Monday, October 19, 2009

Sacramento Real Estate Market - October 2009 Water Cooler

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

21 comments:

David said...

Interesting Calculated Risk blog post about declining homeownership rate in the U.S. One thing not factored in to any of their equations is the future demolition of wide swaths of single family housing.

1. They weren't built to last forever.
2. They stopped building them like they used to a long time ago
3. Owners can't refinance for major repairs/remodeling
4. Government regulations regarding land use will change

One example of #4 -- There is a move afoot in California to rezone the entire Central Valley as agricultural/water management zone. Almost nobody will live there unless they work on a farm or a water project. Gee, just like the old days.

The impact is more building in the hills, and lots of it. Entire neighborhoods will spring forth and be populated by people forced out of their flood plain homes.

Government condemns existing homes and subsidizes relocation of residents. Don't believe me? Look it up. Meanwhile, don't buy in a flood plain.

Diggin Deeper said...

Tear down homes? Why not?

What gets me is that through the last couple of bubbles (dot.com and real estate) there were millions of jobs created to support what turned out to be false demand. These back to back bubbles were so extended, and excessive, that the jobs created (and lost) will likely never be needed again. Until new industries rise, and create enough jobs to fill the void, to me it's doubtful we're going to see this economy back on its feet anytime soon.

So if they want start ripping down homes to remove the excess, maybe it's not such a bad idea afterall.

Diggin Deeper said...

Look out below! The dollar is breaking down and will likely close below a key resistance level at .76 This does not bode well for purchasing power going forward nor does it induce foreign investment in US treasuries over time. Should this continue, and foreign interests dry up to a trickle, the only way to nudge it higher would be to allow interest rates to rise. That's probably not the best scenario for the Fed as this recovery is long on hype but weak on substance...With Australia the first to raise their prime rate, others may follow suit in defiance of US spendthrift policies.

The bottomline here is that cheap mortgages might not remain cheap for too much longer. If they do blip up while we're in the middle of trying to find jobs for 8-9 million people, the housing bottom, that everyone is calling, may end up being a mirage.

The Feds are boxed in when it comes to the dollar, and the world is coming to the realization that promises to pay are only as good as underlying value of your own currency.

Further falls in the dollar could spell a shift from deflation to inflation in an environment that can hardly handle either.

Diggin Deeper said...

More Americans fall behind on debts: Equifax

http://www.reuters.com/article/ousivMolt/idUSTRE59D4T520091014

This last line says it all...

"It's a Catch-22," Adams said. "We won't see a growing economy until consumers start spending, but consumers aren't spending because they don't feel good about the economy."

Another article from the New York Times stated:

"The Bureau of Labor Statistics does not track pay cuts, but it suggests they are reflected in the steep decline of another statistic: total weekly pay for production workers, pilots among them, representing 80 percent of the work force. That index has fallen for nine consecutive months, an unprecedented string over the 44 years the bureau has calculated weekly pay, capturing the large number of people out of work, those working fewer hours and those whose wages have been cut. The old record was a two-month decline, during the 1981-1982 recession."

If pay for production jobs truly represent 80% of the workforce, and wages are being cut in this segment, what bright mind see's a recovery on the horizon?

patient renter said...

A little shadow inventory anecdote:

On a flight into Sacramento my mother chatted with a woman who works for the State and who in Southern CA inspecting homes that had been seized by the State and were due for sale at auction.

The interesting tidbit is that the State employee said the homes were being auctioned slowly, with many held back, so as to not flood the market. Since when is home inventory a concern of the State?

Another interesting tidbit - somehow my mother mentioned that her dear son (me) was waiting to buy a home, to which the woman replied that I should buy one ASAP since the market is bottoming, etc. It's a funny thing to say, after having just mentioned that the State is intentionally holding back inventory.

Diggin Deeper said...

"the State employee said the homes were being auctioned slowly, with many held back, so as to not flood the market."

Who appointed the state as Goldilocks?

The only hope here is that foreclosures abate long enough for the excess inventory to be consumed.

When you're getting 2 foreclosure for every one released to the market, at some point either the banks fail from oversupply and under capitalization, or the state fails from revenue starvation because home buyers are being restricted from buying into the oversupply.

husmanen said...

Has anyone else noticed an increase in upper end homes coming on the market at prices that are considerably lower than just a month ago?

Here are two:
* 329 Iris Cir, Folsom, 95630 (AS at $400k)
* 2122 Falcon Ct, Folsom, 95630 (Bank Owned, $465k)

With HOAs ($40) and Mello Roos (>$100) these still have at least 10% to go. Rents are between $1900 and $2300 per month.

Of course there are a few houses in the area still asking too much, but still, this may be initial cracks in the upper end armor.

husmanen said...

Jim Wassserman put a realistic eye on the current Sacramento housing market:

http://www.sacbee.com/realestatenews/story/2275726.html?mi_rss=Real%2520Estate

Also, the article adds credence to my ‘feeling’ that the upper end is changing.

“…Sacramento Association of Realtors show just 2.9 percent of October's buyers paid $500,000 or more in Sacramento County and West Sacramento. At today's pace, it would take two years to sell the houses in SAR's territory priced at $650,000 or more, said association President Charlene Singley. The market as a whole has a much smaller inventory of unsold homes – just 3.2 months worth.”

Capitulation is mentioned… and I will be waiting.

husmanen said...

Why not add another post...

First American CoreLogic, which I previously had a lot of respect for, seems to have got into the Kool-Aid.

"...By August 2010 , First American CoreLogic projects 12-month appreciation for national home prices will be 4.6% and that California and Florida, two states hit hardest by the housing downturn, will see gains in excess of 7%."

Where is the support for such appreciation?
* Jobs - NO.
* Decreased Taxes - NO.
* Decreased Foreclosures - NO.
* Loan Mods - Probably NOT.
* Inc Personal Spending - NO.
* Increased Incomes - NO.
* Decreased Interest Rates - NO.
* HomePrice vs. RentalParity - NO.
* More Tax Credits - MAYBE.
* Inc. FHA Loans - MAYBE.
* Deceased Supply - MAYBE.

A lot seems to be riding on a lot of MAYBES.

http://www.housingwire.com/2009/10/23/12-month-price-appreciation-to-reach-46-in-2010-first-american/

sbg said...

husmanen,

I have been following Folsom inventory for quite some time. Regarding upper end homes coming at lower prices, I have noticed this a couple of times in the past. One such home I remember is 2044 BRANDING IRON CT, FOLSOM CA which was bank owned and sold for 454k.

Another property that I have tracking for quite some time is 1369 Marsden Ct. This property was on short sale for more than a year. Realtytrac changed the auction date for this property a couple of times already. Is it a new trend that the sale of auction properties is also being delayed?

husmanen said...

SBG,

Branding Iron Ct had a flurry of REOs lately, 2041 sold for $440k and I don't know what 2052 sold for. I was concerned with the cell towers and the open lots that Elliot does not plan to build on for a long time (asbestos).

I have a handful of properties in EDH and Folsom that I follow, all are pre-foreclosure or bank owned. The pre-foreclosure homes take a long time to actually get an auction date, once they do, they are often postponed.

I would guess average postponement is four (4) months. However, if the owner files for bankruptcy you can count on over a year. Also, I seem to see that the greater the loan difference is from the current market the greater the postponement time.

So to answer you, no, I don't think this is a new trend. I have seen this behavior since 2006.

But things could change at any time, however I don't see why the banks would change their strategy. It works, we still have an artificially restricted market, which they control the supply and prices, in the upper tiers, have not corrected accordingly.

If anyone thinks the banks will change their strategy, please chime in.

patient renter said...

"* Deceased Supply - MAYBE."

That's decreased market supply.

All of these arguments based on our supposed supply are inherently invalid, since nobody knows the true supply, and most don't care to consider what it might be.

Diggin Deeper said...

Banks will probably have no choice at some point. Too many variables moving against them, not the least of which is their ability to continue to service a rising inventory of non-performing loans. As if residential real estate was the only problem, consider:

Today, GMAC (lending arm) is now back to the federal begging bowl for the 3rd time needing $5-7B to survive...

With little or no press coverage, late last week Capmark Financial (think commercial RE) files Ch 11 with $21 Billion in liabilities. Goldman Sachs, KK&R, and Five Mile Capital hold a 75% stake, while GMAC holds 21%. The timing on GMAC's request from the Feds, a couple of days after Capmark fails, is no less interesting...

CIT (small business lender)is not far behind as they scramble to cover $7-8 loan liabilities...again, banks will eventually hold the bag when they fail. Again, if there's 10 to 1 leverage against their portfolio of loans, somebody is going to take a hit.

108 banks have failed this year and we have 9 Fridays left to find out how many more go under during the rest of '09.

Real estate prices might just end up a distant 2nd to a bank's survival before the last wave of foreclosures hit...

PuroClean said...

Home ownership rates in the United States continue to decline. This may seem bad, but it is actually good news for the residential real estate market. Before the housing market can stabilize the home ownership rate must reach a level the market can support.

Before the residential market can stabilize and begin the road to recovery, the housing stock needs to be reallocated to individuals who can either afford to purchase or afford to rent. As this reallocation process takes place home ownership rates will decline, which is good news for the housing market.

paranoid renter said...

8201 Sienna Loop in Roseville listed at 294K which works out to $181 per sq ft. Is this worth it?

I asked the realtor if she thought they would accept a $250K bid and she said no. So for now, I've decided to pass on it.

husmanen said...

PR. What are the rents going for?

Lets just say the house can rent for $1,600 per month. This equates to about a $270k sales price, PITI (20% down, fixed rate for 30yrs). The loan amount would be just under $220k.

I would doubt any type of investor would venture to purchase at this price, possibly a speculator. Why? vacancy rates have not been included, ROI would be very low and maintenance could be 10% per month.

Also, remember there is downward pressure on rents too.

At least the market is getting closer to some fundamentals in this area.

Sold in '05- Bought in '09 said...

PR,

Our 4+ bedroom, 2400 sqft rental of 2001 vintage, on a corner lot in West Roseville was $1725/mo and saw no increases in nearly four years. When it was re-rented after we left, it went for $1650. The landlord bought it with cash in 2005 for $525k. Nearby homes, same or similar floor plans are now selling for just under $300k.

We bought a brand new one two miles away from the rental for $130 sq/ft at 2600 sq/ft.

$180 sq/ft for Roseville, especially those areas north of hwy 65 seems pretty high. Also, that area attends Roseville High School. That's generally the least desireable of Roseville's High Schools.

Hope this helps,

CD

paranoid renter said...

Thanks for the insights. I guess I'll be waiting some more. The realtor said that if the house remains "active" for a while, then we can consider putting in a bid for $250K.

sbg said...

If you are looking to buy a house, would you recommend having a buyer's agent or rather deal directly with the seller's agent in order to be able to bargain more on the commision? I have been following the Folsom inventory for quite some time now.

husmanen said...
This comment has been removed by the author.
husmanen said...

DD. Here is an article on bank failure Friday that supports your " they won't have a choice" comment.

http://online.wsj.com/article/SB125695616220920387.html

Only time will tell.