Monday, August 25, 2008

'There are only so many houses I can buy in cash'

From the Sacramento Bee (hat tip SMF):

C.C. Myers, the legendary Sacramento-area building contractor, has filed for personal bankruptcy because of losses stemming from his personal investment in an Auburn residential development [Winchester Country Club]..."The market conditions are the worst we've ever seen and we were unable to convince our lenders to work with us to restructure the financing, so I was left with no other options," Myers said in his press release.
From the Sacramento Business Journal:
A St. Louis bank is foreclosing on part of the Sunset Whitney Country Club in Rocklin, creating uncertainty for the 45-year-old private club. Developer John Thomas, founder of Regent Asset Management Group LLC in Sacramento, is being sued by First Banks Inc., which says Thomas is delinquent on a $4 million loan on the golf course he bought in 2004. The club and golf course continue to operate. The bank has already taken the Sheraton Hotel on Stockton’s waterfront from Regent Asset Management.
From the Sacramento Real Estate Blog:
Up until recently, this fairly pricey community seemed immune to the price erosion in the rest of the area. In the last few months, however, we’ve sometimes had to report price drops for East Sac. In July, for example, the average sold price per square foot in East Sac was $324.61, down 12.5% from last July’s average of $370.84...With homes in East Sacramento selling for more than twice the price of homes in surrounding communities, demand for homes in East Sac has slackened from last year, with unit volume down 33.3%.
From the Sacramento Business Journal:
KB Home, the Sacramento region’s third-largest homebuilder in 2008, has merged its Sacramento and Bay Area divisions into a single Northern California division based in Pleasanton. Layoffs, which KB Home would not discuss in detail, included Sacramento division president Barry Grant. The Sacramento office remains open to support several projects still selling in the region.
...
KB Home had been among the builders who were most confident about the Sacramento market during the peak of housing production, in 2004.
From the Sacramento Business Journal:
The Sacramento Bee on Monday offered the cash-strapped newspaper's first broad-based buyouts in its history, inviting a majority of the paper's full-time work force to take a voluntary severance. The Bee continues to experience big declines in advertising revenue brought on by downturns in the economy and housing market, and competition from the Internet and other media.
From the Sacramento Bee:
Bee Publisher and President Cheryl Dell...said another round of layoffs is possible if there aren't enough voluntary buyouts.
...
One ray of hope at The Bee, Dell said, is that the Sacramento area entered the downturn earlier than most markets "and there's a general belief that we'll come out of this earlier."
From the Real Deal:
Margaret Ketwig, for example, is typical of many in Sacramento's middle class. Ketwig, 48, bought her four-bedroom home in 2006 for $590,000. Yet recently she lost her job. She hasn't been able to afford a payment since January. While Ketwig would like to sell, she acknowledges that she may just have to walk away. "There are so many homes on my block that are owned by the bank, that I can't compete with the prices," she said. "I can't even come close to making the house payments. I think I'll be moving in with family and starting from scratch."
...
"I think the hard days are almost over," said Bob Bronswick, president and CEO of Coldwell Banker Sacramento/Tahoe. "Right now I think we've hit bottom, and we're looking at a bounce … I think things are starting to look up."
From the Sacramento Bee:
Millions of dollars in late special property taxes are forcing some cities and districts to threaten delinquent taxpayers with foreclosure...[T]his year the pace of delinquencies is increasing, particularly in California's inland areas, said Tim Seufert, managing director of the San Francisco office of NBS, a firm that does consulting work for special financing districts. "Compared to two years ago, it's up exponentially. There's no question," he said.
...
Delinquency rates also were high during the last real estate downturn in the mid-1990s, but this time individual homeowners are being hit hard. "It is what in the past was considered could never happen," said Oakland attorney Susan Feller, who represents issuers of land-secured bonds. "It was always considered that once property was built and owner-occupied, you would not have delinquencies (in large volume)," she said. "You wouldn't get to these kinds of levels."
From the San Jose Mercury News:
Few if any lenders these days will make loans to those who already have four or more mortgages...Banks' new restrictions on the number of mortgages available to borrowers won't bother typical home buyers. But it's hobbling people...who invest in rental properties, and could even prolong California's housing slump, some observers say. That's because investors are among the most likely buyers for many of the bank-owned foreclosures now lingering on the market in the state's inland valleys.

"If we can't participate, we can't burn through these inventories and help the market correct," said Geraldine Barry, president of the San Jose Real Estate Investment Association....More often lately, she said, "What I'm hearing from our members now is, "I have a deal; I can't get money'.''

Barry and her husband recently bought a foreclosed house in Sacramento for $114,000; the previous owner owed about $250,000 on the property when the bank repossessed it. Even with a 25 percent down payment, they were unable to find a loan because they have more than four outstanding mortgages, so they paid in cash...Geraldine Barry said she wants to buy more bank-owned California properties in coming months, but has yet to figure out exactly how she will finance deals, if lender restrictions remain in place. "There are only so many houses I can buy in cash," she said.
New York Times: In the Central Valley, the Ruins of the Housing Bust
Forbes: Sacramento Second Most "Distressed" Housing Market
CAR: California's Median Home Price Decline Breaches -40% YoY

19 comments:

Jacob said...

One ray of hope at The Bee, Dell said, is that the Sacramento area entered the downturn earlier than most markets "and there's a general belief that we'll come out of this earlier."

I've heard this a few times and think it is poor logic. Sac popped first cause there really was nothing at all to justify the prices, even to justify 50% of the price.

What is gonna pull us out? Some new company is moving in to the area with lots of high paying jobs? The State is increasing its workforce?

No, I think we will be one of the last to come out of this mess. Areas like the Bay Area will be the first to settle since there are actually jobs there that attract people to the area.

Millions of dollars in late special property taxes are forcing some cities and districts to threaten delinquent taxpayers with foreclosure

Now I am curious, how does this work? The State forecloses on a home, the home sells for less that the first mortgage, wouldnt the first lein holder get all the money? The piggy back lein holder is wiped out and any other taxes or hoa or whatever on the property would not be paid?

Or does the bank have to settle those amounts first?

Patient Renter said...

Bob Bronswick, president and CEO of Coldwell Banker Sacramento/Tahoe. "Right now I think we've hit bottom, and we're looking at a bounce - I think things are starting to look up."

Another day, another person who was surprised by the housing downturn calling a bottom.

smf said...

This cycle is far from being over.

Not only do we have plenty of resets waiting, we still have way too many people expecting a 'bounce', rather than flattening prices.

Way too much inventory all over the world.

(When everywhere is 'special', no place is)

The commodities price bubble will take hold soon, creating additional losses for those speculators.

And of course, speculators are still dominating the housing market.

And of course, only the truth shall set you free. And you can't fix a problem if you don't know (or ignore) what the problem is.

wannabuy said...

smf said:
Way too much inventory all over the world.

(When everywhere is 'special', no place is)


From the movie "Incredibles":

Syndrome: I'll sell my inventions so that *everyone* can have powers. *Everyone* can be super! And when everyone's super--
[chuckles evilly]
--no one will be.

Looks like they sold everyone a bill of goods. ;)

Got Popcorn?
Neil

anon1137 said...

In July, for example, the average sold price per square foot in East Sac was $324.61, down 12.5% from last July’s average of $370.84. With homes in East Sacramento selling for more than twice the price of homes in surrounding communities, demand for homes in East Sac has slackened from last year, with unit volume down 33.3%.

Are realtors (R) dumb enough to quote MLS stats? I guess they are. According to Dataquick, 95819 prices were down 6% yoy on a ft2 basis in July and 10% on an absolute basis, and sales were off 22%. Looks to me lately like a lot of homeowners in East Sac are trying to git while the gittin is good since a boatload of bad economic news is likely wash up over the next 6-8 months when there won't be many buyers around.

That's because investors are among the most likely buyers for many of the bank-owned foreclosures now lingering on the market in the state's inland valleys.

Yea, I just can't figure out why banks are reluctant to lend to investors. Weren't investors 50% of the market during the last 4-6 quarters of the bubble?

sacramentia said...

"Even with a 25 percent down payment, they were unable to find a loan because they have more than four outstanding mortgages, so they paid in cash."

If the market wasn't falling fast enough already, Fannie and Freddie came up with the 4 mortgage rule. This will just drive the value of the market down and make them even less solvent.

Maybe next they will require 30% down payments for personal residents as another way to attack the balance sheet.

norcaljeff said...

Sounds like the laces of the "other shoe" are being untied...

norcaljeff said...

In July, for example, the average sold price per square foot in East Sac was $324.61, down 12.5% from last July’s average of $370.84. This year’s average East Sac home was about 1557 square feet in size and sold for $505,656. This average selling price was down 7.3% from last July’s average of $545,422.

With homes in East Sacramento selling for more than twice the price of homes in surrounding communities, demand for homes in East Sac has slackened from last year, with unit volume down 33.3%. While most areas have seen huge demand and falling inventory fueled by bargain foreclosure prices, East Sac’s inventory has actually risen over time.


Gee, I thought this was part of the "it will never happen here" crowd. Guess no location is immune! LOL

anon1137 said...

I don't think my sarcasm came across in my last comment. I think banks should restrict loans to investors, and do whatever else they can to reduce speculation in the housing market.

When prices start to fall, investors are the first to run for the exits. It's amazing to me how many homeowners (who live in their homes) continue to make payments and take extrordinary steps to head off foreclosure even though they're $10s or $100s of thousands underwater with almost no hope of ever regaining the price they paid. That's what makes for stable neighborhoods.

Deflationary Jane said...

I'm with you 1137.

Make them have to qualify using CRE loan standards like they used to and I'd be a lot less hostile towards them.

djdto9898 said...

Jane and 1137 - I think you're confusing the investors of today with the speculators of 2003-2006. Those investor/speculators of the past bought homes because the price was going up and up and they could "always" sell if things got rough. The investors of today, like myself, are more interested in buy, rent, hold. I'm more interested in cash flow than appreciation. I think houses in Sac have about another 15-30% based on current rent rates. If as an investor you can buy a property and have the rents cover your mortgage and expenses, then you're doing good while helping the market take empty, unkept homes off the market. Suggesting that not allowing investors to get more loans is wrong and will only prolong the problem. Though I can't say the same about speculators (of which many are still out there).

Jacob said...

I don't think there is confusion. There are true investors out there. But if you look at the markets when they are normal, what is the level of investment? Certainly not 50% which is about where we are today.

Also many of these "investors" expect prices to recover to their 2005 price, they expect a short bottom then for prices to immediately bounce back up.

They expect 100% return or better in 1 to 2 years. That is pure speculation.

For the true investors, go for it. If you find the right deal, get your positive cash flow, account for the home being vacant x% of the time etc. If you can make money, great.

But way too many people think they can buy a foreclosure, remove a wall, put in some carpet, repaint, and sell for $100k+ profit.

I personnaly don't see why anyone would invest in real estate right now. Prices still are likely to erode, and what is the return? You can get 4-6% in FDIC insured accounts right now.

anon1137 said...

What is needed to stabilize the market is for prices to come down to levels where real people with real jobs can afford them, people who will live there a long time and take care of the property and become part of the neighborhood. Investors have been a major part of the bubble problem for the past 5+ years and I think they're a problem today.

Here's a quote from a story on sfgate today:

. . . . Rosen (UCB economist) believes that investors, not actual intended occupants, are buying up many if not most of the distressed properties in the hardest hit areas. That will do little to stabilize the markets in those areas, especially if prices fall further and foreclosures continue to climb, he said.

firsttimehomebuyer said...

I have been looking for months for a home. Most other buyers from all my talks with agents is they are mostly investors of some type. Alot of homes are not worth the money they are being sold for. The few that are get snatched up so quick you can barely compete. I think the prices still need to come down on many homes. I am glad about the tightning of lender guidlines. What I guess the industry called liar loans. Sorry the ban on downpayment assistance programs was written into law by President Bush when he signed H.R. 3221 Housing and Economic Recovery Act of 2008 on July 30, 2008. Borrowers who are credit approved prior to October 1, 2008 can receive downpayment assistance and have their loan FHA-insured.

While H.R. 3221 was intended to “rescue” the housing industry, the elimination of the DPA program will have the exact opposite effect of its intended purpose. Not only did it eliminate DPA programs, it also instituted a downpayment requirement increase from 3 percent to 3.5 percent. This combination is a recipe for disaster and will further hurt the already crippled housing market

I guess I will just have to wait in line with patient renter.........

anon1137 said...

firsttimehomebuyer, DPA was eliminated because it's a scam that artificially inflates the value of homes. Most people who don't have a down payment shouldn't be buying a home in the first place.

sacramentia said...

"Make them have to qualify using CRE loan standards like they used to and I'd be a lot less hostile towards them."

This is essentially what is happening. 30-35% down and Debt Coverage Ratios using real numbers, not the BS gross rents based on forged leases. Guess you now have something to be happy about.

smf said...

I thought that the 'downpayment' was given essentially by raising the price of the house by the amount of the downpayment.

Some help...

Jacob said...

Its a scam because sellers cannot give the downpayment. Like you say, by raising the price.

So the seller donates $x to a charity (i.e. money laundering fron) and the charity donates that amount (minus fees) to the buyer, so the buyer gets the downpayment.

Then the seller wants their money back so they raise the price.

But everyone involved in "helping" in the sale of a home gets a commission based on price, so higher prices are great.

Sellers didn't care cause they get the $$ anyway. Buyers didnt care cause they got the house with nothing down.

But it just creates more demand for housing which makes prices rise.

Buying a home is generally (and especially nowadays) going to cost you more than renting. So if you are renting, why cant you save that 20%? 10%? 3%? How will you pay for the house when you cant save when your costs are lower?

And that is the problem. Loans with these types of downpayment default at a much higher rate. Make people save for the full 20%. If you cant do that then be happy renting.

firsttimehomebuyer said...

In today's market it is not always true that rent is cheaper than owning. In some cases it is actually the opposite. When you figure in the extra amount you can write off in taxes in some cases a person can come out financially ahead. Not all individuals who need a downpayment are fiscally irresponsible. In today's market with home prices down and interest rates low is a perfect time to get in the market. In four years after a downpayment is saved at the mere 2% the banks are paying on savings and losing out on taxes is not a wise choice for some people.