Peer Pressure Not to Buy?

From the Sacramento Business Journal:

Rather than drop prices to entice buyers in less time, John Leonard slashed prices on 22 new homes he built in West Sacramento to sell them in a day -- he hopes in less than an hour. Leonard is owner of Leonard Development Co. Inc. of Sacramento, and he's hired a public auction company to sell homes in his River's Side at Washington Square project quickly.

He's not being forced to sell. The project is still current with its loans. But people simply are not buying them. "There isn't permission for people to buy a house. People's peers, parents and family won't let them feel good about buying. Everyone says, 'Wait a little longer and the prices will come down,' " Leonard said. "The carry cost on the project is not insignificant. We decided on the auction to expedite the sales."
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Hundreds of people have toured the homes, but no one is willing to pull the trigger and buy one. Leonard chose to go the auction route to force the issue. "I wanted to take an aggressive approach to make people come out of the woodwork," he said.

From the Modesto Bee:

Sellers are eager to make deals, and buyers are in control, but there's nary a real estate sign in sight.

Welcome to the new and used vehicle market, where many Northern San Joaquin Valley dealers are experiencing the same slowdown seen in housing. What happens in auto sales often follows housing markets, dealers said. And that's especially true now, they said, because fewer people can refinance their home loans and use the money to buy a car or truck. "That was driving the market," said David Hillier, who owns Hillier Ford in Escalon.
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When housing prices were soaring, many homeowners took equity out of their homes, by refinancing or getting a second mortgage. They often would use the money, which is tax deductible, for vehicles and other big-ticket items.
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Edmunds.com spokesman Chintan Talati said consumers are taking a break on buying vehicles, just as they're stepping back on buying houses. "Housing is such a large part of everything," said Talati, adding that vehicle sales have slumped the most in places where housing has slumped the most -- such as California.
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[Jorge] Elizalde [owner of El Tio Auto Sales] said he's also noticed that -- perhaps because so many housing loans have failed -- banks are hesitant to give car loans. So he's financing more loans himself.

Also from the Modesto Bee:

Home sellers are not automatically turning up their noses at offers that come in far below their asking price these days as prices stagnate and the inventory of homes for sale remains elevated. Realtors and other experts in the Northern San Joaquin Valley said they're seeing more offers these days that come in well below the asking price. Sometimes, sellers are accepting them.
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There's a real risk the offer will insult the seller to the point that they'll refuse to counter, Realtors say, and the seller easily could make the assumption that the buyer isn't committed to making a deal..."When you're making the offer, if you justify that offer with outside data, then it's much less likely to be perceived as being an insult or (the buyer) not as serious," he [Jon Boyd, president of the National Association of Exclusive Buyer Agents] added.
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Buyers even may write a letter to the sellers to make their point, as they did when the market was hot and they aimed to stand out from the crowd, [Dick] Gaylord [president-elect of the National Association of Realtors] said. That way, they can detail what they like about the house but express their fear of future dropping values.
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But sellers shouldn't take a low bid as the equivalent of a slap in the face, said Chad Costa, a Modesto Realtor. "The first reaction is to say, 'how insulting,' and I say that it's just how the market is right now," said Costa, with Re-Max Executive.
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Stan Lynam, who recently retired as a Realtor after 22 years, including 10 in Modesto, said sellers who receive several low bids may opt to pull their house off the market. He said a client recently reduced the asking price by as much as 15 percent, and still got few nibbles. So the client decided to wait it out.
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Valley realty experts...acknowledged that what's a low offer now could be right in line six months from now if prices keep falling.

From the Sacramento Bee:

Never mind that many people will be on a final summer road trip or making eggs and bacon at mountain campgrounds this weekend. Real estate agents will be holding open houses over Labor Day weekend, even if foot traffic is less than a regular weekend. Over the three-day Memorial Day weekend in May, agents hoped high gas prices might keep people closer to home and cruising open houses. With gas prices lower now, agents like Mona Gergen, a specialist in Sacramento's Pocket neighborhoods, just hope it's not awfully hot Sunday for traditional 2-4 p.m. showings.
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What's definitely not hot this summer is home prices here (especially if you're selling a house). The nation's gold standard for measuring rising and falling prices lists five Central Valley metro areas and Reno among 10 regions with the most depreciation. The report for April, May and June was released Thursday by the Office of Federal Housing Enterprise Oversight. It measures sales prices of the same houses over time. Once-booming El Dorado, Placer, Sacramento and Yolo counties ranked ninth nationally with a 6 percent decline in home prices from the same time in 2006. Bigger decreases were seen in Yuba and Sutter counties, Modesto, Stockton and Merced, which led the country with an 8.65 percent decline.

Government Ranks Sacramento Real Estate Market as 9th Weakest

The Sacramento real estate market is the ninth weakest real estate market in the nation, according to a report [pdf] released today by the Office of Federal Housing Enterprise Oversight (OFHEO). Click the image to enlarge.

The government's House Price Index (HPI) for Sacramento declined 6.1% in the second quarter of 2007. The 6.1% drop was the fifth steepest year-over-year decline since 1977, the year OFHEO started tracking home appreciation for the Sacramento real estate market.

1983 Q3: -7.42%
1994 Q4: -6.71%
1995 Q1: -6.47%
1994 Q3: -6.25%
2007 Q2: -6.07%

Since peaking in 2005, Sacramento's HPI has dropped 7.0%. Prices have continued to fall at a more rapid pace than the housing bust of the 1990s. At this stage of the '90s bust, Sacramento's HPI had declined 3.9%.

From 'Making Lots of Money' to 'Waiting Tables at Denny's for $8 an Hour'

From the Sacramento Bee (hat tip Cymst & Fanchew):

The downturn in the housing market -- with job losses in the industry really kicking in during 2007 -- is starting to hit the region's breadwinners. "Job growth has slowed down quite a bit in the first months of 2007," said Howard Roth, chief economist at the California Department of Finance. "Construction, home sales -- it's all going down."

Which is not news to Rachel Brandon of Sacramento. She shook an emphatic "no" when asked Tuesday if she is better off than she was in 2005. "My career for the past 10 years was in the mortgage industry," said Brandon, who is 39. "I have a license to do loans. Two years ago I was making lots of money -- I was making deals in my pajamas from home. Now I'm waiting tables at Denny's for $8 an hour."

Still, she's optimistic. "I really like my job at Denny's," she said. "I'm learning quite a bit, and someday I'd like to have my own cafe. But, two years ago if you asked me if I'd be working for $8 an hour today, I'd have said 'God, no way.'"

From the Folsom Telegraph (hat tip Patski):

Folsom and El Dorado Hills seem somehow insulated from the recent shockwave of declining home sales reverberating through other parts of the Sacramento region.
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Still, potential homebuyers in the area, spurred by the nationwide media blitz in regard to declining home sales, are more apt to take a hard stand in search of a real deal. "Some buyers have the mentality right now that they think they have to lowball on home sale offers," said Jeff Traxler, a realtor for REMAX Gold in El Dorado Hills..."The psychology of the buying public right now is that if they buy something they want a good deal," [Patrick] Hake [of REMAX Gold in Auburn] said. "A lot of people want to negotiate the asking price down. There are a lot of lowball offers going out, but most are being rejected.
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Then there are buyers who believe they can predict when the real estate market will actually bottom out. "There are people trying to time and buy at the perfect moment," Hake said. "The few people who get lucky and do that will probably tell people how smart they are for the rest of their lives. But the truth is, the market could go back up for six months and then go right back down again."

As a general rule, real estate agents are trying to put a positive spin on the situation.
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Although Folsom and El Dorado Hills home sales numbers have declined slightly, there's certainly no widespread panic among realtors in this area. 'It's certainly not a positive thing to see sales numbers go down," Hake said. "I'd much rather see the numbers go up. I'm not making the assertion that the market is increasing in Folsom by any means. I'm just making the assertion the Folsom market is not having as many problems as some of the other areas."

From the El Dorado Hills Telegraph:

Folsom and El Dorado Hills are located in the ninth worst market - the Sacramento metropolitan area - for home foreclosures nationwide, but they've been spared the carnage somewhat...Sacramento County saw 3,840 notices of default filed between April and June 2007, a 184 percent jump compared with the same quarter in 2006, reported DataQuick. El Dorado County, with 222 notices filed, saw a slightly smaller increase of 158 percent. But Jim Foster, who works with JM Morgan Funding in Folsom and lives in El Dorado Hills, said neither area was as hard hit as regions like Elk Grove, Lincoln, and South Sacramento.
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When foreclosures do occur in Folsom, they're mostly among younger couples who financed their house with no payment down and adjustable-rate mortgages - the phenomenon that's rendered fast-growing areas like Elk Grove rife with lost homes...Foster knows of two or three Folsom couples in their 20's who allowed the bank to foreclose on their homes, opting to rent instead. "They weren't even behind on their mortgage," Foster said. "They just figured they could rent a house for half the payment, and twice the square footage."
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El Dorado Hills is a slightly different animal, he said. On his own street, Powers Drive, Foster has watched foreclosures on at least two $1 million-plus homes in the past six months. "A lot of these people were dialed into real estate as mortgage brokers or builders and this industry has taken a big hit," he said. "Some are making one-tenth the money they made before."

From the Merced Sun-Star:

As usual, Merced's poverty rates ranked well above state and national averages, which both held steady at about 13 percent. What's different about this year's data is that Merced County is faring worse than its Central Valley neighbors.
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Simon Weffer, a sociology professor at UC Merced, linked Merced's grimmer poverty picture in part to the recent housing boom and subsequent bust. Merced's building activity and home sales reached record highs in 2005, raising incomes and lowering poverty along the way. Now the slowdown is hitting Merced harder than its Central Valley neighbors. "It's important to realize that what's going on in Merced is not happening in other counties," said Weffer. "Part of it is that the housing market hasn't collapsed as badly in other counties.

Lincoln Repos

Thanks to Jeff for sending in these photos.

"Waiting for Home Prices to Bottom Out"

UPDATE: LA Times blogger Peter Viles discusses the Central Valley's "huge housing bubble" on CNN.com.

From ABC 30:

As home values continue to fall many qualified home-buyers in the valley are just sitting on the fence, waiting for home prices to bottom out.
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The numbers are very disconcerting to valley homeowners. The median price of a home in Fresno dipped 7.2 % from $305,000 a year ago to $281,000 last month. Clovis saw an 11% drop while Sanger prices plummeted 14%...The median price of a home in Merced dropped from $350,000 a year ago to $275,000 last month. That's a 21% fall. Los Banos homes are down almost 20%.

From the Redding Record-Searchlight:

July home sales in Shasta County reached their lowest level in 12 years. DataQuick Information Systems reported Monday that 169 homes closed escrow last month, the fewest since July 1995, when 165 homes sold, and down from 231 sales a year ago...July was the fifth consecutive month the median sale price for all homes dropped on a year-over-year basis, DataQuick said.
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Greg Lloyd, incoming president of the Shasta Association of Realtors, said borrowers need to bring more income documentation to the table than they did a year ago. During that refi and subprime craze, you could be a dead dog for four days and still get a loan,” Lloyd said. “Now it’s coming back to where lenders want full or partially full documents before they make a loan.”
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Rick Goates, a Redding real estate agent, said sellers need to realize they have competition. “The days are long gone of throwing a high number up on a home and hoping it sells,” he noted.

Meanwhile, buyers can wait for prices to drop, but if they find the home they like, don’t be afraid to make an offer, Goates said. “What have you got to lose?” Goates said. “It would be a shame to miss out . . . just to save a couple of thousand.”

CAR Report July 2007

From the Sacramento Business Journal (hat tip Jeff):

Home sales in the Sacramento area dropped 10.2 percent in July from June and are down 23.7 percent from a year ago, according to an industry group's report on Monday....The median price of a detached, single-family home sold in Greater Sacramento last month was $346,220 -- 1.5 percent less than in June and 8.4 percent less than a year ago.

Change from peak: -12.2%

Ragging on "Chicken Little"

From the Sac Rag:

After 1 or 2 or 1,348 [flipper in trouble] listings don’t you sort of get the picture that folks are having a hard time flipping properties? It’s a down market, we get it. I wonder if sacbee.com sponsors this Web site because they love them some piling on about the housing market.

The Sac Rag, July 2005:

...[C]heck out the Capital region home sales by zip code and tell me you’re not a bit surprised. Specifically, the median price paid per square foot. Not bad for a cow town, huh?

'There's nothing to compare it to'

From the New York Times (hat tip Calculated Risk):

The median price of American homes is expected to fall this year for the first time since federal housing agencies began keeping statistics in 1950...The reversal is particularly striking because many government officials and housing-industry executives had said that a nationwide decline would never happen, even though prices had fallen in some coastal areas as recently as the early 1990s.

From the Sacramento Bee:

In a sense, New Century and other fallen lenders -- as well as homeowners who are losing their properties -- are victims of history. Until now, most experts say, the housing market had never undergone a serious swoon as long as the economy was still growing. Lenders took comfort in the argument that only a recession could do major harm to the housing sector and ignored signs that the market was going cold.
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Mortgage specialist Heather Fern-Luzzi, with two decades of experience in the business, thought she'd seen it all. But this downturn, which just claimed her job, has her baffled. "There's nothing to compare it to," said Fern-Luzzi, the Roseville branch manager of recently collapsed mortgage lender First Magnus Financial Corp. "I've seen it since the 1980s -- I've been in downward markets and there's always been the light at the end of the tunnel," she said as she packed files for shipment to First Magnus' headquarters in Arizona. "This one seems to be different."
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Loose loans have made the collapse unusually swift. Defaults and foreclosures have increased at a much faster pace than in previous slumps. In the 1990s, even with unemployment soaring, it took five years for defaults in Sacramento County to double, according to DataQuick Information Systems. This time, the default volume has more than tripled in a little over a year.
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"It's more severe now; it's much faster," said Michael Carney, a professor of finance and real estate at California State Polytechnic University, Pomona, and director of the nonprofit Real Estate Research Council.

Mortgage defaults 90s v. now chart (4-county)

• 90's peak: 3,055 (6-7 years into bust)
  
• 2007 Q2: 5,201 (2 years into bust)
  

From Realty Times:

Banks, loan companies and small real estate companies are going out of business. Record numbers of home owners are going into foreclosure or attempting to sell their home "short sale" (less than what they owe). Many loan companies have stopped doing 100% loans and eliminated several other loan products, raised rates and requirements for the loans they will do.

Many have said that this market is worst than 1991 for sellers and most anyone involved in the real estate industry. I've been in real estate full time now since 1991 and I agree. We have more internet technology than we did in 1991 so more information is available to people than before and consumer confidence is at an all time low.

From the Sacramento Bee's editorial page:

As is now well known, the subprime blimp has crashed to Earth, and the wreckage on the ground includes tens of thousands of homeowners and real estate businesses that, for a variety of reasons, failed to see this crash coming.
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This page has warned since 2003 that the real estate market was being overinflated by risky and predatory lending practices, such as interest-only loans and deceptive marketing. But we failed to anticipate that when the bubble finally burst, it would not only send shock waves into subdivisions in Stockton and Elk Grove but to markets around the globe.
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Looking back, it is easy to see how this bubble burst so dramatically. Behind each subprime lender was a phalanx of financial institutions, which bundled risky loans with regular mortgages and sold them to investors. Just as many prospective home buyers imprudently failed to examine the conditions of their loans, many investors didn't realize the risks involved with what they were buying. When they did, they panicked.

From the Modesto Bee:

If all the homes for sale in Modesto were crammed on a menu, it probably would be several inches thick and weigh a couple of pounds. A recent search of Realtor.com showed 2,273 single-family homes; 197 condos and town homes; and 131 mobile homes for sale in Modesto.
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"When there's so much to choose from, you kind of get gun-shy," [Modesto newcomer Kevin] Schinmann said, "because you know there's always going to be something else to look at." And look he did. During his three-month search, Schinmann studied a couple of hundred Internet listings and toured about 40 homes. "We ended up buying the very first house we had looked at online when we were back in Chicago," Schinmann said. But between the time he initially spotted that Bayview Drive house and the day he bought it, he said, "the price dropped $130,000."

It's been that kind of market. Prices for new and used homes have been dropping as inventory has soared. Median sales prices are down more than 13 percent since last summer and sales volume has plunged about 45 percent.

From the Stockton Record:

Victoria Rodriguez was not only a thriving real-estate agent in recent years, she was honored as one the area's top-selling real-estate agents four years in a row. That was in the boom time, and that spigot shut down to a trickle nearly two years ago. Today Rodriguez is still in the real-estate field, but she's not working as an agent. As a single mother with four children, she said she simply couldn't pay her bills. This in a residential real-estate market slammed so hard that sales plummeted over the months from nearly 900 in May 2005 to a low of 268 last month - a 70 percent decline in business.
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The Central Valley Association of Realtors, which covers much of San Joaquin County and Stanislaus County, reported that membership is down about 14 percent since January. Marian Norris, president of the group, said the market shift was partly the reason why she closed her Real Estate Gateway agency in the spring.

Also from The Record:

At first glance it looks likes a dream business plucked straight from a late-night infomercial: buy foreclosed homes and turn them around in a short time for a big profit. It's the American dream.

But in the case of Stockton's Iftikhar Ahmad, federal agents suspect it was too good to be true. Ahmad is accused of spearheading a ring using his company I&R Investment Properties to illegally "flip" more than 100 homes, allowing him to reap millions of dollars along the way...The one common thread in all the deals was Ahmad who bought up Stockton homes in foreclosure - often paying cash - and sold them at inflated prices to "straw buyers," or fake buyers, created with the help of stolen identities or fake documents, the affidavit said.

Ahmad supposedly sold the homes to some of those named in the affidavit who obtained subprime loans using the false identities. That allowed them to put little or nothing down to start. Most of the homes went into foreclosure within months when nobody made the loan payments, the affidavit says. Ahmad amassed $8.6 million in the past decade....

"This is happening everywhere in the country, and it's easy to do," said Ralph Roberts, a Detroit-based realtor who has published widely on property scams...In mortgage scams, lenders lose the most money, but neighbors of the foreclosed homes who are left looking at empty, unkempt homes suffer most, Roberts said. Their property values drop, he said, describing the scams as a "cancer of the American dream."

Doom & Gloom or Doom & Good?

Chief economist for the California Building Industry Association, Alan Nevin, North County Times:

So why is the new housing construction and the resale housing market sagging?...I think the answer has to do with psychology and consumer confidence...I think the real answer is that at some magic moment in 2005, potential buyers looked at the highly aggressive pricing of home sellers (new and resale) and said to themselves: "That's enough. I won't pay these silly prices and I'm going to wait until they return to some form of normalcy." And that is exactly what potential buyers are doing.

In other words, it has nothing to do with Econ 101 and supply and demand. The basic demand is still there because, like everywhere else in the nation, the American Dream is to own a home. On the other hand, the dream doesn't include payments that are destructive to one's lifestyle. So what we are clearly seeing now is a back-off from the silly prices of 2005.
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What does it take for the market to correct itself? Primarily it takes a renewal of confidence and most probably a dose of optimism from the local press.

The National Association of Realtors's Walter Malony, Housing Wire blog:

The constant drumbeat of accentuating the negative in the lion’s share of news coverage, sometimes without context, is, in fact, having a negative impact on home sales. Starting about a year ago, we began to hear complaints from members that buyers were backing out of contracts after reading gloomy headlines. It appears that this is becoming a self-fulfilling prophecy, and a recession is a distinct possibility.

My background is in the news media. One of the things I have observed about a recession is that once it begins, advertizers pull back from media buys. The second thing that happens is managers are pressed to cut costs, and the first jobs that are eliminated are in the newsrooms. Has the media given any thought to that?

From the OC Register:

O.C. builder consultants Real Estate Economics are telling clients ....

"With the current market disruption still in full swing, the media machine generates news stories almost daily about the end of the world being caused by the housing industry. Based on what we’re reading, it’s pretty clear that our industry is the root cause of a stock market crash, the war in Iraq, earthquakes in South America and most forms of cancer. While some of those might be true, and the down cycles inherent in the housing market are always painful, all this media coverage seems to be heavy on 'doom and gloom' and a little light on actual analysis."

From the Redding Record Searchlight:

We were accused -- again -- of tanking the real estate market. In an Aug. 12 Letter to the Editor, developer Karen Margrave bemoaned that every day she opens the paper there's more "doom and gloom about the construction and real estate market." "Maybe the Record Searchlight should fire all its reporters and just go to online news and do a streaming feed from RealtyTrac ...," Margrave quipped.

From Time Magazine:

The last time we had this feeling of financial vertigo was when the Internet bubble popped seven years ago. But this is much worse: the value of our homes is collapsing. For generations, rising home prices have been central to our general sense of well-being.
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Since most families own their homes, the country is happier when real estate prices are going up. But it is healthier when prices are going down. Look at it this way: in the housing market, people fall into three categories. Some, mostly young folks, are trying to buy their first home. Some, at various stages of midlife, own a home but will trade up someday, or at least think about it. And some, mostly older, are trying to sell and downsize. Who is served by soaring house prices? Not the first group: rising prices make it hard for those people to get into the game. Not the second group: what it will have to pay for a bigger house is probably increasing faster than what it can get for the current one.

The only clear beneficiaries of rising house prices are those, generally older, who want to sell their home and buy a smaller one or none at all. These people, on average, have benefited the most from the spectacular rise of real estate prices over their entire adult lives. If they have to forgo part of that windfall, it is no tragedy.

If they borrowed against a value for their house that turns out to be fictitious and spent the money on ephemeral things like vacations, as the commercials urge them to do, that was foolish--in some cases, maybe even tragically foolish. People want the government to do something, and presidential candidates are beavering away at plans. But any plan that would prevent home prices from declining would be foolishness squared.

Sacramento Real Estate Market - August 2007 Water Cooler

Post off-topic links, observations, and stories about the Sacramento real estate market here. Please read the comment policy before posting.

Artificial Price Hikes, Greed, Layoffs, and Feng Shui

From the Sacramento Bee:

"Closed" in real estate has long meant the moment when a home loan was approved, escrow was finished, buyers got keys and everybody got a nice commission. Now it likely means the office is empty and your job is gone.
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Exact figures on how many people in the Sacramento-area mortgage industry have lost their jobs aren't available, but the number is likely several hundred...Already gone is the Roseville branch of Houston-based Aegis Mortgage Corp., with an estimated 50 to 60 employees losing their jobs. Gone, too, in the same Douglas Boulevard building is the Roseville branch of Scottsdale, Ariz.-based First Magnus Financial Corp. Farewell to 20 jobs...Those closings came after lights also went out in the Folsom branch of American Brokers Conduit. The number of employees let go is unclear.
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This week brought more reports of area mortgage office closings. On Monday, Sacramento employees of GreenPoint Mortgage received news that their office will soon be history...On Tuesday, employees at Accredited Home Lenders offices in Sacramento, Roseville and Folsom also got word their offices will likely close by Sept. 5.
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[Heather] Fern-Luzzi of First Magnus remembers the mortgage business during the housing boom as practically euphoric and populated by newcomers attracted to the commissions..."We got a lot of people into it because they were greedy."

Also from The Bee:

With almost 16,000 existing houses for sale in El Dorado, Placer, Sacramento and Yolo counties, it takes all the mojo you can muster to make your house stand out in the crowd. If yours has sat on the market for a while or had an escrow fall through, it might be more than supply and demand. A pair of Lake Tahoe authors say you might have a feng shui problem.

From the Modesto Bee:

Statistics documenting the challenging reality faced by new home builders in the Northern San Joaquin Valley were shared this week with members of the construction industry. Sales are down. Prices are down. And plans for future projects are dwindling.

That was the gist of Stephen Smiley's presentation at the Building Industry Association of Central California's an-nual meeting of purchasing agents, subcontractors and suppliers...He predicted new home sales throughout Stanislaus, San Joaquin and Merced counties may remain slow despite price cuts and purchase incentives from builders.

"We'll really be fortunate to see 5,000 sales this year," Smiley said Wednesday. That's less than half as many homes as sold annually 2003 through 2005 in the three counties. "But our expectation is to see the market ticking back up a bit next year." Prices may continue to fall, however, because the region's builders are stuck with about 637 completed homes waiting for buyers. Smiley said such "standing inventory" was virtually nonexistent during the 2000-'05 building boom.
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Because of the sales slowdown, Smiley said, many big builders have curtailed construction plans in the Northern San Joaquin Valley. "If you're trying to sell land, there aren't many people buying," he said.

From the Merced Sun-Star:

Wander into the sales office at the Sandcastle subdivision on Gerard Avenue and you'll find a whopper of a deal: a $90,000 price cut on a four-bedroom house. But even with bargains like that, Merced can still lay claim to this dubious distinction: it remains one of the least affordable housing markets in the country.

For the third year running, Merced clocked in near the top of a nationwide ranking of the least affordable housing markets released this week by the National Association of Home Builders. Among smaller cities, Merced ranked as the second- least affordable housing market in the country, behind Salinas. That means that only 3.8 percent of the homes sold here during the second quarter of 2007 were affordable to families earning Merced's median income of $46,800.
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During the second quarter, Merced's median home price fell to $296,000 -- down from the high of $376,000 in 2006. But even with the price plunge, the gap remains vast between what houses cost and how much families here can afford to pay. One reason: while Merced's housing prices spiked into the ionosphere during the recent housing boom, local families did not see a similar rise in their incomes. Housing prices surged by about 75 percent between 2004 and 2006, but household incomes climbed only five percent.
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[O]n the price side of the equation, Merced is still suffering the effects of an artificial price hike created by out-of-town investors, said real estate broker Carole McCoy. "We had a false increase in value driven by investors coming in from out of the area," she said.

Sacramento Housing Affordability Index

The National Association of Home Builders (NAHB) and Wells Fargo put out a quarterly affordability index. The data is available here. Here's their explanation of the index:

The Housing Opportunity Index (HOI) for a given area is defined as the share of homes sold in that area that would have been affordable to a family earning the local median income based on standard mortgage underwriting criteria...NAHB assumes that a family can afford to spend 28 percent of its gross income on housing; this is a conventional assumption in the lending industry...The monthly principal and interest that an owner would pay is based on the assumption of a 30 year fixed rate mortgage, with a loan for 90 percent of the sales price (i.e., 10 percent down payment). The interest rate is a weighted average of fixed and adjustable rates during that quarter, as reported by the Federal Housing Finance Board.

Peaking at 70.5% in the first quarter of 1998, the share of affordable homes in the Sacramento region plunged to 7.3% in the last quarter of 2005. Affordability has started to recover as home prices have fallen. It now stands at 15%. Any guesses as to how high the index will rise before home prices bottom out?

"Dismal State of the Housing Market"

From the Central Valley Business Times:

Despite foreclosure rates that are among the highest in the nation, parts of the Central Valley have some of the least affordable housing in all 50 states, according to a report Thursday from the California Building Industry Association...Virtually every metropolitan area in the Central Valley is among the nation’s 30 least affordable areas, says the report.

Merced, which was ranked third in the nation this week by RealtyTrac for its rate of foreclosures, has just 3.8 percent of its housing priced so a family with the median income in Merced could afford to buy it, says the CBIA. That puts Merced as the third least affordable place in the country, exceeded only by Salinas, in second, and the Los Angeles-Long Beach metro area in first place, according to the quarterly report compiled for CBIA by the National Association of Home Builders and Wells Fargo.

Modesto, with only 7 percent of its housing “affordable” for the median income, is ranked tenth on the CBIA list. On RealtyTrac’s foreclosure list, it’s ranked fourth.

Other Central Valley metro areas and where they rank on the affordability index, with the foreclosure ranking in parentheses, are:

Stockton, which is 15 from the bottom in terms of affordability, is second in the nation in terms of its foreclosure rate in July.

Sacramento, the only other Central Valley metro area to be in the nation’s top ten foreclosure cities (it was 9th), is ranked 25th least affordable market in the country.

From the Nevada Appeal:

Median real estate prices in Nevada County dropped more than 9 percent to $425,000 in July compared to a year earlier, a real-estate tracking company has confirmed...“Things just aren’t worth as much as they used to be,” said Teresa Dietrich-Treco, a Realtor from ERA Cornerstone Realty Group, with offices throughout the county.

From the Merced Sun-Star:

A local real estate agent drove a stake into the heart of a controversial housing project Wednesday morning, ending its long fight for survival. For sale signs advertising the infamous 379 acres where Atwater Ranch was once set to prosper were pounded into the ground Wednesday morning....Atwater Ranch would have added an estimated 4,500 residents to the south end of Atwater....

Florsheim Land Co. spokesman Brian Lange confirmed that the project has been abandoned, based on the real estate market's flatlining. "There really is no indication of short-term improvement," he said. "It's very hard to gauge where we'll be a year from now."
...
News of the project's demise was mixed in Atwater. Some weren't surprised, given the dismal state of the housing market, while others were saddened that the development has disappeared...Mayor Pro Tem Lesa Rasmussen said she thought the real estate market had been the cause of the project's demise.

'Kind of a Real Estate Bust'

From the Sacramento Business Journal:

San Diego-based sub-prime lender Accredited Home Lenders Holding Co. said Wednesday it is not taking any new loans and it is closing "substantially all" of its 60 lending offices and five support locations as of Sept. 5.

Accredited has retail branch offices in Sacramento, Folsom and Roseville, and it has a centralized retail office in Sacramento.

The moves are part of a restructuring in response to turmoil in the mortgage industry. Those moves will cost 480 people their jobs.

From the Inman Blog:

What a week. Since Friday, banks and mortgage lenders have announced more than 13,000 layoffs.

From the Associated Press (hat tip Sonoma Housing Bubble):

...[M]ore than 25,000 workers nationwide...have lost jobs in the financial services industry since the beginning of the month -- with more than half coming since last Friday. With few exceptions, the cuts are the direct result of woes in the nation's housing market.
...
Since the start of the year, more than 40,000 workers have lost their jobs at mortgage lending institutions, according to recent company layoff announcements and data complied by global outplacement firm Challenger, Gray & Christmas Inc. Meanwhile, construction companies have announced nearly 20,000 job cuts this year....

It's an employment collapse that threatens to rival the massive layoffs in the airline industry that followed the Sept. 11, 2001, terrorist attacks, when some 100,000 employees lost their jobs.

From the Roseville Press Tribune (hat tip Jeff):

A downturn in property values is showing up on Placer County's assessment rolls, with a drop in assessed values taking a bite out of growth. Placer County Assessor Bruce Dear told the Board of Supervisors at a budget workshop Tuesday that the county's assessment roll increased from $52.3 billion last year to $56.8 billion - an 8.52 percent jump. But the $4.5 billion increase for the year would have been nearly $1 billion more if real estate values hadn't decline, forcing a downward adjustment on about 18,000 mostly residential properties.
...
"The market activity in the spring was kind of a real estate bust," he said. "It suggests the numbers will continue to decline significantly in this assessment roll." For a county that had experienced assessed value increases of never less that 12.76 percent a year since 2001, this year's 8.52 percent rise has already spurred county budget officials to warn that the slowdown in property tax revenue could escalate in the next two years.
...
Sacramento County discontinued offering medical and dental subsidies retiring after May 31 because of a projected $33 million shortfall. El Dorado County is reducing its workforce by 26 positions through early retirements and layoffs, he [Placer county CEO Tom Miller] said.

Beyond Mortgages

From the Wall Street Journal:

It's not just mortgages. As it gets tougher to land a home loan, some people are also finding it harder and more expensive to get other types of consumer credit. Some lenders, such as USAA, are nudging up credit-score requirements across their auto loans, credit cards and personal loans. Bank of America Corp. and Capital One Financial Corp. recently raised fees and interest rates for some of their credit-card customers. And this month, Citigroup Inc.'s CitiFinancial Auto started charging higher auto-loan rates for borrowers with less-than-perfect credit.
...
Nationally, credit-card delinquencies are relatively low at 4% and haven't risen significantly in the past three years. However, in certain markets, especially those that have been hit hard by a decline in home values, delinquencies have spiked higher. In Fort Myers, Fla.; Port St. Lucie, Fla.; and Stockton, Calif., for example, delinquencies have jumped about two percentage points in the past year to as high as 5%, according to an analysis by Equifax Inc. and Moody's Economy.com.

"If [lenders] see a household start to go late on payments, they're going to be much quicker to respond," says Mark Zandi, chief economist at Economy.com. "They may reduce the size of the credit line or may raise the interest rate. They're responding much more quickly to any signs of stress."

DQNews July 2007 Results (Take 2)

Let's try this again. Year-over-year (yoy) change in median prices for the 4-county area (resale single family residences and condos as well as new homes):

• El Dorado: -0.94%
• Placer: -6.52%
• Sacramento: -11.10%
• Yolo: -5.37%
  

Sacramento County's median price has now declined 14 consecutive months on a year-over-year basis. The number of California counties with yoy declines has doubled since last July (from 11/32 to 22/32). Five counties registered double-digit drops.

Affordability Equilibrium

From the OC Register:

O.C. real estate consultant John Burns is telling his clients: "For prices to return to their historical median ratio of housing costs/income, national prices would need to revert back to mid-2004 levels."...The timing varies significantly by market, however.
...
[H]ere’s a look at the top markets in the U.S. and what period’s price level would return these towns to Burns’ median affordability equilibrium:

2003 Q1: New York, NY; Orange County; Sacramento

From PRNewswire:

Six California metropolitan areas reported foreclosure rates among the top 10 in July: Stockton at No. 2; Merced at No. 3; Modesto at No. 4; Vallejo-Fairfield at No. 5; Riverside-San Bernardino at No. 8; and Sacramento at No. 9

From the Merced Sun-Star:

The Merced City Council took aim Monday night at a growing nuisance: foreclosed properties falling into disrepair and blighting city neighborhoods. At the suggestion of Councilman Rick Osorio, the council directed city staff to look at ways the city could better maintain empty houses.
...
Osorio, who is running for mayor, said when homeowners move out or abandon properties in foreclosure, the empty houses become magnets for a host of problems. With water turned off, grass turns yellow and becomes a fire hazard. Stagnant water in swimming pools becomes a breeding ground for mosquitoes. Worst of all, dark houses with no signs of life houses attract vandals, drug dealers, and other criminals, said Osorio.

"In order to protect our citizens, we need to have some type of emergency ordinance so we can go in there and maintain the properties," said Osorio before Monday's meeting...City Attorney Greg Diaz said the his staff would look at ways the city could maintain abandoned property on an ongoing basis and still be reimbursed for those costs.
...
[Councilman Jim] Sanders, who heads a non-profit that organizes Neighborhood Watch groups, said empty houses in disrepair have become a top complaint at Neighborhood Watch meetings over the past year.

1 Year of Inventory

Update: TrendGraphix July 2007 report

From the Sacramento Business Journal:

Existing home sales dropped last month in the Sacramento region, and the median home price fell [month-over-month] in three of the four counties, according to a report released Monday. It was a mixed bag of mostly disappointing news for the hard-hit housing market, as home prices and sales dropped -- and the number of homes listed overall reached a record in July, according to Trendgraphix, a division of Lyon Real Estate. All four counties have at least nine months of inventory of homes, with Sacramento topping the list at 12 months, meaning at the current pace it would take a year to sell all the homes on the market.

Escaping Sacramento as Swarms Held at Bay

From the Sacramento Business Journal:

It might seem counterintuitive that apartments are suffering. Families losing their homes in a flood of foreclosures have to live somewhere. But [Charles] DeLoney DeLoney [a multifamily broker with CB Richard Ellis] and others point out that there's now a "shadow market" of homes that are rented out after owners fail to sell them. Add to that condo reversions, where units that were once for sale are now being rented out as well.

Tom Cross, manager of Star-Crossed Properties, which he describes as a "blue-collar" complex in Arden-Arcade, said the housing market had a direct impact on his property when several out-of-work construction workers moved out starting in January, presumably to find jobs elsewhere. "We got hit with eight vacancies in one month," he said. But he said he believes the market is not crashing, just landing softly.

David Harrison, a senior investment adviser with Sperry Van Ness who concentrates on the multifamily market, said there's been a lull in investment activity in apartment buildings while the market sorts itself out. Realtor friends have said foreclosed-on families might be moving to other areas. "They want a fresh start," he said.

From the Lodi News-Sentinel:

Inside Lodi's tony Sunwest subdivision, "for sale" signs dot nearly a dozen of the neighborhood's well-kept lawns. Some of those signs have become fixtures in front of the two-story mansions, staying as long, or longer, than anywhere else.

The high-end of the area's housing market — from sprawling ranches in Lockeford and Clements to river-view palaces in Acampo — has sputtered this summer, mimicking the rest of the region's slowdown. "It's the toughest market to move — anything over $1 million is sitting six months, even at a reduced price," said Pam Murray, a real estate agent who specializes in the region's pricey homes and ranches. "There's a shortage of buyers in that price range," she added.
...
Potential high-end buyers — often retirees or families from Southern California or the Bay Area — haven't swarmed the area this year, looking to buy country properties, Murray noted. They've struggled to sell their own homes in their areas. "Our clients that would have been coming up here in droves and raising our prices — they're not able to close on their properties, and that's really slowing us down," she said.
...
"The Central Valley is not going to look good for the next couple of years," said Thomas Davidoff, an assistant professor who specializes in real estate at the Haas School of Business at the University of California, Berkeley. "Five years out, I think things will be fine and dandy," he added.

From the Sacramento Business Journal:

A community bank has foreclosed on a high-end Rocklin condominium townhouse complex, the second luxury condo complex to collapse in Rocklin in a year. The Terraces at Stanford Ranch featured 132 condos in 29 buildings. So far, four buildings are completed, along with the pool, said Pete Guisasola, Rocklin's chief building officer.
...
During the run-up of housing prices from 2000 to 2005, many people were getting priced out of homes in south Placer County. Developers responded and started building condominiums. Many of the entry-level projects have sold, but those targeting high-end buyers have struggled, said Bruce Slaton, president of SacramentoCondos.com. With all the negative publicity in the housing market and the subprime disaster, few people are interested in buying anything, Slaton said. "Prices are falling, and now you can find some single-family homes in Rocklin for less than they were asking for the condos," he said.

Also from the Business Journal:

New-home prices and sales continue to slide in the Sacramento region, as the housing market struggles, according to a report released Friday. The median price for new single-family homes dropped 10 percent to $418,000 in June, from $464,990 a year ago, according to the California Building Industry Association and Hanley Wood Market Intelligence report.

From the Stockton Record:

If it weren't already tough enough in the home sales market, the recent rash of grave news coming from the credit sector and an antsy Wall Street are putting more pressure than ever on the real estate sector. Some of the news about credit woes affecting investors and major lenders is even spilling out of the housing sector, where the trouble began piling up beginning this spring with many subprime loans going sour.

Even though there hasn't been a whisper of bad news from the commercial real estate sector, deals in that field are harder to make these days because of tightening credit standards as investors worry about all types of loans, said Randy Thomas, a Sperry Van Ness commercial real estate broker in Stockton. Commercial lenders are re-examining their loan commitments and loan procedures, he said. A lot of commercial loans are funded from the same pool of resources as subprime residential loans, Thomas said, and that means tighter credit standards.

From 'Biggest Boom' to 'Biggest Fall'?

From the Sacramento Bee:

Greater Sacramento's unemployment rose two-tenths of a point, to 5.4 percent. That followed an increase of four-tenths of a point in June...[W]hat was unusual was a 400-job decline in Sacramento's construction payrolls during what's normally the peak of the construction season. Also, the finance sector eliminated 100 jobs, reflecting cutbacks in mortgage lending and real estate.
...
On Thursday another big mortgage lender, First Magnus Financial Corp. of Tucson, Ariz., suspended operations. That will almost surely spell the end of First Magnus' Roseville office, which at one time employed 40 workers but recently had downsized to 16. "We're out of business," said branch manager Heather Fern-Luzzi. "With the crisis in the mortgage industry right now, there's not a lot of job openings in that industry." Fern-Luzzi said Magnus was the second mortgage firm to have suspended operations in the past two weeks in her office complex on Roseville's Douglas Boulevard, the center of the South Placer real estate industry. The other is Houston-based Aegis Mortgage Corp.

From the Sacramento Business Journal:

Construction -- once the fastest-growing industry during the housing boom -- dropped by 400 positions in July, unusual for the often-busy summer building activity. Many homebuilders, feeling the effect of the housing slowdown, have laid off construction workers in recent months. The dismal housing market has pounded the construction and the financial services industry during the past year. The region has about 3,100 fewer construction employees -- a 4.3 percent drop -- and 700 fewer mortgage and real estate professionals than a year ago, according to the monthly report.

From the Modesto Bee:

Stanislaus County's unemployment rate rose to 8.7 percent in July, up from 8.2 percent the previous year, according to state statistics released Friday. The bump is consistent throughout the Northern San Joaquin Valley and foothills, where all six counties saw year-to-year increases in unemployment...The housing slowdown is taking its toll on San Joaquin County, where several sectors tied to the real estate market are struggling. San Joaquin County was down 700 construction jobs from the previous year, Potter said. Professional and business services, including title companies, lost about 500 jobs. The finance and insurance sector, such as mortgage companies, was down 200 jobs.

From ABC 30:

The latest numbers from the Employment Development Department show about 9,900 people were unemployed in Merced County last month. That's 600 more than the same time last year. Local officials say the struggling housing market is partly to blame for the high unemployment rate. Frank Quintero, City of Merced Development Manager says, "With the slow down in construction, we've seen the drop as many as 500 drops in that trade....

From the Redding Record Searchlight:

Two years ago, business was thriving at Carmona's Appliance Center as the Redding retailer catered to new subdivisions and rode the real estate boom. The boom has fizzled and with it the demand for refrigerators and stoves in new homes...A year ago, Heslin's store delivered appliances to as many as 20 houses a month. "Now we are lucky to see 10," Heslin said, adding that he hasn't needed to lay off any employees but has lowered inventory and cut the store's advertising budget. "The Northern California market is in a slowdown and Sacramento is at a standstill," Heslin said.

The drop in home construction has prompted the Western Wood Products Association, which represents manufacturers in 12 Western states and Alaska, to revise its economic forecast. In the spring, the trade group predicted the demand for lumber would pick up next year. It "may be until 2009 before we see any type of significant recovery," Western Wood Products Association spokesman Butch Bernhardt said.
...
Construction jobs in Shasta County last month fell to 5,200 from 5,600 a year ago. The number of real estate jobs dropped to 800 last month from 1,200 in July 2006.
...
[F]urther signs of unrest in the housing market came last month when Benchmark Real Estate Mortgage in Redding went out of business after filing for bankruptcy. Bankruptcy filings in Shasta County in the first half of 2007 were up 39 percent -- 114 to 159 -- from a year ago, according to court records. Filings in U.S. District Eastern Court Sacramento Division, which includes Shasta County, were up 115 percent -- 2,327 to 4,996 -- in the first half of 2007.

Redding bankruptcy attorney Dennis Cowan blames the spike on the subprime mortgage crisis. "We're swamped with calls," Cowan said Friday. "They want to know how they can save their house. Many realize they made a mistake but others claim they were misled."

Cowan said he has had about five real estate agents file for bankruptcy through his office in the past six months.
...
Cowan has been a bankruptcy attorney in Shasta County for more than 40 years. He thinks the housing downturn is another cycle. "The boom we had this time was the biggest boom I had ever seen, so it will lead possibly to the biggest fall," Cowan said.

From the Washington Post:

Research suggests that severe financial crises tend to follow the rapid expansion of credit. The longer the credit boom endures, the more severe the hangover. Furthermore, because real estate is not liquid and the process of foreclosing on defaulted mortgage loans is time-consuming (as well as politically problematic), the economic downturns that follow property booms tend to be deeper and to last longer.

The experience of the U.S. economy after the 1920s and that of Japan in the 1990s appears to confirm these findings. In both instances, the period of credit expansion lasted several years, largely involved real estate speculation, and came to involve much of the population, whether that meant plunging into American stocks with borrowed money in 1929 or buying Tokyo condos with 100-year mortgages in the late 1980s.
...
There's a good chance that the current panic will give way to a full-blown economic crisis. That's because the credit boom has been going on for five frenetic years and virtually everyone has become involved, either directly or indirectly. An increasing number of businesses, from motorcycle retailers to cellphone operators, are finding their sales affected by the subprime debacle, according to the Web site Footnoted.org. Household spending continues to exceed income by a large margin. If credit stops flowing to consumers, the economy is bound to suffer.

Many people, including Treasury Secretary Paulson, believe that the financial system is robust enough to weather the crisis. It's true that, after many fat years, banks have lots of capital. But that was also the case in October 1929.

Bank Run?

From the LA Times (hat tip Peter Viles):

Anxious customers jammed the phone lines and website of Countrywide Bank and crowded its branch offices to pull out their savings because of concerns about the financial problems of the mortgage lender that owns the bank.
...
At Countrywide Bank offices, in a scene not common since the U.S. savings-and-loan crisis ended in the early '90s, so many people showed up to take out some or all of their money that in some cases they had to leave their names.
...
At a branch near Countrywide's corporate headquarters in Calabasas on Thursday, a flood of spooked customers seeking to withdraw their certificates of deposit and money-market accounts overwhelmed the small staff. The Countrywide employees were forced to resort to taking down names and asking people to wait it out or come back later.
...
Bill Ashmore drove his Porsche Cayenne to Countrywide's Laguna Niguel office and waited half an hour to cash out $500,000, which he then wired to an account at Bank of America. "It's because of the fear of the bankruptcy," said Ashmore, president of Irvine's Impac Mortgage Holdings, which escaped bankruptcy itself recently by shutting down virtually all its lending and laying off hundreds of employees. "It's got my wife totally freaked out," he said. "I just don't want to deal with it. I don't care about losing 90 days' interest, I don't care if it's FDIC-insured -- I just want it out."

'If it's a buyer's market, who's buying?'

From the Sacramento Bee:

It was two years ago this month that some housing experts began seeing the first signs that the Sacramento region's housing boom had begun to peak. "The bell has tolled," said Lyon Real Estate owner Mike Lyon in August 2005, declaring that the era of skyrocketing home values and sales may have hit its high-water mark. Ever since, the ride for Sacramento's housing market has been bumpy and it got no better last month....Lyon today believes "this real estate market is going to be lackluster until around the end of 2009."
...
Sacramento, Placer and Solano counties in July showed some of the state's biggest year-over-year median sales price declines. Prices fell a record 10 percent from last year in Sacramento County, 8.5 percent in Placer County and 9.8 percent in Solano County.
...
July 2007 ended with a record inventory of 15,927 houses for sale in El Dorado, Placer, Sacramento and Yolo counties, reported the Sacramento property research firm TrendGraphix.
...
Rocklin real estate agent Maxine Sunada toured a client through existing homes on Alder Creek Court in Lincoln. There, six of the street's 18 houses -- built in 2004 and originally priced in the $500,000s -- were for sale. Many had dead lawns and two bore signs saying "bank repo."

DataQuick stats by county
DataQuick stats by zip code

From the News10 (also video):

The last thing the sagging real estate industry needs is would-be homebuyers who can't get a loan. The subprime mortgage meltdown is now spreading to other sectors of the market, including buyers with solid credit.
...
Try telling prospective homebuyer Brandon Robinson it's a buyer's market. "Who's buying? If it's a buyer's market, who's buying?" he wants to know. Robinson was in contract to buy a bank-owned triplex in downtown Sacramento and planned to live in one of the units. But even with a 10 percent cash down payment and a solid credit score he could not find a lender.
...
"No, this is not an isolated story," said real estate agent Michael Long who lost three solid deals in a single week because the buyers couldn't get financing. "Of all the things to happen, that would be the worst thing to happen for our market in Sacramento...."

Meanwhile, the Sacramento housing market makes another Forbes list, this time as the 3rd "worst" housing market in the country. Recently Forbes rated Sacramento as the 3rd riskiest and 6th least affordable housing market in the nation.

From the Stockton Record:

Washington Mutual has put its downtown Stockton building up for sale...The Seattle-based company said the move to try to sell the property isn't a reflection of the decline in the residential real-estate market. A sale would generate capital for the company, said Washington Mutual spokesman Tim McGarry.

From the Union Tribune:

Selling a home in Nevada County takes more than twice as long as it did two years ago, forcing many real estate agents to look for second jobs as the statewide market slows to the lowest level in 12 years..."What used to take 90 days is now taking 210 days to sell," said Teresa Dietrich-Treco, a Realtor from ERA Cornerstone Realty Group in Nevada County.
...
Since January, 538 homes have sold through the MLS in Nevada County. That's about half the sales of a few years ago, Dietrich-Treco said. "It's really having a huge impact on Realtors. A lot of people are getting second jobs," Dietrich-Treco said.

From the Modesto Bee (via the Merced Sun-Star):

[Stanislaus County Assessor Doug] Harms said home value declines are widespread. "If you bought your house within the last three years, it's probably worth less today," said Harms, whose office is busy reassessing home values to potentially lower property taxes for thousands of homeowners.
...
"We'll probably review every property that (sold) after July 2003," Harms said. "Some people are thrilled when we tell them they're getting a lower property tax bill, but I'm thinking, 'Hey, they just lost $50,000 in the value of their home.'"
...
"Inventory is continuing to go up, but buyers are kind of waiting for prices to hit a bottom," Christiansen said. More than location or condition or anything else, Christiansen said what motivates buyers are low prices.

But home prices still aren't low enough to be affordable for most northern San Joaquin Valley families, according to Darryl Rutherford, a researcher for the California Coalition for Rural Housing. Considering Stanislaus County's median-income family earns about $54,000 a year, Rutherford said median home prices would have to drop to about $185,000 to be affordable.
...
"For society as a whole, we would be better off if home prices went down further," said Rutherford, though he acknowledged such declines could be financially disastrous for individual homeowners.

Sacramento Housing Blogs Mentioned in Sacramento News & Review

"For at least the past three years, the alts were the only place you could read about the burgeoning real-estate bubble that has now popped, threatening to take the rest of the economy down with it. Forget about the Sacramento Bee, which continues to push the idea that the housing downturn is a temporary glitch even as Sacramento County and the rest of California lead the nation in the number of foreclosures."
...
"Blogging the bubble: Fortunately, readers can get the straight dope at the frothy host of local blogs and Web sites that have appeared in the wake of the collapsing bubble. For a daily update on regional housing bubble news, try sacramentolanding.blogspot.com. One of the more amusing blogs, at least for non-homeowners, is flippersintrouble.blogspot.com, which posts the prices of homes as they sell, charting both the number of days on the market and percent discount in asking price."

"How’s $451K sound for a four bedroom home in Elk Grove that languished on the market for 350 days at $799K? That’s a drop in price of 36 percent, brothers and sisters. The record number of days on the market so far? How’s 482 days sound? Sharpest drop in asking price? Forty percent. Like gravity, economics is inevitable. What goes up must come down."

Read more

Sacramento's Median Price Down 16.3% From Peak; Placer: -18.2%

The Sacramento Bee reports on DataQuick's July statistics for new & existing homes:

Sacramento-area home sales in July fell to their lowest level in 11 years while median sales prices also continued their downward drift, statistics released Wednesday show.
...
Placer County has now seen 15 consecutive months of year-over-year price declines. July's $430,000 median sales price for all homes in Placer is 18.2 percent below the county's Dec. 2005 peak of $525,000.

Sacramento County, likewise, has seen 14 consecutive months of year-over-year sales price declines. Its current $324,000 median sales price is down 16.3 percent from a peak of $387,000 in Aug. 2005, according to DataQuick.

From the Sacramento Business Journal:

Sacramento is the sixth least-affordable home market in the nation, joining a list of much-pricier cities including New York and San Francisco, according to a recent Forbes.com report. Affordability was based on the four-county region's median home price of $365,500 and the median household income of $63,750 --with only 13.4 percent of homes sold in the first quarter considered affordable for families earning the median income.

From the Sacramento Bee:

Remember the old days of down payments and fixed-rate loans? They're back. Troubled times in the nation's mortgage business are driving a back-to-basics movement for aspiring Sacramento-area homebuyers, say mortgage lenders, real estate agents and home builders. Fading away are the interest-only loans, payment-option loans and other novel mortgages that seeded the region's housing boom and made it easy to buy a house with no money down.
...
"I get 50 notices a day (from sources of mortgage funds) saying, 'We changed this. That program is no longer available. This has restrictions,' " said Jon Dobbel, Elk Grove branch manager for Gold River-based Summit Funding...
...
The bottom line: fewer buyers for an estimated 20,000 new and existing homes for sale in the capital region.
...
Interest-only loans: The only way you can get them now is by showing you can pay not only the interest but the full weight of the loan when principal is included later. Last year an estimated 28 percent of borrowers in El Dorado, Sacramento, Placer and Yolo counties used these loans to buy and refinance houses, says First American LoanPerformance.

From the SF Chronicle:

Mortgage woes have moved upstream, landing even in tony neighborhoods. The credit crunch now is hitting home buyers from all walks of life, not just subprime borrowers with poor credit. That in turn could mean fewer buyers - and lower prices.

From the Stockton Record:

Greg Paquin, president of the Gregory Group, a real estate information and consulting service in Folsom, said he isn't surprised that the metro areas of California hardest hit by foreclosures were in regions with the busiest building booms when the market was hot.

It's not the construction boom itself that set up those areas for high mortgage defaults, he said, but rather the number of investors who were buying homes for quick, high profits in a fast-rising market. "What we're finding out is that across California - Southern California included - there were greater numbers of investor buyers than we ever thought," Paquin said. When the housing market hit the wall, many of these investors found themselves unable to sell their houses at prices high enough to cover the debt incurred to buy.
...
"The foreclosures are going to get worse before they get better," he said.

20% Price Declines and Other Data Goodies

• As of June, the average asking price in Sacramento County dropped 20% since its peak in May 2005, according to TrendGraphix data available at golyon.com.
  

• The Housing Tracker website now has two years of asking price and inventory data. As of today, the median asking price for homes in the Sacramento region has declined 17.1% since August 14, 2005. Inventory has increased 109% over the last two years.

• Zillow recently released their second quarter Zindex statistics. According to Zillow, Sacramento area home values have decreased 8.2% over the past year. This time around, Zillow has included a breakdown of values by home size, but has purged the historical data.
  

• The Sacramento area is one of 25 metro areas being tracked by Radar Logic's price per square foot index. The daily index is available here [pdf] (hat tip Jon Lansner). Historical charts back to 2000 can be viewed here. The transaction count chart at the bottom of the page is also worth a look.

"Taken Over by Youths for Partying"

From News10 (also video):

As foreclosures continue on the upswing in California, there's also been an increase in people taking advantage of those empty houses...Manteca police discovered a large empty home in a newer neighborhood that had been taken over by youths for partying. Officers have found squatters in another home that was left empty by the owners.

From KCRA:

One foreclosed property in north Stockton has been on the market for 208 days, it's dropped in price from $304,000 to $233,000, a $71,000 price difference. The foreclosed homes often bear the telltale signs of dried lawns or boarded-up windows. The average foreclosure takes about 150 days to sell.

Also from KCRA:

The "All-Powerful" Bubble Sitters

From the Sacramento Bee (hat tip Jeff):

With a cool and steely patience over the past year, John and Toni Daniels have waited out a capital-area housing market buffeted by oversupply and price depreciation. They've resisted every call from a real estate establishment that says this is the time to buy. Now comes a new factor to reward their patience: the growing fallout in Sacramento from subprime lending. For the Danielses, holding a powerful upper hand in a game of supply and demand, subprime's spiraling turmoil may be one more reason to hold out for lower home prices.
...
Rising subprime-related foreclosures are pushing more houses onto an already overcrowded market. Tightened credit standards for all loans, not just subprime, are shrinking the buyer pool.
...
[N]o one knows exactly how the subprime fallout will affect the Sacramento market or the U.S. economy. But clearly, what started in March as a focus on people with bad credit has morphed into something larger, a psychological and investor malaise that dominates the whole housing market debate.
...
Analysts and industry experts can speculate all they want about subprime lending's effects on a housing market or the U.S. economy, but it still comes back to Sacramento homebuyers like the Danielses. John Daniels says he's heard the subprime "horror stories." He says he can only assume they won't help the capital's housing market. "We're watching prices of houses that we've seen on the market for a year," he says. "They've gone from $350,000 to $275,000 to $260,000."

Real estate executives say no one can guess the bottom. The Danielses have waited a year through record oversupply and now the spreading local fallout of subprime lending. They can wait a little longer. They have both the money to buy and the upper hand in negotiating. "It makes no sense for us to jump into something while prices are falling like this," John Daniels says. "Everybody wants the best deal possible. That's what it is."

Julie Jalone in Roseville & Rocklin Today:

I agree with Jim Wasserman, being a buyer with good credit in this market is a nice place to be but it also may be a reason to wait a bit longer. I know most people don’t understand what subprime means let alone the crisis in the mortgage industry that these loans have caused. But the constant media attention and reports of declining home prices make many stay away. As long as that happens prices will fall.

From the North County Times (hat tip Neil):

Let me begin by passing along my congratulations to the many people who are celebrating the current situation in the housing market. In concert with much of the national and local media, they have been able to artificially construct something that has never ---- I repeat, never ---- been done before: drive down housing prices at a time when unemployment is low, the economy is booming and consumer confidence is approaching record highs.

NC Times reader Leo responds:

This alone tells you that the real estate boom of the past few years has been a speculative bubble. Driving down prices by psychology alone is only possible when prices are supported by psychology alone. That's what a bubble is."

From CNN Money:

The binge that many housing markets went on in the early- to mid-2000s is over, and some of the hottest markets like California are now experiencing the worst hangovers...Stockton, California now leads the nation in foreclosures. Of RealtyTrac's top 10 metro areas for foreclosures, four are in Central California...Stockton recorded one foreclosure filing for every 27 households during the six months ended June 30, a 256 percent increase compared with the first six months of 2006.
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The other California cities in the top 10 were Riverside/San Bernardino [#4] (one in 33, up 198 percent), Sacramento [#5] (one in 36, up 231 percent) and Bakersfield [#8] (one in 47, up 222 percent).

From USA Today (hat tip Jeff):

For evidence of what is spooking Wall Street and wreaking havoc on the mortgage industry, one need only look at the housing market in Stockton, Calif., 40 miles south of Sacramento. During the real estate boom, Stockton was a hotbed of speculation, bidding wars, and rocketing prices. Now, foreclosures are soaring, sales are plummeting, and there is more than a year's supply of homes and condos on the market.

The housing market "is still sliding," said Larry Underhill, president of the Lodi Association of Realtors, which covers Stockton. "The buzz is there is just a ton of foreclosures, and banks are going to own a lot more property before it's over."...Underhill says he's seeing homes go under contract two or three times, and each time, the deal falls apart because "buyers can't qualify, or buyers are understandably cautious. They see property values sliding and are saying, 'Why am I doing this?' "

"Brutal Summer" for Sacramento Homebuilders

From the Sacramento Business Journal:

Dunmore Homes has told subcontractors on its projects to stop construction indefinitely, citing weaker-than-expected sales. But while job sites are inactive for now, the company is far from closing its doors, said owner Sid Dunmore. "Building has gotten a little ahead of sales," he said. "We've got to slow down a little bit and catch our breath. For the past week or so, that's what we've done. When we resume building depends on how sales go."

Also from The Journal:

First it was incentives, then price cuts. Now, homebuilders dealing with a brutal summer for new-home sales are starting to adjust floorplans, hoping to economize on building costs and offer buyers cheaper alternatives. "The word is they're coming out with newer, smaller plans because people aren't qualifying for the larger ones," said Kathryn Boyce, an account executive with Hanley Wood Market Intelligence....

Lenders have tightened up as a result of the subprime meltdown, meaning builders are competing more vigorously among a smaller pool of qualified buyers. Apart from further price drops, homebuilders have few options other than to adjust their product to fit the market, Boyce said.
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Adjusting floorplans also would allow the company [John Laing Homes] to rebid, with the likely result that subcontractors will reduce their prices to reflect today's tighter housing market, ...[Mark Levens, vice president of sales and marketing] said.

From KCRA (also video):

More and more foreclosure signs are popping up across the Sacramento region -- all pointing to a struggling housing market. In most Sacramento neighborhoods you can find homes that have been abandoned by foreclosure. In one ZIP code, there are 63 homes that have been foreclosed on and now the bank is trying to sell them.

From the New York Times:

The north end of Clarks Fork Circle in Stockton tells you all you need to know about the depth of the mortgage worries here. On a curve in a handsome new residential development, four of five homes are for sale, at least two of which have already been repossessed by a lender. “Bank Owned!” advertises a flier for one home. “New Low Price!” shouts a sign planted in a different lawn.

Once considered a safe alternative to the overheated Bay Area real estate market, Stockton and its streets are now filled with “For Sale” signs and evidence of foreclosures. While hundreds of thousands of people nationwide are being affected by troubles in the lending market, Stockton has the highest foreclosure rate of any city in the country, according to RealtyTrac, a real estate data firm.

“It is disturbing, there’s no question about it,” said Mayor Edward J. Chavez, who himself has two houses on the market, with no sales in sight. “A year to two years back, this area was seen as being affordable compared to other areas, the Bay Area, the South Bay. But what was once a vibrant market has kind of hit a brick wall.”
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Art Godi, 71, a longtime Stockton real estate agent and the former president of the National Association of Realtors....said, the prices are falling as much as 10 percent to 12 percent a year.

"Havens for Criminals"

From CBS 13 (also video):

Properties under foreclosure can be a mess with overgrown weeds, unkempt backyards, and be the cause of neighborhood blight. "As more of these houses unfortunately pop up the more break-in's were going to see," said Sgt. Matt Young, Sacramento Police.

Many people are defaulting on their home loans, the real estate industry is struggling, which has caused some local abandoned homes to turn into havens for criminals. Police say it's hard to keep them out. "What comes with that is their friends come by, the drugs, the prostitution and things of that nature," said Sgt. Young.

From the Lodi News-Sentinel:

Ron Meidinger and his mosquito fish are busy these days. And the veteran mosquito hunter — and his fish — aren't just touring the area's bug-infested sloughs or ponds. They're visiting your neighborhood, and perhaps the abandoned, slimed-over pool next door.

"This place is really clean," said Meidinger on Friday morning after dumping about 50 mosquito fish into a murky, lime-green swimming pool in north Lodi. "I've seen places trashed, with windows knocked out," noted the San Joaquin County Mosquito and Vector Control District employee, who treats pools, ponds and anything infested with mosquitoes in the Lodi area.

Meidinger is busy because the housing market is still slumping. More and more homes in the city and across the county have been abandoned through foreclosure, leaving mosquitoes to breed by the million in pools of water near you.

From the Associated Press:

Andrew Villaruz, a 43-year-old hospital administrator...said he refinanced into an option-ARM late last year without understanding what he was getting into. His loan balance quickly grew from $364,000 to $370,000, a shift that become even more disturbing to him as he watched more foreclosure signs go up around his Sacramento neighborhood.

Coupled with other costs lumped into the loan, Villaruz figures he lost about $25,000 by the time he found another lender willing to refinance him into a more conventional mortgage. He sheepishly acknowledged he had never heard of a negative amortization loan until he had one. He knows enough now to stay away from them. 'They might be good for people who make a lot of money, but they don't pan out for the average person,' he said. 'They just don't make sense.'
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[R]efinancing into a more manageable mortgage is becoming increasingly difficult as suddenly leery lenders stop accepting application in an effort to avoid further headaches. 'It's a perfect storm that is going to lead to more foreclosures with severe downward pressure on home values,' said George McCarthy, a housing economist with the Ford Foundation.

"A New Hit" on the Sacramento Housing Market

From the Sacramento Bee:

...[H]omebuyers are also finding fewer loan products available to finance their buys, say Sacramento-area lenders. They claim widespread investor concern over the rising risks of loan defaults and foreclosures is shrinking the pool of money for home loans. "There's a lot of product this week that's been taken off the shelf," said Brent Wilson, mortgage strategist with Sacramento-based Comstock Mortgage.

No one is sure how long this surge of credit tightening will continue. But it signals a new hit on a Sacramento-area housing market already coping with rising defaults, slow sales, excess supply and downward price pressure in many neighborhoods.

Also from The Bee:

All over the capital region, home builders are trying smaller lots and shaving extras to bring down prices. But some El Dorado Hills architects are unveiling the ultimate, a return to something not seen here in years. It's the $150,000 house. This is not as far-fetched as you might think. Prices for new small-lot houses already are dipping to $230,000 in parts of the region.
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[B]ased on what we know to be true on sales of homes now, $150,000 is very achievable," says Kerrin West...West believes "the market for this is huge." "We've got so many folks priced out of the market," she says. "Also, on the flip side, people are making too much money to qualify for low-income housing." Should builders eventually sign on, these could be the first $150,000 new houses seen in the region since the earliest days of a housing boom that began to take shape in 2000.

From CNN Money:

...[M]otivated sellers may have to slash prices to move properties. Already, in Sacramento, 48 percent of sellers have discounted from their original listing price. Some 47 percent of Orange County, California sellers have dropped their price and more than 45 percent of sellers in both Boston and Phoenix have done the same.

From Bloomberg:

The 9,000 unsold houses sitting empty in Northern California's Sacramento and Yolo counties aren't just a headache for owners: They're a threat to public health. The danger is in their yards, where deserted swimming pools, spas and ponds provide prime breeding grounds for mosquitoes. That heightens the risk of West Nile virus....

About 1,200 of the empty houses are known to have swimming pools, said Greg Vlasek, director of government relations for the Sacramento Association of Realtors.
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Real-estate agents are being drafted to help combat the spread of the sometimes fatal virus. Health officials asked agents to report vacant residences with standing water, in what the National Association of Realtors says is an effort unique to the Sacramento area.
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More than 1,000 homes have been reported since the program began in May, Brown said. The average time a single-family home sits on the market in Sacramento was 52 days at the end of June, according to the Sacramento Association of Realtors. The selling time tripled in the past three years.

Surrender

More at KCRA.com.

'Their Business is Unrepairable'

From the Sacramento Bee (hat tip Gwyn):

At its peak, just a couple of years ago, Rich Muma's real estate and mortgage mini-empire employed 25 agents and other workers. Today the office in Elk Grove is closed and the business consists of one employee: Muma, who's "doing an occasional deal" while trying to land somewhere stable. "I've been trying to find other employment myself," said Muma, 62.

California's housing slump isn't just bad news for homeowners looking to sell. It's taking a worsening toll on those who depend on housing for their livelihoods -- from Realtors to construction workers -- and on the economy at large.

Sacramento unemployment jumped four-tenths of a percent in June to 5.2 percent, while the statewide unemployment rate held steady at 5.2 percent. Both rates were higher than a year ago and provided evidence that the economy, after holding its own for the past two years, is finally starting to feel the pressure from the housing downturn. In the past year, the Sacramento region has lost 1,700 construction jobs and 900 financial services jobs. Real estate and mortgage-lending employment in Sacramento are both down about 6 percent from a year ago.
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As for the housing industry, executives say the market won't improve until late 2008 or sometime in 2009, putting additional pressure on the job market. "I don't see a turnaround anytime soon," said Steve Benjamin, president of Production Framing Systems Inc. of Sacramento. The company, which constructs frames for new homes, has cut employment by half in two years, to about 500 workers, he said.
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Times are tough for real estate agents, too. Mike Lyon, president of Lyon & Associates Realtors, one of the most prominent firms in Sacramento, said he is deluged with calls from brokers attempting to sell their businesses to him. He's passed on all the offers. "There's no way for us to bail them out," Lyon said. "Their business is unrepairable."

From the Modesto Bee:

In a recent poll of about 1,000 adults by Bankrate.com, about 34 percent of homeowners had no idea what kind of mortgage they had, said Greg McBride, a senior analyst for the financial information Web site.
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Failing to examine mortgages closely contributed to the current rise in loan defaults and foreclosures, according to managers and brokers at Northern San Joaquin Valley lending institutions. Not only did many people not understand their mortgage conditions, they believed they could refinance the loan or sell the home to get out of problems. "A lot of people have been burned," said Albert Dadesho, a broker with Guardian Home Loans in Modesto.