Friday, March 21, 2008

Flashback: Central Valley Housing 'Soufflé'

From the Wall Street Journal:

Cities and counties with some of the worst fallout from the nation's housing slump also are seeing a sharp upswing in vacant homes, a trend economists say might set up further declines in home prices. The national homeowner vacancy rate, which gauges the number of vacant homes on the market, rose to 2.8% in the fourth quarter, according to Census Bureau data.
...
Vacancies...jumped in some once-booming Western cities. Between 2005 and 2007, homeowner vacancies more than tripled to 3.8% from 1.2% in the Riverside-San Bernardino area, part of California's Inland Empire, east of Los Angeles. In the Sacramento area, vacancies jumped to 4.2% from 1.2%.
Interactive Map - We beat Detroit!

From the Modesto Bee:
Monica Granados regularly encounters people who aren't even trying to fight foreclosure in San Joaquin County. Granados is a process server who delivers eviction notices to houses repossessed by lenders.
...
Granados said lenders these days seem much more willing to help borrowers save their homes, but that wasn't the case last fall when her Salida house was foreclosed on. Now Granados is trying to prevent foreclosure on another house she owns in Stockton, and she's optimistic about getting her lender to compromise.
From the Fresno Bee:
The Merced-based holding company for County Bank anticipates a big loss for 2007 -- caused by falling real estate values in the central San Joaquin Valley...County Bank's troubles come amid widespread problems for financial institutions across the country as they cope with the bursting of the nation's real estate bubble. While much of the attention has been on larger players on Wall Street -- most notably investment bank Bear Stearns -- the Federal Deposit Insurance Corp. reported last month that more community banks also are reporting problems.

"I think we're starting to see this issue across the state," said Joe Morford, banking analyst with RBC Capital Markets in San Francisco. "Banks in the Central Valley and in the Inland Empire, in particular, are feeling this sort of pain right now, given that those were two of the most overbuilt housing markets in the state."
...
While the bank's most recently reported problems have arisen mainly in the last quarter of 2007, the August foreclosure on an $11.7 million loan for a failed condominium construction project in the Sacramento suburb of Rocklin was an early sign of problems, Morford said. "Through 2007, management indicated that was an isolated issue," he said. "Now we see there's much more deterioration across the portfolio."
From the Merced Sun-Star:
In February 2007, Capital Corp's chief consulting economist Tapan Munroe predicted that the Central Valley wasn't facing a housing bust. Instead, he termed the slowdown as a "souffle with the air slowly leaking out." Munroe and co-consultant Lon Hatamiya projected then that Merced's home prices would drop 8.9 percent. Instead, prices in Merced plummeted 16.8 percent between December 2006 and December 2007, according to DataQuick Information Systems.
From the Stockton Record:
It might not be a trend, but at least some homes are starting to move in what has been a stagnant real estate market...On its face, that would seem to be good news. Actually, that would be extraordinary news if taken out of context.

The context is this: Most of the sales are of foreclosure homes. The number of sales has been so low for so many months that any increase produces a large percentage change. And more waves of foreclosure homes will wash across this market as adjustable rate mortgages reset to higher rates and families buckle under the weight. Until those homes are sold - and nobody really knows how many more will flood onto the market - things will not settle down. We don't even know if the term "flood" is an overstatement or an understatement.

23 comments:

STOP ROSEVILLE CRIME said...

Reads like a book I read for grade school, The Grapes of Wrath. Ought to be seeing a great dustbowl forming out by the airport soon.

Cmyst said...

One thing the housing bubble has highlighted is the lack of good-paying jobs in our country, both white and blue collar.
It's kind of hard to outsource construction to India and China, and where there's a market there will surely be local jobs to sell it and finance it.
I've been reading all the comments in other threads about people living off the taxpayer's dime, and people needing to realize that they won't be getting pensions and continued health benefits.
OTOH, people seem to believe that there is a large enough base of high-income earners (especially if they marry one another)to support the high-priced housing in Sacramento (and presumably, the US at large).
This seems contradictory.
The economic engine of the US was fueled and driven by the large and prosperous middle-class. This was a social phenonemon that was uniquely American. While I tend to agree that there is a point at which benefits and pay also begin to catabolize the system, the bottom line is the bottom line: you can't expect people to buy things when they can't afford them. And you can't promote a constant 24/7 media commercial view of affluence as being the "norm" and expect people to be happy with less than what they see as the norm. They will go into catastrophic debt, CEOs will retire with millions, and eventually there will be an economic reckoning. Appearances are incredibly deceiving. The appearance of affluence is not the reality.
I get a kick out of those Dennis Hopper investment commercials for Ameriprise. The reality is that the group being targeted are never going to have those dreams realized unless they began that investment plan a looooooong time ago, and made investments which were more advanced than simply turning their money over to a "financial services" company.(http://tinyurl.com/2azd9r)

Gena said...

First let me say, always great to see that you have been over to Sacramento Real Estate Voice.

Now, in terms of Sacramento and the housing prices. One thing that I would like very much to have everyone fully grasp is the difference we have in lower taxes than say Texas and chapter 13 which is quite a protection that many don't have in other states.

While reading a few of the comments I would have to add...It's always a good thing to remember the good and try not to focus on the negative quite so much.

Happy New Beginnings for Spring.

dvobell said...

Got Questions?
Ask Gena...

My first question. WHERE DO I START?
sorry. rhetorical.
Let's try to decipher this post:

"Now, in terms of Sacramento and the housing prices. One thing that I would like very much to have everyone fully grasp is the difference we have in lower taxes than say Texas and chapter 13 which is quite a protection that many don't have in other states."

That's, uh, PROPOSITION 13, Gena.
Chapter 13 is BANKRUPTCY.
So I guess my first question is:
Do you believe in Freudian Slips?
I do. Or rather, NOW I do.

So -- yeah. Tax burden. That's something you want me to understand about Sac Housing Prices? Huh?

Here's something I hope you fully understand:

"Sacramento County had a median sales price of $257,000 in February. That was down 27.7 percent from a year ago."
-- Sacramento Bee

Or is that too 'negative'?

"It's always a good thing to remember the good and try not to focus on the negative quite so much."

Garsh, you're right. HERE'S some good news fer ya:

Here's what that new, halfway-through-Total-Carnage median Sac $$ buyz you in Texas:

http://dallas.craigslist.org/rfs/614861335.html
http://dallas.craigslist.org/rfs/614878683.html

I'm sure these people are selling in order to move to Cali and enjoy the many tax advantages:

http://sacramento.craigslist.org/rfs/614481888.html
http://sacramento.craigslist.org/rfs/607387678.html

"Happy New Beginnings for Spring"

...Spring 2012, that is...

Oh, the sweet, sweet Schadenfreude of Reversion to the Mean...

Gwynster said...

Ok that chapter 13 comment was classic >; )

It's funny. We went through the prequal circus again and I was looking forward to this spring. I just have zero interest in buying right now. All the excitement is gone.

It used to be that I'd stop at a Open House and I'd get some realtor trying to schmooze me with the NAR talking points and I'd get my knickers in a twist. Now it has no effect at all, not even anger or disgust. If anything, I feel very small amounts of pity. I haven't even stopped at a single open house!

But it has been a lovely spring so far and life is wonderful. Don't need a house for that. I'm busier then ever at work which I love. I'm painting a lot, and my girlfriend is teaching me medieval 4 needle knitting. I haven't even felt a need to go shoe shopping. Maybe Kaiser is slipping something special into my Allegra prescription. Or maybe Cmyst is rubbing off on me. Either why, It's all good.

Cmyst said...

What, with the knitting?? I can't even make a decent T-tunic with a sewing machine. Knitting with TWO needles is beyond me.
I am kinda relaxed about the house hunting thing, though. The more time passes, the less appealing nearly everything is becoming. Even my beloved Strengs -- like you said, they're built on a slab, they're aging, and many of them have been Fubar'd. My main ponder right now is whether to move further out or move further in, but I'm not expecting any moving to be done for another year at least.

Perfect Storm said...

"I get a kick out of those Dennis Hopper investment commercials for Ameriprise"

Yes, that is so funny, the dreams those people are realizing is to try to sell their home for what equity is left and move to Kansas buy a house for 100K and live on social security.

Chapter 13, oh the sad truth of a realtor giving advice, which is really a disguise for utter bullshxx.

Alt-A delinquiences on the rise, the next wave of resets are here.

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

Perfect Storm said...

This chart from Credit Suisse via the IMF shows the heavy subprime resets in 2008, plus it shows the reset problems with Alt-A and Option ARM loans in later years.

Although many of the homeowners in the 2009 to 2011 reset periods will refinance (if they can), this shows that the problems in housing will linger for several years. What is especially concerning is all these Option ARM resets in 2010 and 2011. Most of these homeowners are selecting the minimum payments (negatively amortizing) and many homeowners will be upside down when the ARM resets.

Is this too negative or just reality?

We are easily on track for at least a 50% decline by 2009.

Jacob said...

well if there are still problems going in to 2012 then we have another hit when a lot of the bommers sell at whatever price (most may not care if they didnt refinance and bought it for < $50k 40 years ago) and move out of CA.

I'm hoping we just get to the bottom soon. I dont want what happened in Japan cause I will never be able to / want to buy then. :(

Sippn said...

ED - yes, but you bit on that....

Hey - whoever I mentioned the Foothil Farms home on Beaver Ct @ $225K (1500 sf 3/2 new pool, green, REO) ....its gone.

PS - those Credit Suisse charts were pre PHeD interest rate cuts - that will delay and streach out the swell in foreclosures. Remember, they are estimating the resets based on incomplete data, they don't have an all emcompassing HAL database that has all the info.

Right now, REOs are selling at a pretty good velocity.

Sippn said...

Further to clarify, I was just reading wasserman's article in the Bee (physical version) and he cited the following...

Approx 10,000 foreclosures in 2007

Approx 3400 added in the past 2 months

Approx 2000 REOs sold in past 2 months.

If you plotted not just totals, but rate of change, you will see these numbers closing in on each other... indicating a near bottom for REO pricing.

Considering the lag time from missed payments to actual foreclosure to seeing that home appear again on the market as an REO, thats not bad...

Perfect Storm said...

"Right now, REOs are selling at a pretty good velocity"

The next wave of knife catchers along with the next wave of resets. Probably investors, I hope they have 20% down as Sacto areas has been designated a no for mortgage insurance with anybody less than 20% down buying investor property, plus closing costs.

Lots of people being laid off now, the economy is rejecting all the jobs that are not needed, the economy is like mother nature more you try to control it the worse the flood will be, this recession is going to be nasty, fear and ill will are in the air, I hear resumes are piling up.

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

Gwynster, inventory is increasing in Davis at a pretty good velocity and I noticed there are empty homes sitting and going nowhere.

norcaljeff said...

Gena, where did you study economics? Yea, Texas might have higher property taxes, maybe 3-4 times more, but their property is
3-4 times cheaper. It's a wash. Also, their sales taxes are lower in Texas. And the kicker....they have NO INCOME TAXES. That means someone in CA earning $100K pays $10K to the state in taxes and in Texas...$0. So what was your point????? Please go take a finance class before posting misinformation.

Perfect Storm said...

PS - those Credit Suisse charts were pre PHeD interest rate cuts - that will delay and streach out the swell in foreclosures. Remember, they are estimating the resets based on incomplete data, they don't have an all emcompassing HAL database that has all the info.

So what your saying is that there is a secret chart that has better data?

I think the option arm reset is going to be nasty as creidt suisse indicates the majority are not making the full payment and have no chance of refinancing.

Perfect Storm said...

"Hey - whoever I mentioned the Foothil Farms home on Beaver Ct @ $225K (1500 sf 3/2 new pool, green, REO) ....its gone"

Sippin there are plenty of 4/2 Foothill Farms homes for well under 200K, whoever bought the one on beaver court for $225K got SCREWED.

Sippn said...

NO PS, big brother does not have a secret chart out there... my point is they're inept.

Gwynster said...

I noticed it too. Alas, I hate this city. I actually know 2 people from work that are letting the house go. One already has the NOD posted.

Jacob said...


Approx 10,000 foreclosures in 2007

Approx 3400 added in the past 2 months

Approx 2000 REOs sold in past 2 months.

If you plotted not just totals, but rate of change, you will see these numbers closing in on each other... indicating a near bottom for REO pricing.



Maybe I am misunderstanding, but we are adding foreclosures at a rate of almost 2x1 over sales (during the time of year when sales are highest). And this indeicates a bottom how?

When we start selling homes faster than they are being foreclosed, short sold, or just put up for sale then the bottom might be near. But until then there is just more and more downward pressure on prices.

Perfect Storm said...

You would think Credit Suisse would put out a rosier graph than the one touted on so many blogs as doom and gloom, it would be in their best interest.

Patient Renter said...

The thing about rate cuts and resets is that it only temporarily delays things. Rates are lower than usual now, sure, but once the Fed starts raising rates again (which banks will force them to do eventually since banks profit less with lower rates), loans that had already begun resetting will be hammered.

All of the pain from these resets will still be felt, it will just be felt later.

Sippn said...

jacob - they are measuring closings, not pendings, so with sales data you are looking at the result of November/ December data... the slowest time of year to sign contracts.

Its hard to match up the lag times. My BIL, who is looking at data weekly, says in the lower prices a huge % is already pending, and my experiance is that many REOs don't show pending until the last minute, so REO sales activity is increasing at a faster rate.

Sippn said...

PS - maybe, but my payments are down 1/3 in the past few months.... makes up for the gas prices.

Gwynster said...

Sorry Sippin,

I'm just not seeing the pressure here. If anything, houses are falling out and coming back on the market. But I'll give you point for trying. I was almost worried for about a 3 seconds.

Now that I've seen at least 1 person I know have their NOD filed in Davis, I feel pretty good that the worst is yet to come.