Friday, February 29, 2008

Half-Filled Developments - "Advertisement for a Failing Housing Market"

From KCRA:

A new Centex Homes development in Rancho Cordova is in limbo because of a dreary housing market, the developer confirmed Thursday. The 13 homes currently under construction in the Cypress at Kavala Ranch development will be finished, but none of the other lots will be developed for now.
From Bloomberg:
When Quinn Cuthbertson looks around his new neighborhood in El Dorado Hills, California, he sees rows of empty homes and barren hillsides. A promised new school and a clubhouse haven't materialized. Cuthbertson paid $460,000 for a four-bedroom house in this northern California town named for the mythical golden city. He now suspects his neighbor spent $45,000 less. Nearby, 87 of 98 Toll Brothers Inc. home sites are undeveloped.
...
"Half-filled developments are an advertisement for a failing housing market," said Retsinas, a former assistant secretary for housing at the U.S. Department of Housing and Urban Development. "It also has a spillover effect on the surrounding community."
...
Brent Sease, who bought a five-bedroom home built by Miami-based Lennar in El Dorado Hills, said a park and school that were supposed to be constructed are at least two years from being completed. Across the street, red tags that say "Available" are pasted on two houses. "That's the thing I'm concerned about," said Sease, a software manager with three daughters. "It's going to be a while before they put all that in, because they're not selling homes."
From Folsom Telegraph:
Quick, where’s the foreclosure rate higher – upper-middle class Folsom or low-upper class El Dorado Hills?

It’s higher in suave El Dorado Hills, significantly higher – by 50 percent...That might reflect the fact that EDH housing prices tend to outstrip income more than they do in Folsom, according to Money Magazine. El Dorado Hills’s median income of $116,406 amounts to 17 percent of the median home price of $672,335. Folsom’s $94,180 median income accounts for 19 percent of the city’s $490,000 median home price.
From KCRA:
Placer County SPCS animal shelter leader Leilani Vierra said she has 20 animals in her shelter as a result of people suffering from foreclosures, and the numbers are growing...Now we are seeing an animal a day at our shelter, if not more, as a result of people losing their home," Vierra said.
Wells Fargo labels Sacramento area counties as "severely distressed markets" (via Blown Mortgage).

From the Wall Street Journal:
Sgt. First Class Nicklaus Skaggs is among those looking to walk away. Mr. Skaggs bought his home in April 2005 shortly after returning to California from a one-year tour of duty in Baghdad. The $455,000 three-bedroom home he and his wife purchased in Vacaville, about one hour northeast of San Francisco, is worth an estimated $285,000 today, well below the $453,000 he owes on his mortgage. The monthly mortgage payment, which jumped after its interest rate increased, is now $4,000, up from $2,980 when he bought the house.

Mr. Skaggs expects to be redeployed to Iraq again later this year. But he can't sell his home, since there are few buyers, and he can't refinance because lenders require a large down payment he doesn't have. Now, the 18-year Army veteran has decided to walk away from his mortgage. He hopes in a few years lenders see his decision as a unique situation created by the housing meltdown. "I don't think that house is going to recover in value any time soon," said the 40-year-old. "I'd just be throwing the money away."

A rise in the number of people choosing to default on their mortgages would represent a significant departure from past behavior of American homeowners, who during past housing downturns tended to walk away only as a last resort....What's different now, analysts and economists say, is that home prices have fallen so far so quickly that some homeowners in weak markets are concluding that house prices won't recover anytime soon, and therefore they are throwing good money after bad.
From KCRA:
Doug Heisch works for the Baldwin Company in Sacramento, an auto repossession agency...Heisch said the last four months have been quite a bit busier than normal. Owner Mike Baldwin's seen a 15 to 20 percent increase in repossessions this past year. Baldwin said it's obviously the downturn in the housing market, construction trade, real estate, loans, mortgages that they are seeing borrowers and consumers falling victim to repossessions.
From the Sacramento Business Journal:
Budget problems mean the city of Sacramento is "facing elimination of approximately 500 positions" in the coming year, according to a report to the City Council released Friday, or nearly one out of every 10 city jobs.
From the Sacramento Bee:
Sacramento unemployment rose to its highest level in more than a decade...Sacramento-area unemployment rose a half-point to 6.4 percent, the state's Employment Development Department reported Friday.

16 comments:

Patient Renter said...

"Budget problems mean the city of Sacramento is 'facing elimination of approximately 500 positions'"

Wow, that's no small number for a city.

A comment for those who think low short term rates will save the day, blah blah, are those low short term rates saving Sgt. Skaggs? No.

Mike said...

Hmm..I visited that Centex development in Rancho Cordova about a month ago.

At that time,they were saying sales have picked up and there were more than one buyers for each release they were having. Therefore, I would have to take a number for the next phase release.

It looks like the sales must have slowed back down. So much for the short dead cat bounce in sales this spring. This fall should be extremely painful.

anon1137 said...

"Half-filled developments are an advertisement for a failing housing market," said Retsinas, a former assistant secretary for housing at the U.S. Department of Housing and Urban Development. "It also has a spillover effect on the surrounding community."

Have you noticed, they always emphasize the effect of foreclosed or empty homes and empty lots on the surrounding neighborhood because they're trying to develop support for a taxpayer bailout.

wimpyVO2max said...

patient renter A comment for those who think low short term rates will save the day, blah blah, are those low short term rates saving Sgt. Skaggs? No.

Rates aren't being cut to make houses and cars more affordable. That's the party line from the Fed, but the real reason is that Uncle Ben is trying to ignite inflation. Bush and Bernanke are doing their best to get us out of the debt crisis using the same technique that the South American countries did: trash the currency, which allows you to pay back your debts with cheaper money. Since Bush has been in office the dollar has lost 36% of its value. Inflation is the debtor's friend.

Ignorant Opinion said...

"Quick, where’s the foreclosure rate higher – upper-middle class Folsom or low-upper class El Dorado Hills?"

Significant number of foreclosures on previous $1 million tract homes in EDH. Folsom will certainly catch-up, its just a bit easier "for a little while longer" to hang on making payments on a significantly underwater $500K tract home than a $1 million home....

bubblemachine said...

wimpy said... Rates aren't being cut to make houses and cars more affordable. That's the party line from the Fed.

Yesterday, Bush said we are not going into a recession. I don't know who the biggest liars are... politicians or real estate shills.

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

Pick your poison...inflation or deflation...a weaker dollar and inflation are the only acceptable alternatives to the deep freeze deflation would deliver. Japan is the marker and the benchmark to avoid.

The problem with that strategy is that about $16 Trilion in debt is held by foreign countries in the form of government Treasuries and other govt backed issues.

The question becomes how much longer will this $16 TRILLION remain overseas? As stated earlier "money goes where's it's treated best" and we're not making it easy for debt holders. In fact we're delivering pain each month, not only in principal losses, but in the form of higher inflation foreign economies must absorb by holding dollar denominated assets. There's too many Benjamins chasing too few goods and services.

David Galland at "Casey Research" gives this account:

"At this point in the game, we would expect to see wealthy foreign individuals cashing in
their dollars for all manner of alternatives, including other currencies, tangible property and,
of course, gold and other tangible assets. Given the price of tangibles at this point, that
trend is likely well underway.
Diversification out of the dollar by institutional holders is likely also underway. But after
that, if pushed to it, will come the big kahunas: the foreign governments and their many
trillions."

There's a big difference between the ice age that Japan plowed through and what we face if deflation persists. "The Daily Reckoning" recently put it this way:

"Nevertheless, there’s a whole ocean of difference between an island nation with huge savings, a thrifty population and an enormously positive trade balance, and a stretched-out empire, possibly in decline, running record deficits in its external trade and internal government finances, with an aging, over-paid, over-indebted workforce. The former can tolerate deflation. The latter hasn’t got the stomach for it."

This all leads back to Sacramento real estate as it stands today. With more Fed cuts coming, modern history says we should get lower mortgage rates...right? As long as our debt remains in foreign hands I'll bite. I'm not so sure the world's going to contine to go along with our little party.

Ignorant Opinion said...

diggin...

Your assessment is right on...

"money goes where's it's treated best"

However, with SWF's and Foreign Reserves, there are often Strategic Implications to monetary policy. Otherwise, they would have been fleeing the Greenback.

The investment decision making of Abu Dhabi, China and Dubai are suspect at best - lots of dollars flowing into irrational investments at irrational prices. However, long-term they may make sense from a strategic "knowledge sharing perspective".

In the same sense, keeping the US healthy and buying our debt makes perfect strategic sense - to a point. Not sure where the tipping point is???

HousingRealist said...

DigginDeeper, not sure where you got your US debt levels owned by foreign bodies. However, our total treasury debt issued is a bit over 9 trillion with 52% being owned by foreigners. This is data from 12/31/07. Don't know where the additional 12+- trillion in US backed debt is coming from. Since the US treasury market is the deepest in the world, I'm not sure if you will be able to find aggregate debt in other than US treasuries that amounts to 12 trillion, let alone 12 trillion owned by foreigners. China owns 440 billion of Treasuries and Japan a bit over 620 billion. Those two countries alone would need to own trillions in GNMA, FNMA & Freddie to even put a dent in the 16 trillion figure, which they don't. We don't need to exagerate the downturn in housing, or the ramifications of this worsening market it damages our credability.

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

Housing realist...Whoa! You're right about the T's. I should have said approximately $16 T in dollar denominated assets and libilities, including debt secured by the US govt, were held by foreign concerns...

The bottomline remains the same...continued dollar devaluation strips principal away from foreign investments and there are alternatives that can be excersized completely beyond our control. That figure is over 100% of our total GDP..

Diggin Deeper said...

Ignorant opinion...

Hmmmm...maybe there is no tipping point, only subtle shifts where SWF's begin to hedge against a falling dollar and waning principal on their US based assets.

alba said...

we buy oil with dollars. we buy dog food, athletic shoes, and apparel from China with dollars. what are they going to do with them? next is t-bills. after that, either they buy gold, use them in place of coal, or devalue their own currency.

norcaljeff said...

A rise in the number of people choosing to default on their mortgages would represent a significant departure from past behavior of American homeowners, who during past housing downturns tended to walk away only as a last resort...

This is huge and I don't believe people are really understanding this. These are situations where a homeowner makes the money to cover their mortgage but chooses to walk away from the house altogether since it's worth less than what they owe. This hasn't happened in the past and will put enormous pressure downward on prices. Since there's no real penalty for walking away, other than a "bad" credit report for a few years, these people can really effect our economy and home prices for those left choosing to pay their mortgage each month.

norcaljeff said...

At that time,they were saying sales have picked up and there were more than one buyers for each release they were having. Therefore, I would have to take a number for the next phase release.

Mike, don't fall for that BS. It's a sales tactic and a lie. Things haven't been that way since probably late summer 2005. Even if there is someone in front of you with an offer on a home you like, changes are they don't have the credit in order to qualify for the home.

Here's an email from the sales mgr from a DR Horton project from Placer Co. after I lowballed them on a new home back in July 2006:

(Responding to my offer to go lower than the first offer of $100K less than their asking price...)We have never gone any more than that and are actually seeing our inventory disappear and incentives reduced recently. We sold 3 homes this week already and 3 homes last week, and a total of 12 for the month of June. While now is still the time to purchase a new home, I truly don’t think it will get any better than this as there are some builders here at XXXX that are close to being sold out. Supply will be decreasing over then next 3months.

Funny thing is, supply balloned, prices fell another $90K and the rest is history.