Friday, August 15, 2008

Sacramento Unemployment Breaches 7%


Source: EDD [pdf]

From the Sacramento Business Journal:

The unemployment rate in the four-county Sacramento area hit 7.3 percent in July, up a half-point in just one month and sharply higher than the July 2007 jobless figure of 5.6 percent...The Sacramento metropolitan area last saw a jobless rate this high when it hit 7.4 percent in January 1996, as the region was coming out of a recession.
...
[W]age and salary employment dropped by 9,700 jobs from June to July....[T]he area was also down 1 percent -- 9,100 jobs -- from July 2007 to July 2008, with 5,100 construction jobs disappearing.
From KCRA:
Beefed-up code enforcement of bank-owned homes is leading to more violations and liens being placed on foreclosed properties, officials said. Some of these fines can be up to thousands of dollars.

The problem for taxpayers, KCRA 3 has learned, is that multiple banks -- instead of paying those fees to fix the properties -- are dropping sale prices as much as 50 percent to get the property out of their hands. "What they (code enforcement agencies) are doing is not forcing the bank to fix it up," said Mike Lyon of Lyon Real Estate. "They are forcing the bank to give it away."
From the LA Times:
First Rep. Laura Richardson was having problems making house payments, defaulting six times over eight years. Then after a bank foreclosed on her Sacramento house and sold it at auction in May, the Long Beach Democrat made such a stink that Washington Mutual, in an unusual move, grabbed it back and returned it to her.

This week, in the latest chapter in the housing saga, the Code Enforcement Department in Sacramento declared her home a "public nuisance." The city has threatened to fine her as much as $5,000 a month if she doesn't fix it up.

Neighbors in the upper-middle-class neighborhood complain that the sprinklers are never turned on and the grass and plants are dead or dying. The gate is broken, and windows are covered with brown paper. "I would call it an eyesore," said Peter Thomsen, a retired bank executive who lives nearby.
From Housing Wire:
The nation’s worst-performing counties continue to be centered in hard-hit California, CoreLogic’s data show: Sacramento County has seen prices fall 26.12 percent from June of last year, while Santa Barbara County has seen prices fall 25.54 percent; San Bernardino, 25.41 percent. In the past three months, San Bernardino has seen prices fall 7.46 percent, the second worst such showing nationwide (the worst performer was Calif.’s Sutter County, which saw a 7.87 price decline).
From the Sacramento Bee:
Existing home sales kept climbing in Sacramento County and West Sacramento during July, with homes repossessed by banks accounting for 70 percent of escrow closings, according to the Sacramento Association of Realtors. Prices continued to fall.
From the Stockton Record:
In a hot foreclosure sales market, the latest trend taking shape is investors bundling their cash to buy bundles of homes...Terry Hull Sr., a Stockton real estate developer and co-owner of a family-owned property-management firm, said he is organizing a group of as many as 50 local investors to pool enough money to buy 25 to 30 houses...Twenty investors already have bought in at $25,000 per share, he said.

The buyer of one share is Bob A. Sullivan, a semi-retired owner and broker of a Stockton real estate firm. He said he expects to no less than double or triple his investment. "What I like the best is the timing to buy," he said. "Prices are really depressed right now. In my mind, there's no question that prices will go up again considerably. Whether it's one year or five years, I don't know. I don't see any downside."

24 comments:

Jacob said...

The problem for taxpayers, KCRA 3 has learned, is that multiple banks -- instead of paying those fees to fix the properties -- are dropping sale prices as much as 50 percent to get the property out of their hands. "What they (code enforcement agencies) are doing is not forcing the bank to fix it up," said Mike Lyon of Lyon Real Estate. "They are forcing the bank to give it away."

How is that bad for taxpayers?


He said he expects to no less than double or triple his investment. "What I like the best is the timing to buy," he said. "Prices are really depressed right now. In my mind, there's no question that prices will go up again considerably. Whether it's one year or five years, I don't know. I don't see any downside."

He is speculating that he will get a 100%-200% return.

Now let me get this right, it might take 5 years for prices to start to go up "considerably" and in the 4 years before that they will go down, but there is no downside visible to this speculator?

If prices go down for 4 years, how many years of "considerable" growth are needed to get back to the original purchase price?

These speculators are looking at past prices as the baseline, but not looking far enough in the past... I am sure many people thought pets.com stock was a great buy at $50... Yahoo was a great buy at $100, $75, $50...

Today is a great time to buy, but every day is a great time to buy. Last year was a great time to buy and if you did you are now likely underwater. Todays great buy will be tomorrows BK.

Buying Time said...

"They are forcing the bank to give it away."

In my mind, this is the best outcome. The home gets purchased quickly, fixed up, and the lawn gets watered. It also speeds up the downcycle, so that we can get back to a rational market.

wannabuy said...

Is it just my eye, or is that unemployment trend almost linear? e.g., I think we'll see 8%+ unemployment for September. Does anyone have a graph of historical unemployment? Let's hope it doesn't go off chart the way foreclosures have.

The problem for taxpayers, KCRA 3 has learned, is that multiple banks -- instead of paying those fees to fix the properties -- are dropping sale prices as much as 50 percent to get the property out of their hands. "What they (code enforcement agencies) are doing is not forcing the bank to fix it up," said Mike Lyon of Lyon Real Estate. "They are forcing the bank to give it away."

Expanding on Jacob's comment. It isn't bad. Its forcing a *very* rapid return to sane prices. No longer can the banks just hold onto a home indefinitely.

Homes need to be occupied or a slum will develop. So thinking about this, I hope *all* communities develop the fee based structure! So I agree 100% with buying time here. Its a *very* good thing.

We're at an inflection point. We're not yet at the next stage... but the trend is toward the next stage.

Got Popcorn?
Neil

smf said...

"He said he expects to no less than double or triple his investment."

And these are the people who are buying right now! That is their expectation for their 'investments'.

Sales would go down the floor if these types of people realize that their expectations WILL NOT HAPPEN.

Sometime in the near future, watch for this wave of buyers to realize how they caught a falling knife and swell the inventory AGAIN as they desperately try to get out.

Bubbles are predictable in many ways. And they all behave the same. We cannot all predict when the high and low will happen, but we can certainly see that 'return to mean' signifies that in our lifetime, home prices will not reach the (inflation-adjusted) levels of a few years ago.

Smithfield said...

"are dropping sale prices as much as 50 percent to get the property out of their hands."

I don't think it is very hard to get a nice return on your equity investment when buying at a 50% discount to market. Come on, that buys a lot of downside protection from the next 6-12 months before we reach bottom. (I don't think he was saying 2-3x the purchase price either) How much fixing up is there to bring these houses back to code?? Not 50% of its value.

And it does hurt tax payers because bail outs of the banks will cost us dearly in the future. Slashing prices to unload inventory will bring us to a bottom quicker, but at the cost of more bank failures and more bailout talk.

Jacob said...

But it isnt discounted 50% off market price, the market price is 50% off the fantasy land monopoly money price.

smf said...

I don't think he was saying 2-3x the purchase price either"

Then what?

Jacob said...

He said he expected to double or tripple his investment, so the house will have to sell for more that 2x or 3x.

Not only does it have to tripple in price for you to tripple your money, but it also has to increase an additional amount based on what you had to pay to fix it up.

Until the majority of these types of investors (which are no more than speculators) are gone from the market, we still have a ways to go.

The true investors that know what they are doing can go in, get a home, fix it, and sell it fast for 10k-20k, then move on. These guys are clueless and will lose all of their investment.

norcaljeff said...

Beefed-up code enforcement of bank-owned homes is leading to more violations and liens being placed on foreclosed properties, officials said. Some of these fines can be up to thousands of dollars.

Just when I think all the negative news is out there, we find this. It's a gem! Wow, I love it. Where are the real estate bulls???

RE: Cogresswoman Richardson - I think it's such a scam she used her influence to get her home back. What a joke. I bet she thought she was moving from the ghetto, only to bring the ghetto to her neighbors! The only thing that would put a bigger smile on my face is if her home were in Land Park LOL.

Good points BT and Jacob, right on!

Patient Renter said...

He said he expects to no less than double or triple his investment.

This is why we've spent so much time in the past bashing the current crop of flippers - because on the whole, they're idiots. Having a home double or triple in value over a short period is something we won't see again in our lifetimes.

But that people don't realize this or don't care doesn't surprise me. Greed is blinding.

Patient Renter said...

The problem for taxpayers ... is that multiple banks -- instead of paying those fees to fix the properties -- are dropping sale prices

I agree with everyone else. This does hurt tax revenue, but I wouldn't characterize it as a "problem" anymore than people who drive the speed limit, which cuts into local tax revenue, are a "problem" - or citizens who maintain good health, which cuts into health expense related tax revenue, are a "problem".

Overall, having homes sold to actual people instead of letting them rot under bank ownership is a good thing, and slashing prices on homes is certainly a good thing as it is helping restore affordability.

sacramentia said...

If you can lever 2:1 on a home that is 50% off the current market prices which are 56% of the peak, you are talking about getting your initial investment back in around 3 years.

In 3 years if the market declines another 40% from here and you sell you are double money after transaction fees.

Maybe they aren't that dumb - you really have to look at the specific deal.

Smithfield said...

Thank you Sacramentia.

Unless you put 100% down on the house, 2-3x your investment is not having the house value double or triple.

I buy a house for $200,000, put $10,000 down, then sell the house for $210,000, then I doubled my investment. This is exactly what knowledgeable flippers are doing--finding investments at a discount to the market due to an aggravated selling situation and making a profit.

Seriously, get a freaking clue.

Jacob said...

Maybe I read it wrong, but where does it say they are buying homes are 50% off current market? That would mean banks are selling homes are 75% off or more. We are not to that point just yet.

The banks are putting homes on the market at below market prices but those are not 50% off and they are getting multiple bids that push the price up.

Agreed, if you can put $10k down and fix a home and sell for a $20k profit you doubled your money. But $10k would get you a $50k home... I doubt that anyone can qualify for a piggy back loan or the 3% FHA loan if it is an investment property.

But the point is that these people are not investors, they are betting of the home appreciating. Maybe they are right, maybe they are wrong, but either way they are speculating.

I have no doubt that there are homes out there that are really cheap and with the right fixes you can flip for a nice profit. But my belief is that the percent of investors that are in that category is like 5%. The rest might as well go to vegas and bet it all on Red, at least there you know the odds.

Jacob said...

smithfield. In your scenario I take it that you and the buyer didn't use realtors. Cause that would cost you $12,600 on the deal.

Add in carrying costs, fees, taxes, and you need a lot more appreciation to double your money.

And unless you think we are at the bottom then you also have to deal with price depreciation eating away at any upgrades you did to the property.

And when you go to sell the bank you bought from still has 1000s of homes that they are slashing prices on and I don't see how you get the sale.

sacramentia said...

At this point it is all about cash on cash return, forget about the flip. 20% and you get your initial investment back in 3.5 years, can sell for a loss equal to your down payment in about 6 years and still double your money.

But if you're making 20% why in the world would you sell?

Patient Renter said...

If you can lever 2:1 on a home that is 50% off the current market prices
Seriously, get a freaking clue.

Touchy? I'm not sure which article you guys are commenting on, or what smith is getting all worked up about. Obviously you can make money on RE by buying at a discount, nobody is arguing that. But just as obviously the guy quoted in the article doesn't appear to be doing that. Read his quote again (or for the first time):

"Prices are really depressed right now. In my mind, there's no question that prices will go up again considerably ... I don't see any downside."

He didn't mention buying at a discount or getting a good deal, he simply mentioned prices going up "considerably", via appreciation, a scenario which is simply not going to happen. This is 2005 bubble era mentality.

smf said...

PR has it right, it is the thought that prices will be up to the same levels of 2005 that will keep the pain going for a while.

If these people had decided that this was NOT going to happen, the decrease in price would be much higher % wise.

And I have one friend, a long-time flipper, who confirmed to me that he was satisfied with a 'mere' $10-20K profit per flipped home.

RMB said...

Leverage works both ways. If you "buy"(rent from the bank) a house for 200k with a down payment of 10K all you need is a 5% drop in the price of the house and you have wiped out 100% of your investment. Leverage is a mean B.... and she doesn't play games. Repeat this by 20 to 50 houses and now you are talking about wiping out 200k to 500k in 6 months time. Look were these people are buying Stockton, a crime ridden, overbuilt bedroom community with gas around 4$ a gallon. Great invest. buy a 1000, we need forclouses in a couple of years too.

Bob said...

I think the arguments are apples and oranges here. It sounds like sacramentia is arguing about a single investor successfully flipping houses, where those arguing against are arguing in the context of the article: 50 people banding together to try and pull of the same thing.

I'd put my money on one knowledgeable person being able to make money on that sort of transaction before trusting a group of 50 people led by a property manager.

In their defense, there is safety in numbers, but there's also less to be gained. Any $10,000 gain has to be split 50 ways after all the expenses are figured in. I just don't see this ending well for these people. I hope I'm wrong. I'd rather see people succeed than fail -- there's lots of caveats to that statement of course. :)

laureleaw said...

Having investigated fractionalized first trust deeds (which is what the Stockton plan appears to be), I would remind any investor that if something seems to be too good to be true, it is.

sacramentia said...

The point I'm trying to make and not doing a very good job at is the flipping strategy will not work well until the market is reflating.

The way to be successful is by purchasing a home that has solid cash flow. Free cash flow re-invested as the market falls will create a much better IRR.

But dismissing all the investors as dumb and the future foreclosure is just way to simplistic. The banks have become so tight with the down payment requirements that today's investors will probably have decent cash flow and do just fine, even if they go into the deal with the wrong expectations.

RMB said...

Sacramentia,

I agree, if you can find a property that cash flows, buy it. These people aren't though, they are buying for the appreciation.

Patient Renter said...

But dismissing all the investors as dumb and the future foreclosure is just way to simplistic.

No I agree with you. Not all investors are dumb, but I personally think that most are by way of the fact that they seem to be basing their projected profit on an expectation of appreciation, as opposed to cashflow. Like I said, it's a bubble era mentality that just hasn't died yet.

Regarding cashflow and a home though, it's certainly not easy (as I'm sure you know), and is something that the average inexperienced investor could struggle with.

I'm happy to see people turn a profit, but it's frustrating to watch and endless stream of people who obviously don't know what they're doing set themselves up for a fall.