Wednesday, October 10, 2012

Sacramento Real Estate Market - 2012 Water Cooler

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


Boba the IX said...

Here is the question for 2012: How many houses are there left to foreclose? Can Lander or Max Stats provide an analysis on a broad scale using public data? Maybe you could do a test run for hard hit bubble areas like Anatolia or Lincoln Crossing, which were built in 2004-2007? Then compare them to a stable area like Citrus Heights or Mid-town Sac?
I have done some calculations by hand for certain areas and found interesting traits. The JTS subdivision Estates at Lincoln Crossing as 138 homes and 133 of them have foreclosed (some twice, as the knife catchers moved in early). However, over the last year, that tract has finally stabilized. That last foreclosures are clearing the market. (I use the JTS subdivision, because they willingly encourage “flippers” to buy, while proclaiming they only sold to Owner Occupants.)
A similar story is true for the higher end JTS subdivision in Catta Verdera. About 78% of the houses on Monteverde Street have foreclosed and the remainder homes are owned by people with large amounts of equity.
I have always maintained the housing market will remained distressed until EVERY house built from 2004-2007, and most houses sold during that period, finally foreclose and the price resets. If you examine an area like Lincoln Crossing (Sun Cal’s subdivision where multiple builders constructed new homes from 2004-2007) it will tell you the “completeness” level of foreclosure process. There were about 2800 homes built in Lincoln Crossing during that period. Is it possible to provide a stat showing how many of those homes have foreclosed? I am guessing it is about 80-90%. If this hypothesis proves true, then it is a clear sign that the bottom is in and the prices have probably stabilized.

husmanen said...

Boba. Interesting method and I think you have something there.

I don't have access to the stats but I can say from observation that I see large percentages in EDH and Folsom that have gone through the cycle.

Now there is also the 'hidden' element, those that pulled a ton of money out of their house during this period. Fictitious equity.

That is a large number too.

Giacomo said...

Boba, I hope you won't make the mistake of others who rationalized a house purchase from a narrow set of statistics (and probably now have regrets).
Folks seem to gravitate towards inventory data, maybe because it is convenient to track -- but ignore the bigger picture. As husnanen suggests, oversupply was only part of the problem; the greater issue was, and is - DEBT, held by both individuals and governments.
I think the results of the November election might very well signal a protracted recession, and I would not be happy to own a house during that period.

Boba the IX said...

Giacomo, I have purchased many houses over the last several years and must say I am enjoying all of them. I rent them to wonderful people, have positive cash flow, a vacancy of less than 1%, and loan principle drops by $250 to $425/mon/house (low interest rates). Only one house is worth less than I paid for it, several are worth more and everything I purchased was acquired at or below reproduction cost.

Ignoring inventory imbalances is to ignore the law of supply and demand. I have been trying to buy more houses recently and every offer I make is trumped by 2-6 other offers from people willing to pay a greater price than I. In 2009 & 2010, my offers would sit for months, alone, until the bank finally agreed to a low ball short sale.

I am certainly not saying the national debt is under control or people have their personal budgets in line, but if you are waiting for those issues to be resolved, the only real estate you will ever own is a burial plot.

What I am saying today is that many people always believe that whatever is happening at the time is what will happen forever. In 2006, Lander called the housing bubble, going against the grain of 99% of the people who believed housing prices never dropped. In 2012, it is likely this will be the beginning of the housing recovery. It will not be pronounced, just like the downturn started slowly. California is still a very desirable place to live and the population is continuing to grow. I see home builders starting new houses and they are selling. I see traffic increasing on the roads. I hear about the statistics with unemployment dropping and retail sales increasing. It is all there if you are willing to see it.

There are no guarantees, but if the world is going to end, I prefer to go out in my own home, raising my own vegetables, enjoying my own slice of nirvana.

Lincoln Guy said...

Amen to that....Purchased a rental every year since the crash, all bank owned and plan to continue.
I also have great renters, wonderful cash flow and love managing my own assets.

Giacomo said...

"Positive cash flow," I assume means the rent exceeds the mortgage payment AND insurance, repair costs, taxes, etc. Good for you, if that's truly the case.

I have to wonder if these properties are still worth what was paid for them, house bought in my community 2007-2011 hasn't seen a significant drop in market value (owner delusion notwithstanding). Count this depreciation against "positive cash flow" and ooops... maybe your money was better left in the bank, or invested elsewhere.

On another note: it seems to have been a constant feature of these blog and the now-defunct "Average Buyer" for emotional arguments to be substituted where economic arguments falter. I would class "enjoying my own slice of nirvana" as one of those. I can BUY stuff all day long and ENJOY those things; but that doesn't speak to the fiscal prudence of having bought it.

And amazing, really, to hear again the old house-salesman cliches.
"California is still a very desirable place to live and the population is continuing to grow. I see home builders starting new houses and they are selling. I see traffic increasing on the roads."
Seriously, isn't this exactly what was parroted in every Californian RE bubble?

I am not convinced that any sort of RE price bottom has been reached, or any serious economic recovery has begun. Political games with "unemployment" stats aside, the percentage of the population actually working is still at a low, and economic growth is NOT keeping pace with the arrival of young workers, and real incomes are not rising. This is not an environment which cause house prices to rise.

Boba the IX said...

The positive cash flow is real. I have less than 1% vacancy over the last 5 years and don't take a management fee (Would be $100/mon/house)

I got an $18,000 reduction in my income due to depreciation this year. I generaly average $200/mon cash flow and pay the loans down about $300/mon/house. I put 25% down.

There has been no appreciation and there does not have to be any to make these deals work.

I will say rents have gone up strongly in the last year or two, though I don't raise rents on existing residents. Houses I rent for $2,100 month are now getting $2,400. So my cash flow will probably double if any of the residents ever move out and I rent to new people.

Giacomo said...

@ Boba: okay, if that works for you.


whatever said...

Yes, rents have definitely gone up. It makes me wonder if all those people losing their "homes" and needing to find new "homes" (as opposed to apartments) are the reason for the rising rents.

Boba the IX said...

The last four people to whom I provided a house were all walking away from their homes. Good jobs, owner mentality and a desire to stay put for 2 to 3 years while they rebuild their credit. I bend over backwards to make them happy. There are no better residents.

husmanen said...

I would have to concur about reasoning for the increases in rental prices. My old rental has increased about 20% when we moved out.

AND the rental is still in foreclosure.

Crazy market and it looks like it will be like this for a few more years.

Giacomo said...

If we're trading anecdotes:

The first house we rented was foreclosed on as we moved out. The young couple that bought it from the bank (in 2008) is now in default and attempting to short sale.

The last place we rented is getting just the same rent that we paid, despite the fact that three times as many people are now living there.
It doesn't quite cover the LL's mortgage payment, he's way underwater, hanging in there until the "market recovers."

We are paying the same now as the last tenants on this property. And the landlord has had to pay to replace an entire HVAC unit, $5K+, since we moved in a year ago. Ouch.
LL here also underwater.

The latter two houses, by the way, wouldn't appear in anyone's stats as "shadow inventory" although the owners would love to sell them.

YEAH, that's right, we've made 3 (short distance) moves in 5 years, and it's cost a few K each time; not the best of all possible worlds, but better than losing 50K a year in equity!
And the houses we live in keep getting better.

husmanen said...

Ahhh, my old landlord finally lost their house. It took over 4 years without paying and having renters in the house. They got back their down payment plus some. Now that was a good attorney.

patient renter said...

I'm about to start house hunting and am wondering if any of the wise posters can school me on finding a house? From reading about your home searches in the past, I have a feeling there's more to it than just following the MLS. What tools are there that I can use?

A Nonny Mouse said...

Resources that I found useful in my house hunting:

sobmaz said...

It is all simple. Loose money created the bubble, loose money can bring it back.

0.5% for savers? So Gramps and Granny are starving due to low yields so lend trustworthy grandson and granddaughters cash to buy house, interest goes to Granny and Gramps and Grandchildren have a house!
AND for those who don't have rich relatives, 3.5% 30 year fixed were teaser rates just 10years ago.

Interest rates could be low for years to come, or not. The fact is bubble dynamics are at work.

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

The inventory levels at the RealEstateStats blog are VERY interesting. We are cutting some seriously new ground at the current levels and trends are continuing down. What will extremely constricted inventory do to the market over the next couple of years?

patient renter said...

I noticed the inventory. Pretty wild. What is causing this?