Monday, July 20, 2009

Sacramento Real Estate Market - July 2009 Water Cooler

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

63 comments:

robert said...

Here's an anecdote to start things off.

A financially responsible acquaintance purchased his 3/1 in Hollywood park, close to Sacramento City College, in 2002 for $192K.

He's Been paying extra each month and has his loan down to $158K. So, time to refinance into a 15 year fixed. Tells me his payment will be the same as the original loan thanks to the lower interest rates and reduced principal.

Here's the kicker. Appraiser comes over, doesn't even bother looking at the house. Just presents some comps and says it only comps at $129K. She refuses payment and promises to come back after a few more sales in the area.

In the end, interest rates go up and the 1% he would have shaved is gone, poof! No refi.

Doesn't matter to him, he'll just keep paying extra every month on the existing 30 year fixed at 5.75%. Has to live somewhere and his current payment is in line with rents for the area.

No doubt there are plenty of stories out there like this one and more to come. More pain, more pain, more pain.

Nothing to see here folks, move along.

David said...

Wall St. Journal says CAR cooked the numbers. Surprise, surprise, surprise. I tried posting this in the June water cooler but the entire link address didn't show up -- something wrong with the way it word wraps, so it's in two parts. Put them together and you have the whole link.

http://online.wsj.com/article/
SB124638992043975185.html

patient renter said...

Happy July any happy IOU day everyone! IOU a more meaningful comment later.

patient renter said...

robert - That's pretty sad, but at least his current rate is still good.

Diggin Deeper said...

"Wall St. Journal says CAR cooked the numbers."

Nothing new here. You can add the BLS report which should be renamed the "BS"LS, the Consumer Price Index, the Producer Price Index, GDP, and most other reports that affect the economy.

California misses budget deadline, readies "IOUs"

http://news.yahoo.com/s/nm/20090701/pl_nm/us_economy_california_budget_3

Under the current circumstances, it appears, as some have reported, that California is "unmanageable" due to unions, wasteful entitlement programs, and paying the freight on about 5 million people, unaccounted for, who don't hesitate using the services and letting the state pay the bill.

Jacob said...

The problem is that CA cannot borrow to pay its bills and raising taxes will lower the overall tax revenue. We are already taxes to generate the max revenue, raise taxes and that revenue just falls.

I'm all for programs to help the needy, or raises for police and FD, but it has to be paid for.

Diggin Deeper said...

"I'm all for programs to help the needy, or raises for police and FD, but it has to be paid for."

Not only is it not being paid for, it's creating a line item deficit that's nearly impossible to deal with.

Some reports indicate that California houses nearly one third (30-35%) of the nation's welfare recipients, due to generous benefits above national standards.

Maybe 5% to 10% of the state's population is truly needy and need assistance. But nearly one third of the nation's welfare entitlement?

Maybe other states ought to be paying us for our generosity.

SteveK said...

Can you provide a link to some (or even one) of the reports that says we have that many welfare recipients? People keeping commenting about it, but I haven't seen anything verifiable yet.

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

SteveK

You might look this over...all data supplied by the US Office of Family Assistance.

http://pajamasmedia.com/blog/california-considers-ditching-welfare/2/

"A June 4 (2008) Sacramento Bee report tells us that 525,000 families, yet another 27,000 more than last September, are now on CalWORKs.

As a result, though it has only about 12% of the country’s population, California’s share of the total U.S. welfare recipients has risen from 22% in 2002 to 32% today. The state has a whopping 869,000 more people on the dole than it would if it mirrored the rest of the country.

There is no defensible reason why California’s caseload should be so obviously and seriously out of whack."

Is it because of immigration, legal or otherwise? No way. The percentage of the population on welfare in Texas and Florida is less than half of what it is in the rest of the country excluding California.

Could it be the state’s stratospheric cost of living? Nope. While above the national average, the percentage of the population on the dole in New York State, which of course includes the country’s most expensive city, is only 1.3%.

Is it the economy? Nice try; no sale. As shown, welfare rolls have continued to fall elsewhere. Additionally, in the year ended September 30, 2008, the number of TANF recipients in the economic basket case known as Michigan dropped by 16%, or over 30,000.

Sadly, it is much more likely that the state’s political establishment, Democrat and Republican, as well as its social services bureaucracy, have both resisted the fundamental national reforms passed 12 years ago at nearly every possible turn. Misplaced compassion here, and surely in other areas, has ultimately led to the state’s budgetary brick wall."

Diggin Deeper said...

Delinquencies Double on Least-Risky Loans, U.S. Says

http://www.bloomberg.com/apps/news?pid=20601087&sid=amq8v.M.ak60

"Delinquency rates on the least-risky mortgages more than doubled in the first quarter from a year earlier as U.S. efforts to help homeowners failed to keep pace with job losses that pushed more borrowers toward foreclosure."

And the negative feedback cycle continues...

Deflationary Jane said...

DD,

I hate to be picky but it's positive reinforcement:
System dynamics
http://tinyurl.com/bf9q34
Behavioral systems
http://tinyurl.com/naghl7

I think both apply, just have to define which loop you're going for >; )

Rich said...

Sweden has cut the savings deposit rate to -.25% That's right, you pay the bank to hold your money for you.

http://globaleconomicanalysis.blogspot.com/2009/07/sweden-cuts-deposit-rate-to-negative-25.html

Diggin Deeper said...

DJ

See what you mean. I liken our situation to forestry management. Do you let it burn or do you put it out. Up to this point we've been unsuccessful putting out this fire and imo it's time to let it burn itself out, rather than put generations in harm's way.

The real estate bubble was bad enough. When the financial system broke down, the economy tanked, and job losses mounted, people's behavior abruptly changed. Probably for the better!

Would you buy a home if you thought your job was at risk, your neighbor just moved out in the dead of night, your dry cleaner bellied up, and there's retail and commercial space all over town sitting empty? The caution signs are flashing and most people are slowing down, carefully assessing things, and not rushing into decisions they might regret later. That will change, when "green shoots" actually deliver jobs with wages.

Cycles are what they are and we probably can't start a new one until the old one is finished...

RV6Flyer said...

"Furloughs expected at California State University system"

http://www.sacbee.com/topstories/story/1999225.html

The article says 2 days, but rumors among the faculty are 3 days.

Jeff said...

I've decided to sign a lease for a year and hopefully by then the market will be more reasonable. I don't know what the deal is but it seems like the foreclosures aren't hitting the market. I make a more than decent amount of money yet I still can't afford to buy more than a crapshack in a bad part of town. Something is still very wrong.

KTM 300 said...

Jeff, very well said. I am asking the same questions. I will not live with pitt bulls and cyclone fences. What good is it to own a home in an area where you have to sleep with one eye open? And where you have some mutt trying to crawl through your daughter's window, knowing that the police will do nothing about it.

husmanen said...

I know my rental is in the NOD target zone, it is only a matter of time. I keep an eye on the rental market, in very specific areas. Actually, the same areas that I would like to buy.

I can still rent for about 30% less than buying, at a minimum.

If something comes up that fits my needs I will move and sign a one year lease. The higher end bottom (makes sense?) is no where in sight, and it too will be long and wide.

paranoid renter said...

Jeff and KTM,

Your answers are here:
http://www.calculatedriskblog.com/2009/07/cnbc-interview-with-bryan-marsal-ceo-of.html

Until we enter the "send the keys in" phase, there won't be much sanity.

All the banks are in "wait and see" mode hoping they will be the last ones standing. If they start foreclosing like crazy, they will have to book losses so all they are doing is buying time before collapsing.

Absolutely no reason to buy a home.

Stock market's legs are starting to wobble. I think we are in line for another steep decline.

Deflationary Jane said...

I have to agree with Paranoid on the markets. I was looking for the first signs of real capitulation and I took my gains off the table little by little. That run from early March to mid June sure was nice though.

I do see properties hitting the trustee sale and being completed, i.e. they go back to the lender. Most were just postponed and postoned and postponed again from Nov to April but then the lanscape sure changed.

Houses that went up in April are starting to hit the mls slowly. A few from early june have made it to the mls but these tend to be homes they are sure they can move at a 40% loss because these were the front runners of the neighborhood.

Also, is it my imagination or are defaults in 95818 and 95819 picking up again? I don't watch these zips other then morbid curiousity.

in_folsom said...

Where do you look for a list of bank owned properties? Is Realtytrac a reliable site to track foreclosed and NOD properties? I see around 300+ properties that are bank owned in the Folsom area where as only about 10 or 11 are in the market.

patient renter said...

"I've decided to sign a lease for a year and hopefully by then the market will be more reasonable."

You're fine. My lease is up next Spring and I'm already thinking I'll re-up for one more.

"I can still rent for about 30% less than buying, at a minimum."

Ditto. So the savings grows...

husmanen said...

Interactive graphic: Looking for the bottom of the housing bust

http://www.sacbee.com/1098/story/1732049.html

Interesting, the Pros seem kind of weak, even for the SacBee.

patient renter said...

I would love to know how that second graph is built - if they're using the CAR's "affordability" metric.

Jacob said...

Well we finally made it to the bottom.

We just lost a few jobs in June, just 467,000. If you add in the laughable birth / death jobs you subtract another 185,000 jobs for new a very small 652,000.

Woo hoo...

Looking at the past few months:
Month - Revised Job Loss - Birth / Death - Birth Death Percent
Apr - 519,000 - 226,000 - 30%
May - 322,000 - 220,000 - 41%
Jun - 467,000 - 185,000 - 28%

So if you take off the birth death factor the real losses are:

745,000
542,000
652,000

But the birth death model is adding a large amount of jobs back in.

http://www.bls.gov/web/cesbd.htm

In June, same as May, the jobs being added are mainly in construction (31k), and hospitality (87k). Yet there are many construction projects that are just on hold and hotels have 50% or worse vacancy rate, I am curious where all these jobs actually exist? Fantasy land?

husmanen said...

I came across this link by PMI, if I understand it correctly, the Sacto area has a 99.9% risk of further price declines.

http://www.pmi-us.com/media/pdf/products_services/eret/ERET_Appendix_0709.pdf

norcaljeff said...

Foreclosures are on moratorium for 90 days, per CA state law. This fall we'll see a windfall of new REOs hitting the market. Patience is a virtue, and can't stop the coming of the second wave in the RE tsunami.

husmanen said...

norcaljeff...

I think Max covers the issue of the moratorium over on his site. From what I can gather there are so many exceptions that the potential impact is probably very small.

http://sacrealstats.blogspot.com/2009/07/more-california-foreclosure-prevention.html

in_folsom said...

Then why is it that there are so many bank owned homes that are not in the market yet? What is causing the banks to hold to so much inventory?

patient renter said...

What is causing the banks to hold to so much inventory?

Marketing the home means booking the loss, something they probably can't afford to do. They're holding out for a miracle, and holding onto the houses in the meantime.

David said...

Keeping inventory off the market is a form of "dodging the bullet". They think they'll reduce their losses by only allowing a trickle of inventory to be sold at a time. We all know where that's going to lead, with the eventual loss far outstripping the smaller loss they would have suffered had they sold earlier. Also, PR is right about not booking losses -- they can pretend the assets are worth more than their liquid value. The best part of watching somebody play "dodge the bullet" is between the time the bullets start coming too fast to dodge and the time the dodger realizes that's what's happening. "Yeah, I can do this. I can do this. I can... Oh, sh*t!!"

paranoid renter said...

If you scroll down to the appendices of this presentation, there's some interesting data on Sacramento.
http://www.zerohedge.com/article/whitney-tilson-why-there-more-pain-come

It looks like we are at around the trendline for home prices, but will most likely overshoot it on the way down before we start to recover.

Diggin Deeper said...

Also, PR is right about not booking losses-- they can pretend the assets are worth more than their liquid value."

This is what the big banks are doing with their failing CDO's and SIV's. The PPIP supposedly will allow banks to "show and tell" pushing those bad assets onto public/private investors where most of the risk lies with the Feds...or better yet you and me.

This is what our state is trying to do to control a $26 Billion shortfall...rather than balance the budget, they're trying to push it out to be paid off later.

This is what the Japanese banks initially did back in 1992-93 and it created a recession/depression they've yet to come out of.

Adding a six month supply of new foreclosures to a 6-8 month inventory of quarantined homes, awaiting some magic Fed fix, is like calling 911 to report your house is on fire, and week later the fire trucks pull up. You may fix 5% of the loans, but add 95% of the problem back onto the bank's books. At some point the banks get overwhelmed.

Ought to be interesting.

Mortgages continue to fail, debt service continues to mount, banks fail each week, and the assests that forced failure get transferred by the FDIC to a new bank that's got it's own portfolio of failing assets.

You tinker with the system, and eventually you pay the price.

Diggin Deeper said...

Obama says stimulus plan to kick in later this year

http://news.yahoo.com/s/nm/20090711/pl_nm/us_obama_radio_economy_4

"Obama's comments follow government data showing the unemployment rate soared to 9.5 percent in June, the highest level since 1983 and above the 8 percent peak predicted by the White House when it worked with Congress to pass the package."

Obama now predicts unemployment to reach 10%. Hope they haven't understated this one!

Misread it? Geithner said yesterday the government was blindsided by the derivative failures that are at the focal point of this downturn. Bernanke and Lereah must have been comparing notes. While Obama contiues to place the blame elsewhere, new polls are showing that the American public is beginning to view this as Obama's economy.

"Obama said it takes time for the plan's money "to get out the door" to pay for roads, bridges and other infrastructure projects that will create jobs "because we are committed to spending it in a way that is effective and transparent."

Shades of Katrina or is it something more important?

Imo, regardless of how badly people are suffering through this downturn, no political capital can be gained by stimulating the economy much before the midterm elections. It appears the strategic impact from the stimulus package has been orchestrated to hit broadly in 2010.

Politics before pain...what's new?

patient renter said...

The sad thing is our leaders are using the failure of government intervention as justification for more government intervention. It's a neverending spiral of stupidity.

patient renter said...

Via CR: 70% of Sac area sales in June were distressed

http://tinyurl.com/n9fqgo

Diggin Deeper said...

Home Sellers in U.S. Cut Prices by $27 Billion, Trulia Says

http://www.bloomberg.com/apps/news?pid=20601213&sid=agq0NRuqLW38

It's tough to pay a mortgage if you don't have a job and it's tough to find a buyer if they think they're next...

Sacramento has lost 45,000 jobs so far and sports a 11% unemployment rate. With the state in dissaray, it's hard to believe that layoffs won't escalate and continue to plague the area.

The caution flag is remains up...

b1whois said...

i see on the right hand links today a link to the sacramento business journal where they interview 3 local economists about the near future economic outlook for the sacramento region. all three economists agree on end of 09/ begining of 10, of course. but....

the second guy, the CSUS dean of school of business says "Typically, the stock market precedes an improvement in the economy by about six months, Varshney said, adding that the current performance of the stock market points to a recovery beginning by the end of the year."

and i wonder, is this what they are basing economic outlook on: the performance of the stock market? i think the stock market is drinking the koolaid and i pulled out on june 10.

so, is this true? they predict the economy based on the stock market?

Diggin Deeper said...

Predicting the economy based on a forward looking stock market is dangerous in a "balance sheet" recession/depression. You have to assume that banks will be healthy, willing to lend, states have ample revenue to support debt, and a public that can pay down debt quickly. You also have to assume that job growth will emerge and outstrip job losses going forward.

None of that looks too promising.

The state is so screwed up financially that the only way that makes sense is to cut people, services, and debt load. It will directly affect Sacramento, its economy, and job losses moving forward. And it won't stop real estate prices from falling further from here.

The caution flag remains up!

patient renter said...

"a "balance sheet" recession/depression"

Exactly. This aint your parent's recession. With so many convenient mechanisms having been setup for companies to hide their debt (Goldman is a perfect example, with their fancy earnings report today) it's not likely we'll see any meaningful recovery. Too many analysts are easily distracted by the stock market and earnings, and that's exactly how companies like Goldman intend for it to be.

RV6Flyer said...

For DJ

http://www.sacbee.com/topstories/story/2026511.html

Deflationary Jane said...

Thanks for the link RV6.

We knew this was happening but it just took a while for the numbers to be expressed in data.

One thing I didn't think about until recently was that all those LLCs that bought distrssed homes for as little as $.17 on the dollar are now able to undercut on rents with little effort even after rehab costs. All those mom and pop investors from last year are going to get crushed by these firms with deep pockets. I'm willing to bet we will see that second wave of defaults in 2011.

Did you see this up above?
http://www.news10.net/news/story.aspx?storyid=62988

I have my suspicions about whether the divorce forced the default. I've seen too many couples divorce in name only and pile the assets all on one person to wash the balance sheet while the other spouse retained the good fico and cash.

Then again I was thinking we'd see the small ww2 homes in those zips go first before the super prime hit the courthouse steps but who knows now.

RV6Flyer said...

Jane, I have my suspicions about the foreclosure as well. I chatted with the wife once while walking our dog. She is a real estate agent and her husband owns a mortgage company. I ran a quick title search on them and it looks like they went a quite the spending spree in 2006, buying this house and a commercial property on Main St in Roseville.
My experience with mortgage brokers and real estate agents is they are always looking for an angle, trying to find a way to beat the system.
Also, they are selling that house for less than it appraised for at the begining of 2000. There was $850,000 in loans against it in 2000.


Did you see Wells Fargo dumped $600MM in bad loans for 35 cents on the dollar. Sac Biz Journal has the story. That is a good way for PE funds to pick up homes on the cheap.

Diggin Deeper said...

The Economy Is Even Worse Than You Think

http://online.wsj.com/article/SB124753066246235811.html

This is an excellent commentary from Mort Zuckerman on jobs picture and the economy in general. At least he's willing to look under the rocks to find out what's really happening out there.

"The Bureau of Labor Statistics preliminary estimate for job losses for June is 467,000, which means 7.2 million people have lost their jobs since the start of the recession. The cumulative job losses over the last six months have been greater than for any other half year period since World War II, including the military demobilization after the war. The job losses are also now equal to the net job gains over the previous nine years, making this the only recession since the Great Depression to wipe out all job growth from the previous expansion."

Diggin Deeper said...

Govt.'s Wall Street, bank support could be $24T

http://news.yahoo.com/s/ap/20090720/ap_on_bi_ge/us_meltdown_oversight_4

"The watchdog overseeing the federal government financial bailout says the government's maximum exposure to financial institutions since 2007 could total nearly $24 trillion, or about $80,000 for every American."

Gulp!

husmanen said...

Folsom - renter update. The rental down the street from me sold at the court house steps a short while ago. It originally went NOD in October.

The bank, for some reason, sold the house at 60% less than the loan amount. It was bought by a flipper, which paid my neighbors to move. They had the option to stay and pay rent or leave with a one time sum, a few thousand $. They left.

I heard from a potential buyer that it is Pending Sale. The rent on the house was $1,600 per month. But at the current asking price the PITI would be about >$2,000/month.

Further proof that some areas have a ways to go.

PS. The flipper will make a good $70k in less than a month. Not too bad and an awesome ROI.

patient renter said...

Why indeed would a lender take such a big loss. I assumed the lender was always and ever only willing to let the house go (on the courthouse steps at least) for no less than what was owed. Perhaps little was owed.

husmanen said...

Nope, a ton was owed and I cannot figure out why they put it out there for an amount so much lower than the loans.

If I remember right they tacked on about $50k for fees etc, but that still left a huge chunk. They appear to have taken in the shorts.

Then again, even with the flip, the house is still about 40% less than the loans. They were going to take a hit anyway.

This type of bank action I have not seen before. I looked up a lot of houses, in EDH and Folsom, that were to be sold at the court house steps and only a few were sold this way. All recent. Interesting.

Jacob said...

There have been stories like this for the past several months. Banks bidding less than what is owed on the house when it is auctioned off.

But it has been different area, different banks, different price ranges.

Seems like they are saying, lets dumb x% and get whatever we can get now.

husmanen said...

Here is a very interesting write up on Rental Parity:

http://www.irvinehousingblog.com/blog/comments/coldbrook-woodbridge-irvine/

norcaljeff said...

Anyone see the Land Park home featured on HGTV's "What's My Home Worth" last night? This couple bought in 2004 for $450K, then put $40K into the home and wanted to see what they could sell it for. This show historically over shoots to the high side on price. The realtor said he would put it on the market for $450K. Filming and production lags about 6 months on that show so that price has to be lower than that now. So much for the areas of Sacto that are "immune" to the slow down.

RV6Flyer said...

"So much for the areas of Sacto that are "immune" to the slow down."

I haven't heard too many statements claiming certain neighborhood are "immune," but there are certain streets and neighborhoods that have faired far better than others. If that house was in Elk Grove I don't think it would have appraised for $450M.

David said...

Wall St. Journal has an article about reaction to the new appraisal management company business model. The comments from professional appraisers are particularly insightful.

I've had trouble posting long URLs to this board, so I'm cutting it in two halves:

http://online.wsj.com/article/
SB124857099399781509.html

Buying Time said...

Sac Bee Home Front has some detailed data from MDA Data Quick on foreclosures and NODs by zip, the % change and number per 1000 homes. Interesting stuff.

http://www.sacbee.com/static/weblogs/real_estate/archives/2009/07/defaults-starti.html

husmanen said...

BT, am I reading the MDA data correctly? EDH has had an increase of NODs YoY of 60% (129 Q2 2008 to 205 Q2 2009) while the NOTs have decreased 30% (77 Q2 2008 to 54 Q2 2009).

If I compare the ratio of NODs that went to NOT (sold at auction/title transfer) for Q2 2008 to Q2 2009, I get a huge decrease. 60% of the homes that were NOD went back to the bank in Q2 2008 and in Q2 2009 the number is only 26%.

There could be a number of things going on here, to name two obvious ones:
1)Loan Mods are in full force and being worked out, people are avoiding foreclosure
2)Banks are filing NODs but not following through, this tends to fall into the ‘shadow inventory’ category

Any others?

Buying Time said...

Husmanen -

The same trends in the DQ data are in my foreclosure data as well. It's not a conversion issue, but an intervention issue.

Basically, foreclosures dried up due to the legislation passed last fall...they weren't handing out any NODs from like Sept to Jan....so consequently, not as many resulting foreclosures on the market now (and the previous foreclosures have eventually sold).

But since that time, NODs have returned to their pre-legislation levels...there was a big wave recently, but that seems to have leveled off.

I will try and post some charts later this week...been crazy busy with my day job.

husmanen said...

BT...thanks for the info., yeah, I forgot about the "moratorium" related changes.

Arvind said...

Is it me or is harder to find home rentals in the Ashton Park area?

RV6Flyer said...

Home prices rise for the first time since 2006

While acknowledging that the report was good news, Mark Zandi, chief economist for Moody's Economy.com, downplayed the importance of a single month's statistics.

"I think it's a temporary respite," he said. "It reflects the recent decline in foreclosure sales, and prices will continue to fall over the next several months."

Deflationary Jane said...

Hus and BT,

Here is what I have from my tiny sample:
The columns are
week ending
County
# of pending sales
Change from previous week

4/11/2008 ED County 173
6/8/2009 ED County 386 223%
6/15/2009 ED County 371 96%
7/13/2009 ED County 405 109%
7/20/2009 ED County 395 98%
7/27/2009 ED County 392 99%

There were no moritoriums in effect last April. It's a small sample but I don't usually pull anything for the foothills. I pulled some lists for BT last year and still had those so I started grabbing data in june to see if the change was steady.

husmanen said...

The summer doldrums I guess..................

RV6Flyer said...

http://finance.yahoo.com/tech-ticker/article/293365/Housing-Bottom-No-the-Mother-of-All-Head-Fakes?tickers=^dji,^gspc,hd,l,len&sec=topStories&pos=9&asset=&ccode=

husmanen said...

Rich Toscano from Voice of San Diego has a nice perspective on the home price rally. There is also a great chart on seasonality.

http://www.voiceofsandiego.org/articles/2009/07/31/toscano/690homepricerallyperspective073109.txt