Sunday, July 27, 2008

'The Cancer Just Spreads and Spreads'

From the Sacramento Bee:

In most homeowners associations, financial pressures are a concern, not a crisis, managers and officers said. But as they look ahead to next year's spending plans, they worry more about what might happen, rather than what has occurred.

No area associations are bankrupt. Most haven't raised dues significantly or levied special one-time assessments. But the region's HOA industry chiefs said they're watching the books. Many are planning for worse as the economy weakens, and the housing turmoil shows no signs of slackening.
...
[Dan] Kocal, the Folsom management group owner, declined to talk about which associations are troubled by delinquent assessments. He said one in Sacramento has a 25 percent delinquency rate.
From the Sacramento Business Journal:
Fewer homeowners are dipping into their pocketbooks to pay for a dip in a new pool. "The leads are off probably 40 percent to 50 percent since last year, and closing leads are off even more. And last year was down from the year before," said Mike Geremia, president of Geremia Pools Inc. in Sacramento. Even companies reporting relatively good numbers say business is off more than 20 percent.
...
Pool builders aren’t expecting the downturn to end this year. People want to buy [Gregg] Whitley [of Aqua Pool & Spa Inc.] said, but still aren’t feeling enough optimism to commit to the decision. All eyes now are on 2009. Until then? "Well, we pray a lot," [Andrew] Fine [of Blue Haven Pools & Spas] said.
From the Modesto Bee:
You've heard this before, but this time it's probably true: This is a great time to buy a house in the Northern San Joaquin Valley.

Yes, people said that last summer, too, and home prices have plummeted more than 40 percent since then. Ouch.

But that only makes homes a steal-of-a-deal now.
From The Guardian:
It is easy to spot a repossessed home in Stockton, the sub-prime mortgage capital of the United States and, indeed, of the world. You just need to look at the colour of the grass.
...
One of many developments thrown up as people moved east from San Francisco in search of cheaper housing, Creekside consists of endless streets of identical whitewashed bungalows with two-vehicle garages. A typical three-bedroom house here cost about $375,000 (£200,000) two years ago but can now be bought for $125,000.
...
"The biggest danger is that these neighbourhoods will get overrun by drugs and gangs," says [Fred] Sheil [a local housing activist], who says falling prices are attracting slum landlords who snap up houses for a song. "They buy properties, they don't maintain them and they rent them out. The cancer just spreads and spreads."

15 comments:

Jacob said...

Yes, people said that last summer, too, and home prices have plummeted more than 40 percent since then. Ouch.

But that only makes homes a steal-of-a-deal now.


So what will the deals next year be called?

I would be concerned about buying in an HOA community. Depending on how much they can raise dues and what special assessments they can make. Too much uncertainty.

All for the privilage of having someone tell me what I can or cannot do with my own home? No thanks.

Patient Renter said...

falling prices are attracting slum landlords who snap up houses for a song

If all of us can be investors, why can't a druglord?

Diggin Deeper said...

Crime is rising for certain. In my neighborhood, there have been more and more forced entries (some at gunpoint) during the day in a neighborhood that was virtually immune to the problem two years ago.

Sign of the times??

In the past, a normal "recession", based on cheap money and low inflation, was doable as long as everything reamined constant and you kept your job. Today the reverse is true and those on the edge are being pushed over little by little as subsistence costs rise beyond their ability to afford. Throw in resets on their mortgages and, for some, it becomes impossible to hang on.

Same with HOA's...That's an easy bill to defer (no real teeth in enforcement) but when it begins to show up in lack of services provided, the neighborhood's going to suffer. If you carry that to the city level, when crime is rising, you need more boots on the ground, but lack the resources to combat the problem, the circle just widens...

HOUSE2008 said...

What REALLY pisses me off in this housing rescue package that congress just passed, NOWHERE does it state that wall street participate in the bailout. It's all & good to help some of the h/o & I'll even aloow the idiot ones who were "suckered" into buying a home on this bill to prevent further decline of your neighborhood. But why can't the wall street go to GE a 500 billion dollar Co. or the big 5 accounting firms ect.. to bail themselves out.

Why us? Let the boys help each other out. Many of them sit on each others boards. Sheesh.

But, in the meantime, here I sit waiting for news on a home that I'm (maybe) buying in a HOA neighborhood & this concerns me.
The title company is trying to stiff us with the title & escrow fees when it clearly states in the sellers counter offer that they will pay! Arghh. One day left & the clock is ticking on our 5.87 rate lock. They are all thieves I tell ya. All of em!

Diggin Deeper said...

Heard an alternative to the bailout...smf this plays right into your thinking...

Rather than slow bleed the pain into the hundreds of $B's, why doesn't the govt buy up 1-2 million empty foreclosed homes, carefully tear them down creating new de-construction jobs, and then rebuild recycled entry level homes for low income and first timers using charities to implement the program. You take a $30-60B hit on the purchase, whatever it costs to deconstruct, and you let the charities put up the labor for the recycling effort.

New Deal all over again...

What happens if we take 20-25,000 homes off the inventory roles in Sacramento? Problem is what to do with the bombed out lots interspersed among homeowners....hmmmmm....maybe replant them as community vegetable and flower gardens for community use???

Patient Renter said...

Rather than slow bleed the pain into the hundreds of $B's, why doesn't the govt buy up 1-2 million empty foreclosed homes, carefully tear them down creating new de-construction jobs, and then rebuild recycled entry level homes for low income and first timers using charities to implement the program.

Setting aside the fact that distressed homes are privately owned assets/property and can't just be taken away for some public use (though with eminent domain, who knows nowadays), I still don't like the idea. Thinking from a macro perspective, it's not an efficient use of economic output to destroy perfectly usable goods. The problem isn't demand, the problem is pricing. ANYTHING sells, for the right price.

As I mentioned in another thread, the foreclosure "problem" is one that is created by banks, not by the magic of falling home prices. Sure, foreclosures are caused by falling prices, but it's only a problem if the home ends up sitting and rotting. This sitting-and-rotting problem doesn't exist if banks chose to efficiently resell foreclosed homes, but that means pricing them appropriately which is something they're generally not willing to do.

Patient Renter said...

I'm looking forward to future newsarticles covering homeowners who successfully gamed the system by intentionally not paying their mortgages so that they could qualify for loan modifications and reduced principal.

In all irony I'm sure that the journalists who "expose" this stuff and subsequently decide to question the worthyness of the bailout will be the very same journalists who cheered on the bailout legislation in the first place.

I'm on record, this is an official prediction.

smf said...

"ANYTHING sells, for the right price."

Um...no...

There are plenty of things that are trashed due to non-use. Regardless of price, there are commodities out there I would not buy.

I don't think I'll ever get myself a 5000 sq.ft. home just because we can afford it. And believe me, we could have purchased a 5000 sq.ft. home.

Ditto for a Hummer. Even if you offer a new one for $20K, the maintenance costs are too high.

The issue is price AND demand. Projected profits created the false demand and way too many were built for population requirements.

Read this report about the excess buit:

http://calculatedrisk.blogspot.com/2008/07/q2-homeownership-and-vacancy-rates.html

Diggin Deeper said...

PR....


"This sitting-and-rotting problem doesn't exist if banks chose to efficiently resell foreclosed homes, but that means pricing them appropriately which is something they're generally not willing to do."

PR...that's not really the case at all...

Banks are starting to price right...

We've read and reported that banks have taken prices down and have moved homes with multiple offers at levels that lead the market down...actually selling for higher prices when they dangle a "teaser" at below current pricing. We've heard about those that have put bids in on properties only to be outbid. It's happening more today then ever before.

The second problem is just the overall numbers of homes awaiting their turn on the block. It takes manpower and admin time to move these properties considering negotiations, closing issues, legalities, etc.

Finally, if you're suggesting that every bank unoload at once, and flood the market with properties, I doubt that happens for reasons given. Plus they still have an asset to clear out the highest value they can.

Don't get me wrong....I don't advocate socializing any problem in this country...let the free markets determine outcome in an orderly manner...

Patient Renter said...

Um...no...

There are plenty of things that are trashed due to non-use.


Um... yes. I didn't say the right price was non-negative :)

But really, we're mostly talking about things that actually have value here, at least the homes in our area (we're not as bad as poor Cleveland)

Patient Renter said...

PR...that's not really the case at all...

Banks are starting to price right...


If banks were pricing them right then there would be no discussion about the foreclosure "problem" because there would be no problem.

It's interesting that foreclosures are only a "problem" worthy of government intervention when they cross some mysterious threshold. Were they never a problem worthy of government/taxpayer money before? What was different with foreclosures in the past versus now? The answer is the bank's ability to deal with them appropriately.

If I pose this hypothetically, say the banks did somehow have the resources to manage and rapidly liquidate foreclosures as they came in. Neighnorhoods would not be suffering due to excess vacant homes, which really, is the only legitimate concern regarding this foreclosure problem.

Therefore the problem lies with the banks ability to manage foreclosures. So if public resources are going to be diverted anywhere, it should be towards helping banks liquidate REOs in an efficient manner, not in stopping foreclosures from occuring by using public funds to subsidize private debt.

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

Let's see if this is right...

We have an apparent oversupply problem, along with lack of buying population, as smf has been pointing out...(way too many musical chairs for the game to be played.)

I might have missed something but if true, how would the banks, by pricing, releasing, and being able to process all foreclosures at one time, and at their true "selling values", solve anything?

Wouldn't one of those problems still exist.

Patient Renter said...

how would the banks, by pricing, releasing, and being able to process all foreclosures at one time, and at their true "selling values", solve anything?

The theory is that neighborhoods are suffering due to foreclosured simply by way of the foreclosed homes being empty. A foreclosure in and of itself does not necessarily have a negative impact on a neighborhood (unless you consider reverse-gentrification a negative impact), it is only when that home sits vacant for a long period of time that the negative effects arise.