Wednesday, February 11, 2009

'Who would have thought?'

From the Sacramento Bee:

Gov. Arnold Schwarzenegger will send layoff warnings to at least 20,000 state workers Friday unless he reaches a budget agreement with legislative leaders that precludes the need for such cuts, his office announced Tuesday. The Republican governor intends to eliminate 10,000 full-time positions from the state's general fund, either by job cuts, attrition or transfer to positions funded by special revenue streams, according to Schwarzenegger spokesman Aaron McLear.
...
Jason Dickerson, a budget analyst at the nonpartisan Legislative Analyst's Office, said the state has never laid off 10,000 workers before. "It might be possible to lay off 1,000 to 2,000 people, but laying off 10,000 or more employees would be next to impossible without gutting core services," Dickerson said.
From the Sacramento Bee:
Executives at the two local banks that have received shots of federal capital say the money isn't likely to spur much new lending, at least until the economy begins to recover. "It's that old economic spiral thing. … It's really difficult in this environment to find loans that we can underwrite," said Mark Lund, president and chief executive at Auburn-based Community 1st Bank. Last month, the bank received a $2.55 million investment as part of the government's Troubled Asset Relief Program.
From the Sacramento Bee:
Andrea Hawkins, 31, said she was doing well financially, running a mortgage business out of her Elk Grove home until the housing downturn. Now she's struggling to pay her own mortgage each month. "It's scary trying to make ends meet," she said...Now the single mother of four has joined the ranks of those needing assistance.
...
Blake Young, director of Sacramento Food Bank & Family Services,...said his organization served 25 percent more people in 2008 than 2007. Many are larger family groups from the same address. "People are finding it necessary to combine households to make ends meet," he said.
From LA Land:
[L]ooking ahead, the Zillow survey found a surprisingly sunny outlook. Fully 25% of homeowners in the West thought their home will increase in value within six months. That's up from 14% in the third quarter who had such high hopes for their home.
An update on the squatlord story. From News10:
The neighbors were suspicious but the tenants showed police a lease to prove they belonged. But now, the case of mystery tenants moving into a vacant upscale Natomas house in the Westlake subdivision last week has brought arrest warrants for those tenants and their real estate broker.
More here.

From the Tracy Press:
The sinking housing market has taken down an 18-year-old Tracy business that once employed more than 300 people. Piedmont Lumber and Truss...will issue its last paychecks to its 25 or so employees Thursday....
From the OC Register:
National Association of Realtors’ chief economist Lawrence Yun told an Orange County crowd today that he failed to foresee the depth of the housing crash....“What I found out was there was a credit market bubble that led to a housing market bubble. There was not check and balance in the system,” he said.
...
When the bubbles burst, home prices fell by as much as 45% in Stockton, he said...“Who would have thought a tangible asset would fall 45% in one year?” Yun asked.
Certainly not the NAR!

From the CVBT:
Home prices have plunged three and a half times more in San Joaquin County than the nation as a whole, according to a report Tuesday from Integrated Asset Services LLC....San Joaquin County leads the nation with a 51 percent drop in home values compared to the height of the housing bubble – more than any county in the nation, the report says.
From the Stockton Record:
Stockton resident Jorge A. Aragon is shocked at the ever-sinking house prices, hammered down by a predominantly foreclosures market over the past 21/2 years, but he's not looking to buy. He bought a house in 2002 for $220,000 and another in 2007 for $344,000, and now he's working with two banks to try to get loan modifications that will keep them out of foreclosure. Meanwhile, he can only be amazed as people move into his neighborhood into homes such as his at prices running below $100,000.
...
Jerry Abbott, president and co-owner of Grupe Real Estate of Stockton...thinks prices won't sag further. "We're dragging along the bottom."
...
In Stockton, the median sales price of $125,000 last month is a level not seen since 2001, said John Knight, professor of finance and real estate at University of the Pacific's Eberhardt School of Business. "I cannot envision that prices are going to continue to go down," he said. "I think we're either at or near the bottom for selling prices." Now the rents that investors can get for foreclosure homes covers mortgage payments for these lower-priced houses and then some, he said, and that's why the market is clearing out the listings.
From Seeking Alpha:
Having just returned from Sacramento/Stockton to look at defaulted condominium projects, I can tell you it's a solid mess out there. Investors from all over the Bay Area, and indeed the entire country, are making the same drive across Interstate 80 and descending on more or less the same spots. Unfortunately, the smartest investors will tell you they have no idea when it will end or what their exit strategy is, so not much is getting done on any scale.

The unemployment rate in Sacramento/Stockton is now in double digits (and climbing), and most people will have no choice but to relocate in order to find work. Consequently, there are some projects that will simply need to be bulldozed and plowed under.
...
[F]oreclosures not only create additional supply of "shadow" rentals, but home prices in these hard hit areas will eventually drop (if they haven't already) to levels where it will be much cheaper to buy than to rent.

22 comments:

Jacob said...

"I cannot envision that prices are going to continue to go down," he said. "I think we're either at or near the bottom for selling prices.

Says someone who never invisioned home prices would go down at all, no doubt...


Now the rents that investors can get for foreclosure homes covers mortgage payments for these lower-priced houses and then some


Maybe, but what happens as rents continue to go down and competition with other rentals makes it harder for you to even find a tenant...

As for that stat about 25% of home owners thinking their home will go up in value, who cares. What is the % of renters that think home prices will go up? Home owners can imagine their homes are worth whatever they want, just so long as they don't try to sell...

norcaljeff said...

I recall many posters to this blog kept telling everyone "the State of CA will never lay anyone off, so therefore, Sacramento real estate is untouchable. And certain areas of Sacramento will not see a downside, and in fact, will continue to do well in bad times."

I love it when people say the word "never" because they almost always are proven to be wrong. And in this case, those folks were dead wrong. Layoffs are everywhere and real estate is dead for now. We'll have a new generation of people growing up who won't have the big homes their parents grew up in and ownership won't be as important to them. They have such an anti capitalist view on life and such concern for their environment that they won't be the suckers who come in and pay more for the home than the previous owner. Those days are gone. Prices will stay flat for a very long time.

anon1137 said...

" . . . mystery tenants moving into a vacant upscale Natomas house . . . "

I've been following this story in the Bee and every time I see the word upscale and Natomas used together in the same sentence, I wince.

patient renter said...

laying off 10,000 or more employees would be next to impossible without gutting core services

I wouldn't say it's impossible to maintain core services with a 5% workforce cut, but no doubt the cuts will be done in such a way that services will definately be effected, partially out of spite, and partially because the decision makers will look out for themselves and their buddies before at the expense of the low level workers who actually provide services.

Cow_tipping said...

Jerry Abbott, president and co-owner of Grupe Real Estate of Stockton...thinks prices won't sag further. "We're dragging along the bottom."
...
In Stockton, the median sales price of $125,000 last month is a level not seen since 2001, said John Knight, professor of finance and real estate at University of the Pacific's Eberhardt School of Business. "I cannot envision that prices are going to continue to go down," he said. "I think we're either at or near the bottom for selling prices." Now the rents that investors can get for foreclosure homes covers mortgage payments for these lower-priced houses and then some, he said, and that's why the market is clearing out the listings.

And this flood of rentals will lets say drive up rental rates and make more and more $ ... so basically ... if its there for rent, people will flood in and drive up $. So is that the concept at work here.
I have these beautiful ocean front lots in Kansas here. I'll take a mere million for a lot.
Cool.
Cow_tipping.

smf said...

Why hasn't anyone acknowledged all these excess homes?

There are more homes than people require, either rentals or for sale.

And still too many believe that prices will come back up, soon.

KTM 300 said...

"I think we're either at or near the bottom for selling prices." Now the rents that investors can get for foreclosure homes covers mortgage payments for these lower-priced houses and then some, he said, and that's why the market is clearing out the listings.

This may be the case based on rental rates in prior years. And I think it is safe to say that many of these homes are buried so deep into the 'hood' that anyone with a job, and or small children would not want to live in the area. That is why people learn a trade or go to college, because they don't want to live in the 'hood'.

By now, many people are more aware of how to examine the pros and cons of renting vs. buying based on that fact that so many people have been burned in the mortage melt down. Regarless of one's experience, and educational background one basic question remains and that is. Why would anyone want to rent property for the same price, or more than they can buy it for?

TwoWheelsBetter said...

Even though I reject your premise--because in nicer neighborhoods rents are still much cheaper than "buying"-- I'll attempt to address your question below.

I rent in Land Park, paying about $50 per day. Assuming a $500,000 average LP home price and a 5% decline in prices during 2009, the average LP house is declining in value by $68.45 per day, every day.

That explains why I'm willing to pay $50 per day in rent.

Oh, and did I tell you I'm not paying home insurance, interest or property taxes (at least not directly)?

>Why would anyone want to rent property for the same price, or more than they can buy it for?

queerbychoice said...

Here is why prices will continue to go down: because one month ago, I was in the market to buy a house in 2009. Now I've been laid off, so I'm out of the market until I find work.

Deflationary Jane said...

KTM,

I'll take your challenge. Find me a 1600 sqft house that will pass fha inspection for a piti of $1200 or less. Must be within 15 miles of UCD and in an area where I will be be mugged within 6 months.

SMF has a good point as usual.

I've been busy trying to locate rental housing for some displaced elderly acquaintenances. I'm wary of people taking advantage of them so I sort of interview the potential landlords. One of the questions I ask is why are they renting the house or condo instead of selling. What I am invariably told is that if they sold now, they wouldn't get what the house is really worth. Seems everyone is banking on 2005 prices.

That being said, it's a really good time to be a renter.

Cmyst said...

It looks like we finally found a rental. We were having trouble because we want to continue living along the 50 corridor between Folsom and Placerville. It seems like we have extremes in rentals up here: either they're old and cramped, or they're humongous and the rent is too high (still not as high as buying that 4000 sf home, though). We also had to find a place with a suitable outdoor area, fenced, and with a lot of storage. A plus was a kitchen big enough for the both of us to cook in at one time, and a jetted large bathtub.
It would have been easy to find a place like this in Elk Grove,Rancho or Natomas (I also cringe at "upscale" used to describe tract housing in Natomas). It took us about a month to find one up here for a reasonable rent and commute time -- but if we'd been willing to rent in Sly Park area or near Cool, we could have gotten the same type of place for quite a bit less rent.
Now excuse me while I go bang my head against the floor while packing. I hate moving so much that if Sig wasn't relocating back East in less than 2 years, we'd have bought just to avoid ever having to move again.

SMF -- one of those articles did say that the area was so overbuilt, and losing population, that projects would have to be bulldozed under.

smf said...

"What I am invariably told is that if they sold now, they wouldn't get what the house is really worth."

We have friends that say the same thing. That is what is so bothersome, when people you know express this line of thinking.

History tells us that it will not happen anytime soon.

Even when we use the 90s bubble, you can see where it is headed.

Look at the peak for both bubbles. If it took 10 years for the 90s bubble to recover, how long would it take for a bubble 4X that size to 'recover' as well.

Deflationary Jane said...

Quick question because you folks know everything:
What parts of Elk Grove are safe to live in these days for rentals? I have two friends moving here. They'll be communting to the campus. I just don't know what neighborhoods to tell them to avoid.

Cow_tipping said...

The 90's bubble was actually recovered only when the 01 bubble inflated. So the right question is, how long before the next bubble. If that is 10 years, then it will recover in ~12-13 years to the 02 price in actual number, not inflation adjusted number.

However, 2015 = death for all house related items. Baby boomers trying to retire and dumping their built in the 60's crap boxes on the market = death for every one trying to sell a house. However presumably the sales may be in the north more than in south, so maybe Minnesota will crash and AZ will rise. But is Sac south or north ? Maybe its north so the retirees will move to San Diego. Anyway whole of CA is retiree unfriendly. I'd would guess, a bottom in 2012-2013 a small rise and back down from 15-45 except for retiree heaven. In retiree heaven, it will be a slow rise from 2015 as no one can sell to get there. Remember, not just retirees are needed to prop up $, wealthy retirees are needed.
Cool.
Cow_tipping.

Patrick J. said...

No where in Elk Grove is really that bad. I would say the older the neighborhood the nicer. Where are they commuting to?

Deflationary Jane said...

Thanks Patrick,
Commuting into UCD. They have an elderly parent they have to provide for which is their primary concern about safety.

norcaljeff said...

Looks like Arnie blinked. No lay off notices to state employees went out, unlike what was said on Wed. Geez, if the private sector were only this efficient. Score another one for public sector work.

Cow_tipping said...

Apparently in my neighborhood there has been an explosion of petty crime, like breaking into cars to steal purses and the like due to the economy and the unemployment especially of illegals. This is in charlotte NC and neighborhoods BTW, where the RE collapse is much less severe as is the unemployment situation per se.
Cool.
Cow_tipping.

Y said...

DJ,
Anywhere south of Laguna Blvd in Elk Grove is still a decent place to live. Definitely stay away from the 95823 zip (Between Mack Road and North Laguna). This area is flooded with Ghettos.

Cow_tipping said...

Seriously I was talking to 2 "high producing" realt-hores over the weekend. They are simply put complete Idiots, and the cake was when they said, we have plenty of lots to build here and in the subdiv across the street, we'll never run out od demand to expand unlike other places that have been built out.
So that's how the new supply and demand works huh ... excellent.
I am wondering if any one else has heard that version of econimics.
Cool.
Cow_tipping.

Deflationary Jane said...

Cow,

You'll love this:
'Stimulus Package: Finally, the federal government is throwing some economic stimulus YOUR way with a credit of at least $8,000 to give first-time homebuyers the chance of a lifetime to purchase a new home!*'

Just as we predicted, the credit will be used to pump up prices and not lower the cost of homes. What complete crap.

My friends think they found a place in a much nicer area. When it's a done deal, I'll post the details. It's freaking incredible and explains some of the shadow inventory. Folks who bought rentals recently should be especially interested.

norcaljeff said...

Cowtipping, even Placer Co is not immune to the new crime wave :) The Roseville Police also seem more concerned with issuing tickets for driving 33MPH in the 30MPH zone on Sunrise rather than fight real crime. It doesn't seem to matter to them that my neighborhood has had 5 home invasion robberies in the past year.