Tuesday, February 26, 2008

OFHEO: Another Record Drop for Sacramento Home Prices

From Bloomberg:

U.S. home prices had their biggest fourth quarter decline since 1991, according to a report [pdf] by the Office of Federal Housing Enterprise Oversight released today.
...
California, with a decline of 6.6 percent, led all states, Ofheo said. It was followed by Nevada (5.9 percent), Florida (4.7 percent) and Michigan (4.3 percent). All 20 areas with the greatest price declines in 2007 were in those four states, according to Ofheo. The top three were in California: Merced (19 percent), Modesto (15.5 percent), and Stockton (15.3 percent), Ofheo said.
The Sacramento region came in at #12 with a record 11.0 percent year-over-year drop, the first double-digit decline in the index's history. With that, every price index now shows double-digit depreciation.

From the Sacramento Business Journal:
Sacramento-area's median home price fell 28.3 percent in January from a year ago, as a flood of homes enter the market. The four-county region's median home price -- meaning half the homes sold for more, the other half for less -- dropped to $258,230....
From the Sacramento Bee:
Sacramento County has sued embattled home builder Reynen & Bardis for failing to replace 500 mature oaks it cut down to make way for houses in Rancho Murieta. The county's lawsuit, filed Friday, adds to the legal and financial troubles facing Reynen & Bardis, which just a few years ago was aggressively buying land in the Central Valley but is now struggling to survive. The local company has stopped building houses and laid off half its employees.
From the Sacramento Bee:
The slowed demand for building materials can be seen in the U.S. consumption of dimension stone – the term for granite, marble, slate and other stone used in construction. Consumption rose 26 percent in 2004 from 2003, but just 5 percent in 2007 from 2006, according to the U.S. Geological Survey. Consequently, manufacturers and suppliers are competing fiercely for the remaining business and driving down prices, according to Cleveland-based market analysts, The Freedonia Group Inc.

The cost of prefabricated granite has dropped considerably from the building boom highs of four years ago – as much as 50 percent or more, said Cheryl Tarido, a sales associate at Medimer Marble & Granite, a Sacramento company that provides granite and limestone for general contractors and commercial and residential clients.
From CBS13:
In a new twist on the housing crisis, homeowners are being sued by landscapers and contractors after the property builders go bankrupt. If features like fountains and concrete foundations have not been paid for, the contractors are increasingly going after the homeowners for the balance.

The Petree family paid $450,000 for their Dunmore home right before the builder went bankrupt. "Within 24 hours of closing escrow, we had four liens on our property," Kathleen Petree said. "Within 30 days, we had 17, and last I checked, we have 28 liens on our property."
From the Central Valley Business Times:
California and Florida metro areas accounted for eight of the top 10 metro foreclosure rates in January...The Stockton metro area in the Central Valley documented the second highest metro foreclosure rate. Other California metro areas in the top 10 were Riverside-San Bernardino at No. 3, Modesto at No. 4, Merced at No. 5, Vallejo-Fairfield at No. 7 and Bakersfield at No. 9.
From the New York Times:
Seattle, which has nowhere near the kind of foreclosure problem other cities have, began a modest program last month offering loans of up to $5,000 to help a few dozen homeowners avoid losing their homes...[N]o sooner had Mayor Greg Nickels announced the program than opposition surfaced...Mark Ellerbrook, who manages Seattle’s homeownership program, said that, aside from residents hoping to apply, few people were enthusiastic about the program. He said he understood that reaction, given the local housing market. “People struggle to buy homes in this city, for sure,” Mr. Ellerbrook said. “And then you have what looks, on the face of it, like the city giving money to people who made bad decisions.”
...
In California, the notion of a government loan program seems remote to some state leaders, given how big such a fund would have to be and that California’s budget deficit is larger than most state budgets. State Senator Michael Machado, a Democrat who is chairman of the Senate Committee on Banking, Finance and Insurance, is from Stockton, where the foreclosure rate increased 271 percent in 2007. “If they got into a situation that got bad for them, they need to live through that and they shouldn’t expect government to bail them out,” he said, summarizing what he says is a commonly held view. “And when you’re dealing with a $14.5 billion deficit like we are here in California, it’s difficult to do that anyway.”
From Reuters:
Years of double-digit price gains put homes out of the reach of many consumers, and a correction is necessary...[Robert] Shiller said it can't be all or nothing, and that there has been a big misperception that houses will constantly appreciate. "Some times people will try to imagine that we can have both high home prices and affordable housing. But I can tell you that doesn't add up," he said. "You either have high home prices or lower home prices and lower home prices are what we want, and people shouldn't be afraid of that," said Shiller. "Most of us care about our children and grandchildren, and these people have to buy houses so why would we want high home prices. We want economic growth, we don't want high home prices."
From KCRA:

27 comments:

mechanico said...

Arson is easilly proven especially when the motive is so apparent.
Morons are everywhere, I guess.

A burnt home on the block in this climate is devastating to property values.

Atleast the neighbor had a wine collection. She's going to need it. My heart goes out to her.

SacramentoCrash said...

Where the heck has CBS 13 been?

The Jet Plane Sid Dunmore escapade occurred last month!

Next month they will discuss the cracked foundation guys Reynen and Bardis.

Sippn said...

RE: the big price drop - remember its medians they're measuring - and the bottom came alive in Nov/Dec/Jan with both cash investors and first time buyers (look at January escrow openings up 57% here, up about 50% in OC) the higher end is lagging due to difficulty getting loans....

mechanico said...

http://www.sacbee.com/103/story/741816.html

http://www.sacbee.com/142/story/738925.html#comments_here

Tyrone said...

Diggin,
You said:
I just don't see the average median priced home in Sacramento falling to the $150's level (or an additional $100K from here). Short of a complete economic collapse, I'm thinking $175-185K but not much more.

A complete economic collapse is the FEAR:
FDIC Quarterly Report
"A Growing Number of Institutions Have Concentrations of Exposure to Construction Lending". There are 2,368 institutions that met this criteria in Q4 2007, out of 8500 insured institutions.

FDIC Hiring
The Federal Deposit Insurance Corp. is taking steps to brace for an increase in failed financial institutions as the nation's housing and credit markets continue to worsen.

Sippn said...

THe big problem lenders/PHeD/etc haven't figured out is that THEY provide the juice that supports the house of cards at every level except the bottom.... if they're waiting for all cash buyers, they're f....d (we are also)

alba said...

$15B Bailout in discussion in House Finance Committee. A crime!

wrong moves said...

"Within 24 hours of closing escrow, we had four liens on our property," Kathleen Petree said"

I've not been able to read the blogs much for the past three weeks, so has there been a discussion about the legality or likelyhood of the contractors being successful? I thought that title insurance was supposed to protect a buyer from stuff like this.

RMB said...

Sippn,

Don't worry so much up about escrow opening, worry about escrow closing. Right now only about 1 out of 3 escrows are actually closing (friends in the title business). Who care how many people say "I'll take it". How many can actually close the deal? As far as activity, there is always a spring bounce that is why Yr v Yr numbers are important and m to m are kind of meaningless.

wrong moves said...

Ok, I'm seeing a lot of conflicting stories/info. Take a look at the last two posts on this blog. "Bald tires on Beemers" and "OFHEO: Another record drop for Sac Home prices". There are so many stories coming out and I have previously posted comments about the various people we know that are feeling the effects of a bad economy. Yet on the other side, all of the houses I am tracking when sold are selling for near 100% of the asking price. I thought for sure these houses were way overpriced but time and time again I am proven wrong.

We are looking to spend in the high 300's. Maybe the census data is wrong. Maybe most people actually earn 100K+ a year and really can spend that kind of money.

It is just frustrating to keep expecting something and reality just seems to defy logic. I think the definition of insanity goes something like that.

I'm done venting.

Diggin Deeper said...

Tyrone...

Fear is a powerful weapon. Greed the same...IF we're headed for collapse anything is possible, and yes, real estate prices could fall much further from here. But it comes with a cost far greater than most are capable of paying. A home at .20 on the dollar remains on the market indefinitely if no one's got a job to or money to pay for it.

I guess it's unthinkable to me that we'll fall into some deep freeze where a calamity of this sort sets in and paralyzes the nation. Just in case, I bought some insurance in '04 paying cash for a 25 acre ranch with two living quarters, three good water sources, tillable land, and some security that we would survive anything that comes our way. Most of my friends counseled me against wasting so much cash when it could been leveraged elsewhere.

I tend to believe we'll stop short of anything so drastic, and they're will be great opportunity in the midst of the fear and panic. The trick will be to buy when no else will, taking a well calculated risk...as a classic contrarian play unfolds.

aggiealum said...

Do you all think that the major banks are in a dilemma regarding interest rates for 30yr fixed loans? Seems like the interest rates of the 30yr fixed has become disconnected with the 10yr Treasury. They say banks have increased the rates for the 30yr fixed to fend off inflation. I would've thought that with all their bank owned homes, they'd try to keep interest rates low so that people will actually consider buying. Since the banks are being selective as to who gets a loan, their risk levels are low.

Diggin Deeper said...
This comment has been removed by the author.
Diggin Deeper said...

Fed head BB talking about continuing to stimulate the economy with lower rates.

Just what we need...about the time the CPI breaks out into a full-out sprint, he'll want to put the brakes on. Maybe he ought to make a call to Paul Volcker and see just how dangerous a game he's playing.

Cmyst said...

Hey, wrong moves -- nice to see you again.

I get discouraged at times myself. You are looking at houses that are more highly valued than the ones that I prefer, but I can honestly say that prices have dropped quite a bit on the house type and in the neighborhoods that I track. I don't worry so much about what they sell for currently. I think a lot of people are comparing today's prices against 2006 prices, and it seems like a real bargain. I still think housing prices WILL drop further; where I agree with diggin is that I also think interest rates will rise and lending will tighten up quite a bit and that for many of us there is a window of opportunity that is not necessarily going to be open when prices reach absolute bottom.
But if you've got the cash in the bank (or in Euros, even better, as the dollar continues to slide) and a secure career, and you are looking at tract houses (even high end ones) my bet is that the prices will continue to go down. We are talking about medians, and the first segment to feel the pain was the lower end. At this point, I really don't think I'm going to begin seriously looking again until this time next year, at least. Maybe longer. For houses in your bracket, I think it depends on the neighborhood -- it will take longer for places like Land Park and East Sac to fall significantly and they will probably not fall to nearly as great a degree as my neighborhoods in Carmichael, Fair Oaks, Citrus Heights and old Elk Grove. But I'd still bet they'll fall a worthwhile amount over the next few years.

smf said...

Wrong Moves -

There is no need to get discouraged. At this stage there is nothing that can be done to prevent the next step in the process. Higher end homes WILL fall in price, and soon.

There just isn't enough people in Sacramento to fill them all up. And there has been an incredible amount of large homes built.

And some that can afford the payments may not be able to afford the monthly maintenance fee a larger home incurs.

This is far from over.

And with BB hinting at further rate cuts...well, I think he is playing with fire. Investors may start moving their money to where they could find a higher return.

I still call for the 'end of the beginning' by about 10/2008. This will be about the time when the vast majority will realize we are in deep doodoo.

Gwynster said...

Aggie,

I noticed some REO in that Woodland neighborhood you've been eyeing. Just a heads up.

Diggin Deeper said...

"Investors may start moving their money to where they could find a higher return"

As they say "money goes where it's best treated".

I'd agree waiting out price declines, with further rate cuts in the offing, is a good strategy...At least there's a chance that rates hold at these levels for a bit longer.

You risk that Tresuries will decouple from any Fed action. I've maintained for quite awhile now that one of these days the Fed's going to pull the trigger on rates and treasury rates will rise in defiance. Watching the affects of prior cuts up to this point, as they affect mortgage rates today, bears that out.

alba said...

aggie,
The issue with the 30-yr fixed is a reflection of liquidity in the secondary markets. The loan originators can't sell off any more risky loans, and are also having a hard time getting access to cash. Don't be misled. Bernanke, Paulson, and the banks are not looking at housing, and their own inventory, as their first business at hand. They are primarily concerned about liquidity and stability of banking. J6P's foreclosed home is a pimple on a gnat's ass to them. The Dem's on the House Finance Committee are genuinely interested in distressed homeowners... that's about it. When the banks get bailed out, and have access to cheap money again, the rates will come down....until inflation kicks in.

Diggin Deeper said...

Here's another 3 letter piece of toxic waste that's sitting off the balance sheets.

Goldman, Lehman May Not Have Dodged Credit Crisis

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=alExwdst38cQ

"The new source of potential losses: so-called variable interest entities that allow financial firms to keep assets such as subprime-mortgage securities off their balance sheets. VIEs may contribute to another $88 billion in losses for banks roiled by the collapse of the housing market, according to bond research firm CreditSights Inc. Goldman, which hasn't had any of the industry's $163 billion in writedowns, said last month it may incur as much as $11.1 billion of losses from the instruments."

The bilge pumps at the Fed are working overtime to keep the financials afloat.

alba said...

OFHEO: who had even heard of them previous to the last few weeks? Now today, they lifted the portfolio growth caps (was $735B) of Freddie Mac and Fannie Mae. I guess this is supposed to loosen up access to capital to those who buy loans, then sell them in securitized assets. The Director of OFHEO just said on CNBC that the GSE's generate $100B of securitized assets each month, and own $4.9T in these assets now. To a schmo like me, it sure seems like more of a bad thing; to free up more money to companies that have not managed their money well, and shouldn't have any inferred backing from the goverment for their "garaunteed" loans.

Diggin Deeper said...

alba...

Hmmmmmm.....this might sound a bit farfetched...

Fannie and Freddie are masters at hiding behind the beaurocratic wall. No auditor yet has been able break down their accounting standards.

What perfect vehicles to use during an election year. A bank hands them all their bad debt, the Fed reflates the bank, and by November everything's back to normal. Voila...a massive bailout hidden away for years...

Sippn said...

rmb - I agree - I was quoting YOY numbers

Tyrone said...

Diggin,
Yep, I agree with your thinking. I'm hoping when things are at their darkest, I have the courage to pull the trigger, but I am very, very risk averse, by nature.

norcaljeff said...

Wrong Moves:
What data are you looking at? If a home was worth $500K last year and the bank/owner puts it up for sale for $250K and it sells for $250K, well it sold for asking price but it was 50% lower than last year. Take things in perspective.

You worry me, you sound like Sippin.

wrong moves said...

NorCalJeff,
I never said I was trying to get something at 50% off peak as you assumed. I don't really give much importance for what somebody else paid for a house. Remember the buyer give value. As and example, we toured a 1870 ft2 house that needed 100% new flooring, possibly had mold issues in the master bath, needed a serious cleaning, the lot backed up to a major Roseville Blvd. The previous owner payed 570K in 2005. Again, I don't care. What I care about was this crapbox tract home was marketed at 369K and went "Pending" within a few days. Of course I won't know what the sell price will be for a few months, but my point is this; Just how many more people are there who want to buy a house in Sacramento who can ACTUALLY afford to spend $350-400K?

My original post was basically a rhetorical question as to how a region with a relatively low 56K per capita or a 64K household (per the 2000 census) income can perpetuate a market of such high prices.

The wife and I just haven't found a property we are willing to spend $200 per square foot on to call our home.

norcaljeff said...

Wrong Moves, I was only making an example because you were assuming that homes selling at full price showed the market was rebounding. I was showing you an example to explain my point, that's all. If the bank buys a home back at an artificially high price doesn't mean that its worth that amount either.
You shouldn't be spending $200/sqft. That's just too high. We're going back to 2000-01 prices or lower which were just above $100/sq.