Tuesday, June 24, 2008

Sacramento Real Estate Market: First or Last to Rebound?

From InvestmentNews.com:

As economists and housing experts desperately look for signs of a bottom in the crumbling housing market, some investors are starting to make plans based on which major markets are predicted to rebound first.
Markets that didn't see a huge run-up in home prices and a glut of new construction over the past five years, and those that are enjoying good job growth, will likely lead the rebound, said [UBS analyst] Mr. Goldberg....
Markets that will take more than three years to rebound include Miami, Jacksonville, Orlando, Palm Beach and Tampa, Fla., Las Vegas, Phoenix, and Riverside and Sacramento, Calif., according to the report.
From the Los Angeles Daily News:
Jack Kyser, chief economist for the Los Angeles County Economic Development Corp., said that...[the recovery] phase depends on whether there was a building bubble where you live. Not too much of one in the Los Angeles area but certainly in the Inland Empire and Central Valley.

"It was almost like a heart attack," he said of the market collapse. "But after the heart attack, you have a long period of convalescence." The recovery, he said, will likely show up in some areas early next year. Some building-bubble areas will have to wait until 2010.
Here's what economist Chris Thornberg is predicting for the Bay Area and Southern California:
Christopher Thornberg, principal at Los Angeles consulting firm Beacon Economics, said last week that the market isn't likely to reach bottom until at least the middle of next year. The overall Bay Area price will decline between 35 and 40 percent, about double the amount it has come down so far, he said. When you do find bottom, you will not see prices immediately start to rise again," he said. "Housing markets don't bounce, they splat." [SF Chronicle]

Economist Chris Thornberg said Southern California home prices likely will continue falling until mid-to-late 2009...Thornberg...said home prices would have to fall about 40% from peak to trough to return to the historical norm. But add in the impact of rising gasoline prices, the subprime mortgage meltdown and rising foreclosures, and it’s likely prices will fall 50% peak to trough. The S&P/Case-Shiller index shows that prices for the L.A./O.C. area are down 24% from the peak, so the region is about halfway to the bottom, Thornberg said. [OC Register]
From Portfolio.com:
There is still no joy in Mudville. To understand why the housing slump has been so deep and so prolonged, one could visit this California city, once called Mudville. A fast-growing bedroom community for San Francisco Bay area workers during the housing boom, Stockton stumbled badly when the mortgage market imploded. Prices tumbled and the number foreclosures rose. The city became a national symbol of boom and bust. 60 Minutes profiled a bus tour of repossessed homes in Stockton—what the Los Angeles Times called the "magical misery tour."

More than two years into the slump, there is no sign of a recovery. "Everybody wants to wait until the market hits the bottom, but nobody can assure them that the bottom is here yet," says Oliver Torlai, a local real estate agent in business for 40 years.
For those following the Sacramento economy, the Sacramento Regional Research Institute (SRRI) has a breakdown of the Sacramento region's employment numbers as well as some graphs. From SRRI.net [pdf]:
The six-county Sacramento Region posted negative job growth for the first time in 15 years due to slowdowns in nearly every major sector, according to May 2008 preliminary data. Despite showing some positive signs in recent months, continued losses in the housing-related sectors, rising prices, and the strain on consumer spending weakened economic conditions. The drop from stagnant to negative growth places the Region below both the statewide and national averages. The Region’s -0.7 percent growth rate translates to a loss of 6,500 jobs in the past 12 months.
Here's what SRRI predicted back in November 2007:
A first-time business forecast for Greater Sacramento predicts the region's job growth will improve slightly over the coming year, with an average growth rate of 2 percent...New research by the institute projects year-over-year employment growth rates between 1.7 percent and 2.2 percent from October 2007 to September 2008. [Sacramento Business Journal]
And here's what SRRI said in its revised forecast [pdf] from April 2008:
Job growth in the six-county Sacramento Region will slow during the next 12 months, but will not drop into negative growth. The average job growth in the coming 12 months is expected to be 0.2 percent, slightly lower than the last 12 months, which showed fairly low growth of 0.5 percent. The forecast estimates year-over-year employment growth rates between 0 and 0.6 percent during the April 2008 to March 2009 period.
From the Sacramento Business Journal:
Truxel Properties LLC, which owns the Truxel Business Center at 4090 Truxel Road in North Natomas and two residential development sites in the region, has filed for bankruptcy liquidation, listing $17 million in assets and $19.4 million in liabilities.
The center is about 40 percent leased, said Walter Dahl, the bankruptcy attorney who filed the Chapter 7 case....The company, he said, was a victim of the depressed real estate market for both small-user office space and residential development sites.
From the Manteca Bulletin:
According to the final draft of the report that was distributed to each member of the [Manteca] Board of Education, the district lost 811 students last year. It is a number some have attributed to the housing market crash and the foreclosure crisis that left some families sleeping in their cars.
From Jim Wasserman's Home Front blog:

"Over the last six-seven months or so, we’ve been doing a lot more foreclosure evictions for banks in Sacramento County. I would say we used to do maybe one a month in my division and now we’re doing anywhere between 30 to 100 a month in our division."
From the Terk Smirk blog:
My husband was telling me that Foreclosure Rage was becoming common. One house had poo smeared on one bedroom wall. How should I feel about people who intentionally vandalized their home just before moving out? On one hand I do feel sorry that they lost their home. On the other hand, I know that many people who got loans in the past 3-4 years should have never been given a loan for a home they really couldn't afford. Either the lender didn't care or the borrower lied on his/her loan application. It sucks all around.
Some houses have been damaged by angry, frustrated homeowners who lose their homes to foreclosure, according to Mark in Stockton, Calif., where the foreclosure rate is among the highest in the country. "This city has so many foreclosed homes that are trashed there is an ad on local TV offering up to $1,000 to people not to trash their home before they are kicked out of it,” he wrote. “The problem here is grave.”


Lander said...

Markets that didn't see a huge run-up in home prices and a glut of new construction over the past five years, and those that are enjoying good job growth, will likely lead the rebound....

Lets run those factors for Sacramento

Enjoying good job growth - Survey says: X (scroll down the post)

No glut of new construction - Survey says: XX (cue SMF)

No huge run-up in home prices - Survey says: XXX (duh)

smf said...

Someone call? :)

BTW, today I am dealing with a project that started in 2002 and is now under construction. Retail spaces of all things.

Even those who started prior to the big runup can see problems.

We have already started to feel the slowdown here in the office, but we'll be fine.

When are more stories about the overestimation of population growth going to appear?

sacramentia said...

"We have already started to feel the slowdown here in the office, but we'll be fine."

That sounds like what I hear from everyone. Things are slow but we'll be ok. If the tune changes to things are slow and it is affecting me, then I'll know we're in for a real harsh downtown.

As crappy as the last year has been, it just really isn't that bad, yet.

Patient Renter said...

So much talk of recovery. Define recovery.

Here's a likely definition based on history:

Recovery - several years slow creeping appreciation following several years of mostly flat prices ultimately leading to a modest rate of appreciation roughly matching inflation.

Note to investors: The good times we had during the bubble will not return in your lifetime. Go read a book.

Diggin Deeper said...

Recoveries are lead by consumers and consumers are fighting other battles right now. Confidence is way down, and that will probably keep the lid on this market for some time to come.

Jacob said...

Sacramento lead the way down because we have nothing to justify the prices.

The wages just dont support it. So when the bubble burst, there were a higher ratio of specuvestors holding the properties and very few actual buyers were out there.

Adding to the problem with low demand and limited pool of buyers is the over supply of homes.

Now, will Sacramento also leaf the way back up? Not likely. More job cuts in store and it isnt likely we will have any large companies move in offering high paying jobs.

And with gas prices going to $5 soon, Sacramento is even less attractive as a place for commuters to live. Not that I could ever understand why people would commute 3hrs a day (one way), but people did. Probably not so much in the future.

I have noticed less "experts" predicting that we are at the bottom, or that there is just a measly 5% more to go. So maybe we are firmly in Desperation mode, up next, Panic.

James said...


A nice little bit about what makes Sac such a nice place to live.

Sold in '05 said...

How about another developer on the ropes or is it just a business decision?

Public notice of foreclosure auction has been posted for 105 undeveloped lots in West Roseville's new Fiddyment Ranch/Farm. The note that is being foreclosed is listed as having a value of $24,000,000+.

Looking at the tax bills for the listed properties, they are being billed to "WEST ROSEVILLE INVESTORS L P". The sign on the development says coming soon from Christopherson Homes. See the Arbors at-


So are developers now doing jingle mail with upside down land purchases? Will one of the "investors" buy the property at auction for pennies on the dollar and allow the project to continue while the bank eats the loss? Will there be any righteous indignation at this or is this just a group of poor unwitting developers who were duped into buying massively overvalued land?

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

"Will there be any righteous indignation at this or is this just a group of poor unwitting developers who were duped into buying massively overvalued land?"

Maybe just poor timing?

At $228,000+ per improved lot...somebody's going to get one helluva deal taking this one off the builder's hands.

Speaking of bailouts looks like the US Senate has cleared the way to bailout foreclosing homeowners to the tune of another $300B. We must be closing in a $1T by now...

Has anyone seen this?


Report is that 40% of banks can't even prove they hold title on the properties they're foreclosing on. That ought to gum up the courts for years to come....

Patient Renter said...

the US Senate has cleared the way to bailout foreclosing homeowners

Yep. Sad times in America.

Dean Baker had a brief post today pointing out, yet again, that the bailout legislation clearly dictates that who qualifies for "assistance" is solely up to the lender's discretion - meaning bailouts will only occur as they benefit lenders. Summary: It's a lender bailout, not a homeowner bailout.

Also worth reading - the WSJ article from the other day pointing out how a national fingerprint database was slipped into the bailout legislation. This bailout is going to cost us in many ways.

smf said...

PR -

Just realize that is not only the US that will have a hard time.

This is global in scope.

Hard to foresee where all of this will end due to its great extent.

David said...

Talk of recovery is premature when so many other things in the economy and the nation are wrong. When consumer confidence is at the levels it is right now I can't imagine any form of recovery in the foreseeable future. Who buys a house when they think things are going to get worse?
I think there will be a major shake down across the nation and maybe some areas will start going up (close in to jobs and shopping), but not the entire housing market. The exurbs are probably going to wither and die.

James said...

This is from a recent article from Barron's regarding consumer confidence. Consumers and analysts are the biggest contrarian indicators out there. Take a look at the S&P retail index, it is up 11% in the last two months. Wal-Mart is up 21%. I think this type of philosophy can be applied to the housing market as well.

I believe it was Jacob who pointed out that more and more "experts" are changing their tune to say we are no where close to a bottom. Once this train of thought becomes the norm, we will be at a bottom. The was true during the top of this bubble. Everyone and her brother was saying buy real estate, you can't go wrong. Just about every "expert" was singing the same song. This was a sure sign of the top. What ever main street says, do the opposite. More often than not you will come out ahead.

"Consumers are a lagging indicator," argues JPMorgan strategist Thomas Lee. "By the time the negative shock has rippled to affect households, financial markets have already discounted this." Also, "consumers are a contrarian indicator," and Lee says consumer-discretionary, staple and financial stocks typically excel when confidence is shot.

Each of five times since 1967 that consumer confidence has sunk to current levels, the S&P 500 has produced average returns of 15% over the next six months and 23% on the year.


Wow, even week the news gets better and better. It's surpassing all my expectations, kinda like gas prices. Sippin, you've been busy buying the past 18 months rights? Well, I assume so since you're always argusing the bears and you're no where to be found on these blogs anymore.

Thornberg is a brilliant economist. He's been 110% correct since he start talking about this over 4 years ago.
Lander, you still have that video of him talking to that class at Humbolt State a few years ago? Might be good to repost it.

Report is that 40% of banks can't even prove they hold title on the properties they're foreclosing on. That ought to gum up the courts for years to come....

There's a hedge fund manager in this Florida Keyes who was given notice about repoing his boat, til he told the repo man to prove who actually owned his loan....and they couldn't produce the documentation so he's still living in the boat he hasn't made payments on in over a year. Pretty funny.

Diggin Deeper said...

"What ever main street says, do the opposite. More often than not you will come out ahead."

Spoken like a true contrarian and I'm in that camp! Unfortunately, we've never had an overhang in the markets like we're facing today. The entire financial base in this country has cracked and the consumer is fading. Inflation is set to runaway as the Fed turns a blind eye in favor of "growth" that probably won't happen. Not only our consumer but the rest of the world watches and gauges confidence based on our actions...bailouts, added liquidity, and dollar malaise all add to the problem.

It all boils down to leveraged assets...using $10 to craft a $200investment. All it takes is a 5% loss and your original investment is wiped out. Anything more and you wipe out the rest of the asset. And there are $Trillions in this category. RE is but a symptom of this leverage problem.

Kind of like sitting at a poker table with a bad hand and going "all in".

While "blood in the streets" is a telltale sign of a bottom, in this case, I have to wonder if there's enough blood flowing yet to make that case.

Imho the low hanging fruit, with regard to RE price reductions, has been picked. It will be much tougher to get an addtional 20% than its been to get the first 40.

James said...

"While "blood in the streets" is a telltale sign of a bottom, in this case, I have to wonder if there's enough blood flowing yet to make that case."

No, absolutely true. We have not reached the absolute "I give up, I'm done, mercy" cry by main street and the banks. There is still too much optimism, but you can see it building. Goldman put a strong sell rating on Citi this morning.

Sippn said...

How do they define "rebound" ? Sorry I sound like Bill C.

Prices..sales volume..inventory

Looking at national inventory levels, it DOES look like Sac was a year early into it (due to overbuilding) but our resale inventory is going opposite direction of national markets.
I've been comparing housing trackers charts with other areas.

National headlines talk about 0-2% MOM gains (with YOY decreases) and Sac area now experiencing gains in both.

Retail and Commercial RE are lagging industries - sorry SMF but the layoffs are still coming ("what, me worry?")

Can you tell how old I am from that quote? 4X

Who said "not in our lifetime will we see it again?"

'68 crash
'74 crash
'81 crash
'91 crash
late 90s swerve
'07 crash

Each of those, except '68, had to do with money supply manipulation, leverage, etc.

Look at this mess, wholy created by easy money sourced from Wall Street - a world wide problem, yes. If you had a 10% down loan, Wall Street leveraged it 100x in a CDO and sold it to the likes of CAPERS and others.

That money will be back when it gets tired of Oil - yes leverage is the big question about current oil prices - notice the similarity?

Patient Renter said...

Who said "not in our lifetime will we see it again?"

I did, though I wasn't referring to stock market downturns, I was referring to a housing bubble of the proportion and magnitude that we just had:

The Shiller graph makes a pretty strong case that this is a once in a lifetime event:


Diggin Deeper said...

The only problem with that thought Sippn is that banks hadn't turned risk management over to the investment community and leverage wasn't a hundred to one during those other periods. Much less room for error, much bigger gamble gone awry over this last period...and it will take much longer to sweep the excess away.

I'll give you two months of improving results...a move in the right direction, but more likely a slight calm before see the next wave...let's see two quarters and then maybe you're on to something.

Sippn said...

Only the form was different...

'81 interest rates over 20% and I remember homes with 4th and 5th deeds on them - up to 20% beyond values.

'91 was from the S&L crisis - unregulated real estate direct investment by S&Ls, leveraging their investments through partnerships, etc.

In all cases, easy loans from easy liquidity turned into expensive (through higher rates or tighter qualifying - both a cost increase)

Regarding shiller - a smart guy making a lot of money from these charts...where he picked the starting point changes his graphs alot, assuming inflation % is accurate, forgetting to mention etc. Is it a run for the coast? how did he account for this? How are the coasts weighted? Is it because of an influx of foreign wealth? When did he account for the modern home mortgage (20% down, 30 year)

My guess is that you will see the swing higher in places like Orange Co, SF, NYC - again within 15 years as wealth concentrates there and bids up the price of housing ownership - continuing to push those who can't afford, to rent, to density or to futher out 'burbs.

Economics is so complex I think there is more to the story.

Diggin Deeper said...

"continuing to push those who can't afford, to rent, to density or to futher out 'burbs"


Unless the shift taking place toward population centers is reversed that may not happen. In fact it probably has a net negative pricing impact on outlying areas of Sacramento proper.

High energy prices will force changes in those lifestyles. The Energy Information Administration's long term 20 year forecast predicts a 50% rise in energy demand. As for oil speculation, there are those in the know that say speculation does not play a major role in today's prices...but that really doesn't pander very well to those paying high prices at the pump. And it's surely not a vote getting soundbite that's going to go unused.

Again, unless we figure out how to make perpetual motion energy efficient, things will change.

Patient Renter said...

Regarding shiller - a smart guy making a lot of money from these charts

Cut out the ridiculous implications. He was ridiculed for pointing this stuff out in 2005. If he was interested in making money, he'd have charted some data attempting to demonstrate that real estate would go up forever.

James said...

It didn't take a genius to figure out the market was beyond top heavy in 2005. Then again, I almost got in a fist fight talking that way in a bar.

norcaljeff said...

It did take a genius James, because no body saw this except bloggers like Lander and economists like Chris Thornberg. You can't tell me everyone saw this. Denial was around as late as 2007 and clueless people like Sippin are still in denial. Until that goes away completely, the market hasn't bottomed yet.