Monday, September 22, 2008

"It was inevitable that prices would start to drop"

From the Sacramento Bee:

Federal intervention in the financial system could wipe billions of dollars in bad mortgage debt off the books of Wall Street. But will it help end the housing crisis in Sacramento?

Not directly, analysts say. But eventually it could help curb the defaults and foreclosures at the root of economic problems locally and the nation as a whole...The Sacramento region – Amador, El Dorado, Nevada, Placer, Sacramento, Sutter, Yolo and Yuba counties – recorded more than 21,000 foreclosures from January 2007 through the first half of 2008, according to MDA DataQuick, a La Jolla property researcher.
From the Sacramento Business Journal:
In Greater Sacramento, non-residential private construction is down 26.7 percent [in the first seven months of the year YoY], including industrial buildings, offices and hotels...Companies such as HMH have been heading for the safety of public projects as the economy falters and financing for offices, shopping centers and condos has dried up.
There are signs, however, that taxpayer-funded construction is also starting to decline under the strain of the economy. And that means competition could escalate...“There’s not going to be a lot of state funding for education projects,” said Phil Nemeth, managing principal at HMC Architecture, an Ontario-based firm that concentrates on schools and health care facilities. That’s because a state pool of education bond funding is evaporating with no plans to replace it. “We’re expecting that in March of next year that bond money will run out,” Nemeth said. “A lot of districts are relying on locally funded bonds.”
From the Manteca Bulletin:
The average previously owned home closing escrow in Manteca is costing $180,000 less than it did at the market's peak in 2005. There were 705 homes that have closed escrow through Monday within the City of Manteca with an average sales price of $249,456. That compares to the peak average price in 2005 of $429,000.
From the Stockton Record:
[San Joaquin] county unemployment sits at 2.4 percent higher than the 7.8 percent jobless rate for August 2007, and that's a direct reflection of how the real estate downturn and resulting financial crisis has pounded employment in those sectors, EDD market analyst Liz Baker said. Year to year, construction is down by 2,100 jobs, and real estate and financial employment has declined by 1,000 jobs, the EDD's report indicated.
From The Moderate Voice:
Of course, as long as the housing prices continued to go up, then people would be able to refinance and get out of the bad loans. But nothing lasts forever and, as we saw, a once a housing glut started to develop, it was inevitable that prices would start to drop. But in the Central Valley, we had an additional problem.

Because most people had purchased new homes with no money down, they had no stake in the property. In addition, many of them were urban transplants who felt (and I’ve had people say this to my face) that living in the Central Valley was ‘beneath them’.. So you had huge numbers of people simply give up and not fight to save the house.

Again, I think that this is one area where some blame is to be assigned. People knew they were getting into risky loans and, in the case of the transplants, they didn’t make any effort to save the house. However I understand that money only goes so far and I wouldn’t fight to save a home in a place I didn’t like.


norcaljeff said...

Lowest housing start number since WWII. When the home builders start to throw in the towel and stop building we'll begin forming a bottom. Oh wait, not if oil hits $200 this decade. LOL

Patient Renter said...

But eventually it [the bailout] could help curb the defaults and foreclosures at the root of economic problems locally and the nation as a whole

How exactly will it do that? I'm sure the Bee reporter was wondering same thing, but maybe they just didn't bother asking because their pen ran out of ink?

RMB said...

Lockewood is a tool. If you noticed, he has started a Liberal politics blog, need I say more....

Cmyst said...

Geez, really? I was operating under the impression that it was the conservatives who were tools.....

Jacob said...

Nobody forced banks to lend money to people that they knew full well would never be able to pay it back.

And this next bailout, like everything else, will probably do more harm than good.

Inflation goes up, oil goes up, other commodities go up, which crushes a lot of companies, which will keep the stock market low and unemployement rising which will keep the foreclosures rolling in and home prices will not bottom.

I say take that $700 billion and create governement jobs building wind mills and solar panels and put people to work. Tell wall street to go $#%@ off and die and keep unemployement low until this mess is over and lower our energy dependancies while we are at it.

wimpyVO2max said...

Sorry rmb, I'm with cmyst, conservatives have zero credibility on the economy right now. Somehow the Bush-McCain cabal transformed "free markets" into "free to plunder the taxpayer and the middle class." Yup, when Joe Homeowner got in over his head there's no thought given to helping Joe, he's left twisting in the wind. But when Goldman Sachs is distressed, the Repubs rush in to help. Gotta make sure Goldman's CEO and two top VP's keep making their $67 million salary. Plus options. Plus golden parachute.

Repubs = socialism for the corporate elite. Dems = socialism for the average Joe. Pick one.

badHomesSac said...

sorry wimpy, but the Dems created this mess. Between the regulations they pushed to force lenders to fund bad loans (aka "affordable housing" requirements) and their ongoing creation and defense of Fannie/Freddie as institutions worthy of perpetuation and protection from every single reform attempt when warned (thanks Barney and Chris!), which is the root of this whole problem, I find the Democrats to be nauseasous. I don't much care for what Bush has proposed, nor do I think McCain has many good ideas either, but every time a Dem opens their mouth on the subject, I want to stick a subprime mortgage contract in their throat.

badHomesSac said...
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badHomesSac said...
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evlunclbud said...

The Republicans have had the presidency for 20 of the last 28 years. Congress, though batting back and forth, has been GOP more than half the time. Wall Street and the rest of the business world has thought only of the bottom line. And you want to blame Democrats because of affordable housing? Give me a break! A drop in the bucket, and given how often the poor have been victims of predatory lending, how is this all the Democrats' fault? While Carter may have gotten the ball rolling on deregulation, he didn't take it nearly as far as Death Valley Ronnie, Poppy, Blow Monkey, and Shooter. The Democrats deserve considerable blame, but they were hardly the captains of this Titanic.

RMB said...

Calling the present administration conservative is like calling Arnold a Republican. Just isn't going to fly. The current admin, is neither conservative or liberal, they are some messed up group that is just reacting. The changes in congress are right out of Keynes and will only add to the problem. Look to Ron Paul for solutions. As far as when this problem started, look to the hero, Bill Clinton and the democratic congress of 1994. They started the mess, Bush did nothing and now we are where we are. Go do some homework...end....

Diggin Deeper said...
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NotTodayThanks said...

Bingo RMB. Where - exactly - has a conservative approach been tried? We've got two different flavors of liberalism fighting it out to see which is more dangerous.

As to the prior observation that the affordable housing and Fannie/Freddie is a "drop in the bucket", that "drop in the bucket" is the entire cause of this whole mess. If subprime lending and mispricing of risk due to the socialization debt backing of Fannie/Freddie hadn't happened, none of this would be, either. None of it.

I'm come the Democrats aren't conducting Congressional hearings on this one? They were so zealous about them previously....strangely quiet all of a sudden? Maybe it's not so good to conduct investigations when your banking committee chair received handouts from the largest subprime lender, the Speaker of the House's son openly works in conflict of interest between many of the involved acting parties, and your presidential nominee was the second largest recipient of campaign cash from the company at the root of the whole crisis.

Maybe I am just being cynical though. And it's not like McCain is going to do any better, by the looks of things so far.

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

"Repubs = socialism for the corporate elite. Dems = socialism for the average Joe. Pick one"

I'd rather not!

Should we settle for socialism at all?

The problem spans both political parties, over a very long period of time (decades). To isolate one event or one party without reviewing the entire history, is like picking up a book and only reading the last chapter. You'
ve got the ending, you just don't know how you got there.

Socialism in any form = the downfall of America...Only acceptable if we're ALL willing to dramatically lower our standards of living in order to acheive it. I'd rather not.

With a bailout running over a $Trillion before its over, how can any Congress have anything left over to complete an agenda that includes healthcare for all, new roads and the jobs that come with infrastructure rebuilding, funding of all entitlement programs, etc, etc.?

It aint' gonna happen!

Sold in '05 said...

The roots of this problem began in 1999 with the BI-partisan repeal of the Glass-Steagall Act. This allowed the banking industry to do freewheeling things that had not been allowed since the Great Depression including MBS and CDO’s. See-

More recently (2005) there was an opportunity to stop the real estate bubble by clamping down and reforming Freddie and Fannie. This reform was at the urging of Greenspan as he recognized the danger of the then fully inflated housing bubble. The reform had the support of the Republican members of the Senate but was ultimately blocked by Democratic members of the Senate who by sheer coincidence where the largest recipients of Freddie and Fannie lobbying monies. Senators Dodd, Obama and Clinton, killed this reform. See eye opening article from Bloomberg-

Freddie and Fannie drove this housing bubble on the back of lax banking regulations. They are all dirty but some are more complicit (by stupidity, greed or lust for power) than others.


Diggin Deeper said...

The IBD kind of tells it like it is...

Until now, Congress has been surprisingly passive. As Sen. Majority Leader Harry Reid put it, "no one knows what to do" right now.

Funny, since it was a Democrat-led Congress that helped cause the problems in the first place.

When House Speaker Nancy Pelosi recently barked "no" at reporters for daring to ask if Democrats deserved any blame for the meltdown, you saw denial in action.

Pelosi and her followers would have you believe this all happened because of President Bush and his loyal Senate lapdog, John McCain. Or that big, bad predatory Wall Street banks deserve all the blame.

"The American people are not protected from the risk-taking and the greed of these financial institutions," Pelosi said recently, as she vowed congressional hearings.

Only one problem: It's untrue.

Yes, banks did overleverage and take risks they shouldn't have.

But the fact is, President Bush in 2003 tried desperately to stop Fannie Mae and Freddie Mac from metastasizing into the problem they have since become.

Here's the lead of a New York Times story on Sept. 11, 2003: "The Bush administration today recommended the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago.
Bush tried to act. Who stopped him? Congress, especially Democrats with their deep financial and patronage ties to the two government-sponsored enterprises, Fannie and Freddie."

Party politics would have you believe one thing, knowing that most voters are too apathetic to dig for the truth. The rest of the article chronicles the problem from the beginning and it becomes very clear that this problem is bi-partisan no matter how badly you want to blame the the other.

Why not blame ourselves for turning a blind eye to those that were supposed to be looking out for us?

The argument that one guy wasn't nearly as bad as the one big load of BS.

Cow_tipping said...

average sales price of $249,456. That compares to the peak average price in 2005 of $429,000

Ha ha ... so the lying using statistical terms begins ... weren't we talking median median median ... suddenly average ... nice way to hide the BS I say ...

And yes living in the central valley is beneath everyone ... especially manteca ... that place stinks of cow or human dung ...

PeonInChief said...

Both Democrats and Republicans are to blame for the current mess, but the fundamental problem in housing is that, since the Reagan Administration, funds for affordable housing have been slashed. I think it was Dean Baker who pointed out several years ago that the government slashed Section 8 housing subsidies while doing nothing to slow the supply of subprime mortgages. So while people couldn't find an apartment they could afford to rent, they could get a mortgage they could afford to pay for about a year.

Fully 1/3 of the population shouldn't be in the private housing market at all--they don't have enough income and resources to pay the operating costs on housing. Now it's very expensive to get these families into appropriate housing--and the costs are up-front--but at this point, $85 billion doesn't look so bad.

And that's why the mortgage mess is so much worse here--in Europe far more of the population lives in subsidized housing, and faced with an exploding ARM would say, "and I should do this why?"

So while the primary responsibility for this mess should be attached to the bankers who should have known better, those who advocated for affordable housing have received little support from political leaders or the population as a whole. Indeed many communities have done everything they can to keep affordable housing out.

Patient Renter said...

I'm with RMB, but need to point out that several comments are a bit off target. The very word conservative is nearly the opposite of how the current administration and most Republicans in Washington govern, but that's because most Republicans are not conservatives, they're neo-"conservatives". The distinction is important.

True conservatism, as embodied by someone like Ron Paul, actually supports non-interventionism, small government, humble foreign policy, spending and living within our means, etc. Obviously none of those things are represented most Republicans in Washington today.

How did we get on politics?

Diggin Deeper said...

"Indeed many communities have done everything they can to keep affordable housing out."

Why? Are there any good reasons why we don't build affordable housing in our communities?

Diggin Deeper said...

Housing Prices Still Falling

smf said...

Let's not politicize a problem that was caused by both sides, OK?

Let's also recall that several current members that are guilty of causing the problem are the one proposing solutions as well.

As for affordable housing, there are some problems.

1. Owners will typically oppose anything affordable close to their homes.

2. Laws usually allow for exceptions, such as locating the affordable housing in other places.

Overall, this problem was caused by nothing more than pure greed.

It is often forgotten that for most of the 'rich' got there by two ways:

1. Not spending much money
2. Working very hard

Easy money is usually a mirage.

Diggin Deeper said...

If prices keep falling, there'll be plenty of affordable housing available.

"the poor have been victims of predatory lending"

Congress is about to throw a lifeline out to those "poor victims of predatory lending", and "Joe Homeowner", the person that pays taxes, mortgages, rents, will be on the other end of the line...reeling them in.

We're about to save many that came with nothing and left with nothing...Are they really victims?

PeonInChief said...

Well, homeowners often oppose affordable housing for the same reasons that they don't want more than a couple of African-Americans in their neighborhoods--they think it brings down property values. Well, having made that choice (and it was a choice) as a society, we now get to live with the consequences.

Diggin Deeper said...

"for the same reasons that they don't want more than a couple of African-Americans in their neighborhoods"

You are serious? Sacramento is one of the most ethnically diverse cities in California. The neighborhood you live in is more likely to be a rainbow of nationalities, African/Americans, whites, Mexican Americans, and everything in between...than anywhere in the state.

If this was back in the 50's / 60's / 70's I'd give that answer some serious thought...But in this city, today? Hmmmmmm...unless that predjudice was necessary to promote social change...

PeonInChief said...

My neighborhood is, but there are many neighborhoods in Sacramento that aren't very mixed at all. But one of the things that studies of homeowners have pointed out repeatedly is that they tend to be less willing to live in racially/ethnically mixed neighborhoods. (And I've always thought that was odd too; how do people become less supportive of diversity when they buy a house? Makes no sense to me, but it's a common finding.)

norcaljeff said...

I'd hardly call McCain or Bush conservatives, you're bastardizing the definition. FYI...didn't the House Chair for Finance/Tax just get busted for not paying his taxes?

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

The next bubble forming on the horizon...Money Supply

California economic outlook: worse to come: report

Home building's woes combined with worse-than-expected job losses in mortgage financing over the last three months "have finally overwhelmed other sectors of the economy," the UCLA Anderson Forecast report said.

"As a result, employers have pared hiring plans and the unemployment outlook for most populous U.S. state is "ugly," the report said.

Home prices are falling to affordable levels in many areas, suggesting buyers will step into the housing market and help stabilize it, which should help lift home-building and finance, the report said.
New home buyers will enter the market by the middle of next year provided the existing inventory of unsold homes in California shrinks significantly and new mortgage money becomes available, the report said."

Sacramento has been swimming naked through all the boom years, drafting behind the state machine...never planning for the rainy day...

I wonder how high the unemployment rates will go in this area?

a_builder said...

The prices have not even BEGUN to drop. I am still working (barely)
for a (formerly) large builder. Here's some anecdotal panic signs for ya:

**** Homes in serrano received 3 offers on houses that they
foolishly just built this summer...
Asking price 700K


**** Homes management response: We're pulling out of Sacramento if thats all we can get.

Toll sold homes listed for 1.1 million last year for 700k

The Custom boys are takin' huge haircuts and Queen of all agents in serrano (********)hasnt closed a listing in 8 months...

This winter is gonnna be FUGLY- the current crime wave in Sac IS nothing- If you havent prepared yourself you better get movin'. People are getting hungry-LITERALLY.

smf said...

Those high end homes will get a total beating.

Since most of the builders or speculators of high end homes actually put their own money on the table, they are loathe to actually realize their losses.

Plus they just simply way overbuilt the segment.

Diggin Deeper said...

"Those high end homes will get a total beating"

Yea...if no one will loan you the money, it really doesn't matter what price you hang on the door.

sacramentia said...

There is no need to go hungry in CA,