new-home prices and increase incentives around Sacramento to stay competitive.
Some subcontractors reached by the Business Journal said they've been asked to drop prices for completed work or refund money they've already been paid. One trade contractor said the price changes were made without his consent. Another alleged the new tactic isn't exclusive to Lennar.
"There are other builders in the Sacramento market who are doing this," said the contractor, who spoke on the condition of anonymity from fear of losing business if he revealed his name. "I've been in the business for 25 years, and this is the first time I've ever seen retroactive pricing."
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He alleged the company rebid his job without his knowledge, forcing him to drop prices 15 percent, and later applied reductions to invoices on work his company had completed, even though he assumed the price reduction would apply only to future work.
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Don Harmata, an attorney who represents trade contractors, heard of Lennar's policy through his clients. He said it was highly unusual to ask for reductions in work that's already done.
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[Marc] Chasman [president for Lennar's Northern California/Northern Nevada region] said he's pleased that a majority of the local companies have accepted the price reductions. Asked if he was surprised at the trade contractors' reaction to the policy, he said, "I'm not surprised. There's a disappointment on our side, too, that the market isn't better."
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Since January 2006, the Sacramento region has lost 2,400 construction-related jobs, about a 3.5 percent decline.
From the Sacramento Real Estate Statistics blog:
March 2007 is turning into a "March of Death" for flippers. Flippers in trouble now make up one out of nine MLS listings in Sacramento County...57% of all flipper listings are now in trouble, and the year is really just beginning.From the OC Register:
Here's a look at estimates of subprime's clout in the home-purchase funding business in 331 major U.S. markets....Subprime lenders service borrowers with less-than-ideal financial profiles. This data is derived by LoanPerfomance's mortgage database that contains details on half of all subprime loans and 80 percent of traditional mortgages. Chart tracks 2006 estimates for average loan size by market and subprime's share of all purchase lending dollars in these markets.
[Ranking, Region, Subprime Share]
- #1 Stockton-Lodi, CA: 41%
- #3 Merced, CA: 41%
- #4 Modesto, CA: 41%
- #5 Bakersfield, CA: 36%
- #9 Visalia-Tulare-Porterville, CA: 34%
- #11 Fresno, CA: 32%
- #18 Yuba City, CA: 29%
- #22 Sacramento, CA: 27%
- #38 Redding, CA: 24%
Post off-topic links, observations, and stories here. Please read the comment policy before posting.
Some weekend reading:
Some say the cooling housing market's impact on the high-rise projects has been overstated. Lenders leery of financing projects in smaller cities like Sacramento -- not lack of demand for luxury downtown living -- have delayed the start of construction on Denver-based BCN Development's Aura tower, according to BCN President Craig Nassi.
“Today there are more options than there have ever been in the real estate market,” said Kathy Harry, broker and branch manager at Prudential California Realty Truckee. "It’s a good time to buy because there are a lot of programs, loan products and properties out there. It’s as good as it’s ever been."
New financing options such as 40-year and second mortgages and credit reports that don’t verify income are helping local people buy their first homes. "You have to be creative sometimes, and in this market you have to be more creative," Harry said.
In Sacramento, the paper and local tv news, together with the national-level media, have been beating the living stew out of the Market for the past 2-and-a-half years. Every week, a new headline in the paper, "Housing Bust Looms," "When the Bubble Bursts," "Housing Bubble Getting Bigger"... The headlines are inflammatory and prejudicial....
What's in store for the real estate market in 2007? Will this year be a good time to buy? As Northern California's most comprehensive real estate organization, JC & Associates with RE/MAX Gold keeps its fingers on the market's pulse-and its latest assessment gives the 2007 market a big thumbs up. JC & Associates, in fact, sees current conditions as "virtually ideal" for buying now.
From the Sacramento Bee:
Lincoln school officials say they must think small -- limiting campus construction and living with fuller schools -- until their rural district pays off a big debt.
Western Placer Unified School District faces a population boom in its community, but a slowed economy has taught trustees that they can't bank on the housing market.
The district owes more than $189 million, a debt largely related to building schools without having sufficient funding. The district relied on certificate of participation bonds -- described as a risky form of financing -- to keep construction projects afloat, assuming money from developers' fees would remain steady.
But the housing market dropped off, leaving the district searching for ways to pay its bills.
Agent Bubble has some Sacramento County MLS figures for Feburary. Max has graphed the data here.
From USA Today:
Almost 3 million homeowners with shaky credit have adjustable-rate mortgages. Refinancing those loans will be hardest in areas where home prices are falling. Here is a look at the top 24 metro areas with the largest home-price declines at the end of 2006 and the percentages of homeowners with subprime loans who face higher payments by the end of 2008:
- Sacramento: 51%
On February 14, 2007, Housing Wire reported the following:
TMSF Holdings, Inc. said today that it has entered into an agreement to acquire certain assets of the wholesale division of Folsom, Calif.-based Central Pacific Mortgage.Now on March 5, 2007, TMSF issued this press release:
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“We are excited about the synergies this acquisition brings,” stated Raymond Eshaghian, CEO of TMSF Holdings, Inc. “It provides us with a cost-effective way to approximately double our production volume. Moreover, this transaction brings together two individually successful business models. The combined company will benefit from shared operating efficiencies and the pursuit of best practices.”
TMSF Holdings, Inc. (OTCBB:TMFZ), today announced that it has terminated its agreement to acquire certain assets of the wholesale division of Folsom, CA-based Central Pacific Mortgage ("CPM-Wholesale"), primarily due to current adverse market conditions.That was fast!
"We determined that proceeding with the asset acquisition agreement was not, as originally perceived, in the best interest of TMSF Holdings shareholders," commented Raymond Eshaghian, Chief Executive Officer of TMSF Holdings, Inc. and President of The Mortgage Store Financial, Inc. "TMSF will pursue other opportunities in the marketplace that will better serve our shareholders."
From the Sacramento Bee:
Growing consumer defaults have claimed the first home loan lender in the Sacramento area with the closing of Folsom-based Central Pacific Mortgage. The firm shut its doors last week and dismissed an unknown number of employees, the state Department of Corporations confirmed. "We know that it's closed and the next step in the process may be that they voluntarily surrender their license," DOC spokesman Andrew Roth said.
The firm's demise comes amid growing trouble for the nation's mortgage lenders as rising numbers of borrowers default on their home loans. It also involves an influential local personality on the nation's mortgage lending scene and a 2004 appointee of Gov. Arnold Schwarzenegger...The Governor's Office said [John] Courson [CPM's president and CEO] remained an appointee as of Friday and declined comment about whether the company's woes would affect Courson's appointment.
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"I'll bet that's not the first one (closure) you'll see, or the last," added Jeff Tarbell, president of Sacramento-based ATM Mortgage Corp. "You're going to see more and more of that."
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The Folsom firm's troubles play out amid a deepening crackdown on home loan lending after years of easy terms that helped fuel the nation's housing boom. Last week, mortgage giant Freddie Mac announced it would no longer buy loans from lenders unless the borrower can afford the full interest rate. An increasing number of borrowers nationally are defaulting on loans with initial low interest rates that later reset to higher rates and higher monthly payments.
As the housing boom has turned into a slump, several mortgage companies have closed in recent months after secondary market investors forced them to repurchase troubled home loans. More still have seen their stock prices tumble as wary investors lose confidence in segments of the mortgage industry.
Recently added to SL's blogroll:
Amador Real Estate - The contrarian view to Amador County, Amador County Real Estate, and the overwhelming evidence of a housing bubble ready to burst.
Westside Bubble - Tracking the real estate bubble on the Westside of Los Angeles, especially in Santa Monica ... available housing inventory, highlights/lowlights, and the larger economy.
California Housing Forecast - Covering the housing bubble in Los Angeles, Orange County, Riverside, San Bernardino, San Diego, Ventura County
Madison Wisconsin Housing Bubble Blog - A historical record of the real estate bubble in and around the Madison, Wisconsin area - and its effect on owners, sellers, potential buyers, and the entire real estate industry.
BLOG.FranklyRealty.com - Buyer beware! Realtors revealed. Like that FOX magician that reveals magic trick secrets, but for Real Estate, from a Realtor.
From the Sacramento Bee:
Chris Thornberg, an economic consultant in Los Angeles, said he thinks the economy will really feel the effect of the housing slowdown this year. "Housing really hasn't hit the ropes yet," said Thornberg, head of Beacon Economics. "You're going to start to see the weakness in construction jobs."From the Modesto Bee:
The numbers show Sacramento's job market already is being affected by the housing market's downturn. The region lost 2,700 construction jobs in January -- despite weather that was conducive to home building -- the fifth straight monthly decline.
Food processing and construction jobs also took a hit because of winter weather and seasonal crop changes, [Liz] Baker [EDD labor market analyst] Baker said. The construction industry lost about 200 jobs in the last year [in Stanislaus County], she said, and the depressed housing market may have long-term effects on jobs in the region.
Spring typically is when the housing market picks up, Baker said, so it will be an important indicator to see what happens in the coming months to construction jobs and positions in the financial sector, such as real estate.
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San Joaquin did suffer larger losses in the construction industry, with a decline of 1,000 jobs year-to-year.
Post off-topic links, observations, and stories here. Please read the comment policy before posting.
Some weekend reading:
UPDATE: Housing Wire
From News10:
Former employees of Folsom-based Central Pacific Mortgage are angry over the lack of warning before this week's layoffs. As News10 first reported Tuesday, Central Pacific Mortgage and its Florida-based division Ivanhoe Mortgage closed their doors Monday saying they had no money to meet Wednesday's payroll.Watch the video here. Some snippets that sound like they could have been ripped from Housing Panic:
An estimated 260 people in Folsom, Orlando and in branch operations centers in other parts of the country were told on Monday to clear out their desks by the end of the day...One branch manager from an eastern state who asked not to be identified told News10 he lost $33,000 in commissions.
"The moral thing to do would of been to at least give the little people a fair warning," said one former Ivanhoe employee by email.
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In a memo to employees on Monday, Central Pacific Mortgage president and CEO John Courson said "there are no words to express my sorrow."
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News10 attempted to contact Central Pacific Mortgage CEO John Courson. Calls to the company's Folsom headquarters are answered with a recorded announcement. A phone number listed for his home in Rancho Murieta is disconnected.
Courson serves on the board of directors for the Mortgage Bankers Association and was appointed by Governor Schwarzenegger to the board of the California Housing Finance Agency.
One of Courson's former employees was sarcastic in an email message to News10. "I have two small children and now I have no money, no job and no health or dental benefits," wrote the former employee. "Let's give a nice BIG HAND to the MAN for all of his major accomplishments."
By all accounts, Central Pacific Mortgage is a reputable business that got caught up in a real estate market that has now turned sour.
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[Mike] McGee [a past president of the California Mortgage Brokers Association] said over the past few years, companies like Central Pacific Mortgage started offering high-risk mortgages to people with poor credit. Now, with interest rates rising, people are unable to make their payments, banks are foreclosing and Central Pacific Mortgage apparently got caught in the middle.
The Sacramento region was the ninth weakest housing market in the country during the fourth quarter of 2006, according to a report [pdf] released today by the Office of Federal Housing Enterprise Oversight (OFHEO). The Sacramento housing market ranked 274 out of 282 markets for price appreciation, according to the government's House Price Index (HPI). For the first time since 1997, Sacramento's HPI declined on a yearly basis, falling 2.41%. (HPI typically lags other price indicators.) That decline pushed Sacramento onto HPI's "Bottom 20" list for the first time during the current housing cycle. Historical graphs of Sacramento's HPI are available here.
So with Sacramento's HPI having peaked one year ago, how does the current housing bust compare with the one experienced by Sacramento during the 1990s? According to OFHEO historical data [xls], home prices declined 2.34% in the first year of the 90's housing bust. So in review:
