Sunday, February 03, 2008

Sacramento Bee: "Bubble Bursts in Elk Grove"

From the Sacramento Bee:

Bubble bursts in Elk Grove

Elk Grove, already mired in an economic slump, may be at the forefront of what's coming to the entire Sacramento region. Already home foreclosures there are up fivefold. Unemployment has climbed. Vacancies at small strip malls are three times the regionwide average, and Laguna Ridge – a big new master-planned development – is largely a ghost town of unsold homes and vacant lots.
...
The downturn calls into question just how strong the boom really was. Rising prices enabled an untold number of residents to tap their home equity to buy sport-utility vehicles and other consumer goods. But others did well just to buy a house. They were wealthy on paper but chronically short of cash.

The Sacramento Natural Foods Co-op found this out the hard way. Preparing to expand, the Co-op looked at demographic studies of Elk Grove and saw nothing but high incomes. The Census Bureau pegged Elk Grove's median family income in 2006 at $81,771, or 25 percent higher than the state's median. But when the Co-op opened in the Elk Grove Marketplace on Bond Road, it found many residents weren't so rich after all. "A lot of these 70,000 new residents down there were young families with mortgages up to their eyeballs," said general manager Paul Cultrera. "The disposable income wasn't there. … It's tied up in mortgages and new furniture." The store closed in January 2007 and gave way to a discount food chain, Grocery Outlet.
...
Because of massive overbuilding and other issues, the vacancy rate at Elk Grove's smaller strip malls – those that frequently cater to independent merchants – has jumped to nearly 35 percent...Garrick Brown, regional research director at Colliers International real estate...said. That's three times the area average. In one stretch along Interstate 5, the vacancy rate is 68 percent, he added.
From the Stockton Record:
The lunch rush used to fill Campesino Café. That hasn't been the case for the past several months. A handful of south side businesses, such as Campesino Café, that cater mostly to Latino immigrant workers are not only seeing the effects of a sluggish economy, but they also say reverse migration has left their business nearly empty of customers, who are fleeing lackluster employment conditions.
...
The soft housing market has played a huge role in the economic slowdown in San Joaquin County. The housing market slowed job growth in the county from 1.3 percent in the fourth quarter of 2006 to 0.4 percent in the fourth quarter of 2007, according to University of the Pacific's Business Forecasting Center.
From the Sacramento Bee:
Sacramento home builders have tried practically everything to move product in a slow market: lower prices, auctions, luxurious upgrades and so on. Now they're offering cheap money. Working in tandem with lenders, two home builders are offering mortgage financing for new homes at below-market rates.
...
John Arvanitis, a Citrus Heights mortgage broker, said interest-rate buydowns are preferable to continued price reductions, which drive down market values for everyone in the community. "You don't want to perpetuate (or) assist in a market crash," said Arvanitis, president of Sunrise Vista Mortgage Co.
From the Sacramento Business Journal:
There are 9,310 bank-owned properties in Sacramento County, according to RealtyTrac Inc., and there are 8,337 more homes in pre-foreclosure, which means the owner is at least two months late making mortgage payments.
News10: Foreclosure Fears Pack Stockton Workshop (video)

9 comments:

smf said...

"The Census Bureau pegged Elk Grove's median family income in 2006 at $81,771, or 25 percent higher than the state's median"

Is this because of a few 'liar's loans'?

Can we all imagine then how many incorrect assumptions have been made by all?

Max said...

Don't forget this lovely gem from the Franklin Reserve area of Elk Grove:

Body found in Elk Grove canal

ELK GROVE – A decomposing body was pulled from a drainage canal in Elk Grove on Sunday, but police said they could see no obvious signs of violence.

Elk Grove Police Chief Bob Simmons said a call came in before noon from a resident who reported a body in the cattails on the side of the canal, near the intersection of Fire Poppy Drive and Spring Flower Drive. A crowd of onlookers gathered Sunday in a neighborhood of gated communities and large stucco houses as the corpse was removed in a black body bag.

Sgt. Joe Young said the body was that of a white male, possibly in his mid-20s, who was wearing jeans, sneakers and a hooded sweat shirt with a black cross. The man was heavily tattooed, he said. The body had been in the water about a week and no identification was found, he said.

Simmons said it was possible the person had slipped on the steep banks of the canal or fallen off a bridge and drowned.

Young said a neighbor told police Sunday that she had first seen the body in the canal Tuesday, but her husband had told her she must be mistaken.

The Sacramento County Coroner's Office will try to determine a cause of death and identify the body.

Simmons said his officers were not immediately aware of any missing persons reports in Elk Grove that might match the body's description.

Young asked that anyone with information call Elk Grove police at (916) 714-5115.

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

It's a given areas like Elk Grove, Natomas, and El Dorado Hills will continue to have serious over(shot)growth and foreclosure problems. While this downturn, and subsequant lousy market, was predicted by many on this blog, its severity is surprising me at this point... straight down, and gathering speed by the month. Will Wave 2 over run some of the pricier neighborhoods, especially those homes that were bought in '05-06? If I recall no doc loans were the most prevalent during that period, as home prices had gotten to a point where borrowers had to have some kind of bogus shelter in order to qualify. With what we've seen in negative price momentum, some of these "palaces" are going to hit the market hard and put a real dent in those pricier zips.

smf said...

"some of these "palaces" are going to hit the market hard and put a real dent in those pricier zips."

DD,

Go do a check on the MLS on the number of speculative higher-priced built very recently. The number is staggering, where in some places about 80% of these homes are speculative.

Yeah, that bubble will burst soon. I am banking on getting one of these homes for cheap soon.

Patient Renter said...

"John Arvanitis, a Citrus Heights mortgage broker, said interest-rate buydowns are preferable to continued price reductions, which drive down market values for everyone in the community. "You don't want to perpetuate (or) assist in a market crash," said Arvanitis, president of Sunrise Vista Mortgage Co."

Wow, this is total BS. Who exactly are interest rate buydowns preferable for? You! Mr. Mortgage Broker! A seller could care less what happens to home values after they sell their home. Buyers obviously don't care.

Diggin Deeper said...

PR....what a joke.

Just like buying a new car, the first question the salesman asks, "What do you want your payments to be?" Go along with that line, and you're guaranteed to pay full price.

Buyers should care because a "buydown" can be worked to fit within the lender's minimum acceptable lending ratios. Whereas a fix priced purchase allows a buyer to maximize not only the mortgage payment, but the property taxes as well. Beware of buydowns, and for certain don't do your budgeting in front of a mortgage broker before you know what the buydown is.

SacramentoCrash said...

$81,771 X 3 = $245,313 Median Price.

So that means about 1/2 of the homes should be priced at $250,000 or less.

The last time that we saw a median price in this range was back in 2002

STOP ROSEVILLE CRIME said...

It took the Bee this long to figure out there was a Bubble in Elk Grove? I knew EG was in a bubble once their median prices reached that of Roseville. Apples and oranges folks. We'll be down another 20-25% shortly.