Nothing But Shattered Dreams

From the Lodi News-Sentinel:

John Smith [Name Changed by Request] says he was duped. The 31-year-old Galt native thought he was buying into a dream when he and his wife purchased their home at The Villas of Lodi in November 2005.
...
Yet as soon as Smith moved in, his dream and his neighborhood began to crumble. The homes that had been snatched up so quickly at the peak of the housing boom sat empty for months at a time, with their owners nowhere to be found.

Green lawns turned to brown, left unkempt in the hot spring and summer months. Tall weeds began to sprout in place of neatly landscaped front gardens. "For sale" signs popped up throughout the neighborhood, replaced later by "for rent" signs. Pigeons began to roost on top of abandoned homes, leaving a mess below.

Smith's vision of a vibrant community of homeowners — as promised by builder KB Home — vanished. "There's just not a lot of homeowners here," he said this week, noting that his neighbors now consist of renters, from a trio of exotic dancers next door to a group of five young men nearby who throw loud parties late into the night.
...
Smith and a few of his neighbors acknowledge that they bought their homes at the worst time possible. (Home prices have slumped since 2005).

But they also contend that KB Home misled them about what kind of community they were moving into — a now blighted neighborhood they say threatens to drag their home values even further down. They say the home-building giant promised to not sell to out-of-town investors — people who likely would not live in the homes or take close care of them...Reached for comment this week, a KB Home spokesman said his company can't always control who moves into one of their communities.
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The Villas are not the only community in the region that has seen out-of-town investors buy and then abandon homes, due to the sluggish market. "For sale" signs dot many Lodi and Stockton neighborhoods. And foreclosure rates in San Joaquin County are the highest in the nation, according to RealtyTrac, which publishes a nationwide list of foreclosed properties. As of this week, there were 1,952 homes in foreclosure in the county, according to Web site.
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The experience has frustrated Smith along with neighbors Christine and Darin Parvin to no end. The three feel stuck in the neighborhood, unable to make a return on their homes because of the slumping market, but also because any potential buyer would be turned off by the blighted homes that surround them.

"I'm so mad. I'm just mad," Smith said, standing next to his dining room table covered with stacks of e-mail copies and letters he's written to KB Home, the city of Lodi and print-outs on the region's housing market. "My property value has dumped ... I've got the worst of both worlds," he said.
...
Smith, a clean shaven man with short brown hair and an intense stare, is now separated from his wife, at least partly because of the ordeal at The Villas. He said he wants to leave the city, his neighborhood and shattered dream behind. "I want to say I really like Lodi," he said, standing at the end of Tuscolana Way, where he estimated more than half the homes are for sale, in foreclosure or being rented. "(But) there's no charm out here."
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Some conditions at The Villas have gotten so bad that John Smith has taken to manually turning on his neighbors' sprinkler systems to water burned-up lawns. He and neighbors Christine and Darin Parvin say they have little choice but to take matters into their own hands, literally.
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They, like Smith, feel misled by KB Home and are ready to leave Lodi. "In Lodi, you expect a community to serve the small town feel," Christine Parvin said. "But after you move in here, you find out the neighborhood is 80 percent Bay Area investors."
...
Mandy Joachim said she's been hit by three burglaries since she moved in, two to her car and one to her garage...and worries more crime could come to the neighborhood. "I think a lot of it has to do with the empty houses," she said, standing in front of her home this week.

From CBS 13 (also video):

Denise Turner looks through her fence in disgust. “It's completely green and brown, like a swamp,” said Turner. She says she has noticed more homes like this throughout her Elk Grove neighborhood and she is blaming the recent increase in home foreclosures. “There's got to be more than one home around here that has pools that are like that,” said Turner.

Turner says she's worried about the mosquitoes lurking nearby when she's hanging out with her family around her pool so she called the mosquito vector control. “They said they'd been inundated with phone calls about abandoned pools,” said Turner.

From ABC 30:

The Atwater Fire Department typically gets triple its average number of calls on the Fourth of July, and this year officials have a new concern. Abandoned houses pose a serious fire danger with dry grass and dead shrubs. That's why city officials are taking steps now to minimize the risk as the 4th of July approaches.
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Fire Chief Ed Banks and Mayor Joan Faul are especially concerned this year because of the number of abandoned homes with dead, dry lawns. Like many Valley cities, foreclosures in Atwater are on the rise. The people who moved out left bone dry lawns behind, creating a major fire hazard.
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The Fire Department has been contacting property owners and realtors to have the lawns tended to before the fourth of July. But in some cases no one is taking responsibility.

Chief Banks says, "We may have to take matters into our own hands. It may come to the point where we have to hire a contractor to take care of the problem."

"Less than Fully Prepared for the Foreclosure Surge"

From the Davis Enterprise:

[B]etween January and April, a notice of default - the first step in the foreclosure process - was issued for 69 West Sacramento homes...Another 33 West Sacramento homes got auction notices, meaning the lender was prepared to take back the home and sell it at auction. And 28 West Sacramento homes were repossessed by the lender.

Those numbers are still rising, week by week, as cooling home prices, rising mortgage interest rates and competition from home builders take their toll. In other words, there are a lot of stressed-out sellers. “Right now, we have 273 houses for sale in West Sacramento,” said Lean Hertel, a Realtor and field trainer with Lyon Real Estate's office in West Sacramento. “Of those 273 homes, 102 are being advertised as ‘short sales.' And 34 are already owned by the bank.”
...
Woodland has seen a rise in foreclosures as well. During the first four months of 2007, a notice of default was issued for 38 Woodland homes. Auction notices were issued for another 19 homes and 25 homes were repossessed.

Some areas in Sacramento have been hit much harder. In the 95823 ZIP code in south Sacramento, there were 213 homes that got a notice of default, 98 that got an auction notice and 107 that were repossessed during the first four months of 2007.

Observers see the same trend up and down the state - but it's more pronounced in the Sacramento area, where communities like West Sacramento, Elk Grove and Natomas added thousands of new homes over the past five years, and lenders were making all kinds of new-fangled loans to get buyers into those houses.
...
“It's hard on the clients, and it's hard on Realtors, too,” Hertel said. “We didn't get into real estate to sell homes for people who don't want to sell their homes.

“The developers are hurting, too,” Hertel said, and some builders are offering $100,000 in upgrades at no charge, if you use their financing. But that can make things even tougher for the individual homeowner trying to move on. “You're competing with the developer” for the buyer's attention, Hertel said. “And the developer has 15 homes to sell, while you've got one.”
...
Hertel added that there are relatively few Realtors working in West Sacramento who weathered the previous market downturn, back in the early 1990s. And many banks are less than fully prepared for the foreclosure surge as well, Hertel said. “The banks have so many of these short-sale contracts to negotiate and process, we're struggling to get them through,” Hertel said.
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“Two years ago, I was telling buyers, ‘Here are three houses, pick one, and we'll do the best that we can do for you.' Now, it's ‘Which one of these 20 homes do you like, and what would you like to pay for it?' ” Hertel said.

From the Sacramento Bee:

The dust is just settling from that huge home foreclosure auction last Saturday at Cal Expo, and here comes a bigger one. Dallas auction giant Hudson & Marshall will sell 175 bank-repossessed houses at 1 p.m. July 22 at Sacramento's Radisson Hotel. Many are owned by Seattle-based lender Washington Mutual Inc., according to home descriptions on the auctioneer's Web site. Only six days ago Real Estate Disposition Corp. of Irvine auctioned 107 houses from eight area counties.

Hudson & Marshall's event testifies to the dramatic rise in repossessions in California, especially in Sacramento and the Central Valley...It's easy to see what's spurring these auctions. Lenders took back 969 houses in May in Amador, El Dorado, Nevada, Placer, Sacramento, Sutter, Yolo and Yuba counties, according to Fair Oaks-based Foreclosures.com. About two-thirds -- 651 houses -- were in Sacramento County. Many belonged to owners who bought at the height of the housing boom with little money down and fell behind on payments as housing values fell.

From the Contra Costa Times:

As subprime loans have been resetting, the number of borrowers falling behind in their payments has risen and foreclosures are up...Realtor [Mark] Ross sees the effect of this in his business. You can't find a locksmith to lock out a non-paying renter: they're doing nothing but foreclosure lockouts.

Subprime borrowers are suffering a fate similar to stock market investors in the late 1920s. Then investors bought overpriced stocks on credit. When stock prices dropped, many people had to sell when their brokers demanded more collateral for their loans (margin calls). This caused the 1929 stock market crash, which ushered in the Great Depression.

Now, it is not likely that the subprime meltdown will cause another depression. But it is rippling though the financial markets already and will cause a lot more people financial pain before it's over.

Affording Sacramento

From CNN Money:

According to a report from Wells Fargo Bank and the National Association of Home Builders (NAHB), about 44 percent of all homes sold in the United States during the first three months of the year were affordable to families earning the median household income for the area they lived in.

Sacramento--Arden-Arcade--Roseville, CA
2007 Median Family Income: $67,200
1st Qtr 2007 Median Sales Price: $363,000
National Affordability Rank: #199 (out of 219)
1st Qtr 2007 Share of Homes Affordable for Median Income: 13.4%

The Price of a "Normal" Market

From John Burns Real Estate Consulting (hat tip CNBC's Realty Check):

We calculated how much prices would have to fall for housing costs (including mortgage payments, property taxes and down payments) to return to each market’s typical ratio of housing costs / income. We identified 10 markets where prices will have to fall 30% or more to return to its normal ratio, and another 31 markets that are clearly overpriced. The most likely scenario in these markets is that resale prices will fall, but not as much as we calculated, unless something terrible happens like mortgage rates spike or the economy enters a prolonged recession. Nonetheless, here are our calculations, with a commentary that follows:

#11 Sacramento, CA
Housing Cycle Barometer: 8.1 *
Current Price: $375,000
Required Price Change: -29.3% or -$110,000

Why So Much in Some Markets: The markets that have the worst affordability problems tend to be where speculative investor activity drove prices up 200% or more during this time period [1999-2004]. Some speculators made a lot of money, and others are in the process of losing it all. Speculative investing is certainly a risky business.


*Our Housing Cycle Barometer scores each market based on its own history of affordability. A score of 0 means a market is the most affordable it has ever been in relation to incomes. A score of 5 indicates median affordability and a score of 10 indicates that the market is more expensive than ever before.

Sacramento Inventory Tops 2006 High

According to Housing Tracker, MLS inventory in the Sacramento area is now higher than it was at its peak last year.

• 08/14/2006: 12,180
• 06/28/2007: 12,186

Any bets on 2008?

Will Sacramento inventory set a new high in 2008?
	Yes
	No
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"This One is Shaping Up to be the Ugliest"

Brad Inman on the Inman News Blog:

I recently spoke with Joel Singer of the California Association of Realtors who said he had never observed the first-time homebuyer market being hit so hard. The math is simple: the risky loans both created and masked the problem of home price inflation, creating a temporary, cheap and artificial entry for first time buyers to get into the market. Now that those loans are drying up – the NEW credit squeeze – prices can only do one thing: fall and fall dramatically in some areas to match the true market realities of income, affordability and normal lending practices. The move-up market then suffers when the real estate purchase sequence is broken.

Foreclosures are going to stack up this year and next, adding to the dynamics of falling prices as inventory climbs and buyers thin out.

I have observed three real estate recessions; this one is shaping up to be the ugliest.

Commercial Real Estate: The Other Shoe Drops?

From the Sacramento Bee:

In the up-and-down world of office leasing, Roseville and Rocklin for years have been the closest thing around to a sure bet. Until now.

Demand for new leases is down. Office vacancies are up. And a lot more space is under construction. "After many years, South Placer County is changing from a landlord's market to a tenant's market," said developer Abe Alizadeh...."Incentives (for tenants) will be going up. Lease rates will be coming down."
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"It's frightening," said Elaine Hartin, a broker with 17 years of experience in the Roseville office of Cornish & Carey Commercial.
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The area's declining housing market has stifled the residential finance, insurance and real estate businesses that for years gobbled up office space. A glut of existing office space is for rent. A record level of offices are under construction.
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What concerns Strain, Hartin and others examining South Placer County's office market is an obscure but important statistic that they watch, much as a cardiologist watches a heart patient's blood pressure. The statistic, called "net absorption," measures tenant demand for leasable space. It takes the office square footage newly leased in a given three-month period and subtracts from it any vacated office space during the same time.
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For 55 consecutive quarters, stretching back to 1994, the Roseville and Rocklin market has not recorded a single negative absorption period, according to statistics compiled by the Sacramento office of commercial brokerage CB Richard Ellis....Residential finance companies fueled the winning streak in recent years as they flocked to South Placer County's booming housing market and drove demand for office space.
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Two years ago, office net absorption in Roseville and Rocklin hit 471,398 square feet for the year, roughly equal to eight football fields of office space. It was the best year ever for the region's office leasing, statistics show.

But from that peak, net absorption plunged to a seven-year low of 294,000 square feet in 2006, as the housing boom ended and the companies that supported it downsized or, in some cases, went dark.

"They've almost all cut back. Some put their space on the market, subleased or closed," said Jon Walker, a senior vice president at Grubb & Ellis' Roseville office.

Office demand has plummeted further this year. Roseville and Rocklin's net absorption fell to a meager 16,500 square feet for the first quarter, down from 109,000 square feet for the same period in 2006. Second-quarter figures are due next month."Obviously, things have dropped off," Walker said. "The question is, how long will it last?"
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"Roseville and Rocklin could potentially see 40 percent vacancies," [Chris] Strain [executive director of brokerage Cushman & Wakefield's Sacramento office] said. "And things won't come back to a reasonable level -- I'm talking about 15 percent vacancy -- for three years. And that's if the economy doesn't go south on us."
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[W]ith 868,508 square feet of office space sitting empty -- and another 868,000 square feet under construction -- it's unlikely the market will turn around in the short term, said Grubb & Ellis' Walker. "I'm not preaching doom and gloom, but you've got to be realistic," he said. "We've got a lot of questions to answer."

Fundamentals Up, Psychology Down

From Salon.com (hat tip Rocklin Renter):

But what about those would-be buyers, cautiously watching the carnage from the sidelines?

Lawrence Yun, the staff economist for the National Association of Realtors who has replaced our favorite whipping boy, David Lereah, as the Man Who Must Be Quoted in all stories about the real estate market, complained that the housing market was "underperforming" given what he considered the general overall health of the economy.

"Psychological factors," he said, explained buyer reluctance to jump into the market at the present time.

How Yun and his ilk are able to cite "psychological factors" as the reason for anything is an exercise in tautological meaninglessness that continues to baffle How the World Works. If you're going to blame consumer psychology when the market is headed down, then in all fairness you should blame it when the market is going up. But back in the go-go days, we never heard anyone from the National Association of Realtors say anything along the lines of: "The real estate market overperformed this month, as home buyers, irrationally convinced that home prices would continue to appreciate beyond all rhyme or reason, stepped up their splurging on new and existing homes, rashly confident that they would be able to sell their purchases at a 25 percent markup in just one year."

Psychological factors are always in play, whether a market is going up or down. We've been giving Yun a chance to establish some street cred, but with each whine about buyer psychology, our willingness to give him the benefit of the doubt takes another hit.

Building Homes or Building Spin?

From the Sacramento Bee (also video):

It's hardly on the scale of two years ago, but across the Sacramento region it's still easy to see entire neighborhoods of new houses rising. Selling them now has become the challenge for an estimated 84 home builders who work the capital region. The five-year housing boom that crested in July 2005 has given way to some of the slowest sales since the late 1990s.

Locally, as nationally, home builders are cutting costs, production and, in some cases, staff. Through May they closed escrow on 3,564 homes in Amador, El Dorado, Nevada, Placer, Sacramento, Sutter, Yolo and Yuba counties, according to DataQuick Information Systems. That's 1,245 fewer than the same time last year, which was then considered a poor performance.
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Sid Dunmore [Dunmore Homes]: The problem with trying to hit the bottom of the market is very few people are able to do that successfully. What you'll end up seeing happening is you'll hit a bottom, and it will bounce from the bottom. And it will come up, and you'll have a lot of customers come back in and say, "I want to buy because I saw, 60 days ago, 90 days ago, a certain price." And that's no longer available. And so I think right now we're probably bouncing around the bottom.
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You have to understand most of the overhang was created by ourselves. And I hate to say it, but it was mostly the public builders, which couldn't seem to stop building. In light of no sales they just kept on building, and they created this huge overhang...When that does adjust, we think it will adjust somewhat quickly. Not overnight, but somewhat quickly. When the bounce happens, you'll see prices jump $10,000 or $20,000 very quickly.
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As long as we have negative media, it's going to affect the buyers' mentality. If we have positive media, it affects them on the positive side. If you see things coming out that interest rates are low, job growth is good, income growth is good, all those things, buyers feel good about where they are today.

There are prospects for continued employment, advancements, raises, things like that. Then they feel more comfortable about going out to buy in the market. It's the insecurity that keeps them out. Right now, there's just a lot of buyer apathy. Once we get past that, we'll have a different market. It will balance itself out.

Deal or No Deal?

From the Sacramento Bee:

With a high-energy show of rock music, auctioneer chatter and free coffee for all, an Irvine-based foreclosure liquidator sold more than 100 Sacramento-area bank-reposed homes Saturday to the highest bidders.
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The spectacle showed a regional housing market in distress with mounting foreclosures.
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Winning bids Saturday ranged from $105,000 for a Sacramento house to $810,000 in El Dorado Hills for a property once valued at more than $1 million.

Winners, many of them real estate investors throughout Northern California, said they were happy with their bargains.

"I was going for $275,000 and I ended up bidding $300,000," said Bill Weldon...a retired English teacher who dabbles in real estate, ...who bought a 1,770 square-foot foreclosed home in Galt. "I figure instead of saving $100,000 I saved $75,000. It's still a good deal."

From the updated article:

Bob Somal and his real estate broker father, Narinder Somal, bought two houses, paying $240,000 for one in Stockton and $400,000 for another in Elk Grove. "We were going to go to $350,000," said Bob Somal. "We decided to go to $380,000. And our winning bid was $400,000."...The Somals plan to resell both houses.

Investor Heman Lee of Sacramento bid $350,000 for an 1,844-square-foot house in Elk Grove and plans to rent it. He called it a "good price.
...
[S]ome overpaid, said watchful real estate agents. Seeing one Stockton house sell for $460,000, veteran Stockton agent J. Richard Sabbatini shook his head and said the house was not worth that much.

Some came to watch for practice, assuming there will be more auctions and better prices later this year or next. Others said they decided not to bid after seeing heavy traffic at open houses and such a large crowd.

"I just figured it was going to be prices higher than I'd like to pay," said Mesut Koch of Rocklin. Watching the frenzy, Koch said: "I don't think I would do well here. I'm not coming back." He said it looked easy for people to lose themselves and go $10,000 too far.

From News10 (also video):

Many homes valued at nearly $500,000 opened to bidders at just $250,000. But it didn't take long for the hot homebuyer competition to quickly drive many of those prices up. "I haven't heard of that many steals here," said Andy Adams, who drove to the auction from South Lake Tahoe.

But there were some bargains to be found. Pat and Satya Chaterjee won their bidding war for a Roseville home, paying about $15,000 under market value.

From KCRA (also video):

Auctions have become more prevalent as banks struggle with foreclosed homes. In the past year, homes in foreclosure jumped 212 percent in Sacramento County, 198 percent in Stanislaus County, and 192 percent in San Joaquin County.
...
Alexis McGee, president of foreclosures.com, gives a warning to buyers. She said auctioneers have been known to put shills in the audience whose only purpose is to bid up the price of foreclosed homes.

CBS 13 video here.

From the Fresno Bee:

On steep courthouse steps partially shaded by 100-foot elms, a public auction crier called for bids Friday on Laci and Scott Peterson's former home. No one but the the local newspaper showed up.

So Julie Grimm, a foreclosure auctioneer with Dual Arch International, closed the bidding, closed her binder and walked away. And Modesto's most notorious piece of real estate became the property of a Simi Valley bank. The lender is owed more than the house is worth, documents suggest.

What a change from July 2005, when Gerry Roberts proudly announced to the world his triumph in steep competition for the rather humble cottage-bungalow...Roberts, a single father and real estate agent, bid $10,000 more than the asking price of $380,000 and declared he had just purchased "probably the most controversial home in the world" and moved in.

Roberts soon found himself out of a job and put the three-bedroom, two-bath home on the market, asking $479,900.

A few weeks later, Roberts tried hawking the home on eBay with full reference to the Peterson drama. An unidentified couple working with another broker later agreed to buy it for nearly $350,000 for their college-aged daughter and her friends, but backed out 35 days into escrow.

Countrywide Financial served Roberts a notice of default in October and set a February foreclosure date, postponed until Friday's public auction. Roberts filed for bankruptcy protection in February, listing $340,000 owed to the lender as his largest debt.

Sacramento Real Estate Market - June 2007 Water Cooler

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

West Coast's Tallest Condo Towers or Christmas Tree Farm?

From the Sacramento Bee:

What if...you have a hole in the ground about a square block in area and oh, several dozen feet deep and -- theoretically speaking -- about large enough to host twin 53-story towers that could potentially house a luxury hotel, high-end retail space and 804 upscale condo units? What could you do with a hole like that?

Well, you could replace the conjectural twin tower condo idea with a much-scaled back condo idea, say, after the twin tower idea proved too ambitious and an imaginary state employee pension fund pulled its invested money out and an L.A.-based company stepped in to fill the proverbial and actual hole at Third Street and Capitol Mall.

You could do that.

But [Old Sacramento Manager Ed] Astone's got a better idea.

"Christmas tree farm," he says with certainty.
...
On second thought, he's got an even better idea."How about a monument park for all of the fired Kings coaches?" he suggests.
...
Mike Testa, vice president for communications at the Sacramento Convention & Visitors Bureau, believes the city could use something that keeps visitors coming back. Perhaps, he offers, a Gold Rush theme park? Family-oriented, and with roller-coaster cars shaped like mining cars, of course.
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But why not, ponders local development consultant Al Gianini, take something Sacramento is already known for and put that in the hole? Gianini envisions a giant saltwater tank built solely to house the next wayward whales to wander our way. "It would be the Sea World of Sac," he said.

"Holding Out For Deals"

From the Sacramento Bee:

[B]uyers are obviously holding out for deals and negotiating tough when they see them. A new edition of "House Prices in America" from Global Insight and National City Corp. offers the evidence. It says Sacramento leads the nation's large metro areas for sales price declines in the last year.

Local sales prices were down 8.2 percent in the first quarter of 2007 from the same time in 2006, the report says. In all, they're down 10 percent since 2005.

"The sharpest declines occurred in the nation's most overvalued markets in Southern California, Florida and, most dramatically, in the Central Valley of California," says the report, issued jointly by the economic research and financial services companies.

This comes just weeks after Forbes magazine jolted many area home sellers in calling Sacramento the third most overpriced metro in the United States, after San Diego and Miami. The Forbes tally was based partially on the percent of the local population that can afford a median-priced house -- about $350,000 or more in the case of Sacramento.

Interestingly, it wasn't that long ago that other Western metros like Denver, Seattle or Portland might have seemed too expensive for a capital resident to consider. Now, National Association of Realtors statistics show that Portland and Denver are bargains compared with Sacramento.

Also from The Bee:

Battered by the housing slump and changes in the newspaper industry, The McClatchy Co. on Wednesday reported a 10.4 percent drop in revenue for May. It said revenue will continue sliding the rest of the year. [Sacramento-based McClatchy owns The Bee.]
...
Driving McClatchy's results is the housing market. McClatchy gets one-third of its ad revenue from California and Florida, where real estate advertising is in a deep slump.

From the Stockton Record (hat tip Spacebar):

City Hall's one-time belief that a luxury condominium tower could be built downtown with little or no public financing is unrealistic, a consultant told the City Council on Thursday.

But the market could support the construction of shorter, less expensive flats and town homes, planning consultant Bruce Race said. At a minimum, he said, the north and south banks of the Stockton Deep Water Channel could support the construction of 1,000 homes, and 3,300 homes could be built across the city core.

"It's going to happen," Race said.

The city, which has sought with little success for several years to build homes in the downtown, announced in April that it likely would map as many as 60 acres of downtown for redevelopment. Thursday's hearing was an update, to be followed in August by a detailed plan.

"This is truly big stuff," city Redevelopment Agency Director Steve Pinkerton said. "This is like the (final episode) of 'The Sopranos.' "

Update on the Elk Grove Mortgage Fraud Story

From KCRA (also video):

Federal indictments are expected in the coming weeks after some local companies were accused of a real estate scheme that left several investors nearly broke and many Elk Grove homes in foreclosure, officials said.

A real estate agent who investors said took part in the deals is now out of a job and the state is now taking action as well.

Following a KCRA 3 investigation, the state Department of Real Estate filed a civil complaint against mortgage company officials and a Realtor, alleging fraud, dishonest services and much more.
...
[I]f indictments are issued and convictions are made, officials said, those involved could be looking at up to 30 years in prison and millions of dollars in fines.

17 Months of Inventory

From the Stockton Record:

[T]he median sales price [in San Joaquin County] has steadily fallen from $395,000 in February to $370,000 last month. That compares with a high of $425,000 last July.

Meanwhile, the number of listings, fed by rising foreclosure numbers, broke the 5,000 mark for the first time since the downturn began in the fall of 2005....At the current anemic sales pace, it would take 17 months to sell those homes if no other houses went on the market in that period.

"The prices are coming down," said Jerry Abbott, president and co-owner of Coldwell Banker Grupe, Stockton. "When people are reducing the sales price of their home, they're not reducing it by $3,000 to $5,000, they're reducing it by $10,000 or $15,000 - or more.
...
Sean Snaith...said the "housing hangover" is lasting longer than thought because of the subprime market implosion that began in March. "It is a painful transition, no doubt about it," he said. "With all the inventory, it's difficult to sell a house, and there's downward pressure on prices." He predicted that the market wouldn't begin to return to normalcy until the first or second quarter of next year.

Must be Sean Snaith week at The Record.

Housing Slump or Housing Bust?

Placer County Median Home Price
August 2005: $517,500
May 2007: $410,000
Change: -$107,500 or -21%


data source: pcaor.com [pdf]

From the New York Times:

When Does a Housing Slump Become a Bust?

MANY Americans fear the consequences of a housing bust, but few know what one would really look like. Think about it for a moment. How far do housing prices have to fall before a slump becomes a bust?
...
During the 1930s, housing prices fell sharply across the nation. According to the S.& P./Case-Shiller home price index, a measure of national housing prices, the average price of a home fell 24 percent from 1929 to 1933.
...
Two economists with the Federal Deposit Insurance Corporation, Cynthia Angell and Norman Williams, have studied housing cycles since 1978 and have come up with a definition of a housing bust. In a paper published in February 2005, they called it a decline of at least 15 percent in nominal prices, meaning not adjusted for inflation.
...
Other economists, however, argue that 15 percent may be too restrictive a definition. Mark Zandi, chief economist of Moody’s Economy.com, says a better one would be a decline of 10 percent or more from peak to trough. “When you see a decline in home prices of 10 percent, you get significant credit problems and it’s enough to wipe out equity in most cases,” he said.

Mr. Zandi also said that once prices have dropped 10 percent, there tends to be a self-reinforcing downward cycle. If borrowers can’t afford their mortgages and banks foreclose, their homes are generally sold at significant discounts to the market. That creates an added drag on overall prices, resulting in greater numbers of foreclosures, followed by even greater price slides.

Another reason Mr. Zandi argues for 10 percent is the tendency of housing-price measurements to underestimate declines. Sellers often provide discounts that may not show up in the measured price, but are still significant. Today, some homebuilders are discounting the sales price of new homes by an average of 5 percent, Mr. Zandi said.

Snaith Soufflé

From the Stockton Record:

Sean Snaith, director of University of Central Florida's Institute for Economic Competitiveness and consultant to University of the Pacific's Business Forecasting Center, said there's no doubt that the weight of the "housing adjustment" is bearing down on the national and California economies.

But Snaith still stands behind his well-known description of the housing market as a soufflé that deflates but doesn't collapse. The collapse of the subprime market hit the housing market hard, pulling the economies down more than expected, he said.

"I think the housing hangover is going to last a little longer than we thought," he said.

The Shadow Belt

From CNN Money (hat tip Gwyn):

For sheer volume, housing foreclosures across the nation appear to be moving from the Rust Belt to the Sun Belt.

A study for CNNMoney.com by RealtyTrac, an online marketer of foreclosure properties, showed that 139 of California's ZIP codes fell within the top 500 for total foreclosure filings in the United States. The next highest count for any state is less than half that at 72 and is in another sun-belt state - Florida.
...
According to Doug Duncan, chief economist for the Mortgage Bankers Association (MBA), foreclosures, overwhelmingly, used to come courtesy of serious underlying economic problems such as job layoffs or plant closings. But the California foreclosure spike, as well as those in Florida, Arizona and Nevada, was set up by runaway appreciation that boosted home prices beyond affordability.
...
The hardest hit ZIP in California was Sacramento, 95823, where there were 634 default notices, repossessions and auction notices. It had the sixth most foreclosure filings for any zip code in the nation.
...
In Sacramento, 95823...residents depend more on government jobs and service industries for employment, although wages are still below average for the state. Homes there are more modern and more valuable than in 44105; even modest three-bed/two bath houses go for several hundred thousand dollars.

Neither the Rust Belt nor Sun Belt are likely to see easier conditions any time soon. In the Sun Belt, the subprime mortgage mess will take many months to work through as the many borrowers who took out 2/28 and 3/27 ARMs during 2005 and 2006 will hit their reset points this year and next.

From the Central Valley Business Times:

Several of the housing markets where home prices have a better than 50-50 chance of falling in the next two years are in the Central Valley, according to a list released Tuesday by PMI Mortgage Insurance Co., the Walnut Creek-based subsidiary of the PMI Group Inc. Stockton, Bakersfield, Merced, Modesto and Sacramento all have market risks in place that augur for lower home prices within two years, PMI says.

90s Housing Bust v. Now

UPDATE 1: 'Piece of Cake' Housing Downturn Exceeds 90s 'Depression'
UPDATE 2: 12-Month Price Drop Exceeds Entire 1990s Decline

"We survived the market change of the early '90s, a real depression, so this current one is a piece of cake."

-Tracey Saizan, President of the Sacramento Association of Realtors, Sacramento Business Journal, December 15, 2006

[T]his sagging market isn't much like the 1990s version. Some analysts say the reasons help explain why the present downturn may be shorter and less severe.

-Sacramento Bee, June 20, 2006

Is the current down cycle a "piece of cake" that will be shorter and less severe than the 1990s housing bust? The New York Times recently published a graph showing nationwide home prices falling more rapidly this time around.



How is the Sacramento real estate market faring? Recently, this blog reported that the Sacramento housing market suffered the second largest price drop in the nation, according to the government's House Price Index (HPI). Sacramento's HPI fell 4.4% in the first quarter. Since peaking in the last quarter of 2005, the price index has declined about 4.6%.

The following graphs compare Sacramento's current housing bust with the 1990s bust (peak to bottom). HPI tracks the value of single-family homes and is not adjusted for inflation. The first two graphs show the change in the index relative to their peaks. Click on each graph to enlarge.

Sacramento's previous housing bust took over five years (1991-1996) to reach bottom and over nine years to recover its peak (1991-2000). That housing bust came after an almost eight-year boom in which Sacramento's price index increased by 93%. By contrast, the housing boom which preceded the current bust lasted over nine years with the index rising 195%.

This is a close-up of the first five quarters of each housing bust.



The next two graphs show the year-over-year change in Sacramento's price index.

'There’s Really No Reason For People To Not Be Buying A Home'

From the Appeal-Democrat:

News about the housing-market downturn and the market’s future is of little relief to struggling sellers – but may bring some encouragement to bargain-hunting homebuyers.

In Yuba and Sutter counties, the median home price for a single-family home had climbed from $99,000 in January 2000 to $300,750 in May 2006 before dropping to $268,000 in January, Realtor Lloyd Leighton said.
...
The number of homes on the market is increasing, and Leighton said spring sales were “lackluster.” “My belief is the worst is behind us, but it’s still likely we will see some declines in price,” he said.
...
David Burrow, president-elect of the Sutter-Yuba Association of Realtors [said]...affordability and the perils of aggressive home financing are major issues...The market’s downturn is not abnormal, but intense national and regional attention makes it look that way, he said. “It puts fear in the mind of the buyer,” said Burrow. “They don’t want to be in the position of their friends who bought a home two years ago.”
...
“There’s really no reason for people to not be buying a home,” he said. “It’s a buyer’s market.”

From the Auburn Journal:

Home prices are on the decline while the number of homes listed on the market in Placer County continues to rise. In the home sales report for May issued by the Placer County Association of Realtors on Friday, single-family homes are becoming more available.
...
For the overall county in the month of May, 2,720 homes were part of the total listing inventory, up from 2,507 in April. The homes in May had a median price of $410,000, according to the report, this is a 15.4 percent decrease from $484,500 in May 2006.

Sacramento Homebuilder Layoffs Continue Unabated

From the Sacramento Business Journal:

Whether through dramatic cuts or gradual attrition, many Greater Sacramento homebuilders are shedding staff as sales stall.

Last week, Pulte Homes Corp. laid off 45 workers at its Sacramento and Reno offices ....The layoffs are on top of the Michigan-based builder's other reductions over the past 18 months, said [Chris] Cady, who's been the division president for the past 10 years. The company had trimmed its work force by about 25 percent prior to the recent layoffs. The layoffs don't include trade contractors working at job sites.
...
Many companies in the area are at least 25 percent leaner than they were during peak production. One, Richmond American Homes, has eliminated about 90 percent of its local office staff since that time...[It] gradually shrunk its Sacramento office from about 90 workers during the peak to fewer than 10, not including field staff, said Mark Butler, who presides over the company's Northern California division from his office in Pleasanton.
...
John Laing Homes, the area's No. 12 builder this year, last had a round of layoffs in February, when 20 people were let go. The builder, like many others in the area, has cut 25 percent of its staff.
...
Construction companies have also struggled through the slowdown. Walsh & Forster Inc., which is connected to The Walsh Group of Portland, Ore., has decided to finish projects in town then close its Sacramento office, according to workers there.
...
The housing slowdown's toll on construction employment might not be registering with the state. According to the state Employment Development Department, the Sacramento Area actually gained construction jobs over the past year.

But David Lyons, a labor market consultant with the department, said the figures might be misleading. They don't account for self-employed tradesmen, and residential builders generally aren't very responsive to the state's surveys.
...
Despite the layoffs and the sales slump, most homebuilders are opening new projects this year.

Sean Snaith "Was Wrong"

From CBS 13 (also video):

In a neighborhood of well kept houses and neatly manicured lawns, a home in foreclosure stands out. "They were supposed to put the fence back together and fill the holes back in," said Paul Ramos, neighbor of home being foreclosed. Ramos says the previous owners just abandoned [it]. The grass hasn't been cut in weeks, the property is littered with clothing and garbage, and Paul's drainage system was left in disrepair by a swimming pool construction.

"What they did is the payments got way too high, well over $3000, and they went ahead and bought another house in Lathrop and they let this one go into foreclosure," said Ramos.

Foreclosure stories like this dominate the Central Valley. In fact, Stockton has the highest foreclosure rate in the nation....

From the Stockton Record:

When the lines on the graph are headed upward, everyone looks like a genius even when you've acted like a dummy by, say, buying more house than you really can afford.

No more. Now, homeowners are actually losing their homes. Lenders aren't just filing notices of foreclosure, they are foreclosing. Keys, please (and sometimes they don't even say please).
...
In the last year there has been a 49 percent increase in foreclosure activity in San Joaquin County. In two years filings in the county are up by a factor of 18, from 120 to 2,157. Foreclosure notices have been filed on one of every 88 household properties in Stockton. Our foreclosure activity rate is now 7.5 times the national average.
...
When Sean Snaith headed the UOP's Business Forecasting Center [based in Stockton] he liked to predict the housing market here - at a time when the bubble was about as big as it seemed possible to get - would not burst. In fact, he likened the housing market to a soufflé that would slowly sink as it cooled.

He was wrong (though hardly alone in that category). The market didn't just cool. It turned cold even as the weather turned hot. Early spring optimism about the market spooling back up could charitably be described as, well, optimistic.

Housing inventories continue to climb and home prices, while stubbornly sticky, certainly are not climbing the 20 percent or 25 percent per year we saw during the boom.

According to TrendGraphix, the median home price in San Joaquin County was down 10.8% from last May and down 12.9% since peak. Price per square foot was down 12% from a year ago and down 14% from peak. Such numbers put the Stockton housing market into UOP's "worst case scenario" [pdf]:

"Housing prices will continue to decline until the excess inventory can be worked down. Current worst case scenarios for some areas put declines in the range of 10-20%. A bubble bursting? Hardly. If NASDAQ had fallen 10-20% in 2001 from its high point, would we still refer to it as the dot-com bubble?"

How far will prices have to fall to convince Sean Snaith/UOP that they were sitting on top of one of the most over-inflated housing markets in the county? A drop of 30%? 40%? 50%?

John Saca Back For More, Blames Plunging Real Estate Market For Failure

From the Sacramento Business Journal:

Developer John Saca says he's still in the high-rise business.

While a little bruised from the unsuccessful effort to save The Towers on Capitol Mall, Saca is forging ahead with another downtown Sacramento project -- a 39-story condo tower at 10th and J streets.

The Metropolitan, which if built at its projected 420 feet, would be taller than any building in the capital today, is on the agenda of the city of Sacramento's Design Commission for Wednesday.
...
In an interview this week, Saca sounded a little disheartened about the fate of his pet project, but said he expects to find success the second time around. He blamed the plunging real estate market for The Towers' failure, deflecting claims that he overreached or lacked enough experience.

Despite a housing downturn, developers such as [Shepard] Johnson are still building in Sacramento's central city, attempting to capitalize on demand for homes in the downtown and midtown areas. The projects have concepts and plans that differentiate them from suburban housing. But the verdict is still out on whether they can draw buyers who will pay a premium to live there.

According to the city of Sacramento's Development Services Department, there are 580 units, in 17 projects, under construction in the central city....[T]he construction doesn't mean that sales have been brisk. Loft projects in the central city and West Sacramento are selling at an average of about 1.8 units per month, slower than the 2.88 average rate of sale for all types of housing this year, according to data from Hanley Wood Market Intelligence.

And more housing could be built, but isn't because of a lack of funding and a soft housing market. Developers are sitting on about 900 units that have been approved by the city but not built, ranging from small projects to the 262-condo Aura tower.

If Only They Believed...

From the Sacramento Bee:

Sacramento-area renters say they're still feeling glum about their home-buying prospects after a real estate boom that doubled home values. A new survey shows 61 percent believe their "American dream" of owning a house in Sacramento is out of reach...73 percent believe owning a housing in the capital region is a smart investment. 79 percent cited financial concerns as a barrier.
...
MBK Homes' new Sacramento division is using the results to suggest that a better understanding of financial options would help potential buyers believe they have a shot at buying a new home. The builder says would-be buyers might have more financing options than they think. Lenders are still doing zero-down financing, and some builders are paying closing costs, MBK said.

From the Modesto Bee:

Home sales prices continued their downward slide in May throughout the Northern San Joaquin Valley, according to statistics released Thursday by DataQuick Information Systems. Here's a summary of median sales prices:

Stanislaus County — $338,250, which was 12 percent below May 2006 and $11,750 below April.

Merced County — $297,500, which was 19 percent below May 2006 and $18,500 below April.

San Joaquin County — $395,000, which was 11 percent below May 2006 and $4,000 below April.

From insidebayarea.com:

With one foreclosure filing for every 88 households, or nearly 7.5 times the national average, San Joaquin County was the metro region with the country's highest foreclosure rate in May, according to a report released this week by RealtyTrac.com.
Patrick Bill, a Realtor who works in the Tracy area for Keller Williams Realty, said San Joaquin County's high foreclosure rate is making it harder for first-time home buyers to get a home loan, which is leading to fewer home sales and lower home prices. In recent months, lots of lenders have tightened up their underwriting standards in response to higher foreclosures rates that resulted from many subprime borrowers getting hit with higher mortgage payments.

"Its affected the good buyers, the buyers who could have qualified to buy rather easily (a few years ago). It's a much harder process now," said Bill.

From the Sacramento Bee:

Mosquitoes definitely love the housing slump for its rising numbers of neglected and abandoned swimming pools...In the past 33 days they've reported 363 algae-plagued swimming pools to the Sacramento-Yolo Mosquito and Vector Control District. That's since a Bee story reported the district's efforts to recruit real estate agents to fight the tiny carrier of West Nile virus...The district says 250 reports of slimy pools arrived within two days of the story. Typically, that's the monthly total.

Slowest May in 12 Years

From the Sacramento Bee:

A long, slow search for bottom continues across most of the region's real estate market...DataQuick's newest numbers reveal a Sacramento market that some believe may be finding bottom in a downturn that began nearly two years ago. Others say they don't see it yet amid mixed indicators that baffle even real estate insiders.
...
[L]enders say their prospects have dimmed a bit after gains in January and February. "The amount of calls we're getting has gone down. There's been a fall-off from March of this year until now," said Jim Paterson, partner and mortgage broker at Gold River-based Mortgage Consultants Group.
...
"It doesn't look like there's a lot of steam building at the moment, and we're coming up to the peak of the buying and selling season," said DataQuick analyst Andrew LePage. May closings fell to a 12-year low for the month in Sacramento County, mirroring much of the Bay Area and Southern California. Placer County's sales numbers were at a 10-year low, according to DataQuick.
...
[Sacramento Association of Realtors President Tracey] Saizan said, "I personally do not see the bottom yet."

But Sid Dunmore, owner of Granite Bay-based Dunmore Homes, disagreed. "I think right now we're probably bouncing around the bottom," he said.

Sacramento-based researcher TrendGraphix reported 14,704 existing homes for sale at May's end in El Dorado, Placer, Sacramento and Yolo counties.

Chart of home sales/prices by zip here.
Compare to other Sacramento price indexes here.

'I Certainly Feel We're at the Bottom of the Market'

From sacbee.com:

Capital-area home sales showed a slight rebound in May from the previous month, but sales remained well below last year and prices continued a long weakening trend everywhere but Yolo County.

La Jolla-based DataQuick Information Systems reported Thursday that 3,211 new and existing homes changed hands in May in Amador, El Dorado, Nevada, Placer, Sacramento, Sutter, Yolo and Yuba counties. That was 336 more escrow closings than reported in April in the eight counties. But it was about 1,000 fewer than in May 2006, DataQuick reported.
...
[A]cross much of the region median prices continue their 12-month trend of year-over-year declines. Placer County's 7.7 percent median price drop from the same time last year -- and a 5.5 percent decline in Sacramento County -- still rank among the highest price dips in the state's major urban counties. The median price of a home in Placer County in May was $429,000, down from $465,000 a year ago. It was $345,000 in Sacramento County, down from $365,000 in May 2006.

From sacrealtor.org [pdf]:

"Economists at the California Association of Realtors see another year or two of a soft resale market in Sacramento," said 2007 Association President and Realtor Tracey Saizan. "We’re particularly impacted because of the high number of new tract homes on the market that are being deeply discounted. It’s emotionally tough for the average home seller to compete with the aggressive price cutting that’s going on in the new developments."
…
"It appears that sellers who are unable or are disinclined to lower their asking prices had better be prepared to wait another year or eighteen months at least to ride this cycle out," Saizan said.
…
At $350,000, Sacramento's median home sale price stands 7.7% below the $379,000 median price of a year ago.

From nationalcity.com:

The most highly concentrated declines, while widely dispersed, occurred in areas that had experienced the most dramatic run-up in overvaluation, including California, Florida, New York, and New England. The industrial Midwest was hit hard by the cutbacks in automobile manufacturing. The most dramatic declines among the nation's large metro areas were seen in California's Central Valley. Sacramento CA, where prices fell by 8.2% in the past year and 10.0% since 2005, experienced the greatest decline among the nation's large metro areas.

From the Modesto Bee:

Property values seem to be on everyone's mind. That was especially true Wednesday for the more than 500 people who attended the Valley Real Estate and Economics Conference in Modesto. The hot topic was the depressed real estate market, and speakers offered conflicting views about how long it will last.

Some predictions were dire. Stephen Endsley, the longtime real estate investor who organized the conference, gave the most gloomy forecast: Housing prices will continue to fall 5 percent to 10 percent per year for the next five years. "It took us five years to get into this housing bubble, and it probably will take us five years to get out," said Endsley, a retired cardiologist.

That prediction was too harsh, according to Mike Zagaris, president of PMZ Real Estate in Modesto. Zagaris said the market may spend "another couple years drifting along" at current values, which makes this a good time to buy.
...
Few people are buying anything these days.

In Stanislaus County, only 3,700 homes are expected to sell in 2007, which is about half as many as sold in 2004 or 2005, according to Craig Lewis, president of Prudential California Realty. Lewis said median home prices have fallen from $414,000 in 2005 to $359,000 now, and it takes nearly three months to sell the typical home.

"First-time home buyers have the ability to buy now, but … they're sitting back and waiting because they think the price will go down more," Lewis said. He doesn't agree. "I certainly feel we're at the bottom of the market."

So does James Brenda, president of JKB Homes, which has developments in Turlock, Denair, Hughson, Oakdale and Riverbank. "A lot of price corrections already have taken place," Brenda said. He predicted home prices will be flat until next spring. "After that, it's going to be a long steady climb."

'It's a Tough Cycle Right Now'

From the Sacramento Bee:

On Tuesday, the California Public Employees' Retirement System, an early investor in developer [John] Saca's dream, said it had bought out his interest in the struggling project. The announcement ends a proposal that was at once hailed as visionary and dismissed as oversized.
...
Sales of the condos, which ranged from $368,000 to more than a $1 million, began in 2005, with Saca eventually taking deposits of 10 percent down on 402 of the Towers' 804 units.
...
Condo market experts say Saca's failure to build the Towers symbolizes the rough waters builders face. "The big markets -- Miami, San Diego, places like that -- have units in foreclosure and projects in the pipeline going away," said Bruce Slaton, president of sacramentocondos.com, which tracks the local condo market. "It's a tough cycle right now."

Flashback to January 2006:

Recent turns in the local real estate market could pose another problem to condo builders charging $500 per square foot and more for a chance to buy a piece of the sky.

Inventory of the most expensive homes in the Sacramento region has ballooned, sales have slowed and prices are flat at best. Meanwhile, high-end homebuilders are offering incentives such as free swimming pools and landscaping worth tens of thousands of dollars.

Saca says he and other condo tower builders won't be hurt by those trends. His wealthy buyers are drawn by the lifestyle promised by downtown living.

He says he has 19,000 names on a buyer-interest list, 5,000 people who have prequalified to buy in The Towers and more than 500 potential tenants who have put down refundable deposits.

"Right now I honestly believe that we could sell out two or three times over," Saca said. "We're not trying to sell a condo. We're selling a lifestyle."

Sacramento Short Sales "Back with a Vengeance"

From Kiplinger:

In a short sale, a bank allows a delinquent borrower to sell the house for less than the mortgage amount and turn the proceeds over to the bank as payment in full. Scott Williams, a real estate agent in Roseville, Calif., near Sacramento...says he was actively involved in short sales in the 1990s housing slump in California, but that the practice pretty much disappeared for several years. Now it's back with a vengeance. He's already handled about ten short sales this year and has 40 more short-sale homes in his inventory, ranging in value from $180,000 to $600,000.

"Most of these cases are homes that were purchased within the past couple of years, at or near the peak of the market," he says. "Most were purchased with 100% financing or creative loans that after two years of artificially low payments, the loan adjusts to market rates. That can add hundreds of dollars to the payment and some of the people just can't plain afford it."

From Roseville & Rocklin Today:

With the changes in our Sacramento real estate market there has been an increase in foreclosures and I have been seeing advertisements and getting more questions about "short sales."
...
As we are entering this "increased foreclosure" phase of the real estate market I believe, based on experience, lenders will not be as easy to deal with as they will if this continues for two or three years.

The Usual Suspects

From Reuters:

U.S. home foreclosures in May jumped 90 percent from a year earlier, reflecting a poor spring housing market and foreshadowing even higher levels later in 2007, real estate data firm RealtyTrac said on Tuesday.
...
The cities with the nation's top three metropolitan foreclosure rates were all located in California, and three other California cities also documented foreclosure rates among the top 10.

A 49 percent increase in foreclosure activity ensured that Stockton, Cali., would register the nation's highest metropolitan foreclosure rate at one filing for every 88 households, which was nearly 7.5 times the national a average.

Merced, Cali., documented the second highest metro foreclosure rate, one foreclosure filing for every 100 households, followed by Modesto, Cali., with one foreclosure filing for every 118 households. Other California metros in the top 10 were Riverside-San Bernardino at No. 5, Vallejo-Fairfield at No. 6, and Sacramento at No. 7.

"Towering Fiasco" Pronounced "Dead"

From KCRA (also video):

It appears the Towers at Capitol Mall will not be part of the Sacramento skyline. Several people who have deposits on the towers project tell KCRA 3 they've recently been contacted by John Saca informing them they will have their deposits back by Friday and that the project is dead.

Tuesday Updates:

From News10:

Saca sent a letter [pdf] to condo buyers telling them their deposits are being refunded. "It is with great humility and disappointment that I write this letter," Saca said.

From the Sacramento Bee:

The California Public Employees' Retirement System has announced [doc, News10] it is taking over the debt-ridden Towers high-rise project on Capitol Mall. That means the 53-story luxury condo and hotel that Towers developer John Saca envisioned for the site near the Tower Bridge is dead.
...
Saca broke ground last summer, but the project was $70 million to $80 million over budget by the fall and condo sales slowed to a trickle as the region's housing market went soft. The site now is little more than a hole in the ground the size of a city block.

More video from KCRA:
John Saca Addresses Tower Project
CalPERS Buys Out Towers Developer

Stung by the Sacramento Real Estate Market

From the Santa Cruz Sentinel:

When Howard Little got a call last year about refinancing, he decided the time was right to pull money out of his home in Boulder Creek to invest in real estate. He bought a house in Sacramento and figured he'd have steady rental payments to supplement his disability income.

Instead, he lost the property in Sacramento to foreclosure, and fell behind on payments for his own home. His credit rating dropped and he couldn't refinance. To avert the lender from foreclosing on his home in Boulder Creek, he put his five-bedroom, two-bath Boulder Creek home on the market, but with listings at all-time highs he hasn't found a buyer. He's dropped the price from $680,000 to $650,000 and now $630,000.

At 58, he doesn't want to give up the place his parents owned, the place where he and his wife raised their two children. He wishes he could go up to Sacramento to track down what went wrong there. He doesn't drive because of epileptic seizures, so he's been trying to get information via phone without much success.

"Where I'm going from here I don't know," he said.

From News10 (also video):

The numbers are startling.

Nearly 20 percent of Sacramento homes are worth less than the value of their mortgage. Some 3,400 Sacramento County property owners faced foreclosure in the first quarter of 2007, up nearly 200 percent from 2006. Sacramento County ranks in the top ten nationally in the number of foreclosures.
...
Real estate investor Tony Sedillo said while he can make money if the foreclosure trend continues, watching families leave their homes under the financial strain is excruciating to see.

"This one woman was paying $2,000 a month and is now paying $5,000 a month after a year," Sedillo said. "Who wants to profit when a little girl is looking out the window and the parents are packing up?"

From the Sacramento Business Journal:

While residential towers have seemingly stalled in downtown Sacramento, a San Diego developer with pension fund backing is seeking approval for a 24-story condominium tower on the West Sacramento riverfront.

Fairfield Residential LLC is looking to build a 150-unit development on about 1 acre between the pyramid-shaped Ziggurat building and the California State Teachers' Retirement System's new headquarters under construction.
...
Fairfield bought the property last year, but the developer said it's likely to wait until conditions are more favorable before building. "We're not going to rush into a bad market," said Dan Milich, development manager with Fairfield. "We're in a position to wait it out. If you're wondering about a groundbreaking, it's too early for that."

Fairfield would need to seek a construction loan to build the project, Milich said. Financing of pricey residential projects is scarce these days, judging from the delays and problems with Sacramento's other condo towers. A resurgent housing market, however, might lead to looser lending.
...
Large condo projects have not fared well in the past year. In Sacramento, there has been no word yet from the partners in The Towers on Capitol Mall project -- John Saca and the California Public Employees' Retirement System -- on what will happen with their plans to build twin 53-story condo towers. Saca has failed to come up with enough financing to satisfy the agreement with CalPERS, essentially putting the project on hold.

Craig Nassi, the developer of Aura, another high-rise condo tower in downtown Sacramento, has struggled to secure financing for the project since last fall.

Terminated

From the Sacramento Bee:

Condo woes: Prospects for the stalled Towers condo project took another hit this week: Its sales office closed.

On Wednesday, furniture was moved out of the office on the ground floor at 455 Capitol Mall, just up the block from the now-quiet project construction site.

"It's sad," says Dan Friedlander, owner of the Limn retail chain that provided chairs, desks and other equipment for the office.

But he's hopeful the shutdown is temporary.

"We'll be right back in there when they figure out what to do," he says, referring to talks under way between project developer John Saca and the California Public Employees' Retirement System, which could end up taking over the high-rise project.

Saca was unavailable for comment on the office closure.

Saving the Sacramento Real Estate Market with Night Lights & Kings Magnets

From the Sacramento Bee:

A magnet for sales

What do real estate agents really need to boost sales? The answer was on display this week when members of the California Association of Realtors came to town to lobby the Legislature -- and roam a Sacramento Convention Center expo. Sure, there were the perennial title insurers, sign post makers (Show special: $29.95) and lenders -- "Loans, we have loans." But look what else was on display in the exhibition hall:

• Night lights on top of For Sale signs. In a tough market that requires every competitive edge, it "provides up to 150 more selling hours per month," the advertising brochure said.

• The pocket mortgage calculator. People are always asking, "How much?" The salesman whipped out his calculator, punched in a $300,000 loan at 6 percent and had the answer in three seconds flat. Sold!

• A cell phone headset that eliminates in-car noise, crying children and fellow agents in cubicles. "It's what they use in NASCAR," said the saleswoman.

• Refrigerator magnets, also known as "lead generation tools." Said a Minnesota-based salesman: "The Sacramento Kings (magnet) is one of our most popular products."

No kidding, you say.

"At least in this area," he said.

From the Modesto Bee:

"In this market, it's vital to be priced right from day one," said Daniel Maez, a Realtor with Century 21 M&M and Associates.

Kathy Rodriguez, a broker with California Prudential Real Estate, said a seller wants his or her house to be priced in the lowest 10 percent of similar homes on the market. "In today's highest inventory, less than 10 percent of the homes on the market are going from active to pending to sold," Rodriguez said.
...
Mike Kline, a broker with ReMax Executive, said many sellers have a tough time setting a realistic price in today's market. "Our marketplace has changed, and you are no longer going to get the same price you got in November of 2005," said Kline, who has worked in the real estate business for 35 years.

From Forbes:

Market corrections follow three basic recovery patterns. A V-shaped recovery where a market experiences a sharp, fast decline but comes out strong once it hits bottom; a U-shaped recovery, where prices decline gradually and recover slowly; and an L-shaped curve, a hard, fast fall with paltry price bounceback following the market trough.
...
Slower recovery rates are expected in markets such as Minneapolis and Boston, where a slumping local economy, slow job growth and negative migration numbers hamper long term prospects. Along with other U-shaped markets like Sacramento, that have double-digit subprime lending share, Zandi says it's going to be harder for these markets to get going again.

From the Sacramento Bee:

Still going ... going ...

That big foreclosure auction on June 23 at Cal Expo is drawing "good, but not great" response, said Robert Friedman, chairman of the Irvine-based auction firm, Real Estate Disposition Corp. Friedman said 220 bidders have registered for 107 area houses being auctioned.

From the Stockton Record:

According to Shelly Cannon-Keely, office specialist in the Stockton office of commercial real-estate brokerage firm CB Richard Ellis, as the soft housing market has affected the office sector, the vacancy rate for all types of office space in San Joaquin County rose to nearly 7.4 percent in the first quarter of this year.

SL's Water Cooler - June 2007 (part 2)

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'It's a Lot of Work for No Gain'

From USA Today:

Many investors feel like running away from homes

Buying real estate seemed a no-brainer five years ago. Cheap loans were easy to get. Home prices were soaring. Stocks were dead money.

How things have changed.

For-sale signs are sitting ignored in some cities. Interest rates on exotic loans are doubling. Insurance premiums and property taxes are skyrocketing. Wannabe real estate tycoons stuck with properties they can't sell have been turned into landlords, forced to fix toilets and take tenant calls in the middle of the night. Many are "under water" — owing more on the mortgage than they could get by selling.

Meanwhile, stock investors have been celebrating again as broad market indexes march to new highs. And that is prompting some real estate investors to make the switch back to stocks.
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The migration from real estate to stocks is part of the natural swings investors go from loving an investment class to hating it, says Robert Shiller, a Yale professor who studies market movements. Just as investors saw housing as a haven from the bear market for stocks in 2002, they see stocks as their best bet now as some housing markets go from bad to ugly, he says.

[Ken] Winans [president of investment research firm Winans International] and others think the sloshing of money from real estate into stocks is one of the factors fueling the stock market's recovery to record levels. "Inventories (of unsold homes) are up while coinciding with volumes and prices of stocks going up," he says. "Surprising there aren't more people connecting the dots."
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[W]hile real estate can be lucrative, it often comes with headaches and hidden costs. Those may have been tolerable when home prices were soaring, but now that prices have stabilized or even started to drop, the annoyances are deal killers.

Some investors want to get out but fear they're so far in the hole already that they don't want to take the loss. Janice Burnham, an eBay employee who lives in San Francisco and was included in USA TODAY's 2002 cover story, got fed up with stocks and bought a Silicon Valley home in 2002 and an investment property in Folsom, Calif., near Sacramento two years ago. She paid $353,000 for the investment property.

"Everyone else was making money," she says. "I figured this was the way to make money. I've changed my opinion on that," she says.

Now she figures she would have trouble selling the Folsom home for $320,000, a loss she's trying to avoid by renting the property. But that's not going well, either, because she spends money for upkeep and struggles to find tenants.

"It's a lot of work for no gain," she says.

Spotlight on Sacramento

From the San Diego Union-Tribune (hat tip Jeff):

This summer will see a major wave of adjustable-rate mortgages ratcheting upward...[M]any people who took out adjustable-rate loans in 2005 couldn't afford a 30-year fixed-rate mortgage back then, and can't afford it today. Also, lending standards have tightened, making it harder for a financially strapped borrower to obtain a loan. Many of those borrowers will end up in default. Or foreclosure...

Rising foreclosures and declining prices are not unique to San Diego. Even though we led the nation during the housing boom from 2001 through 2005 and the decline of 2006, other spots have superseded us.

In California, the worst foreclosure rates are clustered around the Sacramento area, including Stockton, Modesto, Vallejo and Fairfield, according to RealtyTrac, a real estate research firm in Irvine.

From Business Week:

The mortgage mess is getting even messier. Literally.

Malnourished and flea-ridden animals, feces-covered floors and urine-soaked furniture, piles of rotting garbage, swarms of diseased mosquitoes—these are the horrors that may await the ill-fated sheriff, property inspector, Realtor, or passerby making that first visit to a deserted home.

And with foreclosure activity well above last year's levels and still on the rise in many parts of the country, nasty surprises have like these become more common.
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In and around Sacramento, Calif., mosquitoes that may carry the deadly West Nile virus are thriving in the thousands of uncared-for swimming pools on properties left vacant by slower home sales and rising foreclosures. With 30,505 foreclosure filings reported in April, California documented the largest foreclosure total in the country for the fourth month in a row, according to RealtyTrac. In Amador, El Dorado, Nevada, Placer, Sacramento, Sutter, Yolo, and Yuba counties, more than 1,500 homeowners handed their homes over to the bank in the first three months of 2007, according to DataQuick Information Systems in La Jolla, Calif.

And don't forget the frogs.

Busted

Reporter Josh Bernstein reports on the Elk Grove fraud saga. See the full story tonight at 11. From KCRA (also video):

FBI, IRS Take Action On Mortgage Fraud
Indictments Could Soon Be On The Way

More than 20 agents stormed the offices of Freedom Capital Mortgage, VFM Investment Group, Lyon Real Estate and several homes in the surrounding area.

During one of the raids in Elk Grove, Gabriel Viramontes was detained but not arrested. [corrected per updated story] Viramontes and his business partners Jim Martin and Mario Fellini allegedly falsified millions of dollars in loan applications so investors could qualify for loans they couldn't afford. The FBI and IRS seized hundreds of files, computers and other records.

At Freedom Capital Mortgage, they detatined Joesph Gallo, the company's president and the mortgage broker who handled almost all of the transactions.

At Lyon Real Estate, agents seized records relating to Jennifer Huang, the real estate agent who handled the sale of almost 20 of the homes involved in our investigation.

The FBI and IRS spent hours searching through thousands of records. No arrests have been made and no charges have been filed, but indictments could soon be on the way.

Previous stories:
Fraud Grove
Fraud Grove (continued)
As the Fraud Turns

Another Local Lender "Implodes"

From The Mortgage Lender Implode-O-Meter:

We recently got word that Heritage Plaza Mortgage (HPM), a Stockton, California-based Alt-A lender was no longer in business:

I used to work for an alt-A company based in Stockton, CA called Heritage Plaza Mortgage. They are no longer in business. If you google and check out cached web pages, you'll get an idea of what they did. Heritage Plaza Mortgage had a corporate office in Stockton, CA and branch offices in Concord, CA and Sacramento, CA and in addition to its wholesale arm had a retail arm called loanready.com. It was licensed to lend in several states . . .

At its height in 2005, it closed roughly $750 million - $800 million in loans. Word on the grapevine is that in its last month (March or April 2007), it closed about $4 - 5 million in originations.

Pardee Time in Sacramento?

From the Sacramento Bee:

For 20 years, executive David Ragland has bought land and built houses for three different national home builders in Sacramento. Now he's readying model homes for a fourth, the newest corporate builder to set its sights on the capital region.

That's Los Angeles-based Pardee Homes. Beginning Saturday, it will compete with 86 home builders already working the Sacramento-area market. Pardee, a familiar name across the decades of growth that built Southern California and Las Vegas, is about to open eight model homes in Natomas.
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Pardee's debut comes at a difficult time in the regional market cycle for new home builders. The firm launched its division during the housing boom, but its first project arrives during a serious sales slump. The models' doors are opening amid price cutting by other home builders, excess inventory of both new and existing homes for sale and a pronounced slowdown in building activity.

But Pardee, which weathered the far deeper 1990s Southern California slowdown, is gambling that strategic land buys -- even at housing boom prices -- will carry advantages. Meanwhile, local privately owned builders who bought land at low 1990s prices have been gaining market share this year with their ability to discount.
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A subsidiary of Washington-based timber giant Weyerhaeuser Co., Pardee hired Ragland at the height of the housing boom in 2004 to launch a Sacramento division. It has since invested more than $150 million on land and other startup costs in Natomas, Rancho Cordova and Stockton, he said.

"It's kind of a feel-good story," said Greg Gross, who tracks Northern California home builders as a director for Houston-based Metrostudy. "As slow as things are, someone is taking the opportunity to enter this market. They're going to be a competitive builder."

"A Bleak Picture"

From the Modesto Bee:

A bleak picture was painted of the region’s housing market at a recent conference for real estate appraisers. The Appraisal Institute’s Northern California Chapter brought in experts to speak at the all-day event in Modesto last month, and their words weren’t cheery.
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Home prices falling: The worst of the housing price slump may not be over.

"This year, we’re going to see prices drop in every market across the country for the first time since the Great Depression," said Steven Smith, a property appraiser and consultant from San Bernardino. Smith predicted that home values throughout the country will fall 25 percent to 50 percent below what they were at their peak, which was in 2005 or 2006, depending on the region.
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"We have not hit the bottom yet in prices. There’s just too much inventory," said Glenn Race, sales manager for Prudential California Realty. "It will take time for the next recovery, perhaps four to five years."
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"Subdivisions that should have sold out a year ago are still here," [Joanna] Terry [a senior manager for Hanley Wood Market Intelligence] said. She said each subdivision on average is selling only about 1½ homes per month in Stanislaus, one home in Merced and three homes in San Joaquin.
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Realtors quitting: Membership is shrinking in the Central Valley Association of Realtors. Race said there were more than 3,300 members of the association in February 2006. But that declined to about 2,500 in February 2007 -- a drop of 800, or 24 percent. "Simply put," Race said, "there are not enough sales to sustain the large population of agents walking around with licenses."

SL's Water Cooler - June 2007

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