Tuesday, July 22, 2008

Sacramento Foreclosures Now 6x 1990s Record

From Sacramento Bee (updated):

Foreclosures again climbed sharply in the capital region during April, May and June as 6,075 more households surrendered their keys to the banks, property researcher DataQuick Information Systems reported today. But DataQuick's numbers show that the rate of growth foreclosure activity in Amador, El Dorado, Placer, Nevada, Placer, Sacramento, Sutter, Yuba and Yolo counties declined during the quarter from previous levels...DataQuick analyst Andrew LePage said it's unclear if the slowing growth rate indicates a plateau or the inability of overwhelmed banks to process the foreclosures.
...
Sacramento County accounted for 73.6 percent of foreclosures in the region with 4,475 [up 169% year-over-year].
Sacramento County foreclosures in the second quarter were six times as numerous as the record reached during the 1990s housing bust.

From DQNews:
Last quarter's default numbers were a record in almost all of the state's 58 counties. That included Los Angeles County, where last quarter's 21,632 residential defaults surpassed the prior record of 21,444 recorded during first-quarter 1996...Foreclosure resales have emerged as a significant market factor, accounting for 40.0 percent of all California resale activity last quarter. A year ago it was 5.4 percent.
...
Of the homeowners in default, an estimated 22 percent emerge from the foreclosure process by bringing their payments current, refinancing, or selling the home and paying off what they owe. A year ago it was about 52 percent.
Sacramento County defaults totaled 7,325 in the second quarter, up 91% from a year ago.

From the WSJ Developments blog:
Phoenix appears to be joining the ranks of other weak markets, such as Las Vegas, Sacramento and Fort Myers, Fla., where distressed sales are creating “mini sales booms” compared to last year when sale activity was all but dead. One gray cloud on the horizon, though: “Growing anecdotal evidence that most of the distressed properties are not being sold to true owner-occupants, but rather to new groups of investors/speculators looking to develop rental portfolios or otherwise flip the homes after a short holding period,’’ the Raymond James analysts point out in their report.
From the Sacramento Bee:
A signature Sacramento program that has helped almost 300,000 lower-income people nationally buy homes in the past decade – while stirring controversy for years – is likely to be shut down this week, Nehemiah Corp. of America officials acknowledged Monday. The nonprofit giant believes Congress and President Bush will ban its decade-old down-payment assistance "gift" program within days as part of a larger housing bill, Nehemiah President and Chief Executive Officer Scott Syphax said Monday.
...
Others say ending the program will harm prospects for a recovery in the housing market. "It takes a major player out of our market," said Jon Kaempfer, senior loan consultant at Sacramento-based Vitek Mortgage.
From the Sacramento Business Journal:
Sacramento County’s property tax revenue increased a modest 1.9 percent in 2008-09, evidence of declining home values and fewer sales...It’s a dramatic drop after 9.4 percent and 15 percent gains during the previous two years, respectively.

79 comments:

Max said...

Here's another quote from the DQ press release:

"[I]t may be that some lenders are starting to prioritize workouts with homeowners instead of grinding things through the foreclosure process. Of course, they may just be swamped and can't handle processing any more paperwork."

Jacob said...

The government needs to ban that gift downpayment scam.

Make a person put x% of their own money down to buy. Even if it is 5%. Make them save and lose that amount if they later walk.

If they cant save at least 5% then how can they pay for the home which will likely be more expensive than they are currently renting for...

PPF said...
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PPF said...
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smf said...

“Growing anecdotal evidence that most of the distressed properties are not being sold to true owner-occupants, but rather to new groups of investors/speculators looking to develop rental portfolios or otherwise flip the homes after a short holding period"

NO, you don't say!!!

(Where have I heard that one before...hmm...sounds a little too familiar...oh, yeah!

I've said that for months, now.

Hard to make a rental cashflow when you don't have the people to rent it to, isn't it?

Or better said, prices are not going up anytime soon to justify anyone still flipping, except for very special situations.

This thing is far, far from over, as the original problem of speculation still exists.

The real bloodbath is when all these amateur speculators realize that prices are going down to a normal level and won't come up anytime soon to the magic 2005 level.

Jacob said...

We wont be back to 2005 levels (not counting inflation) for many many years. And add in inflation and we will never be there again.

Homes were 10x incomes, I mean seriously...

James said...

SMF, what is wrong with the dreaded speculator coming into to buy a distressed property, doing some repairs, then putting it back on the market in better shape.
Do you think the average first time home buyer has the wherewithal and ability to take on some of these foreclosures? I have toured a couple of foreclosed houses and seen the rage taken out on them. No appliances, sinks, fixtures, holes in walls, ect. Because of this, they sell at a large discount to the market. I think the shape of these places scares many owner occupant buyers away. Having somebody come in and fix them up helps the process. Otherwise, the banks will eventually be in the home repair business. What is the difference? They would hire a contractor out and sell at a higher price, or they sell at a discount and let a "speculator" do the repairs.
And why do you think anyone who is an investor thinks prices will shoot right back up to 2005 levels?

James said...

Jacob, I have to totally agree with you on the higher down payment requirement. I like the idea of requiring at least 10-20% down. If you can save 20% down, you sure as heck can make the payments and know how to buget.
I bought a house a few months ago and put 22% down--mostly to avoid a jumbo loan which are impossible to come by at any decent rate. Because of the 20%+ down I got a 5.125% rate.
Now here is where I have been scratching my head.....

Because of my LTV, FICO, and personal liquidity, the loan officer at Wells Fargo said I didn't need to provide any documantation, not even a pay stub. Now does this classify the loan as a no-doc? Am i can "Alt-A" borrower?
And here is another one for you all. A friend did a 50 year loan fixed for 30 years. Is this an adjustable rate mortgage?

Deflationary Jane said...

Investards/speculatards suck

'nuff said

Jacob said...

I guess you got a no dock or low dock. that doesnt make it Alt-A. If you have a loan that doesnt get fully paid off by the end then it is an Alt-A.

50 year loans are a scam. They are not amortized over 50 years, they are amortized over 30 years and at the end instead of owning the home you have a baloon payment.

With interest I wouldnt be surprised if the baloon payment was more than the original loan.

Jacob said...

I have no problem with real investors. There are plenty out there that will make money even in this market.

I do have a problem with clueless specuvestors that think they can buy a home and paint it and replace the carpet and make $150k profit.

Real flippers make around $10k a house, and with that margin you really need to know what you are doing.

HOUSE2008 said...

if they later walk....
Now there's the catch. If you don't walk it matters not how much you put down. You still lose on the BACK END if say, you decide to sell a few years from now & the market hasn't recovered. So from my own personal point of view going with zero down makes sense if you don't want to tie up your cash in a 100% losing market. But just be warned you may owe if you decide to sell later.

smf said...

"Real flippers make around $10k a house, and with that margin you really need to know what you are doing"

And that is why I mentioned the special situations. There are people out there who know what they are doing.

But in a normal market, they made up a tiny percentage of the buyers.

When they make up the same percentage of speculation as during the bubble, it means that we are still far away from this thing being over.

(May I also remind some that we recently purchased a move-up home and expect to lose a good chunk of our equity as well)

James said...

"50 year loans are a scam. They are not amortized over 50 years, they are amortized over 30 years and at the end instead of owning the home you have a baloon payment."

I think you meant to say they are amortized over 50 years with a balloon in 30. Just slightly better than an interest only.

Jacob said...

Yea maybe that is right. Basically you pay for 30 years and at the end still owe the bank a ton of money. And you are maybe only saving $100 a month or some really small amount which you should use to just pay it off.

Jacob said...

As for walking, if you put $0 down and your home was worth less than you owe and you could walk with no penaly except a ding to your credit would you?

Now what if you had to put down $25k of your own money to buy. Would you walk as easily? Or would you stay in your home and do what you had to to keep it (to the absolute best of your ability)?

Even if you do walk, then lets say you put down 10% well the bank will lose money but the first 10% lost was to you. So overall the bank would be losing less.

But I think it is more psychological. Right now there are so many loans out there with nothing to make the owner keep paying, they have no skin in the game and can leave whenever they want.

Diggin Deeper said...

Let's not forget that for every foreclosed home there's a family that needs a roof over their heads. Not every family will uproot and move to another area. For the most part they have jobs, kids in school, etc. It's a simple transfer from ownership to rental need and the investor/speculator is necessary to fill the void.

Without them, we might as well torch the excess and escort foreclosed families to another area.

While I would agree that our bubble was driven by non owner occupieds, this market needs those same investors to provide housing to a growing group of displaced families. And regardless of whether they make or lose money, they are serving a purpose.

HOUSE2008 said...

Even if you do walk, then lets say you put down 10% well the bank will lose money but the first 10% lost was to you. So overall the bank would be losing less.

Take for example the home I'm buying. The previous owners had put a 100K down on a 586K home. They then "walked" from the home after seeing the home drop 50K & going lower. For them it was a business decision and a smart one if I may add. They "saved" 100K. The home is now "worth" 320K. They put upgrades in there to boot.

Recently I was interested in buying anew Centex home for 360K. But after doing some due delgence I learned that the same homes (7) around the block were selling for 60K less. Now why would one put 20% down? Going into it before you even get to turn the key on your new home six months from now it'll have depreciated 60+ thousand? Sorry I'll keep my cash. It only makes sense in a well established neighboorhood thats rock solid. If the banks know this. Like Fab 40's area ect. But banks are not community builders. Their money grubing greedy slimesbags. Or used to be. They care not one wit about who moves into a home so long as they "qualify" and are able to balance their books. Sigh.

Diggin Deeper said...

"They care not one wit about who moves into a home so long as they "qualify" and are able to balance their books. Sigh."

Banks don't handle their own properties for the most part. They usually contract to clearing houses or asset managers that take on their inventory and parcel it out to real estate companies as listings. It's numbers only, completely unemotional, and likely the primary reason prices have fallen as far as they have in some places. And you're right, banks already know they have a bad deal on their hands, and could care less who buys, as long as they can get the property off their books. Sadly, it's those that afford to stay in the neighborhood that have to accept lower and lower comps...

Jacob said...

which is why I will be waiting for things to level off. I expect a long flat bottom.

Of course if I were to find that perfect home at the right price tomorrow I might buy, but the changes of that are like .0001%.

smf said...

"Let's not forget that for every foreclosed home there's a family that needs a roof over their heads"

Non-occupied homes (~40%) will not translate to additional demand for rental housing. Nor put a family on the street.

"Without them, we might as well torch the excess and escort foreclosed families to another area."

Getting close to that in marginal areas.

"While I would agree that our bubble was driven by non owner occupieds, this market needs those same investors to provide housing to a growing group of displaced families."

The market would not need so many investors if the homes were priced right. And the # of displaced families is a little less than imagined.

At the same time, you forget bubble mentality. Originally, condos were built for those who could not afford a house, yet. And plenty of rental stock was built also for those 'priced out' of the market.

There is no lack of any type of housing in this market. All bases have been covered.

"And regardless of whether they make or lose money, they are serving a purpose."

Speculators have always served a purpose. We are not talking about whether speculation is right or wrong. The problem is EXCESS.

There is no way to create enough population growth to occupy all the housing stock that was built.

Jacob said...

Only recently have I started hearing "experts" start to mention the excess inventory.

If you have 20000 homes and people want to buy (to live in or invest) 15000, whats gonna happen?

No one wants to have one of the homes that wont sell at all cause there is no demand. When the paniced rush for the final exit is over, we should be at the bottom.

Deflationary Jane said...

SMF summed it up nicely. There is simply too much out there and if rental prices go up or if Sac continues to be handed more job losses, people with double and triple up. That's where the boarding houses of the 30s came to be. The real money is sitting this out still while the amatuers wade in cause more destruction down the line then these masters of industry will cry to Washington to help them. Just another cycle of wash, rinse, repeat.

My beef with investards/speculatards is that they seldom do anything to stabalize a neighborhood. You need owner occupied homes at a very fair cost. For many families, those fixers are their only means of entrance into homeowning.

Investards have zero interest in stabilaztion, they care about gross rents and ROI and will get it by pretty much any means necessary. The arguement that they provide needed rental units is bogus too. So many new apt buildings were constructed that there is ample vacancy for those displaced by foreclosure.

Speculatards only care about net after close, no matter how cheap the repair and how their mark up effects the purchaser.

To me, both types are pariahs of the highest order.

oh and strong opinion to follow as always... >; )

Jacob said...

There will be plenty of foreclosures left over even after the specuvestors have their fill.

http://tinyurl.com/6q967k

Deflationary Jane said...

Actually I'd say there will be plenty of foreclosures due to speculatards. Talk about wealth destruction, they are in a double bind because N/O/O doesn't receive the 2007 tax protection. When they loose, they loose twice as hard.

Adding insult to injury are the people taking money from the 401k (protected money) because the returns are so low, paying the penalties on the withdrawls, and then buying highly speculative property that has a sadly insufficient gross rents ratio with the plan to flip in 1 to 5 years for 2005 prices when they retire. Could there be a worse plan outside of a special email offer originating from Zimbabwee?

Diggin Deeper said...

Smf...

I agree with what you're saying regarding the excess but its not unique that booms create overbuilding nor is it unique that investors show up early to a boom and late to bust. If today's crop is tomorrow's casualty, more will come as the deals get sweeter. Given enough cycling time, somebody will have located the bottom...all the while prospective homeowners find properties more affordable over a given period. The market gets to sort it all out.

Without the investment segment, the present market would probably crater and take the local economy with it. I doubt that's what's being suggested as the outcome would surely outweigh whatever benefit or lack thereof an investor offers. If we're talking depression here, then it really won't matter who's propping up the buying activity and then one could envision more than just multi-multi family homes.

smf said...

DD -

Whatever happens at this stage is a moot point.

The consequences of the unwinding were pretty much set right at the beginning of the bubble.

When bubbles pop, it is never pretty. That's just life.

All I know, and is something that is little talked about, is that there is a huge excess of housing all over the place. Just because it was built it doesn't mean people will go there.

Remember this:

1. Excess SFR was built on speculative demand.
2. To maximize profit, most built large homes to fill this demand.
3. Prices of materials went up to satisfy this excess demand.
4. Excess apartments were built for those 'priced out'.
5. Plenty also built aparts/townhomes to fill this 'demand'.
7. What was originally a step up to housing took off on its own, due to its lower cost of entrance. CONDOS.

All you have to do is take a look at what was built prior to the bubble to notice the gross excess out there.

Hell, who got the idea to build those townhomes adjacent to Raley Field...and the railyard?

At this stage, what we hope for is irrelevant. And please remember that I do work in the construction industry.

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

Looks like the bailout before Congress includes the $3+ Billion provision to clean up the hardest hit foreclosure areas....Bet we get our share...? Remember Katrina.

And I guess the Fan/Fred problems now range from $25B to $100B? Hmmm, like anybody's got a real clue here.

This just in from ...CNN Money.com

http://money.cnn.com/2008/07/23/news/economy/housing_bill/index.htm?postversion=2008072317

"House votes to offer as much as $300 billion in mortgages and to back up Fannie and Freddie. Bush says he'll sign it. Senate approval is likely."

That ought to take care of the dollar's problem...


As I said smf...markets always sort out the excess problems if they are left untampered with...no quibble about the oversupply...

DJ, as far as Zimbabwe is concerned they just issued a new note...$100B banknote worth .88 in USD's. Uh, they didn't react to inflation very quickly did they?

Diggin Deeper said...

One more little feature of the bailout...looks like the Nehemiah Program for first time homebuyers will be nixed. Congress is about to ban seller downpayment and closing cost assisstance. Takes another chunk of buying public out of the picture....hurts our area for sure....

Patient Renter said...

The market would not need so many investors if the homes were priced right.

Bingo!

I am seeing this false assumption thrown around that investors are "necessary" to "fill the gap" between forclosed homes and whatever comes after. This is completely not true. ANYTHING will sell, for the right price. Absent investors, those homes would have no choice but to sit and rot until the right price was achieved. Then, they would sell. Investors are not necessary.

The end result of all this is the same. Home values were/are inflated. They will/are coming down. Whether investors get involved along the way or not doesn't change the end result, it just keeps inventory down in the meantime.

smf said...

One thing about these low-priced homes that is not mentioned is the areas that they are located in.

Not really the best.

In my time, regardless of price, I would have never lived in these areas where the majority of low-priced homes are currently located.

jon said...

Investors like to prop their well being up in this blog, where in actuality these are a scared bunch of individuals quickly running out of their moola with no real job skills that help society as a whole. I say let them burn and twist in the wind! I for one will be happy to see them asking "Would you like fries with that?" at the Mickey D's drive through within a couple of years. This is their true worth to this economy.

norcaljeff said...

So who really wants to buy a house as an investment if homeowners just walk away when the value of it drops. It's no different than buying Bear Sterns with no out of pocket money for $100/share and when it drops to $2 you walk away, no harm no foul. I certainly don't want to buy anything where other people can walk away when the value sinks, only to make my investment drop as well. There goes the long held theory that homes ALWAYS appreciate in value. They will absolutely not increase in value when owners walk away from their loans when the chips are down.

PeonInChief said...

But, Sippn, aren't most low and moderate income buyers better off going with the downpayment assistance programs through the government?

Deflationary Jane said...

Holy Cow, looks like I just got in time!

Schwarzenegger plans to cut state worker pay to cope with late budget

http://www.sacbee.com/749/story/1104742.html

Jacob said...
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Tyrone said...

Just spoke with an old friend--he lives in the Detroit area. In terms of making financial decisions, as long as I've known him he has made the wrong decisions. So when he told me how smart it was to be in real estate back in '03, that pretty much solidified my position on the bubble. He finally confessed that he just walked away. I asked him why: No equity, and owes more than it's worth.

norcaljeff said...

Just spoke with an old friend--he lives in the Detroit area. In terms of making financial decisions, as long as I've known him he has made the wrong decisions. So when he told me how smart it was to be in real estate back in '03, that pretty much solidified my position on the bubble. He finally confessed that he just walked away. I asked him why: No equity, and owes more than it's worth.

People who historically make bad financial decisions by following the herd mentality are usually great indicators of what not to do. So if you're friend is consistent, I'm calling the bottow in Detriot real estate.

James said...

"Absent investors, those homes would have no choice but to sit and rot until the right price was achieved. Then, they would sell. Investors are not necessary."

So you would rather see a neighborhood look like sh!t for years and years until people eventually buy the unsold rotten homes?

"For many families, those fixers are their only means of entrance into homeowning."

Jane, your average new homeowner has probably used all their savings for the down payment and closing costs on their new house. They don't have the resources to buy new fixtures, appliances, fix various damage. However, if the house had all these items done and was only $30,000 more, they could finance it and have a good looking house and be able to afford the upkeep.

I am not sure anyone said these types of investors are absolutely necessary, but they do help move the process along. Part of the big bailout plan it to provide counties with cash to purchase foreclosed homes, rehab them, then put back on the market. Sound familiar?

I do not own any residential investment properties, no do I have any plan to (I only invest in retail and industrial), but I did buy my house in the Fab 40's with the intention of keeping it in the best possible condition and selling it in 10 years for a profit. So that makes me a long term investor. I would gather most all home owners are investors too.

anon1137 said...

I loved that graph of Calif foreclosure stats 1988-2008 on Ocrenter's blog. Check it out if you haven't seen it. You'll notice that the slope of the curve in the last year closely resembles the slope of the curve on the Case-Shiller graph of home values for 2003-2005.

I'm noticing that more and more of the new listings in East Sac are houses that were sold within the last 5 years and are now being listed at or below the most recent sales price, or sometimes the last sales price plus exactly 5% (ha!, that's before the price cuts kick in). Could be another sign that the damage is spreading.

luca said...

deflationary jane

I like how you call investors buying and letting out houses in todays market 'specutards'

That is crazy you do not think the people buying foreclosures for investment purposes are so horrible.
These people are cleaning up neighborhoods and with prices on the low end the way they are many 'specutards' with 20% down can cash flow like crazy. So not only are the current 'specutards' making a chunk every month, they are paying down a mortgage and giving someone else a roof over their head at a good price.

If there were more 'specutards' the inventory would dry up faster- yes there would be a lot of for rent signs- which will nicely drop down rent prices and help get the new comers into the economy going in an even more affordable home where maybe the renters can save enough for their own piece of the American dream.

Patient Renter said...

So you would rather see a neighborhood look like sh!t for years and years until people eventually buy the unsold rotten homes?

Obviously not - I was just pointing out that investors are not necessary for the market to function, as some were implying.

Keep in mind though that whether or not a neighborhood is filled with foreclosed homes is a function of how the banks/new owners choose to behave. If they want to play the hide-the-losses-for-as-long-as-possible-and-chase-the-market-down game, then yes, the neighborhood will suffer. But, they can also choose to accept true market value and unload the house with a very short turnaround, which would have little impact on the neighborhood.

The problem isn't that there are foreclosures. The problem is that when there are foreclosures, the banks/new owners don't handle them appropriately and in a timely manner.

James said...

"I'm noticing that more and more of the new listings in East Sac are houses that were sold within the last 5 years and are now being listed at or below the most recent sales price"

East Sac median prices are down 20% from the peak, so what is your point? Of course some people bought at the peak and are getting out at break even or less. But for each of those cases, I can show you another house listed in 95819 which is selling for double the 2003/2004 sales price. East Sac has crappy areas just like another other neighborhood. It is all about location. I don't think your statement shows a systemic breakdown of the 95819.

Diggin Deeper said...

Like them or not, they're integral to the market whether it's in equilibrium or skewed one way or the other. It's a bit near sighted to think they are "the" problem and the "only" problem. It's a good bite for rattling troops.

I don't ever want to own a rental, again (too much work), but I don't begrudge those that do. Many with property portfolios know what they're doing, have been doing it over a long time, and will seize opportunity if the market presents it...

And certainly we should all believe the market is dominated by "investards" like "Tommy Toolbelt" who raided his 401K with dancing visions that he'll be rich in 5 years...Leave that to those few who deserve what they get... disasters and stupidity make news...

I'd be more concerned about the number of people raiding 401K's just to maintain lifestyle...

James said...

diggin deeper:

Well said!!

Jacob said...

There are investors that really know what they are doing, actually fix homes up properly and sell for a tidy profit. Or rent for a monthly positive cash flow.

Then there are definitely the investards that don't have a clue. That think they can buy a home and paint it and replace the carpet and sell it for 50% more in a year, or 100% more, or 200% more...

And right now the investards definitely outnumber the true investors. 50% of sales going to investors and not to owner occupants can tell us that much.

Diggin Deeper said...

"And right now the investards definitely outnumber the true investors. 50% of sales going to investors and not to owner occupants can tell us that much."

Interesting answer...maybe you can quantify it by separating the dumbtards from the smartards...

Jacob said...

Well I dont have that kind of data. But in a normal housing market, what is the percent of investors? 20%? 10%? Certainly not 50%.

How many people are renting out homes for negative cash flow? That is pure speculation, cause they think in a few years we will be back to 2005 prices. We need those people out of the market for good.

smf said...

So you would rather see a neighborhood look like sh!t for years and years until people eventually buy the unsold rotten homes?

There's simply very little that can be done for crappy neighborhoods. It does not matter what types of house you have, the neighborhood will still be crappy.

Quality of neighborhood has more to do with income level there than anything else.

It's a bit near sighted to think they are "the" problem and the "only" problem.

The original cause of the bubble was people skewing the housing demand by buying more houses than justified by actual population growth. This created a sense of false excess demand. And the majority of these buyers were not investing, they were speculating.

Investment = buying an asset for the long term in the hope of positive cashflow.

Speculating = holding an asset for the short term in the hope of selling for a higher price.

If there's still people skewing actual housing by speculating over the historical norm, the situation that caused the original bubble STILL EXISTS.

And regardless of what anyone thinks, there's still way too much housing out there, and not enough people to occupy this housing, AT ANY PRICE POINT.

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

Diggin Deeper said...
"But in a normal housing market, what is the percent of investors? 20%? 10%? Certainly not 50%."

How often do half off deals come around? What's wrong with a little faith in human intellect. It's not as if people are lacking information that's available on a daily basis.

smf...great response!

"The original cause of the bubble was people skewing the housing demand by buying more houses than justified by actual population growth. This created a sense of false excess demand. And the majority of these buyers were not investing, they were speculating.

That was then, this is now...different parameters altogether.

"Investment = buying an asset for the long term in the hope of positive cashflow."


Finally we're beginning to see that there IS a distinct separation between spec and invest, regardless of the oversupply problem.

Jacob said...

50% off what? If a home was worth $200k and someone bought it for $500k and now it is for sale at $250k is it really half off?

A lot of stocks looked like great deals when they were half off. Then they lost 50% of the new value and then 50% of that value. Some went to 0.

A home won't go to 0, it will eventually find an equilibrium with what people can afford. And over time the excess supply will be bought up.

There were great deals to be had in 06 and 07 and now in 08. But will 09 be even better? Probably.

Too many people are still fixated on the peak prices and think we will return to those prices in a few years.

Now for all the people that buy a home and rent it for positive cash flow and want to be landlords, good for them. Just do your homework and make the right deals and expect to hold the asset for the long term.

Patient Renter said...

How often do half off deals come around? What's wrong with a little faith in human intellect. It's not as if people are lacking information that's available on a daily basis.

Diggin... come on...

Nearly the entire industry of economists and financial experts completely MISSED the housing bubble. Lacking information is never a problem - looking at the right information is. That being the case, what makes you think that Joe speculator is so saavy that he has a clue what is really going to happen in housing over the next few years?

I think Jacob is absolutely correct. Most of these guys think that housing will turnaround in a year or two because that's what the guys on CNBC (or almost anywhere else) tell them. They were as clueless as everyone else during the bubble and are just as clueless now.

Patient Renter said...

One more comment:

I also agree with Jacob that "50% off" of a bubble inflated price isn't really 50%. A true discount is one that's relative to historic prices, not bubble inflated prices.

IMO, "investors" are looking at current pricing from entirely the wrong perspective and seem to think that bubble inflated prices are some platform for the future. They are not. Historic home pricing means considering that home prices, generalized, only appreciate at the rate of inflation. Period. For not having considered this, a lot of "investors" are in for a big disappointment.

Jacob said...

Actually I beleive that the prices of homes should increase based on wage inflation, not regular commodity inflation. What we are seeing now is wages are flat while the price of food and energy and insurance and medicine and everything else go up.

That is not a good scenario if you are looking for homes to go up.

I remember seeing a post or an article somewhere stating that wages in sac from 2000 to 2005 went down by 1%, so technically homes should have went down by 1% over that time, not up by 200%. but I dont remember the specifics.

Its hard for Joe to get the right info. Look at all these flipping shows. Wow you did a 10k kitchen remodel? well that will add at least $50k in value. Yea right.

Plenty of infomercials on how to flip a home and make millions.

I saw a news segment last year on one of the auctions going on and they interview someone and he actually said he was investing cause where else could you double, tripple, or quadrupal your money (he actually expected a 4x return) in a year.

But the specuvestors do set the new comps, so more power to them, the can catch this knife all the way down. But regardless, downward we go...

We are at 6x the 90s forclosures and forclosures are still rising. Anyone look at that chart, it is exponentialy increasing, almost straight up.

Diggin Deeper said...

"That being the case, what makes you think that Joe speculator is so saavy that he has a clue what is really going to happen in housing over the next few years?"

PR

Do you or anyone else know where this market will be in a few years? Do we know the motivation of the investor, the individual timelines, the cashflow requirements, tax implications, and the market expectations of those investors?...they are risking decisions that most on this blog would not make...but that doesn't necessarily doom them to failure...Is this blog smarter about real estate than the guy who's got a portfolio of 15-20 properties, bought over the last 20 years, where a 20% hit from here on a Sacramento property makes a dimes difference in the overall performance of that portfolio?

Do we all just assume and lump all investors into the same box and then state with authority that the entire community of investors is useless, stupid, damaging, or "not needed"?

Imho, this market has gone from being one-sidee to two-sided...from a no brainer to one where careful consideration is given to both sides...

smf said...

"Too many people are still fixated on the peak prices and think we will return to those prices in a few years."

YEP! Heard that when I bought my house 3 months ago. How in a few short years it would be worth $800K. Those who are buying on this belief are speculators.

"Now for all the people that buy a home and rent it for positive cash flow and want to be landlords, good for them. Just do your homework and make the right deals and expect to hold the asset for the long term."

Indeed. I just hope that those who are in the process of getting burned now don't ask for another bailout soon.

Patient Renter said...

Do you or anyone else know where this market will be in a few years?

Not exactly, but I know where it won't be. It won't be anywhere based on bubble inflated prices, which is what it seems most investors are expecting.

they are risking decisions that most on this blog would not make

Probably because most on this blog know, as I mentioned above, that 50% off of a bubble price that was inflated 200% (for example) is not a 50% discount, it's a 33% premium.

Is this blog smarter about real estate than the guy who's got a portfolio of 15-20 properties

I think it's safe to assume that someone with 15-20 properties is not your average RE "investor" in today's climate. But yes, even many of those long term experience investors lost their shirts during this bubble, and many of us were smarter than many of them :)

anon1137 said...

Re: East Sac, double the 2003/2004 price? Yea, since they invested $100K in improvements.

There has been lots of data in the last couple months that show that prices are beginning to soften in higher priced zip codes in LA and the Bay Area. I think it's the beginning of the second leg down in this story, the first leg down being the collapse of prices in new developments and low-income neighborhoods.

Midtown and East Sac are down only about 15% from the peak by my calculations. I think we'll be seeing another 15% drop, at least, in the next 12 months. State salaries and US govt Medicare payments prop up real estate values there. If the flow is reduced in either of those pipes, property values will go down even more.

smf said...

Again, we bought in the 'nice' part of Gold River, a Powell home with very nice features at about $200K less than its high price.

I told our realtor that my offer on the new house was contingent on what I could sell my home for.

To say that high-end areas are immune is pure folly.

Jacob said...

The high end areas held strong a lot longer than the low end, as anyone would expect. But they are coming down now for sure.

You have over supply in every area and in every type of housing.

What really scares me is the 90s downturn had foreclosures peaking in 97 that means it took about 7 years to peak. We are only in year 3 now and the foreclosure amount is massive. Can it continue to rise for 4 more years?

By the time we reach the bottom, none of us may even want to bother buying...

James said...

"I remember seeing a post or an article somewhere stating that wages in sac from 2000 to 2005 went down by 1%, so technically homes should have went down by 1% over that time"

Jacob, you are trying to compare inflation adjusted numbers with nominal numbers.

"What really scares me is the 90s downturn had foreclosures peaking in 97 that means it took about 7 years to peak. We are only in year 3 now and the foreclosure amount is massive. Can it continue to rise for 4 more years?"

The drop in median homes prices was also much slower. This downturn is fast and aggressive, not like the last one.

"You have over supply in every area and in every type of housing."

Wow, really? I don't see too many houses for sale in the Fab 40's. Those three houses for sale are really blowing the supply demand curve up. Lets see, one house is for sale because the owner is divorced and his kids are in college. A typical downsizing scenario. Another is an estate sale, dying really has a huge correlation with foreclosures...

"State salaries and US govt Medicare payments prop up real estate values there."

Yep, them state workers are all over the neighborhood. Let's see, I can think of two. An elected official and a high ranking appointee. Two major hospital expansions in the east sac midtown area. Boy, those health care jobs are going to disappear any day now.

"Again, we bought in the 'nice' part of Gold River, a Powell home with very nice features at about $200K less than its high price."

Sorry, its still a tract home in Rancho Cordova. Sugarcoat it all you want. Learn to speak Russian.

norcaljeff said...

Housing Market Weakens Again
http://tinyurl.com/56oe2n

No bottom in sight. Where are the realtors who called the bottom several months ago???????

anon1137 said...

I rent in East Sac and most of my neighbors work for state or local government, or are retired from one of those.

I don't think the medical expansion will last forever either. Elective surgeries will be off-shored, computer technology will lower some costs, and high oil prices might even lower medical costs. I saw a 300 lb guy commuting on a bike this week! Food prices are way up. Those two things add up to a healthier population. And the US government will have to cut Medicare eventually.

I'm not down on East Sac, I just don't think the prices will hold. In my opinion, they're totally ridiculous.

smf said...

"Sorry, its still a tract home in Rancho Cordova. Sugarcoat it all you want. Learn to speak Russian."

Indeed it is! But it is a high-priced track home, you see. A home that sold in 1999 for $415K. Then it doubled in price and now is headed down again.

"I'm not down on East Sac, I just don't think the prices will hold. In my opinion, they're totally ridiculous."

I just took a look at the Fair Oaks area. The first signs of real distress are coming up.

Diggin Deeper said...

How is the FHA bailout going to affect foreclosures in this area? Will it stop, slow, or have no effect?

By some accounts, with all its provisions, it could create a $1T budget deficit by 2010.

Patient Renter said...

I'm still so overwrought with disgust at the whole thing. Regarding who it will benefit, I posted a lengthy rant on Average Buyer's blog yesterday. The bailout absolutely benefits Politicians, Wall Street, Big Banks, Investors and Corporate Executives. It benefits to a questionable extent, some homeowners.

Will it slow foreclosures, I believe not. The main thing to note is that many of the homeowners who are "helped" by this legislation will ultimately be further harmed by it in that they will eventually lose their homes to foreclosure anyways. The CBO estimates roughly a third of benefit recipients will still ultimately lose their homes, and will of course, be throwing away money all along the way.

I think this is where the big story is at, that so many recipients of "benefits" from this legislation will not only lose out, but that by receiving benefits they will be worse off. IMO, the CBO's one third estimate is drastically low (it's fair to point out that CBO estimates are regularly low), and therefore, I believe that most recipients of benefits will ultimately lose their homes making this bailout legislation nothing more than a bailout of wall street, banks, investors, execs, etc... but we already knew that.

So I guess the question is what effect of delaying foreclosure will have on our region? The end result is still foreclosure.

anon1137 said...

I haven't been following the stories on this - what's total price tag for the FHA bailout?

A bigger question: when all the bailouts are done, who's going to bailout the US government?

Diggin Deeper said...

anon.....

If I'm not mistaken it's potentially $300B...with an additional $3B to buy and clean up foreclosures in hardest hit areas....Then you get to add in Frannie and Freddie...with a open checkbook guaranteeing their loans, and a starting point of $25B...

If the above doesn't stop the bleeding and prices continue to fall...Fan/Fred numbers could work much higher.

Jacob said...

Those are the initial numbers, but when has the government ever done anything under budget...

Patient Renter said...

Those are the initial numbers, but when has the government ever done anything under budget...

Well regarding Fannie and Freddie, as Diggin said, the plan involves an open checkbook, meaning the bailout is limited only by the total national debt limit, which was just raised in anticipation of being breached and could certainly be raised again.

So I guess it's not a matter of how big the bailout is, it's a matter of how big our national debt becomes as a result of the bailout. We're already the most indebted nation in the history of the world, so what the hell, the sky's the limit.

Mystere said...

So I guess the question is what effect of delaying foreclosure will have on our region?

It will have the effect of, to whatever degree, limiting supply while new housing starts continue to drop and the inventory of existing houses continues to be absorbed. The spike in supply from a deluge of houses being on the market is a material part of what prompted sharp declines in prices. Restricting the supply from, as you put it, delayed foreclosures will auguer in favor of smoothing things out, to an as yet unknown degree.

Jacob said...

Prices need to return to their historic mean and be in line with the incomes levels of the area.

Slowing down the process will just make it worse. You still have mounting foreclosures that are driving prices down which cause more people to be underwater in their home.

Looks more and more like we are in for the 15y Japanese style decline.

Mystere said...

While that rhetoric may sound good, it looks like nothing of the sort. Do you even have any idea of the current price/income ratio for the greater Sacramento area, as well as of its historical levels? Yep, didn't think so. If you did, you wouldn't make such a disingenuous statement.

sacramentia said...

"Sorry, its still a tract home in Rancho Cordova. Sugarcoat it all you want."

so true...I still can't figure out why SMF left EDH for Gold River.

smf said...

"Sorry, its still a tract home in Rancho Cordova. Sugarcoat it all you want."

so true...I still can't figure out why SMF left EDH for Gold River.


I never left EDH. We just didn't select it at the end. Mostly due to the traveling distances involved.

We moved from Rancho essentially. But the school in GR was the final clincher.

Frankly, we are pretty damn satisfied about our house. It IS a track home, but a nice one at that.

While it certainly looks very much like most other GR track homes, it is not.

We finally figured out a big difference. Our kitchen area is waaaay bigger than the typical GR home.

And we finally noticed that after being a month in the house.

anon1137 said...

Big houses, big cars, big bellies, big a$$es, . . . . big, big, BIG!

sacramentia said...

I never left EDH. We just didn't select it at the end. Mostly due to the traveling distances involved.

I mis-understood and thought you were living in el dorado hills before you moved. El Dorado Hills can be pretty far depending on where you have to go, but the traffic at the Sunrise and Hazel exits makes it a wash time-wise during rush hour.