Monday, June 30, 2008

"The housing optimists have systematically misjudged the market"

From the Sacramento Bee:

The carpet was filthy, and the walls needed paint. The backyard was a mass of dead grass. And that was before vandals threw a rock through a back window, climbed inside and wrecked the kitchen cabinets. That happened two days before the close of escrow. For banks, this is what making home loans has come to. Such scenes of destruction are commonplace. Lenders have dealt with the chaotic wake of an estimated 20,000 or more foreclosures in the Sacramento region over the past 18 months.
...
But there is a plus to this abundance of damage. It's proving a mini-boom for a niche sector of the construction trade known as "repo contractors."
From the Sacramento Bee:
The price of the two-story, 3,800-square-foot house for sale on Aspen Grove Lane in Elk Grove stands out even in a down market. The five-bedroom, three-bath home in a gated community is listed at $387,000 "as-is" or $437,000 with repairs. The low price – and the need for repairs – stems from the house's use as an indoor marijuana farm. Last fall, police hauled out 865 plants.
From the Sacramento Business Journal:
The economy is slowing and credit is tight. This should be prime time for Small Business Administration lending. Instead, the SBA is reporting declines in lending in the region and nationwide.
...
Some banks that pushed hard in SBA locally last year have also slowed down. Bank of America made 130 loans in the district by May of federal fiscal year 2007. So far in this fiscal year, the bank’s SBA loans have declined by two-thirds, to 43 loans...Other active lenders include Capital One Bank and Washington Mutual Bank. Through May of fiscal 2007, Capital One Bank made 84 loans. This fiscal year, the bank has only made 29 loans, down 65 percent. Washington Mutual is down 68 percent over the same period last year, making 62 loans last year through May and 20 loans so far in fiscal 2008.
From the Long Beach Press-Telegram:
When she arrived in Congress last fall, Rep. Laura Richardson sought out a vehicle that would match her newfound status. She settled on a 2007 Lincoln Town Car - the choice of many representatives who lease their vehicles at taxpayers' expense. But hers was distinct: At $1,300 a month, it was the most expensive car in the House of Representives.

Richardson, a Democrat who represents Carson, has since become known for defaulting on two home loans and losing a third house in an upscale neighborhood in Sacramento at a foreclosure auction.
From BusinessWeek:
[T]he housing optimists have systematically misjudged the market. Some became convinced that the huge runup was justified by fundamentals such as population growth, rising incomes, and land scarcity. And because sharp national housing price declines are so rare in U.S. history, analysts assumed that prices would, at worst, flatten out for a few years.

What they forgot was that markets can overshoot on the downside just as easily as on the upside, with both financial and psychological forces feeding the decline. On the financial side, adjustable-rate mortgages are continuing to reset upward from their cheap introductory rates, making it more difficult for homeowners to afford their loans. What's more, each month of price declines pushes more homeowners underwater on their mortgages, making it impossible for them to refinance into more affordable loans. It doesn't help, either, that as the economy weakens, larger numbers of homeowners are finding themselves out of work.

7 comments:

Bakersfield Bubble said...

One of the largest Ford dealers in the northern part of the Central Valley has shut down, one of several well-known regional companies apparently succombing to the weak economy.

Elk Grove Ford, based in the in the Elk Grove Auto Mall, closed Friday evening.


Owner Keil Enterprises has not commented publicly on reasons for the shutdown. The number of people losing their jobs is not known. Earlier this year it shut down its Great Valley Chrysler-Jeep-Mazda-Isuzu dealership in Sacramento.


Iconic Central Valley recreational vehicle dealership owner Dan Gamel is also shutting down, closing all six of his company’s outlets, from Bakersfield to Redding. The action will cost about 200 people their jobs.


The company, once described as the nation’s fourth largest RV dealer, shut down other locations in Santa Rosa and Chico earlier in the year, saying the weak economy, the credit crunch and high gas and diesel prices were the reasons.


And the six-store furniture retailer RoomSource Furniture & Accessories of Sacramento, has filed for Chapter 11 bankruptcy protection.


The company has been in business for 11 years. Going-out-of-business sales are underway. About 200 workers will lose their jobs.


One of the largest Ford dealers in the northern part of the Central Valley has shut down, one of several well-known regional companies apparently succombing to the weak economy.

Elk Grove Ford, based in the in the Elk Grove Auto Mall, closed Friday evening.


Owner Keil Enterprises has not commented publicly on reasons for the shutdown. The number of people losing their jobs is not known. Earlier this year it shut down its Great Valley Chrysler-Jeep-Mazda-Isuzu dealership in Sacramento.


Iconic Central Valley recreational vehicle dealership owner Dan Gamel is also shutting down, closing all six of his company’s outlets, from Bakersfield to Redding. The action will cost about 200 people their jobs.


The company, once described as the nation’s fourth largest RV dealer, shut down other locations in Santa Rosa and Chico earlier in the year, saying the weak economy, the credit crunch and high gas and diesel prices were the reasons.


And the six-store furniture retailer RoomSource Furniture & Accessories of Sacramento, has filed for Chapter 11 bankruptcy protection.


The company has been in business for 11 years. Going-out-of-business sales are underway. About 200 workers will lose their jobs.

Bakersfield Bubble said...

http://www.centralvalleybusinesstimes.com/stories/001/?ID=9159

Bakersfield Bubble said...
This comment has been removed by the author.
STOP ROSEVILLE CRIME said...

Why are our elected representatives who are elected to represent the people in their district leasing $1300/month cars and flipping homes? Why are they making 5 times the median salary of that of the people they represent? When are the voters going to wise up and vote for people who aren't looking to take advantage of us. Maybe its a rehtorical question or maybe we'll all guilty of it.

James said...

"The economy is slowing and credit is tight. This should be prime time for Small Business Administration lending. Instead, the SBA is reporting declines in lending in the region and nationwide.
...
Some banks that pushed hard in SBA locally last year have also slowed down. Bank of America made 130 loans in the district by May of federal fiscal year 2007. So far in this fiscal year, the bank’s SBA loans have declined by two-thirds, to 43 loans...Other active lenders include Capital One Bank and Washington Mutual Bank. Through May of fiscal 2007, Capital One Bank made 84 loans. This fiscal year, the bank has only made 29 loans, down 65 percent. Washington Mutual is down 68 percent over the same period last year, making 62 loans last year through May and 20 loans so far in fiscal 2008."

Why would this be prime time for SBA lending? Look at most of the banks they mention. Most made bad loans and had no choice but to tighten credit. Bank of America slapped an SBA guarantee on every small business loan, whether justified or not. BofA operated on volume of 7a loans, not size. They just are not doing as many of the stated income $100,000 and less loans.
Funny they do not mention Wells Fargo. I bet they post record SBA volume this year.
SBA loans for existing business require historical debt service coverage. With declining revenues and profits for many businesses connected either directly or indirectly with the housing industry, historical financials are going to look like crap. So of course the approvals are going to go down.
For the startup and projection based side of the numbers, many are fearful to startup a business right now. Projections are being brought in a bit due to slugish economy.
The businesses really profiting right now are the established ones who are taking market share from the poorly run young businesses who only knew good times and had a hell of a wake up call recently. These businesses don't need SBA lending.
Business owners are also reluctant to purchase new real estate due to uncertainty regarding the future.

What a "no shit, really?" type of article.

I know this is anecdotal, but my SBA portfolio is 200% larger than last year. Current pipeline has several manufacturers, one doctor, one dentist, a gas station, integrated circuit design firm, and construction of a 30,000 sq ft warehouse for a major wholesaler of toys. For me, I don't see the slowdown in SBA for some reason.

Diggin Deeper said...

"When are the voters going to wise up and vote for people who aren't looking to take advantage of us."

I'd bet she gets re-elected...This lady should be the pin-up girl for spendaholics anonomous.

Diggin Deeper said...

That should have been anonymous...