Tuesday, November 11, 2008

'Nobody has any proof that we’re at bottom'

From the New York Times:

This town, 59 feet above sea level, is the most underwater community in America. Because of plunging home values, almost 90 percent of homeowners here owe more on their mortgages than their houses are worth, according to figures released Monday. That is the highest percentage in the country. The average homeowner in Mountain House is “underwater,” as it is known, by $122,000.
...
Even relatively recent arrivals are feeling a pinch. Kenny Rogers, a data security specialist, moved into Mountain House last year, buying a foreclosed property on Prosperity Street for $380,000. But the decline in values has been so fierce that he too is underwater.
From the Sacramento Business Journal:
After sitting out much of the housing slump, investors such as [Ethan] Conrad lately have been drawn back to land by steep discounts as banks foreclose or homebuilders dump their holdings. Not everyone is convinced land has hit bottom, but Conrad likes the prospects. “I’ve watched values plummet by a pretty shocking amount,” said Conrad, who bought 267 lots from homebuilders William Lyon Homes and JTS Communities Inc. in the past few months, spending about $11 million on assets that cost those homebuilders $45 million. “All of the signs are of a healthy market coming back.”
...
Some real estate brokers, however, have yet to see clear signs of a recovery. Guy Spitzer is a vice president at Cornish & Carey Commercial who concentrates on land and investment properties after a career with builders Renaissance Homes, Lennar Homes and Centex Homes. He is much more cautious about the state of the market, saying it’s possible that private investors have leapt too soon because they can’t reap profits until homebuilding is profitable again. “I have been a homebuilder for 25 years; I’m the guy who had to buy those deals,” he said. “Nobody has any proof that we’re at bottom. Our country is going into recession and that’s going to cause additional pain in California — it’s just a tough, tough time.”
From the Associated Press:
From department stores and convenience chains to call centers, managers who only a year ago had to scramble to fill holiday jobs are seeing a surge in the number of seasoned applicants — many of them laid off in other sectors and desperate for a way to pay the bills.
...
David Ortega, a training store manager at the 7-Eleven in Citrus Heights, Calif., that got more than 100 applications, noted that many applicants have management experience — including those who even owned their own construction business. The store in a suburb of Sacramento, which has been hard hit by the housing slump, usually saw candidates who came straight out of high school, he said.

21 comments:

Jacob said...

“All of the signs are of a healthy market coming back.”

And what signs would those be? Name one...

This recession is just getting started. Mervins it BK, CC is BK, GM is basically BK but still hanging in for now. Sac will be getting hit with 13k or so job losses in this FY.

Even when prices hit the bottom we will be stagnant for years, there will not be a bounce. And we will never get back to 2005 prices (adjusted for inflation). Even without adjusting for inflation some places probably wont see their old peak in 20 years.

smf said...

noted that many applicants have management experience — including those who even owned their own construction business.

In my 20 years, I had never seen such an influx of inexperienced people getting into construction.

They may have been managers and owners...but they left a lot to be desired...

Diggin Deeper said...

There's no bottom until you hit the ground...The air is still coming out of this balloon and we should have acknowleged the problem, and addressed it early, before it got out of control.

Yet there are areas that appear to be testing lows...The $250K and below properties are very difficult to buy right now...ask any prospective buyer who's put a bid on one these properties and you'll find frustration. Many have had to go through this bidding effort over and over before they've been successful. That does suggest that at that level prices are trying to make a bottom...

anon1137 said...

All the news outlets are reporting this story about 90% of Mountain House homeowners being underwater, but Mountain House is a tiny town with a population of less than 10K, and probably most of the housing stock is new.

The more amazing statistic to me is that 80% of homeowners in Stockton are underwater, a city of more than half a million people that has only a small percentage of new housing. In other words, a huge number of established Stockton homeowners took lots of equity out of their homes before values collapsed.

That's evidence of the extent to which this economy became dependent on credit. It's going to take many years and lots of painful lifestyle adjustments to fix that problem. Simply transferring the debt from the private sector to government balance sheets is not going to fix it, just like paying off all your credit cards with a home equity loan doesn't get you out of debt.

patient renter said...

"I’ve watched values plummet by a pretty shocking amount"
"All of the signs are of a healthy market coming back."

...says the guy who was shocked by the decline.

smf said...

That does suggest that at that level prices are trying to make a bottom...

No, most of them are the idiots who still believe that in 5 years their $100K crapbox will be worth $300K.

And yes, this includes people who acknowledge that a huge bubble occurred.

From personal experience, I still know more people who mistakenly believe that prices will be higher in 5 years.

If we are still less than 1/2 the NASDAQ high value after almost 9 years, why do people expect housing to recover much quicker?

Diggin Deeper said...

"Simply transferring the debt from the private sector to government balance sheets is not going to fix it, just like paying off all your credit cards with a home equity loan doesn't get you out of debt."

Amen to that...Actually it could bind this country to an irresponsible debt for decades...

While it appears to be overly magnified here in California with Stockton as a good example, there are areas in the Midwest and South basically untouched by the housing problem...yet they're going to get the same bill we are.

DJ has probably got a pretty good fix on the St Louis market. It would be interesting to know if market pricing in that area has any correlation to what we're witnessing out here...I kind of doubt it.

Diggin Deeper said...

No one knows what happens in 5 years...it's just as speculative to say that prices will be lower as it is to say they will be higher...or the same.

People are buying without concern for what prices will be regardless of timetables. They're buying because they can afford to. Why should they worry? There's no risk...if prices drop to some unreasonable level, they get a free pass out of it...the rest of us shoulder the load.

To me it's become nothing but shared risk...those that wade in get bailed out by those that don't. That didn't happen when the NASDAQ fell from it's high earler in the decade...you took the hit...big difference...

smf said...

No one knows what happens in 5 years

We can make a pretty damn good guess by looking at any bubble price chart. Believe me, those charts tell us pretty quickly that prices will NOT be higher in 5 years.

People are buying without concern for what prices will be regardless of timetables.

Bull. When so many of them, that I have personally met, expect home prices to be higher in 5 years, we know that they are still speculating.

And don't forget that the cheap prices right now are concentrated in areas that you and I would never want to live in.

That didn't happen when the NASDAQ fell from it's high earler in the decade

We were in the midst of that correction when the next bubble was inflated.

Diggin Deeper said...

"Bull. When so many of them, that I have personally met, expect home prices to be higher in 5 years, we know that they are still speculating."

They might be but you're missing the point...I'm not talking about the upper end homes. People are buying $250K and down because they can and there's "no risk" in the deal. Based on all the do-overs on the table, one can make a good case for buying if you're going to get bailed out in the end. What do you care if price goes south?...you're protected...what's not to like about that?

And let's not forget that, up until the last RE bubble started, only in California was a home an investment vehicle. Elsewhere it was more of a security blanket that built equity as you paid it off over time. And imho that's where California and other high flying areas are going back to...and that could change buying patterns, meaning it might not be all that important to make an ROI...

As far as predictons are concerned, you have every right to lay claim on where prices will or won't be over the next 5 years. You might as well have a go at, every other "in the know" expert has been calling bottoms for the better part of two years...and who knows it will only take 5 years to prove your point.

Ollop said...

"The $250K and below properties are very difficult to buy right now"

As someone who is looking at this segment, I can confirm it is true. There are more choices all the time in this price segment, but there is also quite a bit of buyer interest. And no, they aren't all crapboxes or in places you wouldn't want to live. I've seen some in College Greens, the Pocket area, and the Southport area of West Sac.

Although I'm sure there are many buyers who think the next price rise is right around the corner, for me it is more simple. Will my monthly cost of owning be more or less than the equivalent rental price. In an increasing number of cases, owning is cheap enough to be worth considering. And I have a very negative view of housing and the economy. In my opinion, home prices will be stagnant over a considerable period. Also, there is a certain opportunity cost of a down payment versus an alternative investment, but I'm okay with that. If I find something decent, with okay to good schools, and the price is low enough, I'll make an offer. I think I can find something by the middle of next year.

My point, ultimately, is that not all buyers are trying to game the system, speculating on higher prices in 5 years, and counting on a government handout if things don't turn out swell.

Taun said...

I'm a first time buyer also looking in the sub $250k range. And yes, I'll vouch for the fact that it is a blood bath in this range. It seems we are not only up against other first time buyers, but "investors" as well. I'll use that term sparingly.

Anyhow, we recently put an offer on a house, only to be outbid by someone paying several tens of thousands more in cash. Where are people even coming up with this kind of money? $255k in cash? Drug dealers? Investor pooled funds? And I thought I was doing well by having 20% to 25% available as a down payment. Sheesh.

Anyhow, as a prior poster mentioned, prices are coming down to what we're paying equivalently in rent. When this is the case, my thoughts are no longer of "I'm catching a falling knife". Instead, they turn to "Hey, I'll have a garage for my cars and backyard for my dogs. No shared walls mean I can crank that surround sound. And all for less than or equal to what I'm paying in rent."

patient renter said...

Tuan, you can rent a house with a garage.

As for having to deal with "investor" competition, as has been pointed out here many times, one of the signals of precursors of a market bottom is complete capitulation. With this sort of intense bidding, you can bet that we are still nowhere close. That, and the fact we're in what will turn out to be an epic recession, unemployment rising, wealth destruction everywhere... and the mass of mortgage resets still looming in the future like an incoming tidal wave.

mopar777 said...

Good read on the economy, PR. Out here in folsom businesses are dropping like flies, especially restaurants.
What is not taught in the schools or mentioned in the media is that the Great Depression shaped public opinion on hard work and ethics for two generations after it hit. The hard work, saving and frugallity ethics that were necessary for my father to survive during the Great Depression were passed on to me and to my children. If the financial obscenities of the past five years result in a much needed realignment in our attitudes and values so be it. It will be for the better. People's perception of reality came completely unhinged during The Great Bubble.

In the long term this pain might be more beneficial to us all than the unsustainable wealth of the bubble years.

Diggin Deeper said...

Foreclosure rates up 25 percent year-over-year

http://news.yahoo.com/s/ap/20081113/ap_on_bi_ge/foreclosure_rates_2

"More than 279,500 U.S. homes received at least one foreclosure-related notice in October, an increase of 5 percent over September, according to RealtyTrac Inc. One in every 452 housing units received a foreclosure filing, such as a default notice, auction sale notice or bank repossession.

More than 84,000 properties were repossessed in October, RealtyTrac said."

That's another million people that walk....

Looks like there will be no shortage of inventory for the forseeable future...

Meld that in with jobless claims now pushing over 500,000, and it makes future foreclosures more of a necessity than a business decision.

I can hardly wait to see the next incentive package we're about to receive...

Deflationary Jane said...

Pushing 500k, I think went over. I saw 516k.

I know have many friends out of work, mostly tech, in the last 2 weeks. Sceintific staffers are dropping like flies at the UCs.

The morgan stanley folks that were just laid off have been whining that they only got two months severance. Most everyone I know got nothing but their unspent vacation paid out. I think they need to quit complaining before they bring down some torches and pitchforks action on themselves.

I'm dreading the Jan 09 unemployment report. This is worse then even I thought it would be.

There is zero proof that we are at a bottom. The current and future unemployment numbers will have a big impact on foreclosures and inventory.

Apt vacancies are way, way up and the frogs begin to double, triple, and quadruple up to keep costs low. Newly minted wannabe inventors are about to get smacked upside the head hard. Couldn't happen to nicer people - enjoy >; )

Deflationary Jane said...

A lovely fresh bit of news from CR:
http://calculatedrisk.blogspot.com/2008/11/campbell-survey-home-sales-to-fall.html
Campbell Surveys: Survey of Real Estate Agents Shows 19% Drop In Home Sales From September to October

"For example, buy-side agents indicated a 22% decline in non-distressed sales in Florida, a 32% drop in California, and a 51% drop in Michigan."

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

This is not your run-of-the-mill downturn...too many sectors rolling over at the same time...

Agree DJ...real estate cannot move forward with this much uncertainty...

Job losees usually occur at automakers right before the holidays. Seasonal work isn't going to amount to much and Wall Street isn't done printing the all pink slips they'll be handing out in December...

And now the S&P breaks below it's 839 low that the "heads" were hoping it would hold...we'll probably rally but I'm more of a believer in Dow 5K than most.

patient renter said...

now the S&P breaks below it's 839 low that the "heads" were hoping it would hold...we'll probably rally

We smashed through the low, but just in time for the incredible and inevitable rally. Good times must be here again :)

Diggin Deeper said...

Wasn't it PT Barnum (now disputed) that said, "There's a sucker born every minute"?

Didn't take long for those program orders to kick in and decide that we'd gone low enough...This rally might even get us through Thanksgiving, up until we get the retail numbers the week following...

What the hell we all need some good news for a change....please someone give us something to cheer about....