Thursday, August 28, 2008

'Beginning of the End of the Sacramento Housing Crash'

From the Sacramento Bee:

After years of gloomy forecasts and despite a still-declining real estate market, something new is creeping into the housing forecasts: Hope. It's a sense that economists can see outlines of an emerging bottom.
...
"We are at the beginning of the end of the Sacramento housing crash," he [Mark Zandi, chief economist of Moody's Economy.com] said late Wednesday..."Prices will resume rising again early in the next decade."...Zandi said another 5 percent to 10 percent declines in home prices will "restore housing affordability" in Sacramento and coax more first-time buyers back into the market.
...
Concerns still exist however, about foreclosures, which still haven't peaked in the Sacramento region. Scott Thompson, a partner at Citrus Heights-based Mortgage Resolution Services, said he thinks a shortage of buyers will begin to show late this year. "I think we are plowing through all the good buyers who are enthusiastically in the market. We're going to get to November and be at the end of the buyer pool," he said.

35 comments:

Patient Renter said...

It's a sense that economists can see outlines of an emerging bottom.

Which economists? The same ones who couldn't manage to spot the bubble in the first place? How about asking economists who actually did spot the bubble (hint: Mark Zandi, chief economist of Moody's Economy.com was not one of them)

BTW, i like how there's a separate category for bottom calling posts :)

Jacob said...

Yea, its like, "I didn't see the bubble, I completely ignored the evidence and was blindsided, but now it the absense of evedence I think we are at the bottom"...

At least he said the prices would appreciate early next decade, so no more of that 2nd half 08 or 09 fantasies. Early next decade could be 2010-2014, sounds about right.

Prices go up with inflation if there is a stable supply and demand. Too much supply plus not enough demand is a problem, and it will take years to absorb the excess. Prices won't appreciate until that happens.

Smithfield said...

I think what many of you are missing is how improving credit markets will free up cash and get the recovery/price stabilization under way. This is not Japan. We love to borrow and to consume and investment banks will find a way to make it happen. There is a lot of cash out there and soon it will be freed.

Don't get caught up in extrapolating today's or yesterday's data into the distant future. That is how people got caught up in the bubble will never pop mentality. The situation is very dynamic.

paranoid renter said...

>>>>
The situation is very dynamic.
>>>>>

Definitely dynamic with the FDIC expanding like crazy!

We can expect lots of bank failures first. The cleanup must happen before the recovery. (At least that's what we experienced during the tech bust; all the weak companies went under.)

Jacob said...
This comment has been removed by the author.
Jacob said...

Banks were lending to anyone, no credit, no job, no assets, no problem.

You want a loan for 10x your income, income that we didn't even verify, no problem.

You want to pay 1% on the loan for a few years, we'll just stick the unpaid interest on to the loan, great.

I don't care how much capital gets freed up, we will never get to that level again. And the demand created from that whole mess is what builders built to meet, and they exceeded that demand. They exceeded the demand that never really was there.

The only cure for this mess is time. It's not like rates will drop or some magic 1000 year loan produc will come out and all the excess will be absorbed over night.

And investors and speculators can buy up all they want. I'm waiting to see what happens when they realize they can't find renters for them all.

Either companies or the government create a lot of high paying jobs or prices will continue to fall. And I don't see companies looking to move to CA or Sac specifically. Sure we have lots of Wal-marts, but you can't buy a house on minimum wage (not anymore at least).

Perfect Storm said...

We are at the beginning of the end of the Sacramento housing crash," he [Mark Zandi, chief economist of Moody's Economy.com

More bottom calling bull, nothing more nothing less, this housing market has quite a long way to go before it hits bottom and drags there for two decades.

Were right on track for a 50% decline by 2009.

Stuck in SF said...

Drags out for 20 years! My friend, if my house is worth the same today as 20 years from now, I will gladly buy you a steak dinner.
Please post something useful.

Cow_tipping said...

If prices dont stabilise and appreciate between 2009 and 2013, prices will not appreciate for 30 more years. Retiring baby boomers will be tripping over each other to unload their built in the 70's crap boxes with lead paint and asbestos walls in frozen tundra ... it will depress housing for 30 years. 2015 through 2045 is defintly down as a whole country. if we recover ... it will end in 2015. if we dont recover, it will not until 2045.
Cool.
Cow_tipping.

sacramentia said...

Wow cow tipping - a 37yr prediction into the future. That's pretty arrogant and a really long ways away.

Except for perfect storm, I haven't read anyone who has combined the direction and timing accurately over the last 5 years.

Most bubble callers were dead wrong from 2004-2006, brilliant since 2007, and now just as arrogant as the Realtors from 2005 saying housing will always go up.

Stuck in SF said...

"but you can't buy a house on minimum wage (not anymore at least)."

Have you ever been able to? Should you be able to? Min wage is a sustenance wage, not one to be buying a house with.

I am beginning to think Jacob lives under a rock and spends his vast amounts of free time while on the state's clock to post on bubble blogs.

Cow_tipping said...

Baby boomers have houses, most of which was in the north in cities like detroit etc, but they did own houses, and they will have to retire.
Just like they say that 30-40% of the work force is going to start retiring in the next 5 years, I am taking it that extra step and saying that 30-40 % of the population is going to want to move south or down size or have to sell to live when their paycheck disappears. They also have their parents wo will be dying and they themselves will be dying. Its called an aging population. I am not predicting 30 years into the future, I am predicting a 30 year wide window starting at a point few years in the future and I am predicting national numbers not city to city numbers. FL may well gain, so may Phoenix, and they may well gain enough to offset a place where retirees are flowing out of say minneapolis. ... but I am just saying, so much of that is going to happen the net would be down. I believe in the begining it may be up ... but as it gathers steam, it will turn down.
I am not calling now to 2015 at all. but 2015 and later I anticipate down. Unless we import 30-40 million people to do the paper pushing ... its down for several boomer heavy cities and soon, whole counrty.
Cool.
Cow_tipping.

inpd said...

The economists are partially right.

It's the beginning of the end for decimated areas like Natomas and Elk grove. I've seen 3000 sq ft homes in
Elk grove in a school district that
scores 10's go for $300K. There's not much
lower to fall then. These places
have already corrected 100% (i.e. same
homes went for $600K in 2005)

But its just the start of the end for
places like Lands Park, East Sac that
have barely corrected 10% and $400K
will just get you a 1200 sq ft home.

Stuck in SF said...

cow tipping. I guess nobody is being born anymore? When you retire your income goes away?

Jacob said...

"but you can't buy a house on minimum wage (not anymore at least)."

Have you ever been able to? Should you be able to? Min wage is a sustenance wage, not one to be buying a house with.


Of course there were people on minimum wage buying houses. Hell, there were probably people on welfair buying houses.

I read a story on one of these blogs about a college student, who worked as a waiter making $12k a year, was approved for $700k in loans to buy homes.

There were plenty of people working at starbucks or wal-mart buying homes. And while they may make more than minimum wage, it isnt by much. And they were still buying at around 10x their income. Or worse.

Affordability may be rising, but those stats are stll not based on a 30y mortgage.

And who can say for sure that demand for housing will ever return? The boomer generation is retiring/dieing off. And the current generation would probably rather rent so they can stay mobile and flexible in this new worldwide workforce.

And btw, I am not a state employee.

Stuck in SF said...
This comment has been removed by the author.
Stuck in SF said...

"And who can say for sure that demand for housing will ever return? The boomer generation is retiring/dieing off. And the current generation would probably rather rent so they can stay mobile and flexible in this new worldwide workforce."

Then where may I ask are the retirees going to live? By retirement age, most have a good amount of equity built up into a house and do not need to downsize.
A flexible young workforce that moves around. Okay, somebody has to own the real estate the live in. Oh but wait, you hate the dreaded investor. I am from NYC, and now SF. I love investors. They have always given me a place to live.
Maybe my perception is differnt than your in Sac, but I don't see the number of homes being that out of balance with population.

Jacob said...

I wasn't talking nationally, obviously people need to live somewhere, but I think retirees want to move out of CA in general, to a more tax friendly state.

So Sac and surrounding counties is what I am really talking about, whose gonna buy all these homes?

I have no problem with investors, I do have a problem with speculators.

watchingthebubble said...

Went out to look at homes in a more upscale neighborhood than my own in Elk Grove where I rent. The real estate agent told me that there's a lot of buying activity in Elk Grove, especially at the lower end. He cited two factors: first time buyers and Bay Area investors.

IMHO, Bay Area investors were a large part of the bubble in Elk Grove in the first place, along with greedy developers.

Hubby and I are looking for a bargain, but the whole idea of dealing with another round of Bay Area investors/long-distance landlords in an area with reputation problems definitely put a chill on our search. Will they drive prices so low that, even buying at this point, we'd be under water by depreciation for the next couple of years?

Who knows what the future holds, but that sure did give us cause to pause. Could this be the beginning of a mini-bubble? A dead cat bounce?

inpd said...

Watchingthebubble,

Don't ever listen to realtors. There deluded and lie like crazy.

I just bought a home in Laguna West which
is semi-up-scale. There were no bay area
investors and I've been looking to buy
for six months.

Remember, those homes are worth half of
what they were in 2005, so no investors
going to touch them unless they want
to hide cash or something.

paranoid renter said...

>>>
...so no investors going to touch them unless they want to hide cash or something.
>>>>

hide cash -> throw away cash :-)

paranoid renter said...

>>>>
Maybe my perception is differnt than your in Sac, but I don't see the number of homes being that out of balance with population.
>>>>

It is totally out of whack. Seek (google) and ye shall find!
http://www.sacbee.com/103/story/366681.html

There are tons of empty homes, and it's not like folks are doubling up or anything. Go to places like Lincoln and you'll so many empty homes. There was a shortage of homes for flipping purposes. Ever since the economy has started to slow, the number of vacancies in my apartment complex have gone up.

alba said...

The RE market will become
"dynamic" just as soon as the hatchet is lowered on Fannie Mae and Freddie Mac; Have you ever looked at your conservative 401K's or IRA's? Filled with FNMA bonds. They have more than half of the $5T mortgage loans. Look for socialism to occur (govt take-over), and for all of the stock investors of these 2 to be completely zeroed out of their investment.

Another bank failed today also. Minimum reserves are hurting the banks, and will mark the death of Freddie and Fannie.

Sacramento's circumstances are still a speck in the sphere of potential occurances/outcomes, on the macro scale.

watchingthebubble said...

INPD,

How are you liking Laguna West?

Decisions, decisions, decisions. . . . perhaps I've been analyzing this choice too darn long.

Neverborne said...

inpd hit the nail on the head.

Inventory is waaay down in lower priced areas... I'm predicting the August Sacramento median price will increase ever so slightly MoM when the numbers come out in a few days.

Driven by foreclosures? Absolutely... but who cares. Starter houses are incredibly affordable right now. If you have 20% down your mortgage will be cheaper than your rent.

Tighter lender standards is a relative term. Sure they may be actually checking documentation now... but they'll still qualify you for way more than you could realistically afford without batting an eye.

wannabuy said...

I think they read too much into the economists comments.

"Prices will resume rising again early in the next decade."...Zandi said another 5 percent to 10 percent declines in home prices will "restore housing affordability" in Sacramento and coax more first-time buyers back into the market.

That's a 2011 bottom.

We all know prices won't bottom until ~18 months after the foreclosure peak. However, I see more downside than 10 percent in Sacramento; the Alt-A loans still have to reset in mass.

People are starting to talk 'severe recession.' You want to buy when your barber is advising you against buying. That hasn't happened yet.

Got Popcorn?
Neil

cole said...

basically the end of the line for McClatchy is what it is...

NYSE, 74.5 in April of 05 to 3.63 on Friday...meaning the Bee is Junk, at least that's the opinion on the street and for their borrowing power...when it reaches 1 it will be delisted and become a penny stock, meaning the entire Bee enterprise is worthless....

the problem IS, that persons working for the Bee who based their retirement on stock from the company have seen that worth drop to basically ZERO....

and is the reason they now have worthless employees such as Wasserman...anybody wanting to work for real money has LEFT the building

inpd said...

The notion of one bottom for all areas is wrong just like the top
of the bubble peaked at different
areas at different times.

Newer areas like Elk grove have
bottomed in my opinion since
it was cheaper to buy than
rent even considering taxes.

However, areas like Lands Park, Davis, East Sac have yet to see
their bottom. That could well happen in 2011 or even later.
Could be a slow decent in those
areas rather than a rapid crash
liked happened in Natomas, EG etc.

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

"This is not Japan. We love to borrow and to consume and investment banks will find a way to make it happen."

How true...however the Japanese had a trade surplus, were savers, and still fell into a lost decade of recession. We, on the other hand, have massive debts (personal and govt.), negative savings, and a trade deficit that won't ever go positive (not enough manufacturing base left). That doesn't make for real growth...anytime soon.

The big picture tells the story as alba posted...Sacramento means nothing to the fate of real estate and what it does to the overall economy. Fannie and Freddie, imo, are key to the stabilization of the markets, and unfortunately they're tied directly to Washington's sticky fingers...

I tend to believe inpd to be correct but I also think there are variables we've yet to see that will shake the markets further from here...huge derivatives market still tainted with mortgage debt, consumer debt defaults rising, cracks in the commercial RE market, and an ever rising US govt debt ceiling. Does a potential $1 Trillion budget deficit within a couple of years matter?

We can get to a bottom in Sac, the question is, can we get up off the bottom anytime soon?

Patient Renter said...

Newer areas like Elk grove have bottomed in my opinion since it was cheaper to buy than rent even considering taxes.

The fact that it's cheaper to buy than to rent does not mean a bottom has occured since it generally takes financing to buy. As I've pointed out before, Detroit and Cleveland are good examples of this.

inpd said...

I agree its not THE bottom, but for these areas you see many buyers coming in so the price drops are leveling out.

These homes sell for about $300K, so getting financing is not that big of a deal though you still need 20% down-payment.

smf said...

Buyers 'may' come to these areas, but it still does not address the excess that exists.

Let's suppose we have a 'normal' housing environment.

If you build 100 homes when the #s only justified building 50, you have a real big problem.

Jacob said...

Yea I agree. There was all kinds of over building in most areas. So not just regular houses, but also condos and apartments, townhomes etc.

At some point we will see the investors pull back when too many investments cannot be rented, at any price.

If you have 100 homes and 50 people to rent them, no matter what the ending price/rent, 50 places will be vacant.

I don't have a clue as to how overbuilt we are, but I definitely believe that there is a huge over supply based on real demand.

smf said...

Just check out the # of McMansions that were built since about 2002.

There is no way, no how that there are that many people in Sacramento willing to buy and live in such homes.

As I told my wife, those homes cost plenty of $$ regardless of mortgage payment in maintenance costs alone.

We could have bought a 5000 sq.ft. behomoth for the same price that we bought our 3000 sq.ft. home.

But the added maintenance costs were simply not worth it.