Tuesday, September 02, 2008

'More Than a Rough Patch'

From the Sacramento Bee:

New data show Sacramento homeowners continue to take a big hit as the nation's foreclosure crisis churns through a second difficult summer. One of every 145 households in Sacramento, El Dorado and Placer counties faced foreclosure in July – 5,290 properties – according to Realtytrac, Inc. data service, saddling Sacramento with the 11th worst foreclosure rate in the country.
...
All this, along with sinking home values and a bad economy, has Sacramento resident Leovardo Lopez, a pool builder, on edge this weekend. The 42-year-old Lopez's work hours recently were slashed. He was lucky; most of his co-workers have been laid off, but he fears he will not have a big enough salary next month to make his mortgage payment. Worse, the home he bought in 2005 is worth $150,000 less than he paid.
From the Modesto Bee:
"I'm looking for anything. I just need to make a living," said [Jerry King] the former Beck Properties home warranty representative..."First, I was looking for the same pay. Now, I'm looking for anything. I just need to make a living."
...
Despite increased worker productivity since the 2001 recession, workers' wealth has not increased, Berkeley economist Sylvia Allegretto said. But they are feeling the economic bust..."The labor market has hit more than a rough patch as job loss has occurred in each month of this year," Allegretto said.
From the Modesto Bee:
As the economy shrinks, enrollment at community colleges is expanding. Modesto Junior College's enrollment ballooned almost 4 percent over last year to 18,474 students.
...
"They're living in a different day and time financially. I don't think I've ever talked to so many people who have lost everything," [MJC counselor Kim] Bailey said. The Northern San Joaquin Valley's jobless rate hit 11.3 percent in July. At the same time, the region lost 3,000 homes to foreclosure. Economists say the housing market collapse is having ripple effects on the economy and forcing layoffs.
From the Stockton Record:
[Joe] Anfuso said Florsheim has sold houses in the past two months to perhaps four or five buyers who decided to buy new after finding the foreclosure market more difficult than they expected or discovering that the homes were "more challenging" than they expected. "The competition (for foreclosures) is fierce," he said. "You have people who have bid five, 10, 15 times and are getting beat out. They start asking, 'Is it really worth it?' Our agents are fielding a lot of questions from people who are looking at that market and don't like that process."

Greg Paquin, president of the Gregory Group, a real-estate information and consulting service in Folsom, said builders can be competitively priced against foreclosures, but most people don't seem to realize that yet.
From the Sacramento Business Journal:
Salt Lake City-based Woodside Homes, the Sacramento region’s 15th largest builder in 2008 based on sales volume, has announced it will file for Chapter 11 bankruptcy reorganization by Sept. 16, Big Builder Magazine reported Thursday.
From the Modesto Bee:
[Patty] Amador, whose 20-year-old Modesto mortgage company is among the region's largest, will share her concerns about recent changes Congress made to mortgage finance requirements. She said the valley's large number of foreclosures have lowered home prices, which has enabled sales to "bounce back" because first-time home buyers now can afford homes.

"Many of these buyers have the ability to qualify for loans and make payments on safe, fixed-rate mortgages. Unfortunately, few have the funds necessary for the down payment or closing costs," Amador said. "Recent legislation has not only eliminated a widely used financing tool, known as Nehemiah, but will also increase the amount of required down payment along with the monthly payment as a result of increase mortgage insurance requirements."
...
Many first-time buyers...depend on down payment help to become homeowners, Amador said. "Now is not the time to be taking away financing tools, nor increasing costs to borrowers, if we are going to come out of this 'crisis' anytime soon," Amador said. "If we back financing tools with prudent underwriting, we can bring this market back without the risk of a reoccurrence of bad loans to the wrong borrowers."

20 comments:

Patient Renter said...

first-time home buyers now can afford homes

Quite the sweeping generalization. Woulda been nice if the Modesto Bee performed a fact check on this false claim.

Unfortunately, few have the funds necessary for the down payment or closing costs

As Jacob said, if they can't afford to save a measly down payment, then they probably are better off not owning.

Jacob said...

If we back financing tools with prudent underwriting, we can bring this market back without the risk of a reoccurrence of bad loans to the wrong borrowers."

Unless those "prudent underwriting" standards require 0.5% more of a down payment and illimated an illegal loophole that allowed sellers to fund the buyers downpayment, then we should forget about the "prudent" part and just give away free money. lol.

PR beat me to my comment lol. Seriously, what do you need now, 3.5%? On a $200k home that is $7k, start saving. And if you can't, ask yourself how you would pay for HOA, taxes, maintenance, and a mortgage, all of which would be more than your current rent...

I always wonder when someone reports people can afford homes now. Based on what? Is it based on a 30y fixed loan and takes only one income (for couples) into account? Is the income fully documented?

Or is it a 10y I/O with a 50 year loan and a huge balloon payment in 30 years...

Tyrone said...

Some of those options sound like 'Home Rentership'. hehehe

smf said...

This market won't come back!! We are just now going back to normal.

A lot of the stuff that happened in the last few years was but a phantom.

I would even hazard a guess that this whole SUV being returned thing is less of a gas problem and more of 'no equity' problem.

When I purchased in 95827 in 2003, the high # on the MLS was about 40 houses for sale. Now it is about 150.

The market returning to normal is going back to those lower sale #s and inventory, not the 2005 numbers.

anon1137 said...

When they say first time buyers can now afford homes, they mean that if you want to move your family into a foreclosed, run down, 50-year old crack house that has had all of the cabinets and appliances removed, you can now get one for less than $500K. Or, if you wait a few more years, for half that.

Cracks me up when these realtors start begging for the return of the old lending standards "so the housing market can recover." While we're at it, we should give away free gas so the American automakers can recover.

sacramentia said...

After reading the whole story about King, a guy that likes to work and can't find any right now, it makes me think the government should step in and help.

The government should line up infrastructure projects and kick them off when the housing cycle is down so that these construction related guys can keep working. Let's start on the high speed rail, or some energy projects, whatever. The housing cycles follow the business cycles, but government funded construction could fill in the gaps. It's a better use of money that entitlements and unemployment insurance.

norcaljeff said...

first-time home buyers now can afford homes...

I seem to recall this some statement back in 2000, which started this whole mess.

RMB said...

sacramentia, I hope you're kidding, right. Go read about the great depression and the govn't make work programs and what they did to the economy. The people out of work now are now going to build the high speed rail or anything else. Davis Bacon took care of that. Me I look at this as the great flushing. A whole lot of illegals moved here when there was work, I am thinking a whole lot are going to leave as the work dries up. good riddance...

paranoid renter said...

>>>
A whole lot of illegals moved here when there was work, I am thinking a whole lot are going to leave as the work dries up. good riddance...
>>>

Illegals don't move here for work. They move here for a better life. The years of minimum or below minimum wage are the years of toil and penance leading to something better. They won't leave. They will put up with whatever they have to...move inland, etc. to find some odd job or the other.

What will change is we'll have a lot of people going to school and/or taking time off to find themselves. We'll have a lot of broken families and litigation in the process as everyone scrambles for the last few crumbs, until the government figures out how to stimulate the economy in some sustainable way.

sacramentia said...

rmb,

Many of the projects kicked off during the new deal are still providing benefit today.

I don't think our government should create new projects just for the sake of projects, but start projects that going to be done anyways during the slower times in the local economy.

What parts of the make-work programs do you think caused the most harm during the depression?

Patient Renter said...

The government should line up infrastructure projects and kick them off when the housing cycle is down so that these construction related guys can keep working

RMB is right. Usually whenever the government gets involved with anything inevitably there is waste, misuse, lack of efficiency, etc., but at the very least, spending money on domestic infrastucture is better than spending it to maintain a global empire.

smf said...

I have been in the construction industry since 1989, and can tell you what happened.

Prior to the bubble, about 1999, there were two knowns in the industry.

1. Remodel work was going to become 50% of construction work.

2. There was a lack of construction workers, as many did not want to enter 'blue collar' work.

The bubble messed a lot of things up.

Since there was a lack of workers in the first place, illegals filled a niche. I personally saw a huge increase in illegal labor at construction sites.

At the same time, this new work was filled by less than qualified individuals and companies.

This leaves me with these conclusions:

1. Those illegals will probably go back. Hard to swallow that you were making $20/hr and now earn much less.

2. Plenty of new companies and workers will never reach the same level of incomes as before. It was all a mirage.

3. The more experienced companies and workers will always find work.

Even if 50% of the work disappears, it would bring things back to a 'normal' level.

paranoid renter said...

>>>
3. The more experienced companies and workers will always find work.
>>>

Based on my experience with the tech bust, that is not going to be true. Many people that may have been in this industry for a long time will end up switching lines of work or retiring.

Diggin Deeper said...

"spending money on domestic infrastucture is better than spending it to maintain a global empire."

I agree, no matter who ends up in the white house, one of the first orders of business will be to sink billions into roads, bridges, buildings, etc. It can't be considered "make work" when we haven't kept up with necessary repairs and maintenance over an extended period of time. The roads in California, alone, have to be the worst in the country.

The question is where will the money come from when we're so busy pumping 100's of $Billions into the system to keep it afloat. We'd also be competing with other nations when it comes to base materials required to do the job...probably a lot more inflationary then most people think.

Stuck in SF said...

Many of the social programs started in the new deal and subsequent ones based upon such philosophy are bleeding the budget dry and stealing funds from basic infrastructure. Why in CA are gas tax dollars being sent to the General Fund? They should be used to build and maintain roads. Excess expansion of the role of government by legislators during the boom time with mandated spending is killing us when tax receipts are down.
So you want infrastructure and energy projects to create jobs, then go fire 30,000 social workers and other useless payroll.
You just can't create money to fund new projects, it will hurt us more than it helps. It is like having an excess supply of housing units, you can't just have the government step in a buy them up to solve the problem. Same goes for jobs.
Jobs- a good number of gov't jobs are very low productivity roles. It would be better to have the jobs come from private employers who can squeeze more out of a unit of labor, not just hand out pay checks.

Dave said...

"The question is where will the money come from when we're so busy pumping 100's of $Billions into the system to keep it afloat."

One work Iraq. Stop spending it there and start spending it here. Or better yet, stop borrowing to spend it there.

sacramentia said...

"So you want infrastructure and energy projects to create jobs, then go fire 30,000 social workers and other useless payroll."

Exactly - leave the parenting to parents and spend the tax money on things that will pay real dividends in the future.

smf said...

"Based on my experience with the tech bust, that is not going to be true. Many people that may have been in this industry for a long time will end up switching lines of work or retiring."

The .com boom was based on new technology, where the experience of those workers was often minimal.

Construction is not often new technology. Experience in construction is worth it in many ways. I have never seen an experienced construction worker have any issues with finding work.

Of course, you cannot get yourself specialized or in a niche, but diverse enough to get away from the cycles that exist.

Diggin Deeper said...

"Or better yet, stop borrowing to spend it there"

OK...but the bottomline is that it will have to be borrowed no matter what...just as we're allowing the borrowing $100's of Billions backed by worthless mortgage paper as collateral.

I don't see how falling govt revenues (state, local, and federal) coupled with burgeoning public debt, due to misguided bailout efforts, go hand in hand to create a positive future anytime soon. If anything, these bailouts are just insuring that the RE downturn becomes chronic and extended, rather than acute and done with, in a reasonable amount of time.

norcaljeff said...

Well said, Stuck...