Friday, February 08, 2008

Last Game of the Season?

From the Sacramento Bee:

[I]f this year is like the last two, the Super Bowl is now just the last game of the season, not the opening shot of the home- selling year. Indeed, there's a chance the peak buying activity of 2008 may have already happened.

In both 2006 and 2007, escrow closings – where all the paperwork is done and buyers get the keys – peaked in March, according to La Jolla-based DataQuick Information Systems. That means the homes were likely sold sometime in January or early February.

A March peak isn't something the industry likes or wants to see again this year. In 2006, a March peak showed there wouldn't be a big spring rebound and proved the downturn was real. In 2007, the subprime crisis arrived in March and pushed down sales for the rest of the year.

So far this year, builders and real estate agents say they're seeing the usual rise in sales compared with December...Tina Wilks, who owns the midtown Sacramento office of Prudential California Realty, said investors, more than first-time buyers, are driving activity she's seen. Many are picking off houses repossessed by banks.
From publicradio.org:
[F]our years ago we bought an 80-year-old home in a nice Sacramento neighborhood. My wife, an escrow officer, and I, a notary public, were earning good money. We had every intention of staying here forever, but the subprime lending crisis has triggered another real estate meltdown. Now my wife's salary has been cut and her bonuses eliminated. My notary work has dwindled to a trickle. It becomes more difficult to make our house payment each month.

Financially it doesn't make sense to even try. We owe about $430,000 on the house. It's currently worth no more than $400,000. Selling isn't an option. Sooner or later we will probably give up another home to foreclosure. The interest rate is competitive, six and an eighth, and it's fixed until August of 2012. A sudden upward adjustment of our loan won't force us out. It's the sudden decrease in our incomes.
The Sacramento Real Estate Statistics blog digs a little deeper here.

From the Sacramento Bee:
Before the real estate bubble burst, Sid Dunmore ran one of the largest locally owned development enterprises in the region. The Dunmore empire built more than 22,000 homes from Elk Grove to Granite Bay to Nevada, making Dunmore a rich man. Yet like many other developers, Dunmore bet too heavily on a boom that was sure to end. That left his company, Dunmore Homes, with a glut of unsold property when the market crashed. After Dunmore sold it, the company filed for bankruptcy, listing assets of $280 million and liabilities of $250 million.

Dunmore is unlikely to end up in the poor house. As The Bee's Jim Wasserman reported in December, Dunmore stands to receive an $11.2 million federal tax refund for selling his company for a mere $500.

The same cannot be said for some of the families who bought some of his homes. In Elk Grove, as The Bee's Loretta Kalb reported Tuesday, homeowners in the partly finished Monterey Village subdivision are facing lawsuits and liens by several of Dunmore's contractors and suppliers.
...
Ultimately, the responsible party here is Sid Dunmore, who seems primed to benefit from a federal tax return but has remained silent on the predicament faced by people who purchased his homes. Dunmore has so far not responded to Kalb's efforts to reach him. If he continues to stay on the sidelines, it will serve as one more reason for lawmakers to get involved.
From the LA Times:
As home prices soared higher earlier this decade, the buying frenzy was fueled in part by what real estate industry experts now claim were exaggerated -- or outright fraudulent -- appraisals. A lawsuit filed by two couples this week adds a new twist: It claims that Los Angeles builder KB Home and a unit of lender Countrywide Financial Corp. pumped up appraisals in their Sacramento-area development to sell homes at higher prices.

One couple, Deborah and Lonnie Bolden, says they paid $70,000 more for their home than neighbors who used different appraisers. Their lawsuit, filed Wednesday in Los Angeles County Superior Court, alleges that KB Home and Countrywide "conspired with affiliated appraisers to generate fraudulent" appraisal reports.
From the Modesto Bee:
While lower mortgage interest rates might help some Americans refinance their home loans, Northern San Joaquin Valley homeowners are finding it more difficult because house values have plummeted. "If your current home value is less than your outstanding loan, you're dead meat," warned Paul Carroll, president of Carrollton Mortgage Co. in Modesto. Unfortunately, Carroll said, that's the case for many homeowners who are desperate to refinance their high-interest rate mortgages.
...
It's getter ever harder to refinance in the Northern San Joaquin Valley, however, because the Federal National Mortgage Association (Fannie Mae) has designated this region as a "declining market." Because of that, Fannie Mae -- which buys mortgages from lenders -- has reduced its permitted loan-to-value ratio by 5 percent. So, homeowners who used to be allowed to borrow up to 95 percent of their homes' value now can't borrow more than 90 percent. The new restriction took effect for mortgage applications filed after Jan. 15.
...
"There's a lot of people who are really stuck," said [George] Erbele, who's been in the mortgage business 19 years. "We probably used to be able to find mortgages for about 95 percent of people who requested loans, ... but now only 10 percent to 15 percent of the refinancing requests get approved."

29 comments:

Kip said...

"investors, more than first-time buyers, are driving activity she's seen. Many are picking off houses repossessed by banks."

See people, THIS is the time to invest. Speculators caused a great deal of the conditions that led to the bubble by investing at precisely the wrong time.
Invest when the markets are DOWN. It's a good investment and it helps the market recover.

siflsockpuppet said...

kip - ever heard that you can't catch a falling knife? That's what the market seems to be right now, and anyone who tries to "catch" it by buying will get sliced by the further price reductions that even NAR is saying will happen in 2008.

SacramentoCrash said...

"Ultimately, the responsible party here is Sid Dunmore, who seems primed to benefit from a federal tax return but has remained silent on the predicament faced by people who purchased his homes. Dunmore has so far not responded to Kalb's efforts to reach him. If he continues to stay on the sidelines, it will serve as one more reason for lawmakers to get involved."

There is one other developer out in that area that is in default on their loans.

The iceberg that sunk one ship will sink many more if the buyers aren't careful.

SacramentoCrash said...

More landmines in East Franklin:

Google the following phrase:

High-flying developer crashing hard in downturn Sacramento Business Journal -

or Google the following:

of defaulting on $7.5 million borrowed in late 2006 for site work near Whitelock Parkway in Laguna Ridge, according to a notice filed in Sacramento. The balance on that loan stands at $7.7 million.

As they say, it is becoming really scary out there!

Bakersfield Bubble said...

kip-

Please buy, please. Report back in a year. Thanks!

Tyrone said...

See people, THIS is the time to invest.

Foreclosures and NODs are steady or growing.
Consumers are cutting back because they're broke.
Mortgage-backed securties issued over the past few years are junk.

Wouldn't buy anything until the toxic crap is out of the system. And I'm pulling out of the stock market. Consumption is falling. Recession is coming or here.

smf said...

said investors, more than first-time buyers, are driving activity she's seen. Many are picking off houses repossessed by banks.

Dejavu? Look it here, another one of my predictions has come true! A good chunk of the houses that have sold are only temporarily of of inventory. They will come back once the investors realize their asset will not recover its value.

See people, THIS is the time to invest. Speculators caused a great deal of the conditions that led to the bubble by investing at precisely the wrong time.

These are NOT investors right now still, they are still speculators. I can guess that about 80% of these 'investors' are looking for the market to come right back to 2005 levels in a few years. That is the classic definition of speculators.

Now that I have heard that the market is starting to stabilize, is right when the s**t hits the fan. Not much more to go before the fires start burning.

Sippn said...

Except most of the "speculators" are the real investors - often 100% cash buyers, not like the no money down flippers.

Look to the model of the Japanese investor who came into the Sacramento market prior to the last bottom and bought 450-600 homes, let rent catch up to his number and beyond, sold prior to the top and raked in a ton of dough.

Have you thought you'all were wishing for a model that isn't really being used? You're looking at economists models, not real investor models! I'm voting with the ones who are paid for performance, no salary guarantee!

Will the market continue beyond March? With YOY prices down 27% and interest rates down 1-2 points or more if its an ARM..... what does THAT mean?

Price decreases dropped your payment 27%, interest rate decreases from July may have dropped your payment ANOTHER 35% if you had and ARM loan..... thats alot.

The FED rate drops are going to soften and spread out the reset impacts.



Hey Gwyns - are you done with that Flu yet?

smf said...

"Except most of the "speculators" are the real investors - often 100% cash buyers, not like the no money down flippers."

And you know this how?

"Look to the model of the Japanese investor who came into the Sacramento market prior to the last bottom and bought 450-600 homes"

And that makes what, 10 of them to buy the excess? You are comparing apples to oranges. The last bubble in Cali. was LOCAL, not global, and the prices did not go up by the factors it did this time.

"Have you thought you'all were wishing for a model that isn't really being used?"

Laughable, sippn. We can count on one hand true financial wizards who knew/know what will happen, and the rest bought into the bubble hook, line and sinker. The vast majority of the professionals are left with little to no credibility for future predictions.

interest rate decreases from July may have dropped your payment ANOTHER 35% if you had and ARM loan..... thats alot.

Drop in the bucket for those ARM holders who weren't even paying the principal OR interest in their loan. And for those with multiple houses, when they can't sell for a profit and raided their rising equity to make their payments, it is way too late.

I guess Sippn, you are starting to live in the 'wealth cycle'?

paranoid renter said...

What's going to happen with the economy? We are barely scratching the surface of the economic bust that will results from 1000's of people walking away from their homes. Even the "experts" that are always upbeat are now predicting gloom and doom for the foreseeable future. Wonder if I'll have a job next year.

The sky is falling!

- Chicken Little

sacramentia said...

Look at it from the Investor's perspective and maybe it won't seem so stupid:

You have a lot of excess money coming in each month, where do you put it?
- Stock Market is down and seems to keep going that way.
- Bond yields are low.
- Real Estate has historically been a good store of value.
- Gold? Silver?
- International Coal Mines?
- Anything but the dollar?

Maybe you spread it around and do a little of everything. As long as you put 20-30% down most of the REO's out there will break even. And at some point in the future the house will be worth more, so what is the risk?

I think the market will probably be lower by the end of the year, but just in case I'm wrong, I'd like to hedge my bets...

Where is everyone putting money right now - there is a lot of brainpower on this board so please share.

aggiealum said...

Regarding the family sueing KB and Countrywide over appraisals. I didn't know you can have a new home appraised? I assume the home had to be built first or at least a similar floorplan already in existance?

Another random thought: a new home I'm interested in has already dropped in asking price about 27%. Now I know that 27% means nothing if the original home price was 200% overvalued. I would put 20-25% down (have almost no long term stock holdings, just dabbling with swing trades), giving me a mortgage + taxes + insurance a little over what I pay for rent right now. Is it foolish for me to believe this: 1) We pay about $19200/yr in rent, so 2 years of waiting would be approximately a 10% further drop in home value 2) since this is our first home, we plan to stay in it for awhile (I know, nothing's for sure), so I'm thinking, I can call it break even if the house drops another 10% in 2 years (20% in 4 years) b/c the paper value lost would be what I would've given my landlord anyways (I didn't calculate yearly rent increases either). 3) The price is about 2003 price for a similar sized home

paranoid renter said...

aggie,

The question you want to ask is how much will it cost to own. Rent is $19.2K. For owning calculate mortgage + insurance + property tax + estimated cost of repairs + mello roos (if any) + HOA dues (if any). Figure in your tax deductions for interest and property tax. Then see if it still makes sense to own.

The only reasons it makes sense to own now (to me) are:
- You just want a house -- home ownership is important to you.
- You think, for whatever reason, that the market will be recovering shortly (in a year or two).

paranoid renter said...

Also remember that if the house price drops and you don't have enough equity in the house (lenders now look for at least 20%), you won't be able to refinance even if rates drop.

Gwynster said...

Kip,

You go first >: )

Patient Renter said...

"See people, THIS is the time to invest. Speculators caused a great deal of the conditions that led to the bubble by investing at precisely the wrong time. "

As others have pointed out, the greatest pain felt during the Great Depression was by people who bought the "great deals" after the first wave downward, yet before the subsequent waves which wiped them out.

The storm is far from over. Best to stay indoors for now. As gwyn said, you go first :)

paranoid renter said...

>>>
Where is everyone putting money right now - there is a lot of brainpower on this board so please share.
>>>>

I've no brainpower so I'm basically sitting on cash right now. I don't feel comfortable investing in anything. I don't think sitting in cash is a good idea either, but it beats the heck of being in stocks which, I think, are going to be on a slow and steady decline over the next few months.

Jacob said...

Yea, I remember some of that from history class. The depression was bad cause the stock market crashed over night, but worse because the stock market kept slowly going down for 10 years or so.

Luckily a profitable war came alone. But this time we have a very unprofitable war going on.

Also previous housing busts were caused by something, like massive job losses. This time around nothing happened to trigger the bust, the boom simply collapsed under its own weight.

The fed can take rates to 0 and will it matter? If banks start requiring borrowers to actually pay back the loan then few people would qualify.

And we had so much money given out to people that had no means to pay it back that there is no way to get back to even half of that level of cash flow for the local economies.

So I say all bets are off for when this bust ends. Maybe 1009, maybe 2019. Investors / speculators can continue to buy all they want, but they will continue to get burned as they cant sell for a profit and cant rent without losing money each month.

I recommend waiting to anyone who will listen, there is really no way that the market will recover and start going right back up anytime soon.

If you have to buy now / want to buy now, and find a great home that is just what you want and plan to stay for the long term, then it might be the right time for you. And there are certainly tons of homes to choose from.

Sales peaked in March last year, lets see if they peak in Feb or March again this year.

commonsense said...

Sippn said...
Except most of the "speculators" are the real investors - often 100% cash buyers, not like the no money down flippers.

As an investor myself with cash down buying real estate in Sacramento right now and rent them out will bring me only 5.5% return assuming those homes will stay rented full year and maint. cost is zero.
Better be in CD with about 5% return and no hassle of renting out.

commonsense said...

Kip said...
"investors, more than first-time buyers, are driving activity she's seen. Many are picking off houses repossessed by banks

I like Warren Buffet quote: PLP are investing on recent past memories.

In our case a three bed two bath for about $200k may sound like a good deal compared to 300K same house in 2005. Hey, how about comapare it with $120 K same houe in 2005?

commonsense said...

commonsense said...

Ooops. I meant compare it with 2002.

Patient Renter said...

"I recommend waiting to anyone who will listen"

Yep. The fun part is when they don't listen, which is all that's happened to me. I'm not much of a savior it seems. Of course, now they're all underwater, and almost all openly regret their mistake. Oh well.

I still don't mind trying to save people from themselves, though earlier today I was called a "fear monger" for predicting further declines. Maybe it's time to officially pack it in?

commonsense said...

Question for the board.

What should be the reasonable per square feet to match the current rent? $110-$120? Thanks.

sacramentia said...

common sense - 120x monthly rent including any remodel necessary to make it A quality.

With an oversupply of rentals you need to be the best to keep occupancy rates up.

alba said...

according to:
http://www.fidelityasap.com

In the last 30 days, there were over 100 homes presented at the courthouse steps for auction in Placer county, with only one home sold. The banks are not ready yet. There's still too much liability in exposing the sale price of a home/loan.

Tyrone said...

Here's another example of impending doom for banks from Sonoma.

From Jan 1 - Feb 8, the county reported:
NODs: 594
Trustees Deed: 228

Assume all the NODs go to foreclosure.
Total: 822
A very conservative estimate is $100K/home lost.
882 x $100K = $82.2M

This is only for a little more than a month!!

Cow_tipping said...

Free fall - can someone tell me what is the likely speed of a free fall in market terms ?? Even gravity has its limits, free fall in gravity = ~125 mph.
Free fall in housing market terms IMHO = 20% for each foreclosure window (depending on the state/region). Example, texas has sudden death, 15 days from NOD to eviction, and essentially a bank that is aggressively pushing for repo can get it to the market in 3 months or so, and I expect it to free fall at 20% every 3 months max (why 20% - I assume banks write off 20% at at time if the market will bear that).
Recursive foreclosures are your key for finding bottom. house gets repoed, sold, repoed again, sold, repoed ... 3-4-5 ... whatever times and each is a 20% haircut ...
OK Its just a theory. But rapidly falling markets will have serial foreclosures ... follow those and you may see a pattern. In Charlotte Nc when I was looking 5 years ago, that was what I saw, houses priced 20% under the neighbors when foreclosed.
Cool.
Cow_tipping.

Jacob said...

Well when a bank has an auction for 1000 homes and sells 1 what does that mean... Even at 50% off they can't unload most of the homes, and if they lower further that will be desasterous to there fantasy accounting ledger...

I think if we peak in Feb/March this year and then start to go down we should see some aggressive movement. Remember a lot of people are still buying as an investment hopeing to flip a few months later for a profit.

And foreclosures are outstripping sales...

For myself, I have decided not to even seriously look for a home until inventory and foreclosures start to fall yoy. Otherwise there is too much downside risk for further corrections.

And if that means I rent forever, then so be it.

SacramentoCrash said...

CALL THE IRS ON THIS ONE!


Michael Kane buys a company with a net worth of Thirty Million dollars for $500?

The company declares bankruptcy to avoid paying liens????

Dunmore gets a Eleven million dollar tax refund????

There is a big stench coming from the south area.

More stench

http://www.sacbee.com/326/story/702535-p2.html

Ray of hope for home buyers

Re "Lien times hit Elk Grove," Feb. 5, and "Builder takes a hike as his customers struggle," editorial, Feb. 8: I applaud your efforts to expose the housing nightmare unfolding for the Dunmore Homes buyers in Elk Grove, but you're focusing on the wrong party.

While Dunmore may be guilty of poor business practices and building overpriced homes, he sold the company before the bankruptcy and liens were filed.

Loan consultant Michael Kane purchased Dunmore for $500, even though the company has a net worth of $30 million.

It is Kane who filed for bankruptcy and thus caused the liens to be filed. Why hasn't Kane paid the subcontractors and obtained release of the liens? Surely, the $30 million windfall that Kane has received is enough to end the nightmare for these home buyers.