Wednesday, April 16, 2008

"Things Can’t Get Much Worse"

From the Central Valley Business Times:

The Central Valley leads the state when it comes to foreclosed homes going to auction on a per capita basis. Merced County had 335 sales in March or one for every 737 people in the county, according to ForeclosureRadar, the highest rate in the state. San Joaquin County is ranked second with 880 sales in March or one for every 757 residents. Stanislaus County is third, with 653 sales, one for every 788 people. Sacramento County is fourth, 1,381 sales or one per 1,003 residents.
From the Tracy Press:
Stephanie, 32, and Brian MacDonald, 30, never thought they’d own a home so soon. The couple had rented a $900-per-month duplex for three years before they looked to buy. And a few weeks ago, they bought their "dream home" for $187,000 below its asking price. Late last year, the four-bedroom tract home in western Tracy was listed at $525,000. The MacDonalds made an offer in February for $338,000. To their surprise, the bank accepted. Like several hundred prospective buyers in Tracy, the MacDonalds sensed the market had bottomed out.
...
[T]he near future still looks bleak for sellers, [Tracy lender Alex] Alvarez stressed. But with the average home price falling by a couple hundred-thousand dollars within a few short months, he said, people have begun to realize that things can’t get much worse. Sellers are settling, and buyers who saved up are taking advantage of the dramatic downturn.
...
The housing situation may get worse for a while, but it can’t for much longer, Alvarez and [real estate agent Karl] Enzmann agreed..."In three to five years, their home [the MacDonalds] will be worth so much more," he [Alvarez] said.
From the Stockton Record:
Lawrence Livermore National Laboratory announced Tuesday that it will lay off 535 full-time employees over the next few weeks as part of its work force restructuring plan...The nuclear research facility employs about 7,200 workers - including about 1,350 from San Joaquin County.
From the Sacramento Business Journal:
The Sacramento Bee's sister newspaper, The Modesto Bee, has offered voluntary buyouts to more than 100 employees -- or a little more than 20 percent of its staff of 455. The offers came a month after The Sacramento Bee offered similar voluntary buyouts to less than 2 percent of its work force. Like Sacramento, The Modesto Bee cited challenges in the industry...The Bee newspapers' ad revenue has also been hit hard by the downturn in the housing market.

50 comments:

Gordon Gekko said...

From the article:
"The MacDonalds — both city and county employees with a combined six-figure income"

Congratulations to the MacDonalds and they're 275% payment shock. Wonder what's going to happen when they get laid off from their "safe" city and county jobs.

News today:
State Tax Revenues Way Down

Lower profits for corporations mean lower tax revenue for the state.
Wednesday, April 16, 2008

California's budget problems may be getting bigger. The state is down $1.2 billion in revenues so far this year, most of it due to the corporate tax.

H.D. Palmer with the state Department of Finance says California didn't get as much money as expected from businesses during the fourth quarter of 2007. That's in addition to the state's estimated $16 billion budget deficit.

Along with a weak business climate, the housing slump continues to cost the state jobs. Although the state added 25,800 non-farm jobs in February, much of the gain was attributed to the end of the writer’s strike.

The financial, construction and manufacturing sectors lost a combined 9,600 jobs.

Palmer says his department will recalculate the budget in about four weeks and present it to the legislature next month.

Jacob said...

"In three to five years, their home [the MacDonalds] will be worth so much more"

Until people stock thinking this, we still have a problem. We are only 3 years in to the downturn, how long can it go? Ask someone in Japan.

So lets say everyone on the fence buys now, so what? Prices will still decline cause we have too much inventory.

Deflationary Jane said...

Lawrence Livermore Lab, a part of UC, just sent out 535 notices. UCOP handed out notices earlier. We're bracing for them now.

Needless to say, we're shelving the idea of buying or even moving to a new rental this year. It's all about saving as much as possible before the bad stuff hits. Thank the gods we were savers.

Now we were staying here because our jobs were stable. However if we get hit by the layoffs, we're taking it as one way ticket out of the state to someplace affordable, were our savings will last longer during the recession.

Sippn said...

India

Curious said...

I don't think it's been announced yet but AT&T is retiring/laying off employees "voluntarily" soon. Statewide, throughout a whole (major) division. All in management with the expectation that craft will be following them soon.

Some departments I've heard numbers from are that 40% of their current headcount needs to be gone within the next two months.

If they don't get the right number "voluntarily", the layoffs start.

This is getting much scarier than the '90's.

smf said...

"The MacDonalds made an offer in February for $338,000"

The story states that their payment is $2000/month.

Does that sound right?

RMB said...

Yes that is about right @ 6% with nothing down 30 yr fixed

rocklin renter said...

Sure, $2k/mo is likely for the payment only.

Now add in all the usual BS (taxes, local assessments, mello roos, homeowners, insurance) and that number is certainly much higher.

I always laugh at people who tell me the "mortgage is only $X,XXX". The first thing I always say after I finish laughing is yeah, "now tell me what all those (poorly) hidden costs add up to".

Only an idiot would forget to factor all that in.

PS: Alex Alvarez is a moron.

AgentBubble said...

Their loan amount is $342,542, so congratulations on putting $5,458 down. The payment is approximatley $2,050 for P&I. By the time you add insurance (homeowner's and mortgage) and taxes into the equation, you're at about $2,500 give or take.

They paid $164/SF for the house. The bad news is they've already lost money, at least according to the comps within 1/2 mile. 24 of the 26 homes that are active are all less than $164/SF. The average is about $140/SF. The highest pending sale comp is $158/SF. The pending sale average is $132/SF.

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

Sorry DD, You really lost me on that last rant. I can't applaud someone for for becoming a future statistic.

Rich said...

Can you get a nothing down loan these days?

Diggin Deeper said...

I've been one of the biggest offenders, but I'm not going to slam someone for making a decision to buy today.

No one knows where this market is headed and most people are not really worried about their own personal future. When prices come down to the levels we're seeing, people buy. Not because they should or shouldn't but because things pencil out. It's simple arithmetic.

And why not?

Is anyone immune to what the tomorrow brings? There's not a person on these blogs that can guarantee their own personal futures. There are those waiting to buy, those buying today, and then there are those, regardless of how far this market falls, will NEVER buy due risk aversion and caution.

Why slam people for making what they consider to be a good decision? We don't know their circumstances or timelines. You get two or three hundred grand off the top and that's not good enough? Says who? Can anyone guarantee that in two to three years that home will be underwater? Show me that person, and I'll show you a fool. Markets react in ways unknown to their participants.

Actually, I applaud those that are willing to move forward, regardless of the outcome, regardless of the risk, all for the sake of bettering their family and their personal situations. Why? Because they can and they're presently in a supportive market. They're certainly getting a helluva discount off the prices they would have paid in 2005. Is it enough, who knows? And frankly, they don't care.

DJ...I remember buying back in the late 80's into a neighborhood that had held up well. By the time the market dropped, I was sitting on a 20% loss. 5 years later I was up 35%. I didn't buy because there was risk of loss, I bought because it suited me and my family at the time. If you know something about the future of this market, let me know because it's baffling me.

Jacob said...

If you can afford it and want to stay in a home for many years and it is good for your family, then great, go for it.

If you are buying today because you think you will be making money on it very soon, then imo you are a fool.

How many owner occupied homes are being bought today by people that missed out on the boom and dont want to miss out the second time around when everything shoots back up?

siflsockpuppet said...

rich,

As far as I can tell, no, you cannot get a 100% financing loan in the Sacramento area. You can get 3% down with FHA, but that's as close as you can get. For all except FHA, you put an extra 5% down for every loan type. 5% down gets you 100% financing rates, 10% down gets you 5% down financing rates - all due to it being a declining market.

rocklin renter said...

"How many owner occupied homes are being bought today by people that missed out on the boom and dont want to miss out the second time around when everything shoots back up?"

The people who I know that are contemplating buying now have this mentality, combined with the "better buy now or get priced out" mentality.

Preposterous, I say.

Diggin Deeper said...

Jacob...I agree. It all comes down to personal situations, with no guarantees. Are the days long gone where California real estate was your retirement nest egg? Maybe. If one were to go on past history, there would be a debate...because historically it has proven to be a very good investment. When you're mired in a market like this one, all the noise points opposite. Tough call to make, but some don't look at it as an investment.

It's easy for us to look back and find that they're upside down today. As Warren Buffet said, "when the tide goes out it easy to see who's swimming naked".

The future looks bleak but that doesn't mean that it doesn't suit some or that it won't change.

I'd wager AB's not going hungry because there are still people that want to own property today. And he'll give it to you straight.

Deflationary Jane said...

DD, I have not problem with someone taking on a bad investment - bon apetite baby!

I do have a problem when I'm going to have to bail them out in a year or two when they realize they made a mistake.

If folks think it's great that they now have skin in the game - wonderful. I'll be happy to foward my tax bill for you to cover.

Patient Renter said...

I see we're approaching a heavier job loss phase, which sucks, a lot. Housing decisions are one thing, but I don't wish unemployment on anyone. As history has shown though, when a big downturn rolls through, almost nobody is safe.

Patient Renter said...

I do have a problem when I'm going to have to bail them out in a year or two when they realize they made a mistake.

It's horrible that we've pretty much resigned ourselves to the idea that there will be a bailout. If that's the idea that we're working off of, then sure, we have a right to be annoyed with anyone who makes a foolish investment, even now.

I'd prefer to think we can still avoid a bailout and let everyone fend for themselves, at least as far as housing decisions go.

AgentBubble said...

Rich said...
Can you get a nothing down loan these days?


Yes...I read a statistic the other day that 26% of homes sold between $200K and $300K in Elk Grove had 100% or greater financing on them in January.

lexi said...

DD ... I agree. It all comes down
to whether it makes sense to buy
for the long term. You can't time
the bottom... it's not a mistake
to buy now if you get a good deal and if you plan to live in the property long term and make it your
home. I think the MacDonald's made
an "okay" decision to buy.

On a different note... how long is
it before you can buy again if you
are foreclosed on or do a short sale? It seems unfair that people
who made bad decisions will be kept
out of the market for 3 to 5 years at which time will probably be a
great time to buy and can buy back
a compariable home to which they
had before, for half the price.
They'll be coming out way ahead of
people who were responsible and
didn't use their homes like ATM's.
Am I missing something? Do they HAVE to pay the tax penalties or
are most getting away scott free
besides a low credit score for
a few years.

Diggin Deeper said...

DJ

Your crystal ball is as good as any...You're telling us that these poor people made a bad investment just because they bought recently?

How do you know this family won't live in that house for 30 years, pay off their mortgage, and look back and say what great deal they made? My parents bought a home in SoCal for $23K. They sold it for $250K. Today it is probably worth $500K even in a down market. Not bad since 1967. And they certainaly didn't expect the results they got.

Just because we have the right to use hindsight to pass judgement on others, that doesn't mean the endgame won't produce a different result. For that you really do have to have a crystal ball...one that works.

In a market that seen huge price drops, I don't fault anyone for placing a responsible stake in their future.

siflsockpuppet said...

agentbubble - I did some serious house searching in the last few months and was unable to find a lender who would do 100% financing, even with my >750 FICO. Can you tell me who is currently offering 100% financing in this area?

AgentBubble said...

siflsockpuppet - That's a pretty good question. I honestly don't know any lenders that do 100% financing either, but I only tend to work with the more reputable lenders. I checked tax records of homes in Elk Grove to verify that statistic, and sure enough it's true. I suspect it's probably a few shady lenders that have managed to stick around, but who knows.

smf said...

Why slam people for making what they consider to be a good decision?

1. That quoted $2000 payment, which we know for a fact is not all.

2. Because there are still people, like you right now, that expect that prices will rise eventually to a level where they will have some equity build up by appreciation alone.

3. Growing families don't typically stay in 3 bedroom homes, they upsize as required. I could bet good money that they plan of moving in five years. Whether they will be able to is another question.

You're telling us that these poor people made a bad investment just because they bought recently?

Yes. We fully expect to eventually lose $100K in the house we are buying.

History tells us that bubbles have always returned to their mean. We cannot use the 90's bubble as an example since the runup was not as great as this one.

Deflationary Jane said...

Tell me where too. I haven't seen anything other then a non-profit I've been working with and finding a realtor that will work with the program is a huge pain. I just want to use their rate buydown program but it's turning out to not be worth it.

Also, just getting through the program itself is problematic and I'm sitting on reserves and have that high 700s score. You can imagine what Joe distressed purchaser trying to use them must be going through.

But all this just substantiates my point. This dead cat bounce looks just like the 2006 and 2007 bounce, just with slightly lower losses overall. We can look forward to those houses being back on the market in a year or two - oh joy, oh rapture

Try as I might, I just can't bring myself to celebrate the perspicacious pecuniary machinations of a collection of people that have the monetary intellect of a circa 1982 chia pet.

Yea, I know, stern letter to follow.

Now which of you optimists do I forward my tax bill too? >; )

smf said...

"This dead cat bounce looks just like the 2006 and 2007 bounce, just with slightly lower losses overall."

MLS #80030125 is an attempted flip of a foreclosed home.

Diggin Deeper said...

smf...

At what level do you succumb to having made a bad deal? What you're saying is that you're contingency planning for worst case at $100K from here. What's that maybe 15-16%? Wow, that would mean that about two thirds of damage has already been done ahead of your purchase? Insurmountable? Not hardly if you plan to stay in that home for a long time. And then you're going to have to lose that $100K before the pain begins.

Once again, you can only project these people will be in the home for a short period of time. Why? Because their not supposed to stay in that home any longer, and because that's what the survey said? More assumptions based limited information about the buyers.

"Because there are still people, like you right now, that expect that prices will rise eventually to a level where they will have some equity build up by appreciation alone."

No I don't expect to see prices rise at all for many years but the flip side is that I don't expect them to fall as far as the herd expects either...

There are too many variables to pigeon hole everyone into the same box. It works for some but it doesn't work for all.

smf said...

"Not hardly if you plan to stay in that home for a long time"

Could easily be 20 years in the house. But since we already have a house, we could either lose an additional $100K equity in that house or in the new one. Plus, the new house gives us other immediate savings that help.

"No I don't expect to see prices rise at all for many years but the flip side is that I don't expect them to fall as far as the herd expects either..."

Then again, 35% has fallen already.

But...

This has still not been very well addressed:

What is going to happen with the exceeding excess of housing that was built?

And this is not just in the worse off areas. This is almost everywhere you care to look.

I'll repeat this again:

There are more houses built than people living at the moment that are willing to occupy them, at any price point.

This still has not been fully appreciated. And this will drive prices even lower than normal, specially in newer developments.

Deflationary Jane said...

SMF, I have a whole list of flips from foreclosures in 06 and 07. None are doing well. Maybe one would break even if they sold today, at listing price, if you don't count in money spent on rehabbing the place.

DD,

http://calculatedrisk.blogspot.com/2008/04/wachovia-on-walking-away.html

from the conference call:

'the overarching assumption here is that we're about halfway through the decline in housing prices with the trough expected to occur sometime around the middle of 2009.'

'Don Truslow, Wachovia Corporation - SEVP, Chief Risk Officer Ken, that's exactly right. And Kevin, it's just this pattern almost that somewhere -- I don't know where the tipping point is, but somewhere when a borrower crosses the 100% loan to value, somewhere north of that and they presumably run into some sort of cash flow bump, whether it's reduced income or kind of normal things in life that have created past dues before, their propensity to just default and stop paying their mortgage rises dramatically and I mean really accelerates up and it's almost regardless of how they scored, say, on FICO or other kinds of character, credit characteristics'

The conference call goes on to explain how bad it is in CA. I'd say I'm pretty damn comfortable making a judgement call here.

Diggin Deeper said...

No dispute with that comment...too few people/too many homes. I guess my optimism stands firmly in the way of a great fear that much deeper than 50% will cause an economic meltdown locally. Job losses would mount, retail sales would plummet, businesses would fail, schools would close, and the problem would begin to feed on itself Your $100K loss turns into $300K and then what?...Would you walk?

I'm not ready to go there yet because I believe we'll stop short of it. Maybe I'll change my mind in six months, but I'd rather not. Let's just have a knock down recession and get it over with.

And no Gwyn, I don't think I could take on anyone else's tax burden at this time.;>)...I took a little pain myself this year.

smf said...

"I guess my optimism stands firmly in the way of a great fear that much deeper than 50% will cause an economic meltdown locally"

The actual problem DD, whether you choose to believe it or not, is that developed countries have their system set up so that only a continous population growth can keep them healthy.

But statistics and numbers show that the reverse is actually happening. Many developed countries have essentially a negative population growth. A country needs 2.1% growth to keep their population stable, not growing, but stable.

Then the question becomes this:

How can home prices rise (above inflation) when there are LESS people around??

Or you could also ask how a business can grow when the # of customers does not increase?

The world, not just the US, will have to go thru a period of adjustment, whether we like or not.

It 'could' be painful, regardless of home prices.

And the sooner we go thru it, the sooner the pain will be gone.

I am an optimist. We have plenty of things to give thanks to. But I am also a realist.

And the reality is that the economy will see patches of various degrees of roughness.

In the last several years, thru now TWO serious bubbles, people have forgotten that (for the most part) LIFE IS HARD. Money doesn't come easily to most of us. During the bubbles, even idiots were able to function well with various degrees of success.

But that period was abnormal, and now we are going back to normal in more ways than just housing.

Deflationary Jane said...

DD,

Don't get me wrong, I'm scared sh!tless and so is the Mr. We'd like very much to not be right, especially now.

You say you can't see it getting worse despite the mounting evidence. My personal crappy allegory is:
Just because you've never seen a train before doesn't mean it won't mow you down if you don't get out of the way.

rocklin renter said...

Growing families don't typically stay in 3 bedroom homes, they upsize as required.

And that folks, is the elephant in the room.

Why on god's green earth do they need to "upsize"? Why is it "required"? When did it become "required"?

My upbringing was done mostly in 2br apartments. My home was "broken", and my mother and father each had their own 2br apartments, luckily not too far apart. (At the time) It was just two kids. We had BUNK BEDS (cheap ones at that) at each location! Remember those?

And when we wanted to go play we had to go to the park. Our backyard was not Disneyland north, it was a 8x8 slab of concrete.

Anyhow, IMO, this is one of the largest problems with today's housing environment. And today's automotive environment but that is a topic for a different blog.

Nobody needs 2000+ sqft to raise 2 kids. Or even 3. Moving from a 3/2 to a 4/2 or 5/2 because you think little Sally needs her own room is asinine. Get that rug rat a bunk bed and their own dresser and call it a day.

Ahh the hell with it. Give me my McMansion, I AM ENTITLED TO AND DESERVE IT.

{/endrant}

Diggin Deeper said...

DJ...

I never said that further price decreases weren't coming...I said I don't believe it will go as far as most might think...If I thought we'd see a median priced home under $100K I'd leave the area today...too many other problems will have preceeded that price level to make this town worth living in.

Prices must level off at some point before they do severe damage to the overall local economy. If they don't I don't think this town survives at the sub $100K median. Many of those looking for that price point don't realize that many jobs will have already been lost, maybe their own. To me its kind of like a nuclear option. If we cave to that point, then theres much more pain then prosperity.

I'm counting on the low dollar to eventually cushion the fall in the areas hardest hit. Let the rest of the fluff come off the higher ends.

Deflationary Jane said...

Someone on CR had the stats they shared, think this was from Foreclosures.com

PreFore - Auction - REO
California 611,538 - 303,272 - 198,700
Bad counties:
Sacramento 42011 - 22290 - 15628

**hattip to Crispy**

Northern Ca banks take some hits: (the first of many)

Mortgage meltdown hits American River Bank
http://www.centralvalleybusiness...es/001/? ID=8461

Interest squeeze hits Pacific State Bank’s bottom line
http://www.centralvalleybusiness...es/001/? ID=8460

I wish I was kidding.

smf said...

"Prices must level off at some point before they do severe damage to the overall local economy."

So do high-home prices. With lower prices, there will be an initial period of pain. But then people can spend their $$ in other things besides housing.

Still right now, purchasing a home means that you have to tighten your belt a little bit, or maybe a lot.

If home prices get a little cheaper, then people can afford to spend their money in other places.

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

"So do high-home prices"

smf

That's what I meant...home prices will level off at some point,..other price increases will be in addition to. If things get as bad as DJ is suggesting, and you believe that prices will freefall well beyond 50%, your proforma contingency of a $100K might be a wee bit off, maybe to the tune of an additional $100K.

I tend to agree with your original asessement, but do you agree with it?

Jacob said...

Well it is true that we cant predict the future, really just guess. I mean people have been calling the bottom each month for 2 years, eventually someone will be right...

But I think we can all agree that when we do find a bottom we will stay there for several years.

So unless there is a pressing reason to buy now, why not wait. Make sure you have a job when this all washes out. The when the economy starts to get back on track, then look for a home.

What if you buy a home and lose your job and want to accept another job out of the area?

Wait, rent a home if you want, let someone else lose $$ while you save and wait it out.

sacramentia said...

"I'll be happy to foward my tax bill for you to cover."

Don't you work for some form of government institution? So in a way, we already paid your tax bill. You're welcome.

Deflationary Jane said...

Geez Mentalia, don't you have an overpriced boat to buy? Better hop on that while you can still get it rolled into the Heloc.

smf said...

DD

We are assuming that where we are buying, which is Gold River, the prices 'may' not fall as much. There are many established neighborhoods that will still be good to live in regardless of the price drop.

What I wouldn't touch are the newly built areas, as how things will be affected there are another matter.

We made some pretty deep financial calculations before our decision to buy, and as it stands it was all neutral.

Our overriding concern in that case became our three kids. Essentially, for our and their sanity, getting them closer to their school and friends pushed us over that edge.

And the house that we are buying was bought for $415K in 1999. So we have an idea of where the bottom may lie.

Gordon Gekko said...

RR,
You've got it dead right. I've always wondered why retired couples are buying 3500sqft homes and driving excursions? I grew up in a 3/2 1400 square foot home and it was plenty big enough for a family of 4.
I can't wait for the next round of foreclosures where current buyers who thought they were getting a great deal end up getting nailed.
Buying right now is like buying the NASDAQ at 3000, it was 40% off the peak, but still had another 40% to drop.
Lastly, there's no 100% financing available. If you buy and owner occupied property, you can get away with 3% down or use a down payment assistance program. If you want to buy an investment property, you need at least 20% down.

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

I always knew Wachovia was in trouble as they were so late in getting into the game. The good thing is that they really didn't get to pump the books as high as they could have...

Who's next? We hear from CITI tomorrow...

sacramentia said...

that's funny ... it would be nuts to borrow against the house for a boat right now.

Jacob said...

"If you want to buy an investment property, you need at least 20% down."

Not necessary, just lie. Easy money, whoo hoo!!

purplelabrador said...

Between the budget deficit leading to layoffs, hiring freezes and a lack of raises, combined with high inflation, and the general decline of the private sector economy, along with plummeting housing prices, I can't help but think we've reached a bottom. In fact, my agent says there has never been a better time to buy.