Friday, May 23, 2008

'Investors Are Just Gobbling That Stuff Up'

From the Sacramento Bee:

When DataQuick Information Systems reported this week that Sacramento County posted its first gain in year-over year home sales in 37 months, these were the neighborhoods that made it happen: working-class areas in south Sacramento, North Highlands and North Sacramento, Elverta and Citrus Heights...What they have in common is an abundance of homes with falling values, heavily discounted bank-owned residences and scenes of multiple bids by investors and first-time buyers.
...
During the third quarter of 2007, Meadowview's 95832 was one of California's most default-prone ZIP codes....April sales jumped 266 percent over the same month in 2007. The ZIP code's median sales price was $185,000, down 44 percent in just a year...[DataQuick's Andrew] LePage said 79 percent of the April sales in that ZIP code were homes lost to foreclosure during the past year.
...
"Investors are just gobbling that stuff up," said Fair Oaks-based real estate broker Warren Adams of Security Pacific Real Estate...[Broker Kevin] Cooper said most of his clients are investors.
From the Lodi News Sentinel:
Foreclosure numbers in Galt don't touch those in Elk Grove or Stockton. But abandoned homes are increasingly a part of the small community's landscape, worrying officials and city residents alike. "It's getting to be a mess ... something needs to be done because Galt is not looking pretty right now," Galt resident Al Baldwin told city leaders, speaking at last night's City Council meeting.

"I don't want to get anybody in trouble, but I don't want the city to look like a garbage dump either," added Baldwin, a regular at council meetings, noting one west side neighborhood has five abandoned homes on the same block.

It's not clear how many homes are in foreclosure in Galt. A search of several real estate Web sites, including www.foreclosurelistings.com, shows there are more than 100 properties either in foreclosure or in its early stages.
From SBS (Australia):
DAVE HARMON, REAL ESTATE AGENT: In this particular cul-de-sac I've personally had one of the listings on this home that after being it on the market for a year we couldn't sell it, we couldn't find a price at which someone would buy the home.

Real estate agent Dave Harmon works in the Californian city of Stockton. It has the dubious distinction of having the highest rate of home repossession in America.

DAVE HARMON: And since that time the home next to it is in foreclosure, it is for sale now, two others behind me, another across the street and two more on the end. So half the homes on this cul-de-sac have been hit with a foreclosure situation. Now the bad news is that the half that haven't been hit yet will be in the near future.

California's Central Valley is the epicentre of the subprime crisis. In some Stockton suburbs, one in four houses has already been repossessed by the banks and the foreclosure rate is still accelerating. It's not expected to peak until October. I've travelled to Stockton to see the scale of the bust in America's housing boom - a crisis which has badly shaken the US financial system.
The video is available on the right side under "Desperate Households."

18 comments:

Patient Renter said...

"Investors are just gobbling that stuff up," said Fair Oaks-based real estate broker Warren Adams of Security Pacific Real Estate...[Broker Kevin] Cooper said most of his clients are investors.

"Investors". This is why the bottom is nowhere near - there are too many fools who think they are smarter than a declining market.

smf said...

Have I not stated that 'investors' are still in control of this market?

Lo and behold, it is now confirmed!

Again, we have the same problem occurring as before, but in a different way.

Housing demand is finite. You cannot have more housing than people available and expect to make money.

And these 'investors' will soon have a day of reckoning, when they recognize the mistake they have made.

The price in some of these areas may sound cheap, but these are areas that most people will steer clear off.

luca said...

yea but you can buy a house for $120,000 in a brand new neighborhood and still get $1200 rent out of it- from an investment standpoint it is getting good.

luca said...

I just picked up a condo that sold in 05 for $210k for $60k. It is totally rehabbed and beautiful. Paid cash for it and already have it rented for $900 a month.

Even if I bought it with no money down I would still cash flow- becoming a no brainier decision to buy for investments these days especially if you can hold for the long term.

Even if I have to wait 10-15 years for that $60k property to be worth $200k again I will still be making a cash flow there. Even if it took me and entire lifetime to get back to that price it would be fine with me.

I want more!

I am the demand part of the equation- so if some more subprimers default and give me more supply I would really appreciate it!

Thank you Casey Serin and all of you short term speculators who lost sight of the long term for a quick buck.

RMB said...

Ok Luca,

been hearing these stories all over the place. Pony up with an address and we'll check to see if it is real or not. To many people are saying "OH MAN, THE DEALS I AM GETTING ARE UNBELIEVABLE" which is exactlly what they are. If you bought a condo for 60K and have it rented for 900 a month more power to you. Buty why would the person pay you more than it would cost to buy it themselves?

smf said...

Even if I have to wait 10-15 years for that $60k property to be worth $200k again

Uh-huh...so...long term with a doubling of the price of your asset.

Or short term with the doubling of the price of your asset.

Thank you for making my point that nothing much has changed about 'investors'.

norcaljeff said...

These are the same investors buying tech stocks in the summer of 2000.

I also call BS on Luca. Probably just another user ID created by Sippin to push his lies.

luca said...

If a apartment sold for $205k in 2005 and sells in the $60k's now how much lower could it possibly go- the long term upside is much higher than the long term downside. I'm not calling a bottom, I'm just saying if you find an investment that makes sense it may be time to start getting some.

Remember this is California and we are only 80 miles away from 900 square foot houses in the exclusive parts of the bay area that sell for $800k.

Tech stocks and stocks in general can fall off the face of the earth forever in value- Real Estate in the long runs ALWAYS comes back. You will always need a roof over your head- on the other hand you will never need to go to www.pets.com.

I'm not sippin btw. - I disagree with him the most on this blog. He needs to realize that the good areas in sac are going to tank just as much as the lesser desirable areas. There are plenty of people in those areas who cashed out or bought in '04,05,06,07 and now have a good deal of negative equity and negative equity, not credit scores are the number one reason for foreclosure.

Sales are brisk in the lower end as the properties are literally being given away. Higher end comes have lost a much smaller percentage of equity at the moment in mature areas- but their default rates are majorly gaining momentum- so sippin- watch the areas you vouch for start to loose equity faster than the lower end ones you did not vouch for in the future.

rmb- most renters outside of the California region pay their landlords far more for rent than than the landlord pays for a mortgage payment. That is one of the elements that make real estate a long term wealth maker.

Now that prices have come down here so much on the low end some properties make perfect sense. Be happy there are some investors here removing the boards from windows and vagrants out of homes, although renters aren't great for areas they are better than boarded up crap holes.

Party on

sacramentia said...

Luca,

Sounds like you have a nice deal with plenty of margin for error.

With the interest rates at approximately 5% less than your rate of return, what made you decide to pay cash?

RMB said...

Exactlly my point. Big talk no address. I used to live outside of CA. It is the same there as it is here. Poeple are not going to pay some landlord high rent if they can by the place for less.

My orginal comment holds. Pony up with an address... or it's all BS

sacramentia said...

I don't think the top 10% priced homes in the region are going to fall as much as the median. Not because they are nicer, more desirable, but because the buyers in this price range behaved more rationally during the run-up.

The top price band didn't go up nearly as much on a percentage basis as the median from 1997 to 2006. I have picked several homes and the prices at the high didn't even double(+100%) for several of the homes during this period, when +250% was common in many areas.

The case-shiller index confirms this trend also with the top Quartile appreciating less than the median during the same time-frame.

damn the rain on memorial day - should be outside not blogging!

luca said...

Sacramentia
I think you are right about the top 10% not coming down very much as well. Not sure about those dream homes in Lincoln that were sold in 05 for $300- $400 a square foot, but nice mature areas at the very top should loose less on a percentage basis.

RMB- I don't feel uncomfortable giving the exact address but it is on El Cajon st, in the 95826 zip. I wouldn't want to live there personally - but I believe it to be a decent area to hold cash flow rentals.

James said...

I think Luca will do fine. You ask why don't these people just buy instead of rent at these prices? Perhaps they recently lost a house to foreclosure and can't get a mortgage. They don't have the 20% down to purchase a house. Recently divorced and trying to get reestablished. The list goes on, but these types of properties are transitional in most cases. Somebody will rent for 1-2 years then move on. Perhaps they will buy the condo from you when they can do so and pay $120,000 because all the bank sales are done with and you can demand an asking price in line with rents. Also cash on cash return will be higher with these types of properties due to the higher risk tenant. I am an investor in a midtown office building with a very high quality tenant on a 10 year lease. Because of this we have about a 6.5% cap rate. If we were month to month with some new architect right out of college we would demand a higher rent and the market value of the building would go down, thus pushing the cap rate up. If we sold to another investor the yield would be higher, but the risk would be proportionally higher as well.
The best time to buy is when everyone else says not to. There will be many like Luca who will be laughing all the way to the bank in 10 years.

By the way, take a look at the MLS and you will find hundreds upon hundreds of the these deals to be had.

luca said...

Thanks James- I hope one day to be as successful as you with office building investments.

It seems like a lot of people on here think Sacramento is going to be cheaper than Kansas in a couple of years.

Perfect Storm said...

El Cajon st, in the 95826 zip,

I will keep track of that one.

luca said...

perfect storm - El Cajon, 95826 has gone from 205k to 60k well over your 50% decline. Actually 70% decline (ouch!- sorry Wells Fargo!)

I thought your 50% decline thought was crazy in 05 - now you look like a genius. When everyone in congress voted to go to Iraq- Obama voted against it. When people thought Sacramento Real estate prices would have a modest decline you called for a 50% drop.

Perfect storm for pres 2012

sacramentia said...

"I thought your 50% decline thought was crazy in 05 - now you look like a genius."

my thoughts exactly.

Patient Renter said...

When everyone in congress voted to go to Iraq- Obama voted against it

Wrong. Obama wasn't in Congress at the time, and any educated guess would tell you he'd have either voted for it (as all of his colleagues did) or he'd wuss out and abstain like he did with the Homegrown Terrorism Prevention (aka. anti-liberty) Act.