Thursday, August 07, 2008

Stockton's "Butterfly Effect"

From Home Front:

Like many in real estate...Jeff Johnson, who runs the Citrus Heights branch of a national mortgage lender, Platinum Home Mortgage...says that the elimination of down payment assistance...will keep thousands of would-be buyers out of the market. He believes that just as the sales here have started to rise, this federal decision is going to slow them down again..."We're really going to be in trouble."
One reader's response:
Mr. Johnson's comment "We're really going to be in trouble" shows his narcissistic view of the real estate market--it's all about me. If buyers can't get free money or bad loans, I'm not going to make $500,000 this year like I did last year. What people need is low home prices, not gimmicks to get into an expensive home. The market shouldn't be about people in the business making lots of money, it should be about people not in the business being able to afford a home. It's the mentality of people in the business thinking they need to make more that leads to less people owning homes. How about if we prohibit investment in single family homes, support more use of the Internet and less use of real estate agents and mortgage brokers, require a reasonable down payment to ensure buyer commitment, and let the market work in a sensible way, then maybe people who are responsible would be able to own a home.
From the Sacramento Bee:
On paper, the Silvertip Estates development in Orangevale may seem like a great deal for home buyers. The 32 single-family homes on a four-acre lot near the corner of Greenback Lane and Almond Avenue range from about 1,700 to 2,000 square feet and start in the low $400,000s, according to the development's Web site. Homes were slated to be available this spring, it said.

But call the number listed and you'll find it has been disconnected. Drive by the project site, and all you'll find is weeds. Silvertip Estates is one of several developments planned by Fair Oaks-based developer Sixells LLC that has become a casualty of the housing downturn...[T]he once prominent development company now finds itself sputtering along in a dismal economic climate.
...
[Sixwell project manager Jim] Franklin denied recent reports that the company was going out of business. "There's no plan to shut the doors and no plan for filing for bankruptcy," he said. But without any work to do, he wondered if – by default – it already was. "When you're not doing any business, are you out of business?" he asked.
From the Sacramento Bee (hat tip Jeff):
Increased costs prompted Lowe's Home Improvement Warehouse to pull out of a proposed store in Rocklin, according to a spokeswoman. Property owner and developer Paul Petrovich, however, said architectural details added by the Planning Commission killed the deal. "The amount of money that was added onto their building as a result of the Planning Commission busted the budget, in addition to the tougher economy," Petrovich said.
From the Appeal Democrat:
People still have to eat. But whether they will leave their homes and workplaces to do so is a question that puts local restaurant owners on edge...According to the 2008 Restaurant Growth Index, calculated by Restaurant Business Magazine, Yuba-Sutter residents didn't get out much for eats last year and are doing so even less this year. Scoring, based on local restaurant sucess and demographic measures, pegs the national average at 100. Yuba-Sutter scored 11 in 2008, down from 31 in 2007.
...
Steve Brammer, chief of operations at the Economic Development Corp. in Yuba City, says the restaurant business — like many other types of businesses — is inextricably linked to the housing market. With fewer and fewer residents able to pay their mortgages, the idea of eating out seems more and more extravagant.
The Average Buyer blog notes substantial declines in local airport activity.

From The Independent:
American Dream Realty – Reduced Price! The estate agent hammering the "for sale" placard into the yellowing lawn of a family home in the Weston Ranch district of Stockton, California, this week could hardly have been optimistic. Almost every second home had a similar sign. This suburb, created from nothing 15 years ago, had promised so much to the low-income families who streamed in during the building boom, a roof of their own at last for people deemed "sub-prime borrowers" and – perhaps – a nice profit if house prices continued to defy gravity, as they seemed they would a few years ago.

When the crash came, when the US housing market ran out of sun seekers migrating from the North and speculators hoping to flip their purchases for a quick buck, the surge in foreclosures blighted neighbourhoods. In Stockton, foreclosure capital of the US last year, the lowering of tone has been tangible, in an unpleasant way: residents became alarmed at the number of abandoned swimming pools lying uncleaned, magnets for mosquitoes and disease. Such things don't show up in the statistics, but they are as telling an indicator as the 25 per cent drop in American house prices over the last year alone.

In Weston Ranch as elsewhere, egged on by brokers on fat commissions, during the boom, residents had taken on mortgages they could not afford. Of all the bits of jargon, it is the "Ninja" loan that will stand out as the abiding symbol of the US real estate bubble – "no income, no job, no assets". Now that their cheap "teaser"-rate loans have run out and they can't find credit, they're giving up. Meals lie half finished on dining tables as families bolt the moment the sheriffs arrive to repossess the property. In many cases, owners simply post the keys through the letterbox and walk away rather than continue to pay for a home that is slumping in value.

Even now, it is impossible to know what, precisely, triggered the credit crunch. In the familiar story that is always used to explain chaos theory, the flap of a butterfly's wings in the Amazon rainforest can provoke a tornado on the other side of the globe, because even the tiniest chance alteration in a weather system can be amplified into the most dramatic of outcomes. Nature has always been global; now the globalisation of finance has made similar phenomena possible in economics. In the case of the credit crunch, the butterfly's wings might have been the crack of a real estate auctioneer's gavel a couple of years ago, heard in some corner of California, as a former dream home in Stockton went for a knockdown price as a foreclosure special. Or some casual gossip in a bar that prompted a buyer to pull out of a deal. Or a family break-up that forced a distressed sale. At some point, the momentum behind America's property boom ran out, the moment where reality caught up with the debt delusion. The credit crunch would follow, a trillion-dollar ($1,000,000,000,000) meltdown of banking losses that has left the world's financial system so feeble that banks are too scared even to lend to each other, for fear they will never be repaid.
Related posts:
Loans to Sacramento Trailer-Home Buyers...Trigger a Global Credit Crisis
California's New Canary in the Coal Mine
Placer Pops - YoY Depreciation Era Begins?

I guess Stockton and Sacramento were special after all!

10 comments:

Jacob said...

Even now, it is impossible to know what, precisely, triggered the credit crunch.

What is hard to understand?

Credit was given to anyone for any reason. No income, no job, no assets, and you want a home at 10x the median income? Sign here.

I read a story about a college kid / waiter making like $12k a year got approved for a loan around $700k.

And, is there even a credit cruch? Maybe when compared to the fantasy land economics of a few years ago.

No those dang banks actually expect you to pay back what you borrowed. And they have the nerve to charge you the full percent and even make you pay something to principal each month.

cole said...

2005..."how do these guys afford these homes?"

Halloween 2005 or thereabouts...you publish an excerpt from Soros' book which delineates in arbitrage terms the phony baloney economic "boom" and worthless paper being traded as mortgages, bundled...

March 2006 everyone knows the jig is up except for the Sacramento Realestate hype goons...

norcaljeff said...

The 32 single-family homes on a four-acre lot near the corner of Greenback Lane and Almond Avenue range from about 1,700 to 2,000 square feet and start in the low $400,000s, according to the development's Web site

They have got to be kidding. Was this leftover marketing from 2006? There's no way homes in Sac Co will go for $200/sqft, not in Orangevale, not on Greenback, not in 2008. Ain't gonna happen.

Patient Renter said...

There's no way homes in Sac Co will go for $200/sqft, not in Orangevale, not on Greenback, not in 2008. Ain't gonna happen.

Exactly what I was thinking, but especially in Orangevale.

The interesting thing about that particular development is it didn't even get underway really until after the peak. Oh well.

Ollop said...

Actually, Jeff, homes in East Sac are still well above $200/sqft. I know of one infill project that plans on pricing around $300/sqft. Most/many listing are in the $300-400/sqft range from what I've seen.

I suspect those will come down a bit, but the true believers are doing their best to believe they won't.

Granted, it isn't Orangevale, but still.

Deflationary Jane said...

Priced to sit takes on a whole new meaning. I'm sorry but East Sac it's all _that_ great.

norcaljeff said...

Ok, all ya E Sac lovers can stick to your "will never fall below X/sqft" kool aid but as I pointed out, that's hardly Greenback or hardly what a home in 2008 will sell for. When you have homes in Rocklin and So Placer going for less than $140 sqft it just isn't logical.

Megan said...

"that's hardly Greenback or hardly what a home in 2008 will sell for"

what the heck is this supposed to mean? i don't follow.

norcaljeff said...

It means homes on/near Greenback built in 2008 should NOT be priced at north of $200/sqft. Some either isn't reading the news or flunked their math class, or both.

Megan said...

I still don't follow the east sac thing. Are you saying Greenback is east sac?