Thursday, April 17, 2008

"Tidal Surge" in Bankruptcy Filings; Sacramento Median Falls Below $250,000

From the Sacramento Bee:

Despite strict regulations to discourage bankruptcy, the number of filings last year in Sacramento nearly doubled in a tidal surge that outpaced growth around the nation and left court officials expressing astonishment. In total, 17,397 people and businesses sought bankruptcy protection in a district that largely encompasses the Central Valley...While filings leaped by 100 percent in this region, they grew by 38 percent nationally...The figures provide a grim epilogue to a period that saw Stockton and other cities in the Central Valley report foreclosure rates that ranked among the highest in the nation.

Yet the housing downturn and the ensuing credit crunch have not loosened their grip in 2008. The number of cases filed in the first quarter is up 82 percent from the same period last year...If the year unfolds as it has begun, the district could rank among the nation's busiest bankruptcy courts.
From the Sacramento Bee:
Sacramento County's 1,501 March closings on new and existing homes combined were the fewest since March 1997, according to DataQuick. The tally was down 14 percent from the same time last year. Median sales prices also dipped to $247,000, a level not seen in the county since May 2003. Median prices are now 36 percent below August 2005 highs of $387,000.
From the Central Valley Business Times:
In the Central Valley, the increase in average asking [apartment] rent is even more moderate – up 1.3 percent in the first quarter compared to a year earlier, says RealFacts
"Analysts of the troubled single family home market, with its sub-prime loans and increasing number of foreclosures, have asked what happens to the people who have lost their houses. Some have speculated that they would move into apartments, but the evidence from the RealFacts survey suggests that this is not happening," [RealFact CEO Caroline] Latham says. There has been no increase in demand for apartments, as would be the case if former homeowners were turning into apartment renters, she says.

"In fact, in MSAs that lead the nation in foreclosures, there has also been a decrease in demand for apartments. So where did these people go? One answer may be that they are renting houses rather than apartments, and are thus part of a shadow market that is not currently being measured," says Ms. Latham.
From the Stockton Record:
The longtime Angelica industrial laundry plant at 1145 S. Sierra Nevada St. is expected to close for good June 7, leaving 123 employees without a job...The announced closure comes on the heels of a major layoff of 159 workers at competitor Sodexo's Metro Park Laundry in Stockton.
More than 200 employees at TeleTech in Stockton were told last week their jobs will be eliminated after one of the Colorado-based outsourcing company's corporate clients reduced its customer service needs.


smf said...

"There has been no increase in demand for apartments, as would be the case if former homeowners were turning into apartment renters"

Again, they are basing their predictions as if the excess housing was all owner-occupied.

Since at least 40% of these homes were speculative, their foreclosure does not and will not lead to an increase in rental housing.

And with no increase in rental demand, who are this new crop of investors going to get in their homes?

The price paid for a rental home does not matter one bit if the landlord cannot find someone, anyone to rent it to.

Jacob said...

plus 50% of the foreclosures are to investors, many of whom will try to rent them out so in a foreclosure you get 1 new renter and 1 new home for rent. Not gonna help lower the supply that way.

Bakersfield Bubble said...

5 years of equity gone in Sac Town! WOW!

Deflationary Jane said...

5 yrs lost is just the start. Our run up began in 97 to 99 when we actually had a low unemployment rate and salaries were increasing due to the and Y2K jobs. Those jobs left in 01/02 and we've never recovered.

The only things that has kept the area afloat was building/selling houses or Heloc money; in other words, a false economy.

So how does this end without reverting to the mean? It doesn't.

/game over

Diggin Deeper said...
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Diggin Deeper said...

In Sacramento County the median priced home was $119,000 in September of 1997. By September of 2007 it was $307,000. Today it's fallen below $250,000. Supposing that we do revert to the mean what would the true mean price be?

What relative factors must we attach to the '97 price in order to compare it to today's. Or reverse out those factors and then determine what the median today is in '97 dollars.

Any thoughts?

Ed said...

If you want to use median price from 1997, you should also account for median condition of the home in 1997.

In other words, if the median house in 1997 was a 4/2, 1900 square foot home on a .18 lot then we need to make sure the median today is equal.

(I made those numbers up.)

But my point is this: we've seen a build-out in the size of homes (McMansion term didn't exist in 1997).

Let's compare apples to apples.

If you ignore that, than 1997 in today's dollars is equal to:
165K at 3% compounded
183K at 4% compounded
204K at 5% compounded
226K at 6% compounded
250K at 7% compounded

Final thought - was 1997 a "real, fair" price. Was it depressed? Have conditions changed?

If it was a fair price, if the median is comparable, if conditions have otherwise not changed, then I'd say that 7% compounded is too high and prices should revert further.

However, I'm not confident that all those "ifs" are correct. I'd love to see some discussion and guidance.

Diggin Deeper said...
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Diggin Deeper said...

Actually we could all the way back to '91 when the median price was $138,0000 but given the price of $119,000 in '97 that ought to leave enough slack to at least fairly compare.

Maybe it would be better to use a price per sq ft? That way one could vary for the upsizing that may have occurred.

Your figures would look as follows:

A 1900 sq. ft. home at $119,000 would baseline at $62.63 per sq ft. If we add an additional 1/2 of a year factor (Sept-March) here's what those figures would look like

At a 3% factor.....$85.42
At 4%..............$99.44
At 5%..............$104.56
At 6%..............$115.52
At 7%..............$127.51

Rich said...

DD - I think the best number would be multiplier of median salary.

Anyone know what the median salary was in '97?

Rich said...

Oh ya, and we're looking for an apartment in Rocklin right now, and one complex of 350 units (1/1, 2/1 and 2/2, not sure the breakdown) is telling us they have 7 2/1s to choose from. That doesn't sound like foreclosed homeowners beating down the doors for a place to live.

Diggin Deeper said...

I believe you could use about $33,000 as the median income which when factored would be about 3.6 times to equal the $119,000

Deflationary Jane said...

Did a little digging, I use BEA over BLS. We're MSA 40900 which is the four county area.

MSA 40900 Per Cap Income:
2004 33,919
2005 35,463
2006 37,277

Now how do we rank against the other MSAs? Average PCI of all MSAs is:
2004 34,700
2005 36,140
2006 38,109

Diggin Deeper said...
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Diggin Deeper said...


What factor would you use to develop household. I'm thinking we're close to the $48-50K range this year?

I can't see using household size X per capita.

Deflationary Jane said...

MHI & MFI shift because members shift. I just looked for fresh data and sure enough we had a stealth release for 06/07 but on pop only. It sure wasn't anything to crow about.

Our population gain for the period ending 6-30-07 was 1.36% which was better then last years anemic 1.20%Growth years were 3% to 3.6% for comparison. But we also had another boom year of births 31,611 for the MSA, topping last years 30,410 for the four counties.

Another year of dropping international migration but not negative _yet. In/outmigration looking pretty sad so we're still down on net migration. For instance, net migration in 2001 was 27,834 vs 2007 is 1,582. The big looser was ED county at -568 domestic migration.

Just a reminder, these are USC returns (estimates) and are subject to their particular data scrubbing efforts.

Now if only those babies would just go out and buy some damn houses already.

Jacob said...

well if the babies can get financing, they can easily take out a fully amortizing 50 year loan. And it will be half paid off by the time they are 18.

They just need to get off their lazy asses and get a job already. Stop depending on mom and dad for everything.

PeonInChief said...

2001 is probably a better "base" price year, as then the speculative value of the 500K capital gains exemption has been factored into the house price.

Diggin Deeper said...


Better yet, since you've got the data at hand, what do you see the median price at when we revert to the mean using the median price in '97 as your baseline?

smf said...

MLS #70124946

That house is currently listed and sale pending at a little less than its 10/2002 sale price.

Just some idea where we are headed to.

Diggin Deeper said...

Peoninchief...hadn't thought of that...interesting.

The median price was about $180,000 at the time. Would this be a reasonable level to return to? And if so, what would the actual price be today?

Deflationary Jane said...

I don't have my big memory stick with me today but here is something to ponder using 00 to 06 numbers

El Dorado County 2000 2006 Gain
median house size 2.63 2.8 6%
median family size 3.04 3.23 6%
MHI 51,484 70,516 37%
MFI 60,250 82,030 36%
PCI 25,560 32,122 26%

Placer County 2000 2006 Gain
median house size 2.63 2.63 0%
median family size 3.06 3.04 -1%
MHI 57,535 70,013 22%
MFI 65,858 80,700 23%
PCI 27,963 35,014 25%

Sacramento County 2000 2006 Gain

median house size 2.64 2.7 02%
median family size 3.24 3.31 02%
MHI 43,816 53,930 23%
MFI 50,717 62,523 23%
PCI 21,142 25,596 21%

Yolo County 2000 2006 Gain
median house size 2.71 2.76 2%
median family size 3.25 3.33 2%
MHI 40,769 51,128 25%
MFI 51,623 69,341 34%
PCI 19,365 24,892 29%

4 counties (40900) 2000 2006 Gain
median house size 2.6525 2.7225 3%
median family size 3.1475 3.2275 3%
MHI 48,401 61,397 27%
MFI 57,112 73,649 29%
PCI 23,507 29,406 25%

And I think those cap gains were priced in faster then you think, 99/00 works just fine. If you figure in those gains each time as part of the affordability calcuation, you completely price out your emerging market; i.e, your own kids. Do that long enough and you have invented the American version of the landed gentry.

Anyways, layer housing gains over income gains and it's not pretty.

Lets all thank Mom and Dad, shall we? >; )

Diggin Deeper said...

Whoa... data I find myself humming the USC fight song!

I agree we're going to revert to the mean as you've stated. Where might that be? At what price do we revert to and what do we need to do to bring that price current?

If 4 counties works, great!

I keep reading about going to this magical place, the mean, but I can't seem to figure out where that is? Or will the market bottom and then we'll know we've found Oz.

Let's figure out whether Mom or Dad need to go to the woodshed...Where's the mean?

Deflationary Jane said...


Actually 180k works out against wage increases accounting for tradional affordability and annual inflation.

So there you go. In a stable local economy the median home price should be 180k. Not a dinky starter, the big reno job, or teardown - it should be the Joe house @ 1600 sqft house in a decent (not south sac, oak park, EG, or Natomas) area.

Now that unemployment is kicking in, our purchasing age population is declinging, food and energy costs increase, state revenues are down, and wage growth is capped by outsourcing pressure, what happens? Everyone wave goodbye to that 180k figure, we hardly even knew ya -

Diggin Deeper said...
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Diggin Deeper said...

Thanks DJ...

That's amazing. If you look at '97price of $119,000 and factor an average inflation rate at 3.5% over the course of 10.5 years, or you take a $50,000 Median Household income today, against 3.6 times earnings (as used in '97 above), you range between $171,000-180,000.

That would represent a decline of 53-56% off the high...Will it hold? We'll know soon enough. Keep in ming that 30 years rates in '97 were over 8% or just about average over long term historics. If we maintain 7% or better, affordability at the $180K level moves in favor of the buyer.

All the other stuff is a maybe from here...

Again, thanks. I know you had to work to get to that figure...

Patient Renter said...

Will it hold? We'll know soon enough.

Don't underestimate the potential of an overcorrection. It's not just something that wishful bubble bloggers talk about, but often occurs in bear market cycles.

Diggin Deeper said...

PR...very true but usually they are short in duration...but a window of opportunity no less.

norcaljeff said...

My friend lives in some new condos in the better part of Roseville. One of their neighbors decided that since the rent on the condo next door was less than her mortgage, she signed a rental agreement and moved in and just let her condo go into foreclosure without even telling her bank. Pretty freaking funny, wonder how much of this is going on elsewhere.