Tuesday, October 07, 2008

'Nobody else is paying, so why should I?'

From the Sacramento Bee:

Across the Sacramento region, businesses and governments fretted over a credit crunch that showed no signs of improvement, even though Congress had approved the $700 billion rescue plan for the financial markets on Friday. Analysts said the message was that the rescue plan might eventually unclog the credit markets but probably won't provide instant relief.
...
Of all the nervous borrowers out there, perhaps the most visible is the state of California. The state is looking at backup plans in case it is unable to conduct a crucial $7 billion bond sale next week...Looking for alternate sources of cash, the state is exploring loans from the U.S. Treasury or the state's two public pension funds, CalPERS and CalSTRS.
From the Sacramento Bee:
The provisions for struggling homeowners in the Wall Street rescue bill signed into law Friday are largely voluntary and not enough to curb foreclosures in regions such as Sacramento, some analysts say...Without unilateral authority to modify loans, they say, the rising tide of foreclosures – 500 or more every week in the Sacramento area alone – won't soon subside. More bank-owned homes on the market mean home values will continue to fall.

"If you don't firm up the bottom of the housing market, the bottom of the pyramid will be like quicksand that will keep pulling down the structure," said Timothy Canova, economics professor at Southern California's Chapman University School of Law. "I think in six months to a year they will be back asking for another enormous bailout because it didn't deal with the root causes of the problem."
...
Steven Krohn, a real estate broker and economist with Sacramento-based Real Estate Group, said the best way to get through the housing crisis is to let market forces re-price homes. "I've had friends go through foreclosures, and it's awful," he said. "The sooner the market adjusts the better off we are."
From the Sacramento Bee:
There may be a way out of trouble, after all, for thousands of Sacramento-area borrowers struggling with risky housing-boom mortgages from Countrywide Financial Corp. A legal settlement announced Monday by Countrywide parent Bank of America and California Attorney General Jerry Brown promises an $8.4 billion rescue operation to save an estimated 125,000 California borrowers – among 400,000 households nationally – from losing their homes. Bank of America agreed to freeze and lower interest rates, suspend foreclosures and waive late fees for live-in homeowners who took Countrywide loans from 2004 through 2007.
From the Sacramento Business Journal:
Confident the housing market will recover within three years, a local development company has bought a stalled 100-acre subdivision in North Natomas at a deeply discounted price. The project had been slated as Pardee Homes’ debut in the Sacramento market. Terms weren’t disclosed but several real estate sources said privately held Granite Bay Development Co. paid about $25 million — or 20 cents on the dollar after factoring in the millions of dollars Pardee pumped in for streets and utilities.
...
The land is well-known among the real estate community because Pardee established a high-water mark for land values when it bought the property. “We all kind of scratched our heads,” said Jim Glickman, an appraiser with Clark-Wolcott Company Inc. of Rancho Cordova. He said the industry had started to realize the market was turning by that point.
From the Sacramento Bee:
Sacramento-based banks haven't been immune to the impact of the housing market crash and the weak economy. The five largest community banks in the area earned a combined $17.6 million in the first half of this year, down 10 percent from a year earlier.

But that doesn't tell the whole story. The volume of troubled loans on their books has skyrocketed, which could translate into significant losses down the road. For the 11 banks based in the four-county region, noncurrent loans – generally, those on which borrowers are at least 90 days late on payments – totaled $39 million at midyear, according to a Bee analysis of FDIC data. That's up from $1 million a year earlier.
...
[B]ankers say plenty of less-prominent borrowers are simply walking away from loans. The attitude for many is, "Nobody else is paying, so why should I?" said John A. DiMichele, president and CEO of Community Business Bank of West Sacramento.
From the Associated Press:
Dr. Patrick McMenamin, president-elect of the American Academy of Cosmetic Surgery, said he's in regular contact with cosmetic surgeons who complain that business continued to slide through the summer - even before Wall Street's recent nosedive. "With this latest fiasco, many are probably down closer to 40 percent," said McMenamin, a Sacramento, Calif., cosmetic surgeon who specializes in faces, breasts and liposuction. For him, August "was terrible. I just did a lot less surgery."
...
To attract patients, "We've reworked our mailing list and Web site, all facets of the business," McMenamin said. He hasn't lowered prices for procedures but says some doctors have.
From the Modesto Bee:
Generation Motors in Modesto shut its doors Friday morning, an apparent victim of the sluggish economy that has toppled auto dealerships nationwide...Owner Curt Hughes said through an associate that he also would close Friendly Chevrolet in Escalon..."It's been a difficult market this year, and the valley has been hit the hardest," said John Gardner, owner of Central Valley Automotive in Modesto. "With the local real estate market, the gas spike and bank failures, it has been the perfect storm."
...
The real estate collapse means that customers can no longer take equity from their homes to buy cars, [Jeff] Steves [an owner of Steves Chevrolet] said. Gas prices are less of a factor, Steves said. "People still need their Tahoes and Suburbans," he said. Gardner said once people got over the initial gas price panic, the sales rebounded. Central Valley sold 30 Dodge trucks last month, he said. "People will buy if the price is right."
From the Stockton Record:
LODI - City budget writers will consider everything from closing City Hall one day a week to laying off workers as officials begin looking for ways to cover a nearly $1.9 million deficit projected for city operations and services. The worsening economy that is hammering most local governments means there is less tax revenue flowing into coffers than city leaders anticipated when they approved a spending plan in May, City Manager Blair King said Monday.
...
[A]lmost a quarter of the city's projected deficit can be attributed to an anticipated $416,000 drop in property taxes, King said. Most of the projected losses, however - more than $900,000 - come from an anticipated dip in sales taxes. Much of that drop is attributed to slumping auto sales, King said.
From the Sacramento Real Estate Blog:
In September, the average sold price per square foot was $130.50, down 7.4% from the August average of $140.87, and 35.2% from a year ago, when the average sold price per square foot was $201.35...The median sale price in September was $185,800, down 40.6% from last year’s median sale price of $313,000.
From the Sacramento Bee:
The question now is will they buy? Many have apparently stopped looking recently, said Folsom building industry consultant Greg Paquin. He noted reports from homebuilders that visits at model home sites have dropped seriously the past two weeks as the White House, Wall Street and Congress raise threats of economic calamity during negotiations on a rescue package.
From the Lodi News:
"Housing is the ultimate commodity. Every home is a basket of materials like steel, wood, and copper wiring that, when combined with the cost of land and labor, becomes a store of value for every commodity that's gone into the home's construction. The current oversupply of homes on the market may be keeping prices low, but because home prices are grounded in hard costs, the long-term home price equilibrium will adjust at some point to reflect the price of production and the cost of land. Investing in commodities is a time-tested way to turn inflation's lemons into lemonade. Purchasing homes is a time tested way to buy commodities. If commodity prices continue to go up, as many experts anticipate, today's home buyers will, over the long term, see their home prices go up," said NAR economist Lawrence Yun.
From the Sacramento Bee:
Shelly Smith-McClure endured a modern-day economic nightmare on Monday, losing a 15-month bid to avoid foreclosure and forestall eviction on her Herald home and property.
...
She said she moved into the house 10 years ago. Over time, she refinanced the mortgage, pulling out about $250,000 for improvements to the property...She and McClure married about three years ago. During the peak of the real estate market, McClure's work as a real estate appraiser was profitable. After the downturn, his business fell by 80 percent, McClure said.
SNL Bailout Video

17 comments:

Jacob said...

If commodity prices continue to go up, as many experts anticipate, today's home buyers will, over the long term, see their home prices go up

Big If there, with demand lowering and lowering why would these commodities go up.

And even if they did, and even if homes cost $1M to make it doesn't matter cause there are still tons of homes that can't be sold and even 50% of peak prices. Replacement costs don't matter that much when you have 1000s of excess homes that will not be absorbed for years.

smf said...

Let's listen to what the experts say, they have been so correct after all...*chuckle*

So...land prices have dropped, considerably.

Oil prices are dropping on diminished demand.

Other prices are sure following, including the cost of labor.

Yeah, better buy now before you get priced out again...*sigh*

Patient Renter said...

Bank of America agreed to freeze and lower interest rates, suspend foreclosures and waive late fees

That's awefully generous of them. But what about Bank of America's other customer who have dutifully paid the mortgages and are receiving no such assitance? Or customers of other banks? Will they be annoyed that B of A is offering workouts to some people, but not them? Will some of them be so annoyed that they decide to stop paying their mortgages? I think so.

Case in point:

less-prominent borrowers [from local banks] are simply walking away from loans. The attitude for many is, "Nobody else is paying, so why should I?"

There are unintended consequences to bailouts, workouts, foregiveness, etc.

Bakersfield Bubble said...

Shelly Smith-McClure endured a modern-day economic nightmare on Monday, losing a 15-month bid to avoid foreclosure and forestall eviction on her Herald home and property.
...
She said she moved into the house 10 years ago. Over time, she refinanced the mortgage, pulling out about $250,000 for improvements to the property...She and McClure married about three years ago. During the peak of the real estate market, McClure's work as a real estate appraiser was profitable. After the downturn, his business fell by 80 percent, McClure said.


_________________________


Nice appraiser...she couldn't see the biggest bubble in US history? Take away her license immediately.

Oh and commodity prices are down big. As we enter this deflationary sprial that trend will continue...sorry Yun, you are wrong again!

Jacob said...

It's not fair, but it also isn't meant to help people. It is meant to help the bank, and lowering payments on people that make their payments doesn't help the bank.

They should freeze all interest rate increases if the increase is more than their prime rate. If the person is paying let them stay in their home.

I dont favor freezing rates at 2%, but if they are already paying 6% ot more, don't adjust it for another 5 years.

smf said...

Since B of A is the holder of our current mortgage, you better believe we will ask for adjustments...even though we can certainly make our current FIXED payment.

Still, does not address all those 'investment' homes out there. All these fixes are for primary residences.

Tyrone said...

If salaries go up by 10x and if people don't lose their jobs, today's home buyers will, over the long term, see their home prices go up.

Otherwise, today's home buyers are completely and totally screwed.

Quote: Ambrose Evans-Pritchard
We face extreme danger. Unless there is immediate intervention on every front by all the major powers acting in concert, we risk a disintegration of global finance within days. Nobody will be spared, unless they own gold bars.

Diggin Deeper said...
This comment has been removed by the author.
Diggin Deeper said...
This comment has been removed by the author.
Diggin Deeper said...

Got Low Mortgage Rates?

As anticipated on Monday the emergency Fed Fund rate cut is now in play and down to 1.5%. Add that to the floor of 1.25% on overnigt funds, and we've got another credit party on our hands. Now if the guests would only show up...the punchbowl is brimming with dollars.

Wouldn't miss an Evans-Prichard article, Tyrone. He's been right on for a couple of years and gives a good heads up from the european point of view.
What if you destroy the purchasing power of the dollar faster than you destroy demand for essential commodities? With dollars pouring over the dam, commodities such as the grains, oil, etc. will only firm up and move higher in response. Maybe not today or tomorrow, but very soon inflation will take hold again.

Imo, things haven't changed...it's always been about the dollar...and just what it will afford over time.

Got gold, oil, wheat, lumber?

Patient Renter said...

Since B of A is the holder of our current mortgage

SMF, looks like you know what to do - stop paying the mortgage :) Maybe take a vacation instead.

But seriously, if I were you I certainly would be on the phone with BofA.

soldout said...
This comment has been removed by the author.
Cow_tipping said...

Buying a house is the best way to buy steel, copper and wood ... how ... a house barely has a few 100 lbs steel ... if you plan to rip out the rebar in the floor that is, and maybe 20lb copper max ... that should cost ~300 bucks ... so if you buy a house for 300 bucks, you have invested in a commodity, else I call BS.
Buying steel, you're best bet is to buy either plate or pipe ... aluminum too as diamond plate.
Cool.
Cow_tipping.

Diggin Deeper said...

I just heard the guy who's been tabbed to administrate the new TARP program is six years out of grad school and is a "rocket scientist". I haven't confirmed this yet, I got a kick out this nonetheless.

Patient Renter said...

I don't know if I'd call him a rocket scientist, but the first part is true, and yes, he's not formally trained in finance or economics at all.

I wouldn't necessarily hold that against him since a lot of bright minds in econ/finance were not formally trained either, but he is still young and relatively inexperienced.

anon1137 said...

Cow - I laughed at that too. These are the same idiots that brought us "it's all psychological" back in 2006.

sacramentia said...

SMF - Let me know what you find out. My mortgage is with Countrywide. I asked for a pay off 6 months ago but they wanted face value. I may try again.f