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.
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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%.

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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.
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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."
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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.