Friday, January 11, 2008

A Question "We're Almost Afraid To Ask"

From the Sacramento Bee:

Sacramento-area home builders can be excused for cheering the end of 2007. Now their problem is 2008. Statistics released today by the Folsom-based Gregory Group show builders closed 2007 with just 1,320 fourth-quarter sales in El Dorado, Placer, Sacramento, Sutter, Yolo and Yuba counties. It was the lowest quarterly tally since the Gregory Group began counting sales in the fourth quarter of 1999. Sales for the full year were the lowest in a decade.
Builders in 2007 sold 7,407 homes in the six-county region, the Gregory Group reported. That was 2,181 fewer than in 2006 and the fewest sales since 1997, when Sacramento was coming out of the 1990s housing downturn.
But Gregory Group President Greg Paquin said 2008 may well be the worst of it. "We're still optimistic in Sacramento that a year from now we will have our feet under us," he said.
Q4 Sales chart
Historical sales chart

From the Sacramento Business Journal:
For much of the housing slump that has rocked Sacramento during the past two years, homebuilders failed to heed their own advice about restricting the new-home supply to spur market recovery. But that changed dramatically late last year, according to new-home analyst The Gregory Group of Folsom, which is reporting that builders were forced to shut down 10 percent of the region's new-home projects as sales sank to their lowest levels in years...The Gregory Group found that since June companies have halted sales in 34 of the region's roughly 370 new-home communities, with most of those shutdowns in the fourth quarter.
Sales figures show no signs of the slump easing, despite recent inventory reductions. About 1,320 new homes in the six-county area sold during the fourth quarter, a 46 percent decline from last year, the company said.
From the Sacramento Bee:
During this dark winter lull of the real estate season, one question rules, and it's the one we're almost afraid to ask: What are we looking at this year? Is this bottom? Or is that next year? Is this a good time to buy, or is it better to wait? Such are questions buyers and sellers, agents and builders ask in January. We've listed here the 2008 forecasts by some of the industry's experts in Sacramento and other areas of California. They're one slice of the endless speculation of homeowners, bloggers and readers about how far we will go before this downturn levels off.
TrendGraphix Prediction: The number of existing home sales in El Dorado, Placer, Sacramento and Yolo counties will rise 2 percent. Home values will fall 10 percent to 15 percent in suburbs farthest from jobs. Desirable older Sacramento neighborhoods will fare better. Downturn is still a long way from finished.
California Association of Realtors Prediction: In Sacramento and Central Valley, sales and prices will drop another 8 percent to 12 percent.
The Gregory Group Prediction: Builders will sell about 7,700 new homes in El Dorado, Placer, Sacramento, Sutter, Yolo and Yuba counties, about the same or slightly less than in 2007...Foreclosures will rise and peak in first half of the year. The market will find bottom.
From the Sacramento Bee:
Any way you slice it, the new state budget probably won't be kind to the already sluggish economies of California and Sacramento...[T]he governor's proposed 2008-09 budget could be especially troubling for greater Sacramento. Although he's calling for billions in new bonds for infrastructure projects, his short-term budget plan assumes a 10 percent cut in state spending and the elimination of 6,800 jobs in the upcoming fiscal year. The cuts will be spread statewide, but the pain might feel worse to Sacramentans than to other Californians.

That's because state hiring has effectively propped up the area's economy lately. In the past year, state hiring in Sacramento – totaling 4,300 jobs – has accounted for two-thirds of the region's new jobs, blunting the impact of cutbacks in construction, real estate and mortgage lending. Remove the state as a major source of hiring, and the region's economy – already in tough shape – could worsen.
The weak housing market is Sacramento's No. 1 problem, but the state's problems "will exacerbate that," said Dean Wehrli, a vice president with Sullivan Group Real Estate Advisors in Elk Grove. "It's obviously going to affect job growth."
From the Modesto Bee:
The valley, with its historically low wages compared with other places, became a breeding ground for subprime mortgages, some of which offered 100 percent financing, unheard of in previous generations. Groans rose from Thursday's audience of several hundred when presenters spoke of stated-income loans, called by some "liar loans." "Which side of the table was lying?" asked John Olson of the Federal Reserve Bank of San Francisco, rhetorically. "Maybe both were. Some people inflated their incomes. Some borrowers were defrauded, with brokers writing in the incomes they wanted."
Many economists in recent months have predicted a deepening disaster because of the 1.8 million subprime mortgages expected to reset in coming months. But Olson said the blame is shifting. "We're finding that it's not resets, but it has much more to do with declining home prices that prevent people from refinancing or selling," he said.
Olson said maps of foreclosures in some Bay Area cities show distressed clusters, while those in the valley commonly spread across all neighborhoods..."Foreclosure is the freight train that runs over the homeowner," said Jeff Schrager of the No Homeowner Left Behind nonprofit organization based in Fresno. "I submit that we have a local disaster here. People are losing their homes on a daily basis."


smf said...

"We're finding that it's not resets, but it has much more to do with declining home prices that prevent people from refinancing or selling"

Excuse me?

You put people in houses that they could not afford in the long term, and the solution to this problems was that you would place another set of saps in a house that they could not afford in the long term, ad infinitum?

Declining home prices, resets and foreclosures are symptoms of the above problem, allowing people to purchase an asset that they could not afford in the long term.

Patient Renter said...

I'll say it, Paquin is an idiot, again - Paquin is an idiot. He's been "optimistic" about the future for a while, and his horizon of optimism keeps being pushed out. Am I wrong? I'm so tired of idiots like this spreading false hope.

As for the budget shortfall, almost a third of the proposed cuts are with schools? Are you freaking kidding me? Did they receive a third of the increases in revenue during the boom? Of course not. Here's an idea - eliminate HUD and all the housing subsidies. Not only will we save a few Billion (with a B) but setting the market free will help normalize prices.

Idiots everywhere. I'm pissed today.

Patient Renter said...

"We're finding that it's not resets, but it has much more to do with declining home prices that prevent people from refinancing or selling"

In that statement lies a contradiction - it's not resets, it's the inability of people to refi? Why would they need to refi if not for resets? Where do they come up with such garbage commentary!?

Buying Time said...

"They're one slice of the endless speculation of homeowners, bloggers and readers about how far we will go before this downturn levels off."

Wow...acknowledgement that we exist...and that perhaps we might be right about this housing market after all (as opposed to all the eternally optimistic pundints).

smf said...

"As for the budget shortfall, almost a third of the proposed cuts are with schools? Are you freaking kidding me? Did they receive a third of the increases in revenue during the boom?"

Someone do a research how much more pay and benefits were given to government workers in the last few years. I would guess that that is where a lot of the money went to.

Diggin Deeper said...

Now we're beginning to see that state "job freeze" really means a drop of 6800 jobs? Or does it mean that 6800 jobs just don't get filled? When you take in retirement and attrition, we go net negative on state jobs, anyway. The city and county can't be far behind as revenue losses will force deep cuts at those levels, too.

Just how vulnerable is Sacramento when it's main revenue driver is down at least 10%? The collateral damage not only affects retail sales, but government supported businesses such as restaurants, office supplies, data and documentation services, legal services, lobby efforts, and on and on.

This will take more of the buying public off the table while new home construction adds 2% more inventory over the course of the year.

How can anyone be foolish enough to say a bottom is anywhere in sight? It's basic dart throwing at it's finest.

By July or August we should have a pretty good idea just how bad the '08 resets have affected the area. Chances are pretty good that REO sales will eclipse home sales sometime during the interim and inventory levels should continue to grow beyond anyone's wildest guess.

Prices? It will be a "pic em" period. You pick the house, you pick the price!

Patient Renter said...

While I'm on a namecalling spree today I thought I'd spread the love to Bush, Paulson and Congress:

Does anyone else catch the irony of calling for an economic stimulus (printing money) to counter higher oil prices that were caused by inflation (printing money)? Are you kidding me? Am I alone on this one?

PeonInChief said...

If every non-education state worker were laid off, it wouldn't save $1 billion. And laying off the Legislature would save $250 million. The vast majority of state money goes to services--education alone gets 40% of the state budget, with smaller amounts for welfare (including SSI/SSD, CalWorks, home health services for the elderly/disabled, foster care), MediCal, and the ever-growing Corrections.

Some of the Gov's proposals are likely to make things worse. Cutting the welfare grants to children whose mothers are either not working enough hours or who are undocumented will likely increase the number of children in foster care (which is more expensive than keeping children with their mothers).

And while it's likely that the 22,000 nonviolent offenders should either never have been sent to prison in the first place or released long since, it's not a good idea to release them into a recession, where they're not likely to find any kind of job. Why didn't they do that in 2003, when the ability to breathe could get you a job and a mortgage?

Cmyst said...

I know a fire fighter and a prison guard, and let me just say up front that I LOVE fire fighters.
Both these guys make a lot of their income in overtime. I mentioned in another post that I lost 8K of income this year due to my PRIVATE employer initiating several measures to reduce overtime, which in all honesty most of the nursing staff did not really want to work anyway. I miss the money, but it won't kill me, and I appreciate the free time more.
I don't know at what point it makes more sense to hire more workers; you do have to provide them bene's and healthcare. But in all honesty, I remember a few years back that one of the BIGGEST financial backers of the "Three Strikes" law was the prison worker's union. It amazes me that the Governator is proposing turning felons loose, on the one hand. On the other, a lot of people in prison are not violent criminals -- when they enter prison, anyway. I've always said the criminals who are smart enough not to get caught are the ones that worry me. And as Sig's brother points out, if he walks into a bank and robs it he goes to prison -- if Angelo Mozillo robs his shareholders and investors, and sets up thousands of people for almost sure foreclosure, he gets a multimillion dollar CEO severence package.

Diggin Deeper said...

PR.....Don't be surprised if the price of oil hits $125 a barrel this year due to the help party politics are going to give to all us poor people. This is an oil based economy driven by black goo. You might be surprised on just how much oil is used to make every day products.

Let's just give a $ few hundred Billion more to the consumer and let them bail us out one more time.

Imo, we're at a tipping point where prices on non-discretionary items will begin to accelerate at a faster pace than the consumer is capable of absorbing. And that will force real estate prices down even further.

The time to get after inflation is when it first appears on the screen. Unfortunately, it took the better part of a decade the last time it got out of control.

You gotta love party politics. This downturn couldn't have come at a more inopportune time because the prescription for votes is likely to financially kill the voter.

Jacob said...

You cant control the market. You can certainly try, you can manipulate it and guide it, but once something is set in motion, get out of the way.

Consumers are spending less, need proof, look at Starbux. All the crap we dont need, never needed, just wanted, we will stop buying.

Prices are coming down one way or another. Even if people could get credit, many realize it isnt a good time to buy.

As buyers and banks start looking at a home as (dare I say, a "Home") and look at the loan as something (I know this is crazy) that must be paid back, then it becomes clear where prices need to go.

alba said...

These next two weeks could be when the real reasons our economy is in trouble start to unravel. Earnings season is among us, and I surely hope we see major write-downs. Once the secondary markets start to dump, or re-price, their assets, they "should" want to get rid of it. This means selling loans to liquidators, not just to another bank. Once they have no reason to hide the value of the structured vehicles, the underpinnings will be exposed, then finally be in a position to be sold off.

Foreclosures in big numbers are not happening yet, because banks are holding onto their liabilities as long as they possibly can. Even homes that foreclosed on take forever to clear, then to be sold. All for the same reason: exposure to debt.

All of the rest of the discussion and blame on "saps" at the end of the food chain is discussion for chaps in the very same position, but has very little to do with the real problems we are facing; it's not the cause, nor a part of the fix.

Watch Paulson, hide your money, and don't be bothered by any cause/effect at the end of the food chain; unless it impacts you!


Well not only are people not feeling wealthy due to the fact their home is worth 20-40% less than 2 years ago, their 401(k)s and stocks are also down bigtime. The overall market is already down 10% and we're only 9 trading days into 2008. That's gotta hurt.

Diggin Deeper said...

Paper assets are seriously deflating, hard and soft commodity assets are seriously inflating. Zero or negative growth, fewer jobs, state budget deficits coupled with higher foreclosures, stagnant or falling wages(due to layoffs), and higher inflation, stalls any real estate bottom until REAL growth, REAL well paid jobs, and REAL physical bodies return to the Sacramento area.

If interest rates come down, the dollar weakens, and oil prices go up. If the price of oil goes high enough, it effectively brings the economy to its knees. To save the financials, lower interest rates and more dollars are needed to keep them from seizing up and basically shutting down. The Fed must continue to debase the dollar in order to save the financial integrity of our banking system. To lose that integrity completely would mean the dollar would lose its world reserve status.

Just picked up this rumor about Citi Group.;_ylt=Ah1obsR1c6DDqlLCxvcrKSe573QA

CitiBank, this morning, is rumored to be taking a $24 Billion hit, and a projected job loss of 20,000 people. Personally I expect the job losses at this insititution to top 30,000 people before it's over.

It's all about the dollar. The weaker it becomes, the more serious our financial troubles become.

Keep your eyes on Gold, Oil, and agricultural commodities like soybeans, wheat, corn, and sugar. These are all good indicators of the out of pocket prices we'll pay six months out.

Gold punching over $913 at the open. Oil pushes back over $93.