Tuesday, February 19, 2008

"The only answer is for the government to get out of the way"

From the Appeal Democrat:

Our View: Stimulus plan is like giving drink to an alcoholic

When home prices soared as the result of cheap and easy credit, not many people considered that a crisis. It was fun for homeowners to stand around the proverbial water cooler and boast about the price of the house down the street. Well, prices have since fallen to the lowest levels since 2004.
What goes up often comes down. But there's more than a market phenomenon going on here. Federal monetary policy has a direct effect on lending practices, and the government is getting actively involved now. That, in particular, should be reason for worry.
The only answer is for the government to get out of the way and let the market self-correct. That may mean allowing prices to fall to levels they need to be so that buyers can afford them. For most people, that's not as much fun to watch, but that's the real solution.
From the Inman News Blog:
In looking at markets that may see a temporary increase in the $417,000 conforming loan limit, I ran a table yesterday that relied on median home price data from the third quarter 2007. Running the numbers again today with preliminary fourth quarter numbers from NAR highlights a potentially serious problem. All 19 metropolitan statistical areas (MSAs) identified as places that might see an increase in the conforming loan limit are declining markets...Sacramento now looks like it won't see an increase at all, based on the new fourth quarter numbers.
From the Boston Globe:
Cesar Dias, an agent from Stockton, Calif., who appeared on "60 Minutes" and is credited with starting a national trend, said foreclosure tours accomplish twin goals of moving properties and drumming up prospective buyers in lean times. "We knew we couldn't sit with our hands crossed hoping for the best," said Dias, who is working on tours in Dallas and San Diego; Las Vegas and Phoenix may be next.
From the Atlantic Monthly (hat tip Gwynster):
Strange days are upon the residents of many a suburban cul-de-sac. Once-tidy yards have become overgrown, as the houses they front have gone vacant. Signs of physical and social disorder are spreading.
In the Franklin Reserve neighborhood of Elk Grove, California, south of Sacramento, the houses are nicer than those at Windy Ridge—many once sold for well over $500,000—but the phenomenon is the same. At the height of the boom, 10,000 new homes were built there in just four years. Now many are empty; renters of dubious character occupy others. Graffiti, broken windows, and other markers of decay have multiplied. Susan McDonald, president of the local residents’ association and an executive at a local bank, told the Associated Press, "There’s been gang activity. Things have really been changing, the last few years."


Gwynster said...

Arnold just announced the hiring freeze.

Diggin Deeper said...

A good way to finally bury Fannie and Freddie is to make them guarantee properties at 25% over the median prices in a market where median prices continue their slide.

Who the hell thinks up these ideas? Looks like the Quant kids moved to Washington and now work for the FHA. Ponzi would be proud.

mechanico said...

Are there any new developements that will survive the bust? Not in terms of value but class. Elk Grove and North Natomas have become instant Ghettos. Those areas have never been great but when there is talk of gangs moving in it's over. Can you imagine paying $350-500,000 for a home and then start noticing gun shots in the evening?

Patient Renter said...

"The only answer is for the government to get out of the way"

HEY! A paper printed something that I actually agree with! Unfortunately getting out of the way isn't what politicians tend to do. Getting out of the way doesn't get you elected or re-elected.

smf said...

- Are there any new developements that will survive the bust? -

It all depends. With the relaxed lending standards, the normal financial barriers that would have prevented people from moving into certain areas was eliminated.

Jennifer said...

- Are there any new developements that will survive the bust? -

My family must live in the ELk grove school district for certain reasons, and I am worried that even the nicest neighborhood with acre lots will turn Ghetto! We are watching until they drop to $500K......If the quality does drop, we will have to go to Rancho Murieta or Wilton.

watchingthebubble said...

I'm curious. It seems that Roseville, Rocklin and Folsom are also seeing increases in foreclosures and REOs, yet they never seem to be referred to in the same terms ("ghetto") as Natomas and Elk Grove. What did Natomas and Elk Grove get wrong that Roseville, Rocklin and Folsom seemed to get right such that Elk Grove and Natomas are perceived to have taken such precipitous turns? Was it a matter of timing -- Elk Grove and Natomas built out too much too fast? Or was it a matter of class -- Natomas and Elk Grove were more affordable than Roseville, Rocklin and Folsom such that, with easy lending standards, barriers to entry weren't what they should have been?

And, more important, can Natomas and Elk Grove be turned around and, if so, how? Can a neighborhood in decline ever be turned around on a dime? Or does the market just have to shake things out?

mechanico said...

Folsom never allowed affordable housing. From what I understand the area south of 50 will be annexed for exactly that purpose. Then there goes the neighborhood. Rocklin and Roseville could go either way especially since Lincoln is getting hammered.

smf said...

"Folsom never allowed affordable housing."


There are laws that require affordable housing to be built as conditions for other projects approval.

I have done several where a market rate project was allowed to proceed as long as certain affordable housing provision were made.

Folsom essentially circumvented that law. I am not certain exactly how, but it may have been that the affordable housing projects were built outside of Folsom.

sacramentia said...

Where is the Franklin Reserve area of Elk Grove?

Perfect Storm said...

"Folsom essentially circumvented that law"

Sometimes cities have a developer set aside so many homes out the tract that they are developing for people of low income then sell those houses to them at a 30% discount, cities do this instead having developers just build low income complexes.

The catch is people who are low income still cannot afford the home, so the City redevelopment agency will loan them federal CDBG or HOME funds to cover up to 30% of the down payment, which makes it easy for a mainstream loan outfit to make the first deed loan. Oh by the way most of time the low income individual does not even have to make a payment on the federal funds they received, which are normally written with a 3% interest rate.

Your tax dollars at work.

Were right on track for a 50% decline by 2009.

David said...

It is interesting to see what is happening in Elk Grove from the perspective that this has all happened before, just not here. In the 80's the city I grew up in was exploding population-wise. The city literally double in size from about 200 thousand to over 400 thousand in only 10-15 years. The interesting thing is many of those great new neighborhoods that got built turned into not so desirable neighborhoods in less then 10 years.
You really don't know what you are buying into with a new neighborhood. And when the times are booming all sorts of people that you don't want as neighbors start buying.
So for me I saw what was going on in Elk Grove and thought "wow this is going to be the ghetto in ten years."
I just love that so many people 1-4 years ago were saying that they would never buy a "used" house because of all the problems you have with them. They only wanted new. Well new turned out to be a bad investment.

Cmyst said...


Coming from the Midwest many years ago, I first heard the term "used house". There was no such thing in my hometown, which was not really gaining in population. We also didn't have "starter" homes. You simply bought what you could afford, or lived in a rental.
Speaking of which, suddenly I don't notice homes being described as "starter" homes as much in MLS. The term has always offended me. It's just a smaller, older house -- some of us who aren't "starters" actually prefer those. Ditto for "investment property". LOL! Don't tell me what to do with it -- if I'm that good at investing in RE, I think I can figure it out for myself. Any self-respecting person looking at an ad that had "would be a great starter home or investment property" is going to immediately drop that property right off their list if they intend to actually live in it.
Whatever YOU, the listing agent, think the property is -- just keep it to yourself and highlight it's attributes. Holy cripes, I wonder how some of these idiots even made money during the bubble.

Diggin Deeper said...

CPI today runs a little hot...food and energy prices driving the increase.

CPI now at a 4.3% increase YoY.

Oil settled over $100 per barrel yesterday. Gold seems to want hold onto $900 per ounce. All spec and bubble or is it just a market response to money supply growing 15% per year?


Living costs matter. You can handle a treadmill at a certain speed. Turn it up one level beyond and you're going to fall. Same with neighborhoods. Buying any median priced tract home is a crapshoot. Wait two years until we push through the biggest part of the mortgage crisis. By then, most of the damage will be done in any neighborhood affected. If you're going to take a risk, at least attemp to skew the odds in your favor.

If you're a buyer today you're better off buying something ecclectic, out of the way, in a neighborhood that stays basically out of the mass foreclosure mess. It'll cost more, but peace of mind is worth a higher price to some.

Diggin Deeper said...

Foreclosed homes occupied by homeless


Not surprising!

Kim said...

With respect to Natomas, or ghettomas as we who live there now call it, one answer was low income housing, i.e. apartments.

We bought new in 2000 in North Natomas (south natomas was already maxed out in low income apts), and in the beginning it was all houses and one grocery store, Raley's. I can honestly say it was peaceful and nice, neighbors knew each other, we had 4th of july street parties, etc. Then our loser of a mayor and her cronies started selling the community out and almost overnight huge 3-story monstrosity apartment complexes popped up, touted as affordable for teachers and firement. HAH!

Overnight our neighborhood was inundated with problems and we are now basically surrounded, the parks are full of kids in clown pants and gang writing shows up everywhere.

Last night I heard a commotion outside and a kid screaming. Being an idiot, I went onto the porch to look...it was two clown suited thugs with their pit bull on a chain encouraging the poor dog to terrorize the young boy with them by biting at his jacket. This went on until they noticed I was watching them. But they don't really care, and neither do our leaders.

Natomas is a disaster of epic planning proporations but it didn't have to end up this way.

If Folsom got away with no low income, good for them. It's a disaster for homeowners.

David said...

I think the problem with most of the "urban planing" is that they try and group everything together. You have huge mcmansions on one block and then a huge pile of apartments on the next, and all the shopping way off on the side. This doesn't seem to work, but they keep doing it over and over again.
Then you look at the Pocket, which most people would say is a pretty nice neighborhood and you have duplexes mixed in with single family and it doesn't seem to be suffering like these other neighborhoods. Maybe we should drop the stupid planning were we lump everything together and go with something a little more organic. Again this argues for buying only in established neighborhoods were you know what you are buying into.

PeonInChief said...

Communities that don't want to provide low-income housing should be willing to give up the services that come with low-income workers --restaurants, retail sales, lawn and garden services, office clerks, and so on-- as well as the sales tax revenue their existence generates.

I can hardly wait to see people driving from their McMansions to lower-income communities to shop and finding some other way to generate the sales tax revenue.

Jacob said...

Just shop online and have it mailed / delivered.

Gwynster said...

Part of what happening with those apt is how they are priced. It's weird but the higher the price of the rental, the worse the tenants since sect 8 pays more then real renters would pay.

watchingthebubble said...


The Franklin Reserve area is bounded by Elk Grove Boulevard on the north, Bilby/Willard Parkway on the South, Franklin Boulevard on the West, and Bruceville Road on the East.

PeonInChief said...


How are Section 8 tenants not "real" tenants? They pay 1/3 of their income for rent which, I must admit, is more than the DH and I pay.

sacramentia said...

"Then you look at the Pocket, which most people would say is a pretty nice neighborhood and you have duplexes mixed in with single family and it doesn't seem to be suffering like these other neighborhoods."

Agree, Parker Development does a really nice job.