Saturday, February 16, 2008

Soup Line

From the Lodi News-Sentinel:

The housing boom was good for Ben Juarez, like so many other Lodi residents. It meant steady work and extra cash from overtime jobs, installing air conditioners and gutters at tract homes across the region.
...
Now, with the housing bust, life is full of worry for Juarez — who's been jobless since November — and for thousands like him in the area. The EDD estimates that Lodi's jobless rate reached 7.3 percent in December, the latest figures available. That's up from 5.5 percent in December 2006 and 5.6 percent in December 2005....It adds to up to more than 1,000 extra residents without work compared to the past couple years. Because of the epic housing meltdown, many of those unemployed are local carpenters, plumbers, landscapers, real estate and finance workers.

San Joaquin County — where the jobless rate was estimated at 9.7 percent in December — lost 1,400 construction jobs and 1,000 real estate/finance positions in the past year alone, Baker noted. That's 9 percent and 10.1 percent of the jobs in the respective local industries.
From the Sacramento Bee:
Gallows humor was served up Friday – along with a last meal and a small dollop of frustration on a "soup line" – when more than two dozen Sacramento city employees received layoff notices..."It was just a joke. Somebody said, 'Let's have a potluck,' and I said, 'Well, the Depression wasn't so long ago,' " said technician Nora Robinson, 58, joking about her age. "How about we call it a soup line?"
From the Sacramento Bee:
Faced with the prospect of slowing sales in a slumping economy, burger joints and family dining businesses are tweaking menus and fiddling with prices and portion sizes, catering to budget-conscious consumers feeling a little poorer by everything from tightening credit to higher gasoline and grocery prices. "I'm hearing from our customers that they're pinched for money," said Michael Pettit, owner of Lodi-based CJK Associates, which owns Applebee's restaurants in the Sacramento area. "Value is what people are looking for."
From the Modesto Bee:
The median sales price for a Stanislaus County home was $260,000 last month, 26.7 percent lower than in January 2007, when the median sales price was $354,500, according to DataQuick Information Systems, a real estate research firm. The median sales price in Merced County was $215,000, down 33.8 percent from a year earlier. And San Joaquin County's median price was $295,000, down 26.3 percent from the January 2007 price of $400,000.
From KCRA:

31 comments:

Max said...

Went down to Berkeley last weekend for some shopping, and I was struck by the number of jobless day-laborers hanging around. There were always a few the last couple of years, but I'd say there were over 100 guys in work boots and flannel standing around on various corners.

The squeeze is on.

SacramentoCrash said...

The regional economy was all smoke and mirrors.

Look at the primary economic drivers in this area:

Homebuilding, real estate and finance - Broke

Government - Broke

Indian Casinos - Blood suckers that make you broke.

aqius5 said...

agree about casinos. the majority of people there are seniors in a glazed coma with a bucket of coins. for the life of me I could never understand how someone with enough intelligence to accumulate the means to sit for hours in a smoke-filled noisy souless box designed for one purpose and one purpose only cannot have enough sense to avoid such ripoff palaces?

the few times I held my breathe long enough to play a few hands of blackjack & some slot pulls (or buttons) for a measly $20 was long enough to disgust me.

hey, it's all legal & entertaining for our seniors I suppose but boy howdy do they bitch if asked to contribute a few shekels in higher taxes for services or such while gladly dumping thousands a year in the one-armed bandits.


hilariously sad - actually

waiting_for_the_fall said...

There's a corner in every city where day laborers congragate.
I live in Half Moon Bay.
Everytime I drive by the corner where they hang out, I would normally see only 4 or 5 left by 9am. Lately, I see 20 or more still there at 9am.
Scary how fast things can change.

Mr F. said...

I'm sure there will be more vans down by the river.

mechanico said...

I never got an answer to my question and I really want some advice.

If you had a chance to buy a beautiful home in a really nice area for half of what the last buyer paid in 2006, below 2001 prices, would you buy?

What would make you jump off the fence?

waiting_for_the_fall said...

What if the neighborhood goes bad or you have a job loss?
I believe we are headed toward the middle of the downturn now. It's best to wait another year or two before buying, no matter how great the deal seems to be now.
Even at 2001 prices, it's still cheaper to rent in my area.

waiting_for_the_fall said...

to answer your question- what would make me jump off the fence now? If the neighborhood was good and the price was 75% off, or if they pay me to live there.
The seller would also have to write me a letter explaining why I should buy their home. ;)

mechanico said...

The neighborhood is well established, the house is in a great location with nothing undesirable about it, and it's a good 20-30% below comps.

Ed said...

Mechanico,

I would do it. No question. What you have presented is an optimum choice, assuming you are not planning to move again in several years.

Personally, anything under 2003 pricing is a great deal. Take inflation into consideration. In other words, take the 2003 price, add about 3 - 3.5% per year, and if you price is under that price, it is in "fair" territory.

However, be prepared for some grief here - many will not agree.

Another question to ask yourself: Can you earn your way out of a 10% mistake? ie: could you afford to lose 20-50K? Those that can afford it are in a much better position than those who must wait for a no-loss situation. Everyone's situation is different and we all bring assumptions and biases to the table.

-Ed

ps: Rates are very low right now too. I have no vested interest in the market now, except as a potential move-up buyer.

Jacob said...

I would do it. No question. What you have presented is an optimum choice, assuming you are not planning to move again in several years.

If you are getting a good deal, a realy good deal, then you should be able to sell for a profit right?

What would it take for me?

The price you suggest seems good to me. I would have to be confident that:

1) The neighborhood is a good place to live.

2) It will continue to be so in several years.

#1 is easy to check, #2 is more wait and see especially for new neighborhoods.

3) I would have to be confident that the construction is good. With so many homes built so fast what quality would I be getting, and will the builder be around to honor any warranties...

4) HOA = $0.00

5) Mello Roos taxes: Either there are none, or it is a small amount like $100 / month. None of this $500 month crap for schools that will never get built and roads that will never be finished and levees that will never get fixes etc.

Now if I can find a home around $100-$125 ft2 with some land, at lest .5 acre up to 2 acre then I would probably make an offer.

But really with all the resets due this year I can wait and see. Things may start to get better in 09 after most of the resets and bogus loans have been worked through the system. Also that will give new flippers a year to lose money so maybe they will have had enough by then.

If not, the I wait until 2010 or later.

When I start to see inventory going down yoy for several months then I will get ready.

lexi said...

Mechanico
I would probably buy it...
if it wasn't too much over what
it would be to rent the same type
home in that area and if I was
planning to live there for a minimum of 5 years..

Mystere said...

Mechanico, you characterized it as a 'beautiful' house situated at a 'great location with nothing undesirable about it' in a 'well established neighborhood' and at a price 'below 2001.'

It sounds like this one is hitting on all cylinders. With a nice cushion like that against any further downside in the market, and considering that it's a home you really like (i.e. you aren't compromising or settling for a home that doesn't ideally suit you in the interest of getting a deal), I'd pull the trigger.

If you plan on being in the home for at least 5 years, there's lots to be said for not falling into the mantra of 'something at a better price will come along.' Maybe it will, but I've seen a number of people in the last cycle who ended up settling for a house that's really not what they truly wanted, and trying to convince themselves that it's ok because they got a deal. To me, a home is more than a house, and in such a major purchase I'd rather get what I want than settle for something less, even if it's not at a rock bottom price (which yours may be at, in any event).

alba said...

If you believe the economic situation is getting worse, then why would you even consider buying? The factors mentioned above don't work when we're in new territory regarding the economy. There are MANY homes in nice areas that are down 40-50% percent; for areason. 5 years? That's a normal housing swing...not a chance this time! There will be a clear time to buy in this market, and there will not be a recover that you have to chase. You'll have time.

alba said...

The bond insurers (ambac, fgic, mbia) are going to have a very telling week. They want to cut out their bad debt, and separate their muni bonds business from their securitized (mortgage loans) bonds. It seems the municipalities need cash, by issuing bonds, but there are no takers, unless you want to pay double-digit interest rates. The bad debt is about to begin the process of being exposed. These type of factors, and ones like the UK nationalizing Northern Rock Bank today, will have a major impact on the conditions that warrant buying into the mess.

Cmyst said...

mechanico -

If the most expensive house on my list at 499K, an absolutely beautiful house in the Shelfield Oaks area, were to suddenly drop to the 2001 price of around 250K -- yes, of course I'd try to buy it. Great area, great house, and I could afford it.
But, OTOH, if some of the other houses in less desirable areas dropped to pre-2001 prices (putting them at 140 - 200K), I'd probably still hesitate. The reason I know that is that a couple of houses in the exact same style as the one in Shelfield Oaks have been on the market recently for right around 200K. I thought real hard about them, and finally concluded that they were still overpriced for the neighborhood and that they were probably still going to lose value; plus, I am a lot more sensitive to things like heavy traffic and poorly maintained neighboring houses in this declining market.

G Spot1 said...

mechanico,

If you are in it for the long haul, I would do it. I don't think a 5 year time frame is long enough, however, and would be thinking more like 10. Of course, things could change and you may have to sell sooner, but at least you seem to be minimizing your exposure on that front by getting a good price. Still, you have to think about whether you can take that hit if things do change.

Also I have to wonder, is the price you are looking at the current listing price? I'm guessing not, because I think there are enough buyers/speculators circling that a good deal like you describe would be snatched up, if it truly is a good deal. If you are talking list price or close to it, then you may have to think about whether this is too good to be true. Does the place have problems? Has it fallen out of escrow before (inspections)? Just something to think about....

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

"Personally, anything under 2003 pricing is a great deal. Take inflation into consideration. In other words, take the 2003 price, add about 3 - 3.5% per year, and if you price is under that price, it is in "fair" territory."

I agree. I don't believe we'll see another 30-40% drop from here based on Ed's comments. We're already down by about 30%(off the highes) and if someone can buy at 15-20% below current comps, today, the risk of further price deterioration is minimal, imo. I'd accept another 10% downside risk (below the current comp level)as Ed suggested. Recovery from an additional 10% loss is miniscule compared to trying to recoup a 50% down situation.

I believe the same euphoria that controlled the seller's market will eventually return as buyer euphoria.

We're basically in a panic stage right now, maybe even tending to form a bottom. Volatile markets tend to push prices way up beyond fair value...the opposite occurs when they crash. Smart money will feed off of the fear and panic that drive prices way below their replacement costs.

Buyer's are waiting for their price points and they're finding them. We're beginning to walk a fine line between interest rates and pricing. 30 year mortgages stand higher today (by approximately .5%) then they did last month, even with 1.25% rate cuts we've seen from the fed. I am in the camp that says mortgage rates will rise to their historical averages of about 8.5% soon. If for no other reason than to control inflation and money supply. Those that can take advantage of emotionally charged price levels at current mortgage rates should not delay. Any morgage rate increase will begin to offset real estate price decreases. A 3 percentage point rise in mortgage rates would equate to a 30% decrease in pricing from here.

The sky is not falling, the market is reacting exactly as it should when total capitulation is acheived. What if's really don't matter, whats current and real does.

I am a buyer if I find the perfect home 15-20% under current comps, will accept an additonal 10% price redution risk. if I can finance using today's morgage rates.

Cmyst said...

diggn, to a certain extent I agree with you. In very specific situations, I would agree that you are not necessarily a FB if you decide to make an offer.
OTOH,if your tastes are more uniform and you still have lots of productive work years ahead of you, I still think you've got years of elective fence-sitting if you so choose. Reason: as smf has pointed out before many times, we are waaaaaaay overbuilt, and there are now as many foreclosures as there are sales (nearly). As sippn' has pointed out, these foreclosures tend to be clustered in newer subdivisions and in less desirable neighborhoods on resales (they are in every neighborhood, though -- just not in as great numbers).
So -- if you find the kind of deal mechanico is presenting, that would be a pretty good scenario. Otherwise, if you just want the best deal possible and your tastes are not very eclectic, I'd wait it out.

Jennifer said...

Has anyone heard from agentbubble? He is such a reasonable RE agent. I would hate to hear that he is in the gov't cheese line with the rest of the starving agents...

Ed said...

AgentBubble is doing just fine. Don't worry about him.

Jacob said...

I dunno, I still think the bottom is a ways off. Previous busts took years to get worked out and we are only 2 years in now. Also this boom was worldwide and the speculation was huge, we are so over built that everyone that wants to sell will not be able to.

If interest rates go up then prices go down. If you have cash on hand that is better cause your loan amount will be smaller anyway so the increased interest rate may have little effect.

I think people that expect just another 5% or 10% drop from here is wishful thinking. that doesn't mean it won't come true, I just think there is room for a lot more price correction.

But the main thing has to be do you want to live in a particular home for many many years, at least 10. If so, and if you find a price you can live with, then it might be the right time.

For me, I am waiting to see what happens with all the resets and foreclosures this year and will be looking to buy on 09 if the market levels off.

Diggin Deeper said...

Cmyst...just guessing but I would suspect that those specific situations will become more the norm than the exception as we move forward. It took a couple of years to break down the pricing psychology to where it is today. It's not only breaking down it's being shattered by negative emotions delivering multiple percentage point drops nearly on a monthly basis. There were several months during the 90's where the same type of reductions were occuring.

I also tend to believe that while a downturn could be long and broad, pricing will only reach certain levels, regardless of inventory, only to be offset by higher mortgage rates. To me there's a window of opportunity to get the best of both, and is a recipe for greater buyer activity. How long it last depends upon rates.

You can sit on the fence and chance that rates will remain this low for an extended period of time. For some have never seen rates above 8.5% and might tend to think that we're destined for low rates from this point on. Those of us who've gone through both high and low interest rate cycles know that things can change rapidly mostly for reasons beyond our control. For example, most don't know that in March of 2000 mortgage rates were at the 8%level. Inject that today and those that are finding a great deals like Mechanico might not want to pay the price.

I doubt that we're looking at buying an original $400,000 sales price for much under $200,000. Even at a 50% reduction off the high, if you factored inflation adjustments from 2002 to the present it would suggest that replacement costs are at least 25%higher or around $250,000. And that's using a fairly subdued 3.5%rate over the period (regardless of what was published by the PPI). Some want to throw inflation calcs out the window but they're real costs, compounded, and provide a picture of true value.

smf said...

There are times when a house is special enough to justify paying a higher price just to reserve the right to own it.

But in my opinion, it does not apply to a track home.

The wife went to look at some houses in EDH yesterday. She didn't realize that both were short sales!

Till this whole thing shakes out, we won't know where all the inventory excesses lie. I get a slight feeling, however, that the higher end will have problems soon.

It is easy for the government and other to discuss about how the 'poor and minorities' (We are hispanis descent) are affected. But what if they realize that even the 'rich' are? Then what?

I realized something, you see. It made financial sense, due to the price of raw land, to build larger homes to maximize profit. This was done in many, many areas, including high end to very high end areas.

In the end, my personal bet is that larger homes will take a bigger drop in price than others.

Diggin Deeper said...

"I get a slight feeling, however, that the higher end will have problems soon."

I think the same. It's kind of a double edge sword. There are far fewer capable buyer's for upper end homes. And then there are in-area sellers wanting moving up from one level to the next. They will have a hard time getting any pricing traction when they have to sell in order to buy.

The direct beneficiaries are those with a lot of cash onhand, transplants from high end counties like OC, LA, and SD, and possibly foreign investment.

But I agree prices should get hammered due to all the cheap money morgage mistakes that allowed some to buy over their heads.

smf said...

DD:

Here is the deal. One of the houses that we saw yesterday belonged to a builder that had FOUR go into foreclosure. He was a novice.

At first sight, the house looked alright. But upon a closer look...you could see where he skimped.

Plenty of people attempted to maximize their profits and justify their land costs by building much larger homes. Obviously, you get a bigger bang for your buck doing so, or at least that was the case during the bubble.

But there isn't that many people willing to live in bigger homes, regardless of their income. And some of those, looking for a bigger home, CAN tell the difference between quality and crappy construction.

And there were plenty of people out there throwing up crappy McMansion all over the place.

That's the next shoe to drop. These people, which include close family relatives, STILL believe that the high-end will not be affected, or that the prices will be back up soon. That is first-hand info I have received from them.

Scary...

alba said...

Once economic conditions favor your situation, it becomes muc easier to reason with today's bargains as justifiable. Using statistics that validate your position, for today's market, is what makes a market - buyers and sellers.

Not looking at the macro-economic factors that will impact housing over the NEXT 2-3 years (not the last 2-3 years) is a choice. A wrong one, in my opinion.

commonsense said...

www.usahomeauction.com from febr. 16 and 17th.

Ignorant Specuvestors did bid any piece of junk in some cases more then true market value.

Any one else was there?

Diggin Deeper said...

Here's a thought. If prices do drop to say .35 (65% off the high)on the dollar wouldn't it make more sense to tear down, salvage, and sell the materials rather than buy and live in the home?

Your standard median priced $280,000 home, today, would drop to $140,000 from here, which would be $260,000 off it's $400,000 median priced high.

Anything's possible but what's most likely to occur?

alba said...

In Placer County, it appears there has been only 1 home sold at public NTS auction. That tells me the banks have not been willing to part with these homes asap, at any price. My understanding is that, under normal periods of the market, these homes would be snatched up if they were deemed to be offered at a 25% discount or more. Then it would seem they would sell quickly and efficiently...for cash. Its not happening yet if they can take them to the USHomeAction "sale" and rip people off.