Sunday, March 02, 2008

"Were all these people stupid?"

From the Sacramento Bee:

Take $2 billion away from Sacramento's homeowners – money they could be spending on cars or plasma TVs or kitchen cabinets – and you begin to understand what the housing slump is doing to the region's economy. The impact of the real estate downturn goes far beyond the thousands of construction and mortgage- industry layoffs, or the epidemic of foreclosures. The 25 percent drop in housing prices since 2005 means fewer homeowners are able to borrow against their equity.
...
In the four-county Sacramento area, equity "extractions" – through refinancing, home-equity loans or outright home sales – fell by 34 percent last year, according to market research firm DataQuick Information Systems. That erased $2.11 billion's worth of wealth from the region....The $2.11 billion reduction in equity extractions represents a little more than 2 percent of the region's overall economy. Coupled with the other effects of the housing slump, including layoffs and foreclosures, it's no wonder many analysts are predicting a recession.
Chart: The diminishing 'wealth effect'

From the Sacramento Business Journal:
Swelling inventories of homes on the market. A record number of foreclosures. Laid-off construction workers. It's all too familiar to people who lived, and worked, in the Sacramento region in the early 1990s. The real estate market always cycles up and down. But this time the pain has been spread more widely because many more people bought homes when times were flush and credit flowed freely. "This is not new," said Frank Cook, president of Cook Realty in Sacramento. "It's just the size of it that's new."
From the Sacramento Bee:
A year ago, the local head honcho for Beazer Homes figured the housing market had hit bottom and was ready to take off again. He was wrong. Sales "went off a cliff" in March, says Alan Newman.

But the Beazer division chief is getting good vibes again, following a one-week sale....Every home sold at a loss, Newman says. But, the company was able to reduce its inventory. And, Newman says, the sales blitz proved that buyers – especially the first-time homeowners that Beazer targets – are willing to get back into the market. "They're ready to buy," he says of prospective customers, " … at the right price."
From the Sacramento Bee:
"It's been a very cold winter," said Jason de Lemos of IM Construction, a building contractor in south Placer County. The firm has cut about 280 jobs since 2006....
From the Sacramento Business Journal:
Surrounded by green fields and the occasional derelict barn, two state-of-the-art public schools sit empty on the outskirts of Elk Grove. Cosumnes Oaks High School and Elizabeth Pinkerton Middle School were not meant to stand alone in this bucolic setting. If things had gone as planned, these schools would be in the midst of spanking-new suburbia.
...
It's not just Elk Grove coping with vacant schools and plots land where homes were expected to be. With Sacramento-area housing woes in full swing, the reverberations are now colliding with regional school construction. Finding that neither the money nor the students are pouring in as they did before, school officials now must slam on the brakes after building at a breakneck pace for the past several years. And that slowdown will likely hit the construction industry the hardest.
From the Sacramento Business Journal:
Fewer loans and thinner margins made a problem for many of the locally based banks in the fourth quarter...[E]arnings fell 18 percent during the past year from a year ago -- and plummeted 47 percent in the fourth quarter, compared to the same three-month period in 2006.
...
The Central Valley housing market, which had been among the nation's fastest-rising in recent years, is now losing value and suffering one of the highest loan-default rates. Hard-hit developers and homebuilders face dramatically lower prices for their homes and a slow-moving market. In addition, land values are plummeting. The real estate downturn has turned into problems for local banks. "Everybody got hit by some of the problems all these defaults caused," bank consultant Dave Alford said. "What is really surprising is how fast it all hit."
Price guarantees: Phase 6 of the crashing new home market? From the Stockton Record:
In the early days of the housing downturn, home builders tried to pump up sales by offering various buyer incentives, from a wide variety of upgrades at no additional cost to free televisions, from trips to Hawaii to $5,000 gift cards. That segued to cutting the base costs to try to attract buyers who were focusing more and more on the price tags. The newest trend is a price guarantee to try to relieve a would-be buyer concerned that the house bought today might sell for less in the future as housing prices ease nationwide.
Now if only the builders could guarantee they wouldn't go out of business before you could collect on the difference...
Ryland Homes...spokeswoman Marya Barlow...said the price guarantee reflects builder confidence that prices are about as low as they are going to get. "Everybody has already cut prices, and I don't see any more price declines," she said...Florsheim's Anfuso said he doesn't expect to be cutting too many checks at year's end, if any at all, because he's betting prices will begin rising again in the second half of the year and finish at least even with current prices.
From the Stockton Record:
Juan Martinez has little need for hearing about San Joaquin County's growing unemployment rate, which hit 10 percent in January. He's living proof that the situation is getting grimmer, since he only cares about one thing: finding work. "We need jobs: painting, construction, anything. It's been two weeks for me, three weeks for my friend. For some people, it's been a month since we worked," said Martinez, 48, waiting in vain Friday afternoon at an unofficial day-labor pickup spot....

It's the first time in nearly four years the county has seen joblessness in double digits, state officials reported Friday.
From the Stockton Record:
Stockton-based All-Star Maytag, a five-store appliance sales and service dealer, will shut down this weekend, another victim of a slowing economy dragged down by the region's severe housing woes. Twenty-four workers will lose their jobs, eight of them in Stockton....[I]n his four Sacramento-area stores - in Citrus Heights, Elk Grove, North Highlands and Rocklin - sales in 2006 were down 35 percent from the prior year and decreased another 35 percent at the close of 2007.
From the Stockton Record:
Barker's Music, the only place in Stockton to buy a new grand piano, will be closing in three months...Barker said that nationally, traditional piano sales are down 30 percent during the past 18 months, while his own experience has been even worse. "I was living large in 2005. We sold 30 grand pianos over $22,000 that year. In 2007, we sold three grand pianos over $20,000," he said..."The home industry has just quit on us...."
From the Tracy Press:
Marilyn Nunes has accumulated $65,000 in credit card debt since last year to stay ahead of her monthly mortgage payments. A single mother of one, the Tracy homeowner went to City Hall this morning looking for a little guidance, hoping to find someone who could steer her away from impending foreclosure.
From the New York Times:
ONE great puzzle about the recent housing bubble is why even most experts didn’t recognize the bubble as it was forming...The failure to recognize the housing bubble is the core reason for the collapsing house of cards we are seeing in financial markets in the United States and around the world. If people do not see any risk, and see only the prospect of outsized investment returns, they will pursue those returns with disregard for the risks.

Were all these people stupid? It can’t be. We have to consider the possibility that perfectly rational people can get caught up in a bubble.
...
The fundamental problem is that the information obtained by any individual — even one as well-placed as the chairman of the Federal Reserve — is bound to be incomplete. If people could somehow hold a national town meeting and share their independent information, they would have the opportunity to see the full weight of the evidence. Any individual errors would be averaged out, and the participants would collectively reach the correct decision.

11 comments:

RMB said...

NYT - Are all these people stupid - Yes. It is the peter principal in action. Incompetence is promoted upwards. Have you ever listened to CSPAN? Makes me wonder if those people were slip on shoes because they can't tie a knot, yet they are the "Leaders" of our country. This was seen coming a mile away, it was just ignored by everyone.

SacramentoCrash said...

Equity saps will spend

Title restated to the obvious.

Ed said...

The thing that concerned me more than the drop in equity loans (-34%, or $2.11 Billion) is that in 2007 there Sacramento still had $4.077 Billion worth of equity loans.

We still have a lot of room for pain if that $4B represents real spending in the area, since I'd expect that number to continue to drop, drying up a whole lot more economic activity.

-EJ

Jacob said...

The fundamental problem is that the information obtained by any individual — even one as well-placed as the chairman of the Federal Reserve — is bound to be incomplete. If people could somehow hold a national town meeting and share their independent information, they would have the opportunity to see the full weight of the evidence. Any individual errors would be averaged out, and the participants would collectively reach the correct decision.


Its called internet blogs. There are meetings every day...

David said...

"Marilyn Nunes has accumulated $65,000 in credit card debt since last year to stay ahead of her monthly mortgage payments."

You accumulated $65K in credit card dept to stay ahead of your mortgage??? How flippen big is that mortgage and why in the world would you not just let it go at that rate?

Cmyst said...

Yeah, it seems to me that if a person has to borrow 65K a year to pay their mortgage, that they need to be clearing an additional 65K a year over what they are currently earning to pay that mortgage. Either she lied on her application, or the lender was incredibly irresponsible.
I've said it before, and I'll say it again: spare me the sob stories. I'm a single mother, and I'm supporting a grandkid. I'm RENTING, and I'd be willing to bet I earn much more than Ms. Nunes. So now she's in hock an additional 65K, and I'm supposed to fork over my tax money to cover this??? And yes, I am a Liberal. I believe that every citizen should be fed, clothed, and housed. I don't believe I need to bail out investment funds, mortgage brokers, and people who should be living in apartments and saving their money (instead of charging additional living costs trying to live a lifestyle they obviously can't afford).

SacramentoCrash said...

"Were all these people stupid?"

I can't believe these idiots would be willing to be interviewed for the article.

Why don't they just have someone write "loser" on their forehead with a marking pen?

Tyrone said...

Jacob,
Couldn't agree more with your statement. In fact, I was thinking about this after reading a comment left on my blog.
What do you do, sit up at night waiting for the next "big" story to come out so you can be the first one to blog it? Come on, get a life, and stop being a shut in.

I can't speak for others, but I do it as a way to collect all the individual pieces of insanity and foolishness, trying to assemble the whole story. Having just pieces of information can be dangerous.

Patient Renter said...

"ONE great puzzle about the recent housing bubble is why even most experts didn’t recognize the bubble as it was forming"

Can I be the first to point out that no, not every expert was stupid, just the ones that the New York Times was stupid enough to endlessly cite. It's no surprise that they're STILL going to the same losers for more insight into what happens next.

I wish the NYT would pull the stick out of their rear and go to some real economists who actually, you know, saw this mess coming (Dean Baker anyone?)

Patient Renter said...

"The fundamental problem is that the information obtained by any individual — even one as well-placed as the chairman of the Federal Reserve — is bound to be incomplete."

Good lord, what a worthless pile of crap the NYT can be! Jeezus. So the bubble was so mysterious and hard to detect that not even the Fed chairman could have seen it coming?

These guys are idiots covering for idiots. There's no excuse. They're all idiots and they all missed it.

Garth Farkley said...

Doesn't a guarantee against future price cuts sound like a policy of insurance being offered by the developer? Isnt' that the substance of the contract? I'm not an expert on insurance law, or what the capitalization requirements are for licensed insurance companies. The buyers are certainly going to get burned when they go to collect on the "guarantee." I mean the developers can't even finish their projects, build the schools or parks or even pay the materialmen, let alone pay some ludicrous "price guarantee" after the project has gone tango uniform. This is just another screwy deal to suck in the last greater fool on the way down the toilet.

Haven't commented for a while because the last year has all been so predictable. The actors are just reading their lines. But this latest scam seems really creative. I know that people do go to jail for offering insurance without a license. The attorney general just came to our county and convicted a fellow whose license had lapsed. At least, when the buyers are left with a worthless judgment against a bankrupt builder there may be one last remedy in the criminal courts. We haven't really seen anyone do the frog march in the real estate scandal yet.