Sunday, May 24, 2009

Sacramento Real Estate Market - May 2009 Water Cooler

Post off-topic links, observations, and stories about the Sacramento real estate market here. Please read the comment policy before posting.

133 comments:

David said...

New to this discussion, so please bear with me. We've been looking in Sacramento for a year now, and the one thing that irks us most is rude sellers' agents. They don't show up for appointments, don't answer their phones, don't return calls, try to discourage us from submitting offers, don't respond to offers within 3 days and generally act like they're doing us a favor by acknowledging our existence. Our buyers' agent (whom we love) is in Solano County, and one local agent actually told us we should dump that one and hire a local. I suspect these agents are trying to steer their sellers toward buyers represented by the same realty company so they can double dip the commission. Today I finally said I'd had enough of being treated like dreck. We submitted a fair offer on a Carmichael house and got no response within 3 days. I told our agent to inform the seller our offer had expired, and we'll put in another one for $5K less next week. We'll continue to do that until we get some respect. These people are pretending their properties are made of gold when they're losing between 1 and 3 percent of their value PER WEEK, and I'm not going to take it any more. By the time I can get an appraiser out there, the contract price is $15K too high. Thanks for listening.

Jacob said...

There is no reason to buy now.

If you try with a normal seller then you have to deal with their fantasy valuations, also there is a floor to what they will accept in most cases, based on what they owe. That floor may or may not be realistic.

If you try a short sale you will never hear back from anyone for months. And if you ever do hear back, by that time your low ball offer is now too high.

If you try an REO you have to take it as is, have to compete with investors and speculators, and most on in really bad condition.

The market rallied because monthly job losses declined to 620k... 620k job losses in a month and that passes for good news.

Government doing everything they can to NOT release the results of the stress test. I don't know the results but I do know if the results were positive they would have been released long ago and the propoganda machines would be spinning that info in every available media format.

Foreclosures are going to increase drastically this year, and we thought last year was bad.

You still have that tital wave of Alt-A coming, and then Prime loans fail en mass (some already are).

So why even buy? You can rent a house for less and no risk. Prices will decline, inventory will increase, and you may lose your job. And once you buy the neighborhood may go to hell. Better to play it safe and wait it out. Once we get to the bottom there will be plenty of time to buy.

Banks have so much shadow inventory, it will take years, if not decades, to absorb it all. It is cheaper for them to bulldoze brand new homes in S. CA. then to finish them and try to sell them. What does that tell you?

As for realtors, so far they have all been nice to me, although most are pretty stupid and know less about things then I do. Of course the first thing they ask me is if I have an agent and I say no, so maybe that makes them nicer cause they want my business.

I was looking at open houses last year hoping to buy this year, but I have given up on 09. I still pop in to an open house from time to time, but I am starting to care less and less...

Jeff said...

Who buys these new houses with postage stamp sized lots? Seriously.

Example: 3104 LEA STERLING WAY Rancho Cordova, 95670

paranoid renter said...

Jacob,

Great analysis. Agree 100%!

I guess with Silverton bank's failure the FDIC is taking a chance to see how it can handle the failure of a reasonably-sized bank. We need to see how those go.

sacramentia said...

David, I wouldn't take it so personally. The purpose of the exercise should be to find a house for your family, not to get some respect from a bunch of people you don't care about.

If you have an agent, why are you calling agents and what appointments do they need to show up for? Sounds to me like your agent isn't doing their part of the job.

patient renter said...

Hey David - Personally, I like your approach and I think its justified, but Sacramentia makes some good points.

David said...

The only appointment we needed the seller's agent to show up for was the initial showing. More than one was reluctant, saying that was our agent's job. I explained to them that we preview the house and get our agent involved if it meets our minimum criteria. Most agreed to show it after we were able to convince them that we were not time wasters. Some just flat-out refused. Please note we always asked if there was an open house so the seller's agent would not have to make a special trip just for us. Sadly, once we did write offers and the communication was between agents, the sellers' agents went incommunicado, not returning our agent's calls or e-mails. I am talking about agents affiliated with well-known companies. I did not read about this on a blog, it happened to us twice in the last month. Our offers are strong and our agent works for an instantly recognizable household name. The only answer I can come up with is the local agents are trying to keep all the commissions local, preferably in-house, by freezing out out-of-towners and giving preference to buyers represented by the same realty company.

Regarding getting a little respect, it's like tailgaters on the freeway. Do you get out of their way and let them recklessly endanger more people or do you stand your ground and let them know they can't push everybody around? If you think it's not your problem, remember one of them may represent you or your parents some day.

sean said...

Simple way to avoid tailgaters : Don't drive in the fast lane. It is for passing. I don't care if you think you are going fast enough. If someone else chooses to go faster in the fast lane, don't stay there to teach them a lesson. It is just dangerous.

sacramentia said...

"More than one was reluctant, saying that was our agent's job." The time showing homes is really what the buyers commission is paid for. The seller's agent is paid to market the home. The real question is my mind is do we really need real estate agents to have a functioning housing market?

The two easiest deals I've ever done were for sale by owner with no agents to muddy the water during negotiations by creating drama or not responding. All the paperwork was handled by escrow.

When you think about it, by the time you enter escrow the buyer wants to buy the house and seller wants to sell. At that point you're just fighting over bullshit that is usually less than 1% of the deal. Why pay someone 3% to negotiate for an amount less than the fee?

I think it is respectable that you are taking a stand. Good luck.

Rich said...

Not that this blog is about traffic or anything, but a lot of tailgaters don't care what lane you're in. They'll happily sit on your bumper in the right hand lane while you're keeping up with heavy traffic.

My response is to slow down until they pass me. Not to teach them a lesson, but to get them in front of me where I can control the distance between us.

patient renter said...

Here's a nifty little site that overlays the OFHEO home price index with the per capita income index.

http://www.zoyzoy.com/realestate/ofheo.php?msa=40900

The spread is still around 2002 levels.

Deflationary Jane said...

Almost 24,000 homes, apartments vacant in Sacramento area
http://www.sacbee.com/realestatenews/story/1833742.html

I was able to get the lease rate on my place down to 1875 from 2200 when I was looking a few months ago. Reduce or die investards >; )

patient renter said...

The timing of that SacBee article was classic, following the NYT article.

norcaljeff said...

Instead of looking at real estate maybe you ought to be texting. Sounds like the thing to so in Sacramento: http://tinyurl.com/dkcbmy

Lander said...

PR - That's a nice little charting tool you found. I added it to link list. Not even in overshoot mode yet!

David said...

Bottom Callers discussion ad nauseam. Everybody is talking about prices and inventory. NOBODY is talking about rates. No matter what happens to prices, rates are only going one way from here, and you know which way it is. It does not matter if the price of the house you really, really want drops another $100K if you can't get a loan to buy it because you can't afford the payments because the rates are so high. There is a case to be made that we are entering the sweet spot and that it won't last more than a few months. Do the math -- what "costs" more, a $250K house at 5% or a $200K house at 7.5%?

Jeff said...

You are sounding like a Realtor there David...

Rising rates will put downward pressure on house prices. But go ahead and 'BUY NOW', since rates are 'SO GOOD'!

patient renter said...
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patient renter said...

"Do the math -- "

Ok, let's do some math.

$250k loan @5% for 30 years = $1,342/mo.

When rates go up and prices go down, perhaps you can snag that house with a:

$200k loan @ 7.1% for 30 years = $1,344/mo.

Similar enough. Which is better? Say you decide to sell and move after 5 years. With the $250k loan @5%, you'd still owe $226,442. With the $200k loan @ 7.1% you'd only owe $186,592. Which would you choose?

As for your scenario, with a $200k loan at 7.5%, after 5 years you'd owe $187,470 a savings of 39k over the 5% loan. I'd take the lower loan balance with the higher rate any day.

patient renter said...

I should also add, in that scenario David proposed, the loan balance would always be less with the 7.5% loan all the way unti 2037, 2 years before the loan is paid off.

Again, I'd take the lower loan balance with the higher rate any day.

Deflationary Jane said...

ok David, let me follow your logic here-

Affordability is based on the principle, interest, taxes, and ins (PITI). In the past, price increases were supported by the move to dual income families and wage inflation. One is a one time event and the other a generational event.

Say the house is a starter at 150k and your interest rate is 5%. You want to move up in 5 to 10 years, so how are people going to be able to purchase the house later on when rates return to their historical averages? I always wondered about that.

Deflationary Jane said...

Ha! PR was reading my mind

verification word: ingrate **snickers**

David said...

Thanks for the lively discussion. Nope, most assuredly NOT a realtor. I'm trying to look at it from a primary residence "buy and hold" perspective. Anybody who buys with the intent to sell within the next 5 years is screwed, we all know that.

So, if you intend to make your 360 mortgage payments (thanks to those who did the math) then $250K at 5% is roughly equal to $200K at 7.1% in terms of gross cash out.

We can argue over whether the feds will continue to allow the mortgage interest deduction for the next 30 years, but right now the $200K loan saves a little on income taxes 'cause you're paying more $$ in interest over the life of the loan. Regarding property taxes, the owner with the $250K loan can get reassessed at the lower value and have the same savings so that's almost a wash, and all of this assumes Prop. 13 is not repealed.

Fence-sitters also have to consider whether they want to wait until the $8K federal tax credit for first time buyers expires (if eligible, as most of you readers are).

Here, then, is the question: When that $250K house drops to $200K (and we're all certain it will eventually) will the rate be less than or equal to 7.1% and will the $8K tax credit still be in effect?

In our particular case (high dual income, no kids), we're getting raped on taxes until we have a mortgage so there's more pressure for us to take the plunge even though we know we're going underwater from day 1. I'd rather give my money to a businessman than to the government -- the businessman will put it to better use.

Considering the factors above, that's what I mean when I say we may be entering the sweet spot and that it won't last for very long.

FYI we just made an offer on a house that is so good we won't mind if the value drops 20%. If it comes through, you're all invited to the party. As always, YMMV and keep those zingers coming :)

RV6Flyer said...

"I'd rather give my money to a businessman than to the government"

Whoa there David. I think a few on this blog may think the reciprocal is more appropriate.

So the two big huge assumptions in the case of buy now with low rates or buy later with high rates is where rates and prices are going.

Do you really think we have another 20% downside on the median price? Do you really think we will only be at 7.1% on a 30 year conforming once this money gets moving in the economy?

Do you remember when mortgage rates were 20% during the last period of high inflation?

With inflation through the roof and the purchasing power of the dollar going down the tubes, I would much rather be in my 4.5% loan with a higher notional value than an 18% one with a slightly lower principal balance.

Higher rates do not entirely equate to a lower house prices. The interest rate on a mortgage is not synonymous with the coupon on a bond. It is the income a house can generate that also determines the value of the asset--just like the coupon on a bond is what determines the income.

Rents have as much or more impact than rising rates.

But, during an inflationary period, will rents continue to decline?

Jacob said...

The higher priced home will also have to pay more taxes. Yes you can try to get that lowered, but even if you do it will lag behind real values and is only temporary, as prices go up, your tax basis would go back to the initial amount.

Second you might save more on the mortgage interest deduction, but you still have to pay the interest. So you pay $10k a year and save $3k, you are still out $7k.

And interest rates are a big proble. So you buy now at $250k and get a great deal and want to sell later and interest rates are at 8%, that will really hurt the value of your home.

Or you can wait, save, and get the home at the cheapest price possible. That will keep your taxes low, also if you buy when interest rates are high you could have the possibility to refi at a lower rate later on. And if your interest rate / purchase price are in line with the norm then when you sell you will likely not be at a disadvantage.

And if you owe less on the home you can always pay it down faster. If I buy a home at $250k or $150k for the same home, I would always prefer the cheaper price because it is less $$ to pay off.

And the government can't keep interest rates in check forever.

Jacob said...

In our particular case (high dual income, no kids), we're getting raped on taxes until we have a mortgage so there's more pressure for us to take the plunge even though we know we're going underwater from day 1. I'd rather give my money to a businessman than to the government -- the businessman will put it to better use.
Again you have to pay the TAX to get the partial DEDUCTION.

So you pay lets say $30k in taxes now. You want to take out a mortgage that will cost you lets say $20k a year in interest, and you get a deduction of around $40% (28 fed, 9.3 state). So you pay $20k and save $8k in taxes. Seems like you are behind by $12k...

So it is a bit more complex, you rent now, what is your cost, compare to the full cost of owning, are you saving $12k (in this example), if so you break even (while accepting a huge risk in price declines of your home).

That said, if you found a home you like and want to stay there long term then best wishes. I myself do not see a V recovery, so prices will be low for a long time imo.

RV6Flyer said...

"If I buy a home at $250k or $150k for the same home, I would always prefer the cheaper price because it is less $$ to pay off."

"I myself do not see a V recovery, so prices will be low for a long time imo."

So, Jacob, which is it? Low or another 40% drop. Each post your comparable future value gets another 20% haircut.

I personally think the lower priced homes are in some kind of bottom and if that is your target market, then why not get the low rate. I really think you are taking a big chance thinking a home that has dropped 50-70% from the peak is going to give up much more.

RV6Flyer said...

"So you pay lets say $30k in taxes now. You want to take out a mortgage that will cost you lets say $20k a year in interest, and you get a deduction of around $40% (28 fed, 9.3 state). So you pay $20k and save $8k in taxes. Seems like you are behind by $12k..."

The savings is a little better than $8M. The deduction puts you past the standard deduction and into an itemized deduction where suddenly even more write-offs begin appearing. Personal property and income tax can be written off, charitable deductions, points on the loan origination, ect. Before you know it, another $20M in deductions appear.

Deflationary Jane said...

Actually, I save 14.4 a year by renting and living very, very frugal.

I'm waiting for the tax credits go bye bye before I start looking again. I'd rather have a 20k or better price reduction then a $8k credit. It's all about getting that principle down as fast as possible.

RV6, Rents need wage increases to really get any benefit from inflation. Renters are already doubling and tripling up like I suggested years ago with the resulting vacancy issues. I think there is plenty of downward pressure on rents to last a while. And I agree on the bank rally. I'm back on the shorting bandwagon myself.

and the ba

RV6Flyer said...

"Rents need wage increases to really get any benefit from inflation."

I never like to admit it, but you may be right. Inflation with none of the benefits.
I think this repression is just a warm up for the main act in 2012/13.

Jacob said...

I don't know how much more home prices will decline. But when economists are predicting another 20% it could be really bad. I remember the good old days when we were only 5% from the bottom...

Agree with getting into the itemized deductions area. You also get to deduct your state taxes which can help a bit. But there are also other costs for the home, such as taxes, hoa, maintenance. Just saying that you need to be getting a really good deal over renting to make it work out.

Even as far as prices have gone down we are still not at 3x income for homes. Will we ever get there or are we at the bottom now? I will wait and see.

Like DJ I am saving a lot by renting now, so am in no hurry. I still look at open houses and maybe if that perfect house comes along I will bite. Maybe.

When job losses go back down to 250k loss a month and then better I will get more serious.

Husmanen said...

You know I think I am getting a deja vu here.

We discussed something similar in January, bottom of comments.

http://sacramentolanding.blogspot.com/2009/01/msm-confession.html Its always good to revisit the situation and times have changed (even in just a few short months).

patient renter said...
This comment has been removed by the author.
patient renter said...

I personally think the lower priced homes are in some kind of bottomToday's medium priced homes (homes in better areas) will be tomorrow's lower priced homes. Pre-bubble, a starter tract home in Broadstone (Folsom) could be had for 100k. I doubt we end up back at that point, but we're to get a lot closer than we are today.

RV6Flyer said...

"Pre-bubble, a starter tract home in Broadstone (Folsom) could be had for 100k."

Back to the rents thing. How much did that starter home rent for in 1996 when it was built, how much will it rent for today, and how much lower will the potential rents go in the next three years?

This plays a huge role in price discovery. Like them or not, investors and wanna-be investors will continue to buy if they think they can get close to break even cash flow.

Husmanen said...

I use rent prices (rental parity) as one of my major metrics to determine a potential bid or market price.

Over the last few years I have gathered data from various sources, property management sites, Craigslist, etc to develop my own comparison of very limited areas in EDH and Folsom.

What I am missing is what RV6Flyer referred to... historical data.

Anyone know how to get historical data on SINGLE FAMILY house rental prices?

The rub is always finding the single family since the data is often skewed towards apartments.

patient renter said...

Like them or not, investors and wanna-be investors will continue to buy if they think they can get close to break even cash flow.I don't doubt it, but investors alone can't stabilize prices; and just as cash flow will prompt an investor to buy, further depreciation will prompt them to walk.

T said...

If prices go down then rate will go up. Thats how it is. You can't really save. It would come out very similar so just look and take your time to find that dream home. :-D

RV6Flyer said...

DD and DJ, this is for you. I wish I could see the preformance of my portfolio now. I did quite a few multi-family deals in the 2007 and 2008 vintage. That is an ugly looking chart.

http://online.wsj.com/documents/CREOutlook20090325.pdf

Barron's also had a great article about commercial CRE the week before last. It was the cover story, I will try to find it online without needing a subscription.

Diggin Deeper said...

It appears that general consensus believes that conditions will remain the same in this market for many years. We'll have low rates due to deflation, we'll have low RE prices due to excess, etc. I'll buy the low RE prices due to excess....

Most assume that our neighbors are in the same situation as we are. Most assume that when rates rise, prices will fall in a dollar for dollar lockstep. It's all very logical, and may be true, if nothing changes in the next 20-30 years.

The given is that the Fed is gifting the public with fixed rates that are probably unsustainable over an extended period of time. The inflation rate at sub 1% is probably unsustainable as well. Historical data that spans nearly 60 years points to average mortgage rates closer to 8% than 5% and inflation rates closer to 4% than sub 1%. To me it all boils down to what a dollar will buy in the future. I'll wager it buys a lot less in 20 years than it buys today...including real estate. Unless the world comes to an end, its a safer bet to believe that home prices in 20-30 years will be much higher than they are today as the dollar continues its downward trend.

Consider the dollar has lost over 7% of its value since January, retreating on fundamentals rather than rising on fear. Most likely this is due to a worldwide lack of confidence in our economic policies. You can watch the monthly tabs for foreign purchases of our Treasury debt and it quickly becomes clear there's little or no appetite remaining for longer term paper. If this wasn't true, the Fed wouldn't be have to consume the shortfall, as now doing. Short term notes get a bid because rates are much less volatile in 2 year or shorter period notes. So if long term debt won't command buyers, then rates at 3% on the 10year and 4% on the 30 year have no where to go but up...if confidence does not return soon, way up! I wouldn't be surprised to see mortgage rates at 8% by the spring of next year...

I'm not saying the general public, ought to buy into this market, but there are segments that will fare very well if the intent is to buy and pay off a 5% fixed mortgage over a 20-30 yr term. Someone mentioned earlier about remembering 18-20% mortgages...Just considering that an 8% mortgage is 38% more expensive than a 5% mortgage quite a bit of pricing risk falls away when longer time horizons come into play.

It's all about the dollar...and eventually what it won't buy.

patient renter said...

the intent is to buy and pay off a 5% fixed mortgage over a 20-30 yr termSure, but if the intent is to upgrade to a different house sometime before then, the lower rate/higher prices might not win out.

Decline to State said...

No doubt DD and PR.

If you aren't in it for the long haul (MIN 10 yrs IMO) you are going to be fighting a VERY uphill battle.

Diggin Deeper said...

PR...good point...with prices now pushing down to these levels, some are skipping that next transition because they can buy a hellofa lot more home than when the market was on fire...and they've had a few years to add to their war chest. I suspect that the 5 year period will eventually shift out further due to necessity and not due to personal financial strategy. It might be that you'll need to pay down you're mortgage in order to have enough to make the next move. And you really don't start building equity until you've been in the home for good while.

The instant gratification of the euphoric 1970-2006 period in California real estate is probably dead...at least for quite some time. You don't buy to make a killing overnight in this market. You buy for reasons that more resemble why your parents bought in California decades ago...family, schools, proximity to work, neighborhood, etc. It's a big change over the orgasmic greed that took place here for so many years. It will take awhile, but people will finally catch on that you buy for different reasons than before the crash.

There's also appears to be a shift in values as DJ has pointed out... frugality and saving resources now plays a bigger role in family life. Can multigenerational living be that far behind, where pooled resources buy homes that stay in the family for future generations?

The fixed rates today, are what they are. If we do see a shift toward longer stays in housing, then the low rates probably do matter.

Jeff said...

*taps his fingers*

When will the new foreclosures hit? You know, the ones held back from all the legislation.

I hate waiting.

Diggin Deeper said...

Rv6Flyer...thanks for the report... by the content it appears some good friends of mine ought to bail out of the strip mall investments they made in Phoenix. I'm going to pass it on to them...

CRE is just another shoe that's going to hammer the banks, and retail/commercial clients. It also appears that Insurance companies are heavily exposed to this area as well. Talk about an industry that stretched for yields, the insurance business could really be a sleeper that causes lots of financial havoc.

Looks like the Dutch Boy doesn't have enough fingers to plug all the leaks that are sprouting.

Jacob said...
This comment has been removed by the author.
RV6Flyer said...

"Insurance companies are heavily exposed to this area as well."

I am still doing some brokered money on the side and believe it or not, the stupid cheap insurance money is coming back onto the market again. For 10 years the insurance companies were lending 90% LTV at 1-2% below market. Lehman Bros funded most of their loans this way. Charge a couple of points and slap a big pre-pay on the loan and this mitigates risk? I thought the insurance companies were full of propeller heads that know how to price risk?

In any case, they are back and putting money to work at stupid LTV's and rates.

Diggin Deeper said...

US to borrow 46 cents for every dollar spent

http://hosted.ap.org/dynamic/stories/U/US_OBAMA_BUDGET?SITE=AP&SECTION=HOME&TEMPLATE=DEFAULT&CTIME=2009-05-11-09-41-03

"The government will have to borrow nearly 50 cents for every dollar it spends this year, exploding the record federal deficit past $1.8 trillion under new White House estimates. Budget office figures released Monday would add $89 billion to the 2009 red ink"

The good news is Obama has found $17B that can be cut from his budget...Wow, instead of adding in $89B we'll only have to take on another $72B...until the next revision...probably forgot to add in some low interest carrying costs on that deficit.

Spending at 13% of GDP, while adding in past debts that are probably closer to 80% of GDP (without SS/Medicare liabilities included)is a financial disaster....The only way it all gets funded is through Treasury note/bond sales, adding to a bubble that's bigger than the dot.com/housing bubble combined...

No one knows how long interest rates can be forced down at low levels. It depends on how long the markets will buy into the stupidity...

Doesn't bode well for our housing market when things do swing the other way.

patient renter said...

"The good news is Obama has found $17B that can be cut from his budget"

Yea, WTF is the deal with that? Cutting a fraction off of a record budget is supposed to be getting tough on spending? I am wondering how anyone can report this with a straight face.

Jacob said...

And the record budget defecit is still being based on projected growth next year I believe.

So the estimates are terrible as is, but the gov will spend more than estimated and will take in less than estimated so we are even more screwed.

Might be time for the USA to break up into 50 pieces...

RV6Flyer said...

http://finance.yahoo.com/news/Homeowners-Turn-to-Renting-cnbc-15216285.html?sec=topStories&pos=1&asset=&ccode=

Diggin Deeper said...

"Cutting a fraction off of a record budget is supposed to be getting tough on spending?"

Let's put that into perspective so we can see just what effect that savings has on the budget.

$17 Billion saved represents approximately 36 hours of government spending. By the time you wake up Thursday morning, that savings will be spent and then some!

Diggin Deeper said...

U.S. foreclosures jump to record high

http://news.yahoo.com/s/nm/20090513/ts_nm/us_usa_housing_foreclosures_3

"California had the third highest state foreclosure activity rate in April after a 10 percent drop from March, with one in every 138 housing units getting a filing."

Wait 3-6 months and we'll see another fresh batch...

Husmanen said...

The pattern of homes for sale in the Sacto area (93-09)has definitely changed in the current market compared to previous markets, even the downturn from 90 to 97 did not look like this. Check it out:

http://media.sacbee.com/smedia/2009/05/12/22/481-3B13HOMES.xlgraphic.prod_affiliate.4.gif

Diggin Deeper said...

Husmanen...

That's a steep decline...If the banks control most of the inventory (projected at 60%), by holding back, they might be trying to force price stabilization. No sane person has a reason to sell in this market unless they're being transferred, or leaving the area for other reasons. That leaves a balance of distressed owner/occupieds and bank inventory that make up the current homes for sale.

It may be that we'll see a sucker's rally in housing here, before the next wave of foreclosures hit...I've predicted the median would rise, and if we see another uptick in those prices, some will see it as an "all clear" signal...If banks are controlling the market, with supplies being constrained, any bottom would be bogus until their inventory falls to a reasonable 3-4 months supply...

It shouldn't take more than a 3-6 month period of time to confirm whether we're approaching a true bottom or not...

patient renter said...

U.S. foreclosures jump to record highGreen shoots, all around!

"The pattern of homes for sale in the Sacto area (93-09)has definitely changed in the current market compared to previous markets"

This downturn had masses of foreclosures and bank inventory, unlike anything seen before (and it's still going), so it might be hard to compare inventory.

Jacob said...

That decline is pretty steep compared to the last bust. But you have had several foreclosure moritoriums, and even without those you have many people not paying their mortgage and NODs have not even been filed because the banks are swamped. Plus the banks have a ton of inventory not officially for sale.

On the economy side job losses got better (relatively) this last month.

So we may be approaching a bottom in housing and an end to the recession.

personnaly I don't think we are nearing the end now or anytime soon.

patient renter said...

"On the economy side job losses got better (relatively) this last month."

Subtract the census hiring, and wait for the revisions :)

Husmanen said...

With a bifurcated market we could have mixed signals, the lower end meets fundamentals where the mid and upper ends do not.

I expect the median to increase since the lower end sales dominated and now it is the mid and upper end's turn.

Banks still control the market, with that there are few 'buy up' buyers. Basically the buyers now are filling a lower end gap, no move ups.

Of course there are cash buyer out there but they are probably a lot less for the mid and upper range, and there are definitely less 'specuvestors' as the rental parity equation is still far off for the mid and upper range.

Agreed, by the end of the year we will definitely see the where the trend is going. 20/20 hindsight is very good. There is no rush.

patient renter said...

"I expect the median to increase"

Ditto, and I'm not looking forward to the subsequent storm of bottom calling that we'll have to endure.

David said...

IMHO, the median price rise is due to low rates. People can afford a better (= more expensive) house on the same monthly payment when rates drop. In any case, I think the more relevant statistic is sales price per square foot -- it's not going up. Rates will go up, and the median price will move inversely whether the shadow inventory becomes visible or not. It's all about qualified buyers.

Jacob said...

Oh yes, I am waiting for the NAR and MSM spin machines to go into full swing when the median goes up. They will leave out the reason why of course...

The lower end is being supported by first time buyers as well as investors and specuvestors.

1) First time buyers can afford this price range, even the down payment should be easy enough to get.

2) Investors can rent these homes for positive cash flow (for now at least).

3) Specuvestors / flippers can fix these homes up and sell to 1 and 2 and make some $$.

It will be interesting to see what happens to the next price range / move up home market.

1) Fewer First time buyers can afford these homes. So your demand pool is low.

2) Investors can't really rent these larger homes out and make $$. The numbers just don't work out.

3) The specuvestor has fewer people to sell to.

4) If you are trying to sell a home in this range you also have to compete with new home builders since these types of homes seem to be what they are mostly building.

5) I don't have any numbers, but just from looking around at all the new homes being built over the past few years I think that there is a disproportionate amount of larger homes as opposed to entry level homes. This causes a couple problems, first there are too many built for the imagined demand, and banks will be taking back so many and with so few buyers these prices will crumble.

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

"So we may be approaching a bottom in housing and an end to the recession."

Recovery is predominantly consumer driven. Without them, forget about getting out of this mess anytime soon. 70% of our economy depends on public buying patterns...real estate is no different.

During the dot.com era CC loss rates peaked at close to 8%. Today we're running at loss rates a little over 6%, or at about the same rate we ran in 2006...still a pretty good economy at the time.

The full impact of CC losses will have to be subtracted from the banks bottom line and buy some accounts that's going to be just under $200B. So I guess the stress test accounted for these future losses when they determined needy banks would require $75B...

I doubt it....

Jacob said...

Yea it will be interesting to see what the revised job losses for April are, since the BLS always revises upward.

In 2008 we lost 2.60M jobs.
In 4 months of 2009 we have lost 2.66M jobs.

In 2008 25 banks failed.
In 4 months of 2009 33 banks have failed.

While I am starting to see some relatively positive information, imo all that will get burried under the tsunami of crap headed are way.

Credit Card losses, CRE losses, Alt-A losses, followed by Prime losses...

David said...

Looking at the Sac'to Bee's DataQuick table for home sales recorded in the area during March, the median price per square foot tells a story. Clearly, Folsom has not found its bottom with sales off 9% YOY and ppsf only down 12.5%. Discounting all areas with fewer than 25 sales in the month (sample too small), every other area has experienced a steeper drop in ppsf and a RISE in sales YOY. That sales dropping/ppsf down a little pattern also shows up in the more expensive Sacramento proper zip codes (i.e. 95818), though the actual sales numbers are small and may skew the statistics. The overall message I get is the low end of the market is much closer to bottom than the rest and sale prices are sure to soften considerably in places like Fair Oaks and Land Park. That said, we just put in a bid on a short sale in Fair Oaks that comes in right at the median ppsf in the table because it's the perfect house for us, there is no rental property on the market that has the right location and will accept large dogs and we can't stay where we are.

patient renter said...

G'luck with the place David.

Diggin Deeper said...

Here's a rumor that someone ought put down....

According to the Financial Times, Moodys is making threats with regard to the AAA rating of US Debt...That ought to make the Chinese feel comfortable about the debt they're holding.

I wonder if there will be an official Washington reponse if true?

patient renter said...

Moody's serves as a ratings agency at the pleasure of the US government, no? I would think the conflict of interest would prevent such a downgrade from ever happening.

David said...

After the Crash http://afterthecrash.net/?p=920 has an interesting post on the subject of dollar strength. He posits the inflationary (= dollar weakening) pressure of printing dollars to stimulate the economy is offset by the government's accumulation of tangible assets. Not just "full faith and credit" but stock in Citibank, etc. and a few million parcels of real estate. May make the dollar more attractive and help it keep its place as the world's de facto currency. Not quite a gold standard, but better than what we've got right now.

Diggin Deeper said...

PR...no doubt, and I'm suspect of the truth on this one. Downgrades are orderly and usually over an exended period of time.

But if this is true it will be substantiated very soon.

patient renter said...

"the inflationary (= dollar weakening) pressure of printing dollars to stimulate the economy is offset by the government's accumulation of tangible assets"

Not likely. Take Citi for example. The government's preferred shares in Citigroup were converted to common shares at more than twice the market rate. The government could more than own them outright, but instead they intentionally overpayed. That's not my idea of a fair "offset".

The same goes with anything though - the government overpays. It's a great reason why the government generally shouldn't be in the business of owning things.

patient renter said...

To your other point about these tangible assets making the dollar more attractive - printing dollars and overpaying for assets should have an absolute negative effect on the currency. Who wants to hold a currency that's being tossed around like monopoly money in exchange for a bunch of junk debt? Eventually this will become a problem.

David said...

Well, it wasn't exactly MY point, it's the blogger's point. I know we taxpayers overpaid, and I know the assets could diminish in value. After the Crash basically said if all other currencies are only backed by their governments' full faith and credit, then we're the one-eyed man in the kingdom of the blind.

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

If one were to buy all the stock of GM today, it'd take about $700 Million to own it outright. A chickenfeed hedge fund could buy it tomorrow, but they won't. Why? Because it will never profit again under current conditions...throw Citi in that mix, BofA, AIG, Chrysler...many more to follow. Bankrupt companies don't have enough assets to overcome liabilities and losses...or they wouldn't be coming to the money trough month after month....

patient renter said...

"if all other currencies are only backed by their governments' full faith and credit, then we're the one-eyed man in the kingdom of the blind"

I getcha. Here's the way I see it -

A government is best off letting people assume that the full faith and credit backing of its currency is based on sound decision making. Coming out and wasting a bunch of money, such as with the bailouts, puts the decision making of the government into question, which in turn would harm the currency that it backs.

In other words, a government is better off letting the currency be backed by their presumably omnipotent decision-making, as opposed to being backed by a reputation of bad decision-making along with a few junky assets.

Diggin Deeper said...

"In other words, a government is better off letting the currency be backed by their presumably omnipotent decision-making, as opposed to being backed by a reputation of bad decision-making along with a few junky assets."

Well said! Confidence is key to a currency's health. When there's fear, confidence builds toward currencies most likely to be least affected...and since the dollar is the world's currency reserve, it rose in '08 from a low of approximately .73 to .89.

But once the fear diminishes, then a currency rises and falls on fundamental merit...balance of trade, public savings, debt to GDP levels, etc.

Imho fear is not a trendmaker, it's an emotional response that usually wanes fairly quickly. That's probably why the dollar has fallen to nearly .82 since January. The rest of the world is shocked at the massive debt the US has taken on since the new administration came aboard. All those changes are coming with a huge pricetag that take away production rather than expand it.

The Russians and Chinese are making noise that the dollar should be melded with other currencies to shore up confidence as they watch their cache of Treasuries fall in value month after month. The greater concern is whether we'll be able to pay back the debt...

Lastly, over the last 40 years the dollar has trended down...and the current fundamentals of high debt to GDP, borrowing a dollar for every two we spend, unfunded SS/Medicare liabilities, with insufficient production to deliver repayment revenues, is not the best landscape for a strong dollar...or low mortgage rates in the future...

patient renter said...

Apparently members of the State legislature think it is their duty to stabilize home prices:

http://www.sacbee.com/business/story/1859760.html

David said...

It's all about the taxes, sweetie. The state and counties are salivating over all that potential revenue that won't be realized until those new homes are sold. That's why there's no state credit for existing homes. The bulk of them would get reassessed at a lower tax amount that the current assessment, and we can't have that, now, can we?

Diggin Deeper said...

Gerald Celente Trends Alert - The "Bailout Bubble" - The Bubble to End All Bubbles

http://yonkerstribune.typepad.com/yonkers_tribune/2009/05/gerald-celente-trends-alert-the-bailout-bubble-the-bubble-to-end-all-bubbles.html

"Washington is inflating the biggest bubble ever: the 'Bailout Bubble.' "This is much bigger than the Dot-com and Real Estate bubbles which hit speculators, investors and financiers the hardest. However destructive the effects of these busts on employment, savings and productivity, the Free Market Capitalist framework was left intact. But when the 'Bailout Bubble' explodes, the system goes with it."

What is so compelling about "bubbles" that we can't seem to exist without one???

Celente has a respected track record as a prognosticator....

David said...

Hee hee hee I told my mother six months ago that Obama would take us to war for the same reasons. She must have told Celente.

patient renter said...

I just love this though:

"Assemblywoman Anna Caballero said 'every home that’s built generates more than $300,000 in economic activity.’"

Sounds like the path to prosperity is to build an endless number of homes, eh?

Diggin Deeper said...

What a joke! there's no activity generating even enough to pay Caballero's salary.By the 4th of July, unless we do something dramatic, the state's going to have to ask for some tarp funds. We can use Disneyland, the Hearst Castle, and our pot fields as collateral. Or maybe we'll just hand over 30,000 foreclosures to the Feds and convince them they'll make profit if they just hang in there. That shouldn't be too tough a sell....

Jacob said...

And we have more ballot measures which cause more long term problems and don't fix the short term ones...

Legalize and tax pot and prostitution. Release everyone from jail for petty drug crimes. Sure leave the dealers in prison but the people that were busted with a couple ounces of pot or whatever, let them out.

Cut the excess prison guards, parol workers, court clerks, lawyers, police that would no longer be needed. Or use them in other divisions instead of hiring more people.

And come up with a budget that is balanced. We need to make tough cuts to do this, but raising taxes forever is not the answer.

We need to think long term as well and should be cutting taxes to lure businesses to CA. It may seem counterintuitive but if you raise taxes and a business leaves you get $0.

Force the governement programs to do more with less. Our school system gets so much money that it is rediculus and it is never enough and our schools are mostly crap.

But we won't do that. Instead we will spend money in a hopeless effort to prop up home prices (i.e. tax revenue) which won't work. We will base of budget on projected growth (which won't happen) and we will underestimate spending (as usual) and just kick the can down the road.

sacramentia said...

"Our school system gets so much money that it is ridiculous and it is never enough and our schools are mostly crap."

Per pupil spending in CA is 47 out of 50 states, so I don't think we spend too much on schools.

The top 3 problems that I'd like to see changed are:
1 - Gerrymandered districts and closed primaries. This has allowed extreme groups to control seats in the house since the elections are not true elections in balanced districts. This will change in 2012 and generate more moderate state legislators that can govern from the center.

2 - Ballot Initiatives - This process allows any group to put an initiative on the ballot and direct funds to whatever cause they can get voted for. (i.e. $10 billion for a high speed train we can't afford). Regardless of the validity of the project is ties the legislature's hands during the budget process since there is not much discretionary money to work with. This needs to change.

3 - Public Employee unions that negotiate with politicians. There is no check and balance here (see point #1). The unions should have to negotiate with those paying the bill for the benefits. (like a non-partisan group of business leaders,etc..) Not with a group of politicians that need the union votes badly.

Rich said...

interesting read:

http://www.nytimes.com/2009/05/17/magazine/17foreclosure-t.html?_r=2&em=&pagewanted=all

patient renter said...

Sacramentia - good stuff.

Jacob said...

I wonder where CA ranks in school spending outside of the classroom (i.e. administrative costs). And where we rank in terms of money spend vs state budget?

Ballot measures are ok, but we need to do away with allowing spending based on borrowing or selling bonds or taking moeny from the lottery or any other accounting BS. You want project x then we will raise taxes or raise fees to pay for it.

Of course we would have to put in limitations on the types of tax otherwise we would just tax the top x% of wage earners to death.

It's easy to approve spending when it doesn't cost you anything to spend it.

Diggin Deeper said...

"Public Employee unions that negotiate with politicians."

How about this "can 'o worms"

Why not enforce the "right to work" model, and contract out allowing businesses to run state government using their efficiency models, pensions, benefits, incentives, etc...as an incentive, pay them a percentage of the savings they'd find...they'd drool at the chance...

patient renter said...

"Why not enforce the "right to work" model, and contract out allowing businesses to run state government "

There was a comment on a SacBee article this morning where someone suggested just that. Several people responded that this was a bad idea, presuming that once private companies got control administrative costs would be raised.

I'm thinking before we get public buy-in on something like this, the public will need to be educated about how market competition works. Legislators too. The problem is that so much "market" involvement in government business is the result of limited or no-bid contracts, or various other corruption, the public is understandably weary of letting the private sector in.

Deflationary Jane said...

Just an observation while driving back from east sac down P street to the I5, I have never seen so many for rent signs!

This is my old home turf from 93 to 04. I thought they were for sale signs until my passenger pointed out that they for lease/rent instead.

Husmanen said...

Rich... That NY Times article was great. Love the last line where they haven't paid in 8 months. Hopefully they have been paying down their credit cards.

This is along the same lines, although fictitious, follows the same track.

http://blog.youwalkaway.com/?p=164&ref=patrick.net

Patrick J. said...

P street has always had tons of for rent sings, it is huge renter street.

Lander said...

Residential...Commercial...now Industrial real estate takes a fall.

From the BizJournal:

The recession finally is taking its toll on industrial real estate. Until now, industrial space has held steady during the crash that hit the more speculative segments of commercial real estate. But those days are over. Local brokerages are reporting a significant surge in vacancy rates for industrial space.
...
During the real estate boom, industrial properties experienced steady leasing and sales but were not fodder for the rampant speculation that is making the recession harder on some suburban office and retail markets. But it appears industrial properties haven’t been shielded completely from the effects.

Deflationary Jane said...

Patrick, you missed my point. I live there for over 10 years and drove down P at least once a day during that time. I have never seen as many for rent signs as I did last weekend.

Patrick J. said...

ok Fair enough, there are a lot of rent signs. I'm renting myself and waiting to buy in Midtown. The people on this blog have been helpful....

Husmanen said...

In previous posts we discussed buying as a hedge against inflation.

Here is an interesting article titled "Is Buying a House Catching a Falling Knife or a Practically Foolproof Inflation Hedge?"

http://www.oftwominds.com/blogmay09/housing-inflation05-09.html

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

Husmanen

Interesting....So what's it going to be...endless deflation or it's evil twin...inflation?

If BB had his way, he'd take inflation over continued deflation. His academic past gives a pretty good glimpse of what to expect...his present track record doesn't appear to conflict with his past...and if one looks back into history, over several periods of monetary supply growth, there seems to be a strong correlation between money supply, a weaker dollar, resulting in higher prices, which produce inflation as the net result.

Our first home was bought new in 1977 and in Ontario, CA. I paid $32,000, with a fixed 9.75% interest rate. I was paying $.60 for a gallon of gas and drove 45 miles each way to work. I don't pay $.60 for regular today. My entry level salary was $22,000 per year, and I paid $8000 for a new car the following year. At the time I felt financially strapped...but putting things in context over the entire timeline, the price of that home is now a downpayment, a professional entry level salary is now 2-3 times what I was paid, and an average new car is 3-4 times what I paid in 1978.

Push the world forward 30 years from now. Does anyone believe that general prices in 30 years will be the same or less as they are today? Real estate included?

Husmanen said...

Using the Inflation Calculator by the BLS inflation between 1977 and 2009 is 351.88%. DD.. your price references would be something like this…

Item 1977 2009
House $32,000 $112,602
Gas $0.60 $2.11
Salary $22,000 $77,414
Car $8,000 $ 28,150

The gas and the car sound reasonable. The salary? Not sure. The house? Maybe. What do you think?

I think it is possible to have deflation and inflation for a period of time (until bubbles are completely exhausted), then inflation for all.

As for housing there can be many levels, as the lower priced homes may not deflate much more and skid along the bottom while med/upper priced homes have plenty of deflation room left, at least two years at the same trend line. Unemployment, stock market, retirement, raising interest rates, trade-up buyers etc will hit the mid/upper more than the lower priced homes.

We live in interesting times…

Here is the Inflation Calculator link:
http://data.bls.gov/cgi-bin/cpicalc.pl

Husmanen said...

My hyperlinks do not seem to work using the HTML tags associated with "a". Does anyone else have this problem?

Lander said...

help here

Diggin Deeper said...

Husmanen

I checked on that home recently and it was in the neighborhood of $150-160K. More likely 5 times what I paid for it....

I can only say that the wages were base wages without bonus and were at a time just before the inflation pop of the late 70's and early 80's.

Long term trends do have milestones that can be measured. And when taking into account the trend of the $ over the last 30 years, it's pretty safe to say, that without some major corrective action, the downward trend will continue. In fact it might even accelerate due to the debt/deficits that are piling up. At some point when things settle down it probably will affect home prices to the upside...

If a homeowner's desire is to live in a home until it's paid off, as a buyer they're better off timing mortgage rates, then worrying about a 20% decrease in prices that are already 50-60% off the highs.

Fixing your acquistion costs at the lowest possible rates lock down today's money for 3 decades. That's a given. Will the price of real estate be lower in 30 years or higher? If it's higher, by a factor of inflation, and you have the lowest fixed acquisition costs in 2009 $'s, there's no need to try an time market pricing...

Husmanen said...

Ahhh, think I got it now....

http://www.oftwominds.com/blogmay09/housing-inflation05-09.html

Jacob said...

Home prices will be higher in 30 years for sure, on a dollar basis. But might not beat inflation by much and price to income might be lower overall.

It will be interesting this time around because of the global work force. Conpanies don't have to give pay raises to keep up with inflation when they can just hire people overseas.

Of course there are costs to do that as well, and you do have to keep your core people paid well to stay in business, but there is still probably a lot that can be trimmed. One has only to look at the job loss numbers to see that.

One thing that is not addressed much except on the blogs is the over supply of larger homes. These homes won't usually rent for positive cash flow and there isn't enough demand to buy them all. Add to that, who says the next generation will even want to buy a home, they may want to rent and be mobile.

Look at the last 10 years and prices of everything has gone up, but wages have been flat. And I just don't see wages shooting up across the board anytime soon, regardless of what inflation does.

It seems to me that housing is still a risky purchase. The cost of medicine, gas, energy, insurance, everything is heading up, wages are flat, employment is declining. Seems to me that house prices will still trend down for a while.

But I do agree that if you want to stay in a home for 30+ years that locking in a rate at around 4% should prove to be a very smart move over the long haul. But isn't the average time spent in a home like 5 years? So for most people they would be better of renting and saving for those 5 years instead. imo.

Diggin Deeper said...

California rejects budget fix, fiscal future cloudy

http://news.yahoo.com/s/nm/20090520/ts_nm/us_california_ballot_2

"The public is under the delusion that they can have everything -- potholes filled, new freeways, a good education system -- but they aren't willing to pay for it ... A lot of critical services are going to be cut and there will be serious consequences," said Jim Hawley of the Elfenworks Center for the Study of Fiduciary Capitalism at St. Mary's College of California.

Schwarzenegger last week said 5,000 layoff notices would be sent to state employees, and spending cuts could fall hard on education. That stunned teachers whose school districts are already under financial pressure as their revenue shrinks."

Actually the public appears quite lucid and now demands that government do more with less. The real "green shoot" in this mess is a public that is now fully aware of the consequences of deficit spending. Imho, the California voter just "shot one over the bow". It will be interesting to see how much of a ground swell this causes across the rest of the country...

Sadly, many state workers will lose their jobs. 5000 initial layoffs is likely to be just the beginning...

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

Depending upon conditions, 5 years could shift out to 10 or 15 and change the entire RE landscape across the countryI read over at CR that on average about 6% of homes turn over per year. So if we get into a situation where people stay in their homes much longer and even fewer homes are bought and sold what does that do to our inventory problem?

The builders could all close up shop tomorrow and stay closed for the next decade and we would probably be just fine in terms of supply. There is so much already built, we will probably see a lot more demolition to get rid of the excess.

But it is just more pressure on prices.

Diggin Deeper said...

"But isn't the average time spent in a home like 5 years? So for most people they would be better of renting and saving for those 5 years instead. imo."

That's the way it was...but is the same thinking going to prevail now and into the future? A lot can happen in 5 years...all of it unknown. A neighbor a couple of blocks over has his family, parents, and grandparents living under the same roof. They've got cooking and sleeping quarters in their garage. They plant melons and vegetables on the hillside across from their home. Other neighbors are pissed and want the HOA to do something about it. Here's a family that's pooling together to survive.

DJ alluded to people doubling and tripling up in the same home. This is far from a gentle and subtle shift in thinking...for many it's a way of urban survival.

Depending upon conditions, 5 years could shift out to 10 or 15 and change the entire RE landscape across the country...In the US we used to build close to 2million new homes every year based on that pattern. Push it out 5 years and you don't need to build but half that...if that.

Just watching this debt clock is enough to question whether the $ will strengthen enough to keep inflation at bay.

http://www.usdebtclock.org/

patient renter said...

So if we get into a situation where people stay in their homes much longer and even fewer homes are bought and sold what does that do to our inventory problem?With the way the job market has been changing in recent years, forcing people to relocate to find work within their field, I think there's an argument to be made for people spending less time in one home. People don't often relocate just for the hell of it - it's their job that prompts the move.

Diggin Deeper said...

Jacob...

The idea of bulldozing property isn't all that bad. Reducing housing supply, by whatever means, may be the quickest way to supply/demand equilibrium...That won't guarantee that prices will go up, but it would go along way toward putting a floor underneath what seems to be an endless supply...at some point housing would then resume its role as a hard asset subject the purchasing power of the $.

Diggin Deeper said...

Whoa! Big moves down on the 10 year and 30 year bonds today as rates are pushing higher by a bunch. All in the face of the stock market which is giving ground, and the $ continues pushing lower. Another strange day when one considers that the $, bonds, and stocks rarely move together in the same direction. This has happened twice in two weeks...maybe an anomoly, maybe a change...We'll see soon enough.

Mortgage rates should push higher in the weeks ahead...maybe much higher if the Fed can't hold rates down by purchasing debt...

Jacob said...

Well you saw how brand new homes were being bulldozed in S. CA a few weeks back. Eventually we will get to a point where you can't sell the inventory at any price.

Once everyone that wants to buy does so, investors get their fill, speculators get their fill, I think there will still be an excess. Then what do you do?

You buy a nice 3000ft2 house in a nice area, then a few years later the government owns 80% of those houses and turns them into multi-family section 8 housing... That will do wonders for your resale value...

Jacob said...

CA shot down all the propositions (thankfully) so now the question is what does the government do next?

They will lay of 5000 people to start, but the problem is that they could lay off 100% and still have a budget problem, not even factoring in the ripple effects throughout the economy that every layoff makes.

Will they try to repeal prop 13? At least the voters would shoot that down hopefully. But instead will they take on a "fee" to every home owner to help balance the books? We already raised the car tax and sales tax.

Continuing to rent gives you the option to easily bail on the state if things get too out of hand.

patient renter said...

Continuing to rent gives you the option to easily bail on the state if things get too out of hand.Amen. Unfortunately, things are pretty bad elsewhere as well. We're just hanging out for now.

Diggin Deeper said...

"not even factoring in the ripple effects throughout the economy that every layoff makes."

This is probably going to badly hurt businesses on the periphery serving government contracts. These contracts will come under pressure to be renegotiated down to levels that will leave many unemployed, or taking pay cuts just to keep working.

The irony of it all is that govt. work rules will employ based on seniority, and jettison lower cost inviduals fully capable of doing the same job...So those that remain are the highest paid, have the greatest amount of vacation time, comp time, sick leave, personal time off, etc. What you end up with is far fewer work days per individual at the highest possible cost per individual.

Husmanen said...

PeonInChief got a link on Patrick.net regarding the new fed regulation on tenants in foreclosed properties.

Very interesting for renters as it increases the time to move out after foreclosure from 60 days to 90 days, with one caveat (if the new owner is moving in.)

Here is the link:

http://tenantsforeclosure.blogspot.com/2009/05/new-federal-legislation-on-tenants-in.html?ref=patrick.net

Diggin Deeper said...

Trouble Ahead: Millions of Mortgages Will Ratchet Upward Soon

http://moneynews.newsmax.com/headlines/option_arm_adjustable/2009/05/21/216954.html

"The next wave of foreclosures is going to have much higher average loan balances, so each foreclosure will hurt banks more than subprime foreclosures did.

This is going to be a huge problem, van Dijk says. Unlike sub-prime mortgages, these were for the most part targeted at more upscale homeowners, including high-end gated communities"

Probably doesn't bode well for EDH, Folsom, maybe even the 40's and Land Park start to give back as well...

Husmanen...it appears if you wait this out, you'll be rewarded...now if those pesky mortgage rates would cooperate for just a few more months...

Husmanen said...

Did you guys see the article on Calculated Risk today? Rates are moving higher, 10 year treasury yield is 3.7% which is suggested to correspond to a 5.6% 30 year mortgage rate.

Here is the link:

http://www.calculatedriskblog.com/2009/05/mortgage-rates-moving-higher.html

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

I think we're in the early stages of interest rate increases. We'll see fits and starts with wild gyrations in rates, but eventually this bubble's going to pop like all the others before it....

Not enough buyers out there to consume all the debt the US needs to finance. The Chinese appear to shortening up on their purchases opting for 5 year notes or less. Plus the $ has weakened and smart money's not buying out 10 years+ with rates this low...A simple review of the Treasury's TIC report reveals where foreign money is parking their reserves...

The Fed miscalculated...they can't control rates by buying debt with debt...It's a sucker's bet to buy into the longer end of this treasury trap

It's all about the $ and there's nothing fundamentally positive to boost it's value.

husmanen said...

Spoke with a loan broker today at a social event and he said the change in interest rates yesterday killed a lot of his clients that were refinancing and were on the bubble, i.e. were going to save a couple hundred a month. They are gone.

He also said that he had a couple buyers that did not lock in and they have pulled out of the deal. These homes will go back on the market, probably with further price reductions. Then the buyers can come back later.

Interesting times.

Tony said...

This is an interesting take on the concept. I never thought of it that way. I came across this site recently which I think will be of great use (insert site). Check it out! Big thanks for keeping me entertained.

Deflationary Jane said...

I saw something on CR about a info leak saying that Heli Ben is not committed to keeping rates low, that could certainly be a problem.

What occurred to me is that people who bought within the last 9 months intending to flip are going to be in a world of pain because it reduces the affordability. I saw a house in Oak Park, bought late last year for 80k, they did some minor fixes so it met FHA guidelines, and now they want 139k. Rates going to 7% and up are should take a bite out of their profit.

Diggin Deeper said...

DJ

Agree! Could we possibly see another leg down as buyers put on the brakes waiting for prices to balance out with rates?

I read yesterday that the Fed will force banks saddled with Tarp money to buy long dated treasuries to keep rates low. Rates are responding by backing off yesterday and today...and the $ is freefalling below .80 as of this moment...but adding to the irony...as the $ devalues rates should move up in response...not down!

Trying to think this through..the only money the banks have to loan is Fed money, and if they're forced to buy T bonds, then where does the money for loan purposes come from?

As the Maestro would say "It's a conundrum!"

patient renter said...

"I read yesterday that the Fed will force banks saddled with Tarp money to buy long dated treasuries to keep rates low. "

Man, that's cruel. I guess manipulation goes both ways, to the benefit and the detriment of banks.

"Trying to think this through..the only money the banks have to loan is Fed money, and if they're forced to buy T bonds, then where does the money for loan purposes come from?"

Good point. I wonder when the rest of the Treasuries market will figure this out.

husmanen said...

This is going to make a good book someday, a tragic thriller maybe. Do I understand this right?

So the Feds are buying treasuries to keep interest rates low, this is obvious and documented AND they might be forcing the banks that received TARP funds to also buy the treasuries. Our tax money is going to buy treasuries, via the banks?

Diggin Deeper said...

Husmanen...think of it this way, the Fed said it would buy $300B in Treasury bonds over 6 months. Call that front door buying...very transparent. But $300B won't come close to covering the spending needs (we're on $3.6 T budget), so they might be forcing the banks to buy what's needed out the back door. Probably very little transparency for awhile. When the banks tried to give back the Tarp money, it would have been a welcomed gesture...the Treasury resisted taking it back, and it looks like they may have had other plans...

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

Here's Ambrose Evan-Pritchard's report on our Treasury bond situation...

Bond markets defy Fed as Treasury yields spike

http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/5402260/Bond-markets-defy-Fed-as-Treasury-yields-spike.html

"The US is at the front of the firing line. Beijing is clearly losing its patience with the Fed's policy of printing paper, seen as a form of stealth default. There is some risk that further moves to step up quantitative easing could cause China to boycott US Treasury auctions. China and Japan together hold 23pc of all US federal debt."

If bond prices continue to break down, the effects will curtail any of the "greenshoots" we're supposedly seeing elsewhere in real estate, stocks, credit markets, and the financial system...It's too big a market, and too fluid, not to have a major impact on the overall economy...

husmanen said...

Lander, always wondered what the average, median and maximum are for your watercoolers. Collect any stats?