Thursday, March 20, 2008

'What's Happening in the Real Estate Market is Really, Really Grim'

From Bloomberg:

Sacramento may eliminate up to 600 jobs in the city's first staff reductions in half a century, and the police and fire departments in the California capital may have their budgets cut by 20 percent. The culprit is the collapse of the U.S. housing market..."The depth and magnitude of what's happening in the real estate market is really, really grim," said Russell Fehr, Sacramento's finance director, in an interview.
...
In Sacramento, half of the city's current home sales involve bank-owned property, helping explain why the increase in property tax revenue will slow to 2 percent in fiscal 2008-2009 and may fall in 2010 and 2011, said Fehr, the finance director.
...
The resulting reduction in department budgets by 20 percent will cut library-branch hours to 35 a week from 44 and will decrease maintenance in Sacramento's public parks. To cut as many as 600 jobs, the city will first offer buyouts. "We've got 200 to 300 employees who are nervous, and with good reason," said Fehr, who met with bondholders and investment banks last week in San Francisco to assure them that the city will honor its commitments. "This downturn is so sudden and so severe, we've got to take extraordinary measures."
From the Stockton Record:
The San Joaquin County economy will see a longer and tougher recessionary downturn than California, according to a regional economic forecast released Wednesday by University of the Pacific's Business Forecasting Center. "The inland areas aren't faring as well, primarily because of the housing sector," forecasting center director Jeff Michael said.
...
With the economies being hard-hit by the realestate scene, the outlook for that sector in coming months doesn't look promising, said a commercial realestate broker who has seen his business freeze up in the past month. "This is bad," said Randy Thomas, a Sperry Van Ness commercial real estate broker in Stockton who specializes in the Northern California apartments market. "Commercial investment has come to a standstill. The reason is fear in the marketplace that started in the subprime area with residential real estate and has now carried over to commercial paper."
From Bloomberg (hat tip LA Land):
The U.S. housing recession has arrived literally on the doorstep of Federal Reserve Chairman Ben S. Bernanke. Bernanke lives in Washington's Capitol Hill area in a four- bedroom, 2,600-square-foot house he bought new in May 2004 for $839,000. Almost four years later, it may not be worth any more, according to real estate records and local agents.

Bernanke's timing wasn't the best -- values in the area peaked a year later -- and he is hardly alone among Americans living in an investment that's turned cold. His situation shows that the slump that began with distress in the subprime market is now engulfing wealthier neighborhoods, including some in the nation's capital.

20 comments:

Sippn said...

Easily offended stop reading here...

Its easy to blame the RE downturn for city budget cuts, but really should we actually "pay as we go" when it comes to regular services, fire, police, etc? instead of obviously paying for it by siphoning off growth funds (making housing more expensive)?

Time to look at fat pensions given while money was easy.

Is it time to close down the fire department dorm rooms and cafeterias? I think we're paying them enough now that we don't need to subsidize their outside businesses...

How 'bout the latest - did you know autos with handicapped plackards park in meters for free - big scam in the city - maybe 1/2 of the meters? How many of you with real handicaps can't find parking anymore?

smf said...

"Time to look at fat pensions given while money was easy."

I think very few people are aware of how much some state salaries and pensions have gone up in the last few years.

There are also ways to game the system whereby some get a considerable pension when retiring. Perhaps others here can explain that better.

PeonInChief said...

Sippn--

First, uh, fire and police services are funded by property taxes uh because they serve uh houses and the people who live in them. The problem comes with Prop 13, which requires that cities get money for new houses upfront, as the property tax base will erode. Over time the taxes on the property won't rise as fast as inflation, which is why people who've owned their houses for a long time pay very little in taxes relative to the value of the property.

Second, I don't know if you've been paying attention, but it's becoming more and more difficult to hire police and fire, even with the wages/pensions/benefits that we're paying. There's a lot of competition for suitable candidates, so the price we pay has increased. One option would be to lower standards, but when I allow someone out on the street with a gun who could shoot me, I want to know that person is suitable for the position.

And, yes, the handicapped placard problem has been around for years. (I believe it's state law that allows those with placards to park free, not local ordinance.) In San Francisco the traffic cops did periodic stings to catch scofflaws who were using other people's placards or other scams.

I guess I'm not easily offended.

alba said...

civil servants who intend to retire in their early 50s must face the reality that pensions are no longer a (perceived) right, and government agencies cannot use them as an element for enticing/retaining employees. Its no longer a matter of value; they just can't be paid out....union or not.

The Defined Benefit Plan is no longer available through just about any private employer. They now have moved to a Defined Contribution, which is a moving target (an uncommitted calculation), non-guaranteed, single payment, at retirement. MANY middle-aged employees have been screwed out of a monthly, in purpituity ('til death), pension.

There's not much chance for the civil employee to hang on to one either. The lack of property taxes escalates this inevitable change.

sacramentia said...

"The problem comes with Prop 13, which requires that cities get money for new houses upfront, as the property tax base will erode."

Prop 13 was what the local governments deserved for not being responsible with the citizen's money. The outrageous benefits and pensions will eventually cause the same sort of backlash.

are you living off the taxpayers?

lexi said...

I found an interesting house
for sale in El Dorado Hills. It's
zillowed value is 355K and it's for
sale 3 bedroom 1500 plus square
feet for 240k. Address is 3700 Almaden Ct. I'm actually renting
out of the area in Santa Cruz and
can't move till summer (kids in
school) but was wondering what
the deal is with it. Maybe
agent bubble knows something?
To me ... that's a pretty good
deal. Maybe someone on here
will be interested. It's the
only real deal I've seen so far.
But maybe there is a major problem
with it??

PeonInChief said...

Sacramentia--

My husband works for the state, so I guess I "live off the taxpayers." But that's not addressing the points I made.

Alba--

Many executives working for corporations have compensation plans that make the government pension look like chump change. But why would anyone want to foster a race to the bottom, where no one has the money to retire ever? More constructive would be either a pension requirement for all employers or a government-sponsored pension system on top of Social Security.

norcaljeff said...

How 'bout the latest - did you know autos with handicapped plackards park in meters for free - big scam in the city - maybe 1/2 of the meters? How many of you with real handicaps can't find parking anymore?

Might be the most insightful post you've ever made. Are you just now figuring this out? Yea it is a scam, as are most things these days. Everyone wants their own piece of an entitlement. You can't go to a grocery store or a Best Buy without the first 20 spots earmarked for h/c people that don't exist. Talk about a waste of the environment. You forgot to mention that not only do they park free, they also can park pretty much any place that isn't painted red, yes, that means loading zones, waiting zone, yellow zones, etc.

smf said...

The lack of property taxes escalates this inevitable change.

May I call out a big, huge BS flag on that one?

I mean, when home prices and sales when way up, we know taxes followed.

And governments were stupid enough to waste it all, and then some.

AgentBubble said...

lexi--regarding 3700 Almaden: It was listed as a short sale for 1 day before being withdrawn on 1/26/08. The bank bought the home back for $347K on 3/13/08. It sold for $458K on 6/22/06 and $266K on 8/16/01. It should come back up shortly.

lexi said...

Thanks Agent Bubble! I only have
realtor.com to look at so it's not
current with it's listings obviously. You know the saying..
if it looks too good to be true
it probably is.

Sippn said...

LExi - Zillow errs both high and low, depending on area. Use a real person to estimate the value of the property, an appraiser, an agent.

Zillow will often estimate a higher end custom home using tract homes 10 miles away or so, even from a different county. Could often be several hundred thousand low. On the other hand, it will use a golf course custom to "comp" a tract home 10 miles away - often 100-200K HIGH.

YOu can't expect computers, no matter how powerful, to figure it all out yet. WHY, because the people programmign it haven't yet figured out all the variables to put in the software.


Crack house next door? y/n
If yes, deduct $100K
Lawn cars in area? y/n
If yes, deduct $100K
Hookers next door? y/n
If yes, add $100K

Oh yea, most programmers are a little immature, probably still living at home, so they don't really understand the varables... pass the Hot Pockets, please.

Ed said...

"most programmers are a little immature, probably still living at home, so they don't really understand the varables"

Do you ever think of something that you don't end up typing here? It seems the answer is: no.

Patient Renter said...

"Oh yea, most programmers are a little immature, probably still living at home"

I'm not so sure. If home is India and work is an office park in the US, that's quite the commute.

Kip said...

decrease in property tax revenue aside, the city makes plenty of money. The city is ridiculously mismanaged. There is a bureaucratic inertia inherent in the system that makes government perfectly willing to grow in terms of revenue, spending, power, and general size, but it's next to impossible to cut back. If the general public had a real sense of how much money was simply wasted on absolutely nothing.....

sacramentia said...

My husband works for the state, so I guess I "live off the taxpayers." But that's not addressing the points I made.

True, but it does affect your perspective.

The tax base grows each year by 2% + the new valuation of the homes that sale, which is greater than inflation based on the average appreciation of homes and the turnover rates. The prop 13 argument is non-sense spewed by people whose livelihood depends on tax revenue.

Gordon Gekko said...

PeonInChief said...

"Second, I don't know if you've been paying attention, but it's becoming more and more difficult to hire police and fire, even with the wages/pensions/benefits that we're paying. There's a lot of competition for suitable candidates, so the price we pay has increased. One option would be to lower standards, but when I allow someone out on the street with a gun who could shoot me, I want to know that person is suitable for the position."


I don't know where you got this info, but it's wrong. There are lists and list of qualified candidates lined up for all these positions. I know a guy who has been on the waiting list for the police academy in LA (yeah, the worst place to be a cop) for the last 9 months. For firefighters, the list is even longer.
The real reason their pay has doubled while everyone else has stayed flat is due to the labor unions. They have successfully been able to push large COL increases and increases in CalPers retirement benefits. They do this with great PR campaigns and no elected official wants to be portrayed as "against cops or fire fighters". Until someone in government wants to stand up to these "heroes" budgets will continue to be strained.

Rob Dawg said...

The problem comes with Prop 13, which requires that cities get money for new houses upfront, as the property tax base will erode.

I'm sorry that statement doesn't even rise to the level of being wrong. It is so diametrically opposed to every study pro and con of the ramifications of Prop 13 as to defy any rebuttal.

Prop 13 does not erode the tax base. Not at all.

I don't know if you've been paying attention, but it's becoming more and more difficult to hire police and fire, even with the wages/pensions/benefits that we're paying.

Absolute BS. This doesn't even rise to the level of trolling being so transparently false. PD/FD regularly resort to lotteries for the hundreds of qualified candidates winnowed from thousands of applicants for dozens of positions. Get back to us with the very first instance of more positions offered than applicants. This really pisses me off. You are not contributing to this discussion.

lexi said...

Sippn:Hookers next door? y/n
If yes, add $100K:

haha... yeah, I don't take zillow
too seriously unless I know the area and it looks right. From
what I've seen zillow looks like
it's getting closer to the correct
post bubble pricing. Slowly anyway.

alba said...

executives don't count. That's like comparing an exeutive's retirement package to an elected official's package.

It's not a matter of whether a civil servant job is worth the current type of pension, nor whether the local/state government effectively manages their cash flow. They are going away! Defined contribution pensions are gone in the private sector, and will dissappear in the public sector.

Match up any union with the voting constituent, private sector workers, who either never had a chance at a pension, or had theirs ripped away from them. The public sentiment is stacked against them on this issue. They can walk off the job and be replaced.