Too Much Food On The Table In California
The Tribune reports from California. “Saddled with a glut of homes, builders in San Luis Obispo County have spent the last year trying to coax buyers back into the market. Some builders have followed up with more drastic price reductions; as much as $100,000 in certain neighborhoods.”
“New-home sales in San Luis Obispo County are arguably the weakest segment in the current housing market. ‘The new-home market has been long on supply, and homes have been sitting for months,’ said Ed Steinbeck, a broker associate in Paso Robles. ‘There are definitely deals out there to be had.’”
“Sales of new homes in San Luis Obispo County were down nearly 60 percent in May year-over-year compared to 20 percent for re-sale, detached homes, according to DataQuick. The median price for new homes fell in May nearly 14 percent to $525,500 from $609,000 in May 2006.”
“Dallas-based Centex Homes, the nation’s fourth-largest home builder, has been among the most aggressive in the county at reducing prices. In February the publicly traded company embarked on a selling blitz.”
“‘We made cuts in every product line in February because we had to make our numbers,’ explained Chris Bowley, Central Coast division manager for Centex Homes, which has projects in Paso Robles, Templeton, Arroyo Grande, Atascadero, Nipomo and San Luis Obispo. ‘We have an obligation to our shareholders.’”
“Prices in most Centex neighborhoods in the county are more than $100,000 less than they were last summer, said Bowley. ‘We want to keep the engine running, even if we have to take less profit on a house—or sell it at a loss,’ said Bowley. ‘We can afford to take short-term losses. The negative, of course, is that we are forced to do that.’”
“Selling property, even at a loss, is a decision that privately held JM Development has also made. The Santa Barbara-based developer, which has properties throughout the Central Coast, has dropped prices by about $80,000 at Petersen Ranch in Templeton, said company President Mike Rider.”
“‘We’re trying to be more realistic about pricing,’ said Rider. ‘We’ve already closed more homes in six months than we did all last year, but we’ve also lost more money than we did last year.’”
The Sacramento Business Journal. “The outlook for homebuilders and homeowners looking to sell keeps getting worse. New-home sales were dismal in the second quarter. The number of new and existing homes on the Sacramento market has eclipsed last summer’s inventory and stands at close to 22,000.”
“Foreclosures in Sacramento County are 10 times what they were last year.”
“Despite builder promises of reduced inventories, one of the more surprising developments in 2007 has been a new-home inventory increase, which includes ready-to-build lots, over last year. At current sales rates, there’s a 20-month supply.”
“‘This is the biggest issue,’ new-home analyst Greg Paquin said. ‘But over the last two years, you’ve got 120 more projects out there. They’re doing smaller phases, but opening up more projects during that time.’”
“Paquin reported the number of new-home projects in the six-county region increased from 253 two years ago to 377 today.”
“‘This is land they bought in 2005 and 2006,’ he said. ‘They can’t sell it, they can’t sit on it, so they’re going to build on it.’”
“Existing homes on the market in Sacramento, Placer, El Dorado and Yolo counties total 17,041 as of the end of June, according to Trendgraphix Inc. That’s above the 15,900 resale homes on the market at the same time last year.”
“‘We knew it would go over last year. That’s too much food on the table, and the buyers are going for the caviar,’ said Lyon CEO Michael Lyon. ‘It goes to show that any sellers who thought there would be a quick recovery need to get that out of their heads. Things are selling when they’re priced below the last comparable sale.’”
“KB Home has had the best performance through May of all Sacramento builders. Territory president Barry Grant said he had no crystal ball to predict future results, but he attributed the company’s success so far to its strategy of concentrating on starter homes and lowering prices rather than offering more incentives.”
“‘Candidly, we’ve been adjusting the price until it’s at a point we think will attract buyers,’ he said.”
The SGV Tribune. “Those proverbial chickens are coming home to roost in the mortgage market, and the picture isn’t a pretty one. The Riverside/San Bernardino metropolitan area ranked fourth in the nation for foreclosures in June 2007, according to a report released Thursday by RealtyTrac.”
“‘It’s getting worse,’ said broker Pat McKenna of Bristol Home Loans in Ontario. ‘A lot of the ARM loans have been resetting, and a lot of people are finding they don’t have enough equity to refinance. They can’t sell, so some of them are just getting desperate and walking away.’”
“‘Some of these people got into loans they couldn’t afford even though they knew it. They wanted the house. That’s the dream. There might not be much that can be done for them,’ she said.”
The Union. “In Alta Sierra this weekend, one developer will auction his home to the highest bidder after failed attempts to sell the house on the traditional real estate market. The 3,400-square-foot custom home on more than 2 acres is appraised for $875,000, said Gary Stokes, who runs an affiliate branch of Fidelity Housing Solutions. But bidding will start Sunday at nearly $560,000.”
“‘In the depreciating market that we’re in, you have to be creative,’ said Stokes.”
“In western Nevada County, 1,070 homes are for sale, compared to 400 in 2004, according to figures analyzed by Skip Lusk, executive president of the Nevada County Board of Realtors. ‘We’ve tripled in inventory, and we have less buyers today,’ said Lynn Griggs, with ERA Cornerstone Realty Group. ‘People are having a hard time even getting homes shown.’”
The Daily Press. “Inland Empire economist John Husing forecasts a a robust housing market in the Inland Empire’s long term but not in the near future. Husing said a market like today’s, when home values are tens of thousands of dollars above what the market will pay, is without historical precedent.”
“The speculative surge that fueled sales has had lingering effects, among them that current homeowners resist selling houses for what they believe they are worth. Additionally, the trend of defaulting on homes continues to increase.”
“In Husing’s view, the Inland Empire market for existing homes would benefit from a 20 percent correction; home values here are nearly twice the national average at a time when there is little difference in incomes locally and nationally.”
“He also recommends a 13.6 percent reduction in new home prices.”
The Union Tribune. “Brookstreet Securities in Irvine imploded late last month because of an overnight drop in the value of its mortgage-heavy investments.”
“‘Disaster,’ ‘horrible’ and ‘horrendous’ were among the words that Brookstreet founder Stanley Brooks used to describe the crash of his firm, which had 730 or so agents nationwide, including about a dozen in San Diego County.”
“At the peak of the market in 2005, only 13 percent of defaulted mortgages in California went into foreclosure. This year, the number is closer to 40 percent and it seems likely to top the highs of 55 percent seen in 1983, at the tail end of a recession.”
“Already, San Diego County has nearly eight months of inventory on the market. The number of homes that have gone into default or foreclosure in the past year has tripled, rising from 842 in June 2006 to 2,564 last month.”
“‘The housing downturn is really knocking the wind out of the San Diego economy, almost totally on its own,’ says Scott Anderson, economist for Wells Fargo Bank.”
“Bruce Norris, who heads the Norris Group, a real estate investment firm in Riverside, says that at the top of the market, there were 18 consecutive months marked by a large percentage of adjustable-rate mortgages and other relatively risky loans. That suggests it will take at least 18 months for the problems associated with those loans to be resolved, through foreclosures and ’short sales.’”
“‘There’s no doubt that there will be a tremendous increase in foreclosures,’ says Norris. ‘I’m not being negative, just very realistic. This is a mathematical certainty at this point.’”
“‘The housing downturn is really knocking the wind out of the San Diego economy, almost totally on its own,”
i want proof!
Here is proof that there is no bust in San Diego. As long as the superrich are buying custom-built homes loaded with tennis courts, swimming pools and bowling lanes, there can be no bust here.
Ya gotta love this recurring genre of lead articles in the Sunday SD UT Homes section, which pound home the message: “The fact that really, really rich guys can get any kind of home they want made to order proves that the San Diego real estate market is as hot as it ever was.”
———————————————————————————-
Luxury off the shelf
Developer finds a rich market for fully furnished high-end megahomes
By Roger Showley
STAFF WRITER
July 15, 2007
(CRISSY PASCUAL / Union-Tribune
Greg Bacino’s Roxbury Estates project appeals to the jet set by offering giant (up to 23,000 square feet) floor plans, expansive entertainment zones indoors and out, and furnishings in “Old World” style. The homes come with flat-screen TVs, a private theater, spas and putting greens.)
Forget estate homes – those 6,000-square-foot Italianesque “McMansions” in suburbia going for $3 million, with their his-and-her closets, prep kitchens, turrets and casitas.
Now, we’ve got “resort” homes – complete with bowling alleys, billiard table lounges, plasma TVs in every room and private patios with fireplaces and spas. The listing price can set you back as much as $20 million for 23,000 square feet.
One prime example of such opulence is Roxbury Estates in western Rancho Santa Fe, where developer Greg Bacino of ALB Properties bought 24 acres on which to build eight fully furnished custom homes, four of which have been completed. A Las Vegas buyer has sprung for one of the houses already, a second is soon to work its way through escrow and the other two may be out the door by summer’s end.
So much for the housing slump, at least in this niche market.
http://www.signonsandiego.com/uniontrib/20070715/news_lz1h15roxbury.html
Who cares about the $20m market? Us middle class people will never afford upper class house so it wouldnt matter. What we are seeing is $300k to $1m houses drop drastically and should end up 50-70% off from the peak. Imagine a nice $1m house at $400k!
A nice $1m house? What’s that, a toolshed?
2005 prices yes. 2010 prices $1m will get you a huge house!
San Diego is “toast”. Only a fool, if there are any left, would buy a house in a falling market even if they had a “true” down payment not borrowed. Assuming a great economy which is questable in San Diego, cannot support house gains. No way. San Diego was the number one price bubble in the nation and now will fall hard as smart qualified buyers now have seen how fools in the past made dumb mistakes. Buyers will wait on the sidelines and not make stupied emotional decisions this time. Money is to valuable and unwise debt is a slave for life that the wise buyer knows now. Sorry but no San Diego economy is comming to the parade this time.
I agree SD is toast, as well as Las Vegas and Phoenix. Sometimes I wonder if we are forgetting that the health sciences fields in San Diego will be attracting lots of mobile professionals with high incomes and encouraging to rent the thousands of lower priced rentals that are glutting the market. We are all forgetting that there are real jobs out there. The consensus on this board thinks the only jobs are the type at Wal-Mart. Not so. I know plenty of high tech people earning in the $180,000 and above incomes. They happen to be traveling consultants. Direct hires at the place I consult to make close to $100,000. There is a shortage of health care workers all over the U.S. Their wages will have to keep going up. Many of those are in San Diego.
I’m thinking there will be a depression in the U.S. But there will be hundreds of thousands of mobile professionals who won’t notice it.
It would have to be one heckuva salary package deal to entice many people to come to San Diego to just rent when they can probably make more elsewhere. I do agree that someone with mobility on their side would be more likely to consider it.
My screen name is a reference to what HR people here call The Sun Tax. In general, you will make 15-20% less because employers have been able to get away with offering less. (Because it’s San Diego, great weather, etc.) Even go up to LA and you’re likely start at a higher salary. I know that higher paying positions are going unfilled where I am because locals or those with family here in SD are the only ones seriously considering them in light of the exorbitant cost of homes. Making more and living someplace cheaper with better housing affordability has driven candidates away, despite the sunshine. This is definitely the case in heathcare too.
For those who can pick up and go with no expectation of immediately buying, there’s certainly no shortage of places to rent!
I remember Florida in 2000 had a lot of engineering gigs at $40 per hour (very low at that time). Yes, that’s the sun tax. On an individual basis, productive professionals create their own economic boom though. I had several potential gigs in San Diego but I turned them down because (as you say) the sun tax. This is why my point is more about mobility. Maybe I’m wrong about health services and biomedical research becoming a big industry in San Diego. Excuse my ignorance. I just know that a lot of research in those areas is taking place in San Diego!
Some of the biomedical research is already moving to china. There was an article in the union-tribune a while ago about how biomedical labs in Shanghai were taking work away from PhD researchers in San Diego.
Well, that should help my VEIEX mutual fund. Maybe also PRASX.
“Their wages will have to keep going up. Many of those are in San Diego.”
Not true. Health care workers have more education, work 24/7 and get paid less then fire/police/correctional officers all of which don’t need college to qualify for a job and get safety retirement to boot. I retired 10 yrs ago from the field but still have many friends in the field who will all get out at age 55 and do something else. Headhunting firms are being paid $80 or more bucks per hour to bring in workers from out of state. These workers are coming in on 3 mo. contracts for less than $80 with the HHF’s pocketing the difference. The quality of care is getting frightening. I’ve been paying to keep up my license but I make more in a year setting home then going back to work, only because I planned and saved early on.
It’s not true in every case that headhunting firms sock it to the job candidate. If the client likes the candidate and renews the contract and the candidate is persuasive, she could get top dollar. I guess it’s different in health care from engineering then?
Had two friends that moved to SD from the BArea for biotech jobs in 2005. They lasted exactly one year before heading back up north. They made WAY more money in the BA, the ’sun’ wasn’t that great, the homes prices weren’t a great deal, the traffic sucks as bad in Sorrento Valley/805/5 merge as the BA and well let’s just say ‘tolerance’ isn’t synonymous with SD. We lasted six more years than they did. We got there when things were cheaper in 1998 and bought new for 230K. In the end though, the lack of innovation and initiative in business together with lousy wages/benefits and all those damn ‘haters’ in SD sent us back north as well.
Bill,
Yesterday in thread 3101 you said the following that I’m hoping you’d be willing to address further in this thread or a future one:
“Peak oil will have a severe impact on all developed economies. Cities that hustle and develop massive public transportation systems will do well. We will not go into the stone age, as some of you rural folks imagine.”
In that thread I was talking about the importance of the food supply and the need for city people to produce something that the food producers are willing to trade for. I wasn’t talking specifically about peak oil, more just the current economic sword hanging over our heads, which of course could be made worse by peak oil, or just peak oil psychology.
I would *love* for you to be right, and for the “chicken littles” (myself included) to be proven to be overly paranoid. Can we start with the basic assumption that food will only be produced and sold to purchase goods and services the food producers want and need? Based on that assumption could you outline what you believe the average city dweller will produce that the food producer will be willing to sell/trade for (however long that chain of transactions ends up being)?
I’m a mobile tech guy, and the Chinese love what I develop, so I feel like I’m a relatively good position…maybe. I’m still seeing a lot of ways for the system to break down on me, let alone the people in the city who produce nothing but paperwork or services for other city-dwellers. You place your hope in “unpredicted external events” that will productively engage the city folks, care to speculate further in that area?
Former,
the food distribution system is already in place. Railroads are structured to deliver products to the cities. http://en.wikipedia.org/wiki/Image:North_American_Rail.gif
Statistically, cities have more economic power than the rural areas. This fact is inherent in the U.S. Constitution which was concerned that some states with more people would have more power than states with fewer people - thus the U.S. Senate with two senators per state. This economic power will (and does) draw in the best foods to the cities through the most efficient ways. The market is all set up so that a software engineer does not have to directly trade bytes for bites! That is wny we have a medium of exchange - the Dollar, to make indirect exchange almost as efficient as barter.
If we go back to the gold standard, we still won’t have to worry about barter. Bartering is certainly less efficient than having a medium of exchange, otherwise we’d be bartering all the time, right? So the city dweller will produce the product in demand that he knows he can make the most money at. He does not have to worry about exchanging a computer program for a goat!
About “unpredicted external events:” My point is that doom and gloomers habitually project the existing variables and end up with gloom. In some cases the ulterior motive is to promote their own political power. In most cases they would have been right if “all things remain the same.” But all things often do not remain the same. They forget about the nature of man: Man is not only unpredictible (The fall of the iron curtain) but also creative: (The internet revolution). In the future, for example, massive water desalinization will solve the border wars between California, Nevada, and Arizona, and alleviate drought worries. Start picking up those Popular Science magazines and see what is possible, then cheer up, and please continue accumulating for emergencies (T-bills and precious metals), but invest for the future in equities.
As for peak oil and a return to food distribution, note the railroads can convert to coal-powered steam engines until they electrify based on nuclear energy.
As a close, I want to point out cities have a lot of things the rural folk miss out on: Top colleges, better health care, better entertainment, and even better food distribution systems. If you are in the middle of a large wheat field, but you want grapes, it will be harder for you to get the grapes than it is for me.
Thanks for the reply. I agree that cities have more economic power in a functioning economy, and agree with everything that you conclude from that. In a non-functioning economy, I have a hard time believing that the average city-dweller makes anything that a food producer considers a necessity. I suspect that would have a significant affect on the city-dweller’s ability to trade their production for any medium of exchange.
I can only conclude that you are relatively certain that we will always have a functioning economy where the most basic necessities are always available. I am not. If that reveals a tinfoil hat on my head, so be it.
Fact of the matter is that anyone making $180,000 a year is in the top 1% of earners. You can bank on that.
Proof-poof.
i looked for proof for my own questions. i looked on craigslist to find the going rates for my area of Carlsbad. i thought i’d need a xanax for the palpitations but after seeing all the choices i figured i’d need a Ritalin instead. so many units must make lists!
‘Property tax tardiness continues to swell in Orange County, according to the latest figures out from Tax Man Chriss Street, the Orange County treasurer-tax collector. As of May, 52,297 O.C. property owners had missed deadlines to make their 2006-07 tax payments, owing $160 million. That’s 54% more tardy dollars than the previous year.’
‘5.46% of the second installment payments due by April 10 were delinquent – the highest second-installment delinquency rate in 11 years.’
‘Street blamed the increase in delinquencies on more taxpayers not having the ability to pay. ‘Some of the stories are just grim. People were just desperate,’ Street said. ‘Clearly they didn’t know what they were getting into.’
“Street blamed the increase in delinquencies on more taxpayers not having the ability to pay”
I know recent homebuyers that don’t have taxes and insurance impounded by the mortgage holder (ie taken out monthly). They just hope for bonuses or home appreciation at the end of the year. It gets hairy when there is a major auto expense, repair expense, etc. that they haven’t planned for.
‘We’ve already closed more homes in six months than we did all last year, but we’ve also lost more money than we did last year.’”
Now that’s some funny $hitttttttt!!! taking one for the team!
Ha! That one should be framed!!
Street blamed the increase in delinquencies on more taxpayers not having the ability to pay.
Brilliant!
The real problem with property tax payments is just beginning. All the sub prime & alt-A 100% (80/20) loans have NO IMPOUNDS for taxes or insurance payments. The idiot lenders made loans over market value to poor credit risk borrowers and did not want to be bothered with impound servicing. Did this allow the lenders to ignore those payemnts for loan qualifying or were they just to lazy to set up impounds, since the sold the loans off in 30 days? Now, the investors will get to eat the tax bills and the counties will help carry the burden for the next 3 years, until all the homes foreclose and ultimately sell to new buyers.
In California, taxes and bonds can easily equal 2%/year. Say a $600,000 house has a sub prime 80/20 loan. The 20% second is history the day the sale closed (hello HSBC!). So the $480,000 first is the only loan in play. With a 30% drop in value, the asset is now worth $420,000. Subract 12 months interest ($27,300) and 1% foreclosure costs ($4,200), plus 6% selling costs ($25,200) and then, to add insult to injury, add in 24 months of back taxes and bonds ($24,000). That nice AAA rated RMBS tranch marked to the model is valued at $480,000 plus accrued interest.
The marked to market value is $140,700 less, or $339,300! A total reduction of 30% of the first mortgage. Back tax payments represents 17% of that loss ($24,000/$140,700).
Do you think the investors will start requiring impounds in the near future and using the tax, bond & insurance costs as part of the qualifying criteria for the borrower’s expenses?
excellent analysis, jingle, thanks for the post!!
Man, that is brutal. Thanks for the work, Jingle.
“‘It’s getting worse,’ said broker Pat McKenna of Bristol Home Loans in Ontario. ‘A lot of the ARM loans have been resetting, and a lot of people are finding they don’t have enough equity to refinance. They can’t sell, so some of them are just getting desperate and walking away.’”
- They need to stop refering to these homeowners as ‘desperate’ and start to call them ‘getting real’. There was no way that they would ever qualify with a fully amortized loan and they also need to stop refering to the FB being unable to ‘refi’.
I thought it was different this time, because we had low unemployment and there would not be foreclosures without a trigger event like the military industrial downgrade of the early 90’s. So you mean to tell me that having a part time job at Target does not make it possible to pay a $4K/MO mortgage?
“A lot of the ARM loans have been resetting, and a lot of people are finding they don’t have enough equity to refinance.”
Serial refinances used to look good as a cost cutting strategy, but now it’s been revealed for what it really is: a gamble.
Serial refinancing was neither a cost cutting strategy (the more you borrow the more interest, i.e. costs, you have) nor was it even a gamble (since there was a 100% chance of price increases ending).
It was just stupidity. On the part of both the borrowers and the bagholders.
But now that so many have behaved so stupidly, it behooves the Fed to help them out by containing l-t T-bond interest rates (which are 99% correlated w/ l-t mortgage rates), no?
it behooves the Fed to help them out by containing l-t T-bond interest rates
L-T bond rates are, and will be, whatever the Chinese (et al) demand to lend the US money. Assuming that they are willing to buy US debt. The Fed can create monopoly money but it cannot service a real current account deficit of 7% of GDP.
jhkgj
az_lender,
Do you happen to have any links to articles about the ML or CS forecasts? I’d be interested in reading them. No sweat if you don’t have them handy.
Thanks.
I think you are right about this. That keeps me increasing my positions in foreign-denominated bonds even though Merrill Lynch and Credit Suisse have both recently forecast a positive rebound in the US dollar. Your scenario suggests continued USD weakness.
For flippers, serial refis were very essence of the game: First they got their $100K cashback when buying, then do nothing and let the house do all the work. Refi it every few months and take out even more cash to live lavishly and buy even more RE.
Wash, rinse repeat.
Yea just ask Jeff at the SDCIA BB. http://www.websitetoolbox.com/tool/post/sdcia/vpost?id=1854186
I wonder if this guy was for real or just an elaborate hoax?
Oh, he was for real alright, that type of hubris is ALWAYS for real. I wonder if he has comitted suicide yet…sounds harsh, but I wonder, I don’t think his wife had any idea what he was doing with the equity in their primary residence…
I was just reading some recent posts on that board, and there are tons of flippers still at work who need to be flushed out. Lots of knife catchers. It’s going to take years for a bottom.
HhHHahah, those posters are hollicost deniers!!!
There is no way that dumbass could sell his trash homes and break even. I have no clue what he bought or when, but would bet big money he is at least 100k in the shitter (prolly much, much more).
I base this on the fact that he does not have a fucking clue about where he stands (taxes, short sales, foreclosure, etc..), what to do (eat shit and die..)or what he did ($1,000/mo negative cash flow “investments”). Anyone this ignorant and clueless has been the grease for the REIC gears. He was turned out years ago and doesn’t even realize he is a prostitute.
I was gonna post what on that thread, but all the goons there flammed the few honest comments there.
Do like the builders do- lower the price $100,000. hehehehehehe
” They need to stop refering to these homeowners as ‘desperate’ and start to call them ‘getting real’.”
more like lucky they were able to walk away from a 6-figure loan.
They can’t sell, so some of them are just getting desperate and walking away.’”
Then they walk away.
They walk away but that’s not the end of the tale for these FBs. They’ll still have to face the collection agencies and eventually file BK under the tough new rules and then pay income tax on the amount written off by the bank.
A co-worker tells me no income tax due on forgiven debt if you file BK. His friend is doing just that in LV on many homes. I don’t know if its true or not?
to quote me, “step up to the plate and start taking your losses!
i think this link has the basic info. However it’d be wise to consult a local attorney.
http://realestate.yahoo.com/Foreclosures/d4f0c57b564974ac71650ad63fcd9994
on closer examination, i see that the linked page speaks of foreclosures but doesn’t address bankruptcy without foreclosure.
Since you don’t say his properties are being foreclosed upon, it may not be good info.
..and I can’t find specific info on debt-forgiveness-taxation with the new BK laws involving a bankruptcy that does not involve foreclosure. I’d still call a RE attorney and ask.
IRS debt is not discharged upon BK.
Time to pay up, FBs!
They need to put tenants into their F’d house and collect as much rent as they can; then file Bk just before the sale. Would probably be able to string it out for at least a year. Oh yes, get a shister lawyer sue the lender, broker, cry before the judge. Get a stay for another year. Still collect rent. Should have ‘bought’ five houses not one. hehehehehehehe
We’re trying to be more realistic about pricing,’ said Rider. ‘We’ve already closed more homes in six months than we did all last year, but we’ve also lost more money than we did last year.’”
In other words, we take a bath on each house. But we are making up for it in volume.
now all we need is the rosy predictions of when they’ll be profitable again!
Reminds me of what midwest farmers will tell you if you ask how the crop’s doing this year:
“If’n that corn price stays where it’s at, might break even this year. Didn’t last year.”
They never mention the subsidized crop insurance that makes them whole if they don’t break even (similar to the way investers don’t think much about how much helicopter drops on Wall Street help their stock market returns…).
“We want to keep the engine running, even if we have to take less profit on a house”
Existing homeowners (especially those that bought in a new development in the past two years) beware: the homebuilders WILL throw you under the bus if it’s in their best interest.
And in many cases, *now* it’s in their best interest.
Anyone hoping for Spring Selling Season ‘08?
“Anyone hoping for Spring Selling Season ‘08?”
not me! i’m hoping for a meltdown of biblical proportions!
probably be more realistic to expect a Spring Foreclosure Season ‘08.
Husing said a market like today’s, when home values are tens of thousands of dollars above what the market will pay, is without historical precedent.”
Mr. Husing. You have your statement backward. The market price is what someone is willing and able to pay. The wish price by the sellers is ten’s of thousands higher than today market price. Today’s market price does not equal what the market price was a few years back when you had flippers lined up at the door and banks willing to give big loans to anyone that could fog the mirror. Those days appear to be past, and now prices are decreasing accordingly.
The abysmal ignorance on Econ 101 concepts of some who claim to be economists is rather disturbing.
Its stunning just how dumb that comment is.
Yeah, good one. I suppose he thinks asset prices are something set by a central committee.
I am waiting for the Super Bowl rush.
Chuckle
“the Super Bowl rush.”
as in a rush for the exits?
“‘Candidly, we’ve been adjusting the price until it’s at a point we think will attract buyers,’ he said.”
Uh, yeah, that’s how it works.
hey.. give him some credit.. the hammer head said something smart.
“..home values here are nearly twice the national average at a time when there is little difference in incomes locally and nationally..”
compound that with the fact that the national average is also too high..
“‘Some of these people got into loans they couldn’t afford even though they knew it. They wanted the house. That’s the dream. There might not be much that can be done for them,’ she said.”
I am not advocating treating borrowers as victims, since they DID know they could not afford the house they were buying, but what about the lenders who also knew they could not afford the home? I suppose lenders were all speculating on appriciation as well.
Absolutely, 100% financing and NINJA loans assumed perpetual appreciation and that’s why they don’t deserve to get their money back.
All the lenders wanted was a warm (or even cold) body to sign the loan docs and close so the lender could get the commission!
Riverside RE:
“…there will be a tremendous increase in foreclosures…This is a mathematical certainty at this point.”
Titanic:
“I assure you, she can. And she will. It is a mathematical certainty.”
An old timer in Fresno said that in the last downturn it cost more to have a contractor build a house than to buy one, and that was in a depressed market when a contractor would give a person a good deal.
“That suggests it will take at least 18 months for the problems associated with those loans to be resolved, through foreclosures and ’short sales.’”
Who is he counting on to actually buy all of these places? Recent buyers with little or no equity won’t be in any position to trade up or trade over. And new buyers will slow to a trickle with higher rates and tighter lending requirements. 18 months? Try a decade.
The problem here is that prices were driven artificially high by easy credit, speculation and liar loans. Today, speculation is almost gone, liar loans are drying up, and credit is no longer easy. What is left are the sky high prices and the expectations of would be sellers. This will take a very long time to undo, although I suspect at some point in 2008, there will be some kind of trigger event driven by bond markets that will mark the real turning of the tide. As Neil likes to say - Got popcorn?
‘ although I suspect at some point in 2008, there will be some kind of trigger event driven by bond markets that will mark the real turning of the tide.’
- I firmly believe that gasoline will close in on the $4.00 per gallon mark by the end of 2007. I figure every house hold starts there monthly budget with a phone bill and cell phone bill (100.00). Next you add cable tv / broadband @ $90.00. Assume they eat (400.00) and have some utilities (120.00). Probably have a few CC (200.00) minimun payment. Car payment and insurance (300.00) and monthly fuel (240.00).
I assume that most folks budgets must be around 1300 - 1400 before you start to add in any dwelling cost.
Sobay…
I’m going to disagree with the $4.00 gasoline in 2007. However, I think the trigger event will be in 2007, not 2008. Most likely simple debt exhaustion and the ongoing meltdown in the CDO market. Yep, the subprime market is starting to take out one of those little cornerstones of today’s easy credit market. The CDO.
$1300 to $1400 pre-dwelling is probalby about right No wonder the savings rate is negative… with the dollar dropping vs. everything but the Yen… it won’t be long until the Yen carry trade reverses. At that point… we’re past the tipping point.
And yes, I like to say:
Got popcorn?
Neil
Sooner or later the yen carry trade has to unwind. ANd when it does, look out below!
Yo’ house ain’t all that.
HGTV is taping where?
The producers of HGTV’s “My House is Worth What?” are looking for homeowners and Realtors who live within 30 minutes of San Diego to appear on the popular TV show.
The program looks at real estate markets across the country, based on evaluations of individual homes in those areas.
Homeowners who are looking for a professional evaluation of their home’s market value, comparing original purchase price with any renovations made; are moving soon; want to know what a recent upgrade or renovation has done to the overall value; or find out how much equity they have in their homes, are invited to apply.
Homeowners must be 18 years old to submit a picture of themselves and their homes. Producers will then ask for a video tour of the home, especially points of pride and projects that have been done to upgrade its worth.
Realtors are required to be able to assess a property on site, give price evaluations, and explain how renovations add or decrease value in a home.
For more information, log on to http://www.pietown.tv .
– CATHY LUBENSKI
SECRET/SCI: Lower the price, sell it next week!
Secrets That Sell - Show Info
Can’t figure out why your picture perfect pad hasn’t sold? Secrets That Sell is the half-hour series that features renowned real estate experts Donna and Shannon Freeman, a mother/daughter team who give their no-holds-barred approach and their combined 38 years experience to homes that need help.
Donna and Shannon, will do a thorough investigation, touring the house with the homeowner to solve the big mystery of why the home hasn’t sold.
As they call attention to potential problems, they’ll also give their expert advice on solutions. So each tour is packed with tips about what can kill a potential sale, and how you can fix it!
In May, June and July we will be filming in the following cities:
Arlington, VA (June)
Atlanta, GA (July)
Chattanooga, TN (July)
Chicago, IL (May)
Milwaukee, WI (May)
Silver Spring, MD (June)
Washington, DC (June)
http://www.pietown.tv/shows/secrets.html
“Donna and Shannon, will do a thorough investigation, touring the house with the homeowner to solve the big mystery of why the home hasn’t sold.”
What’s the BIG MYSTERY?? Just drop that wishing price and sell the damned house, jeesh!
My House is Worth What?
Homeowners:
, so it is worth your while to find out what your home is worth! Click here for the next step to be on our show!
Owning a home is a great investment
Real Estate Agents:
;-) 
Want to be on our show? Click here for the next step.
Do you consider yourself an expert in the field and in the market?
===========================================================
My House is Worth What? is a new series that began airing on HGTV in August 2006. Each show tells homeowners across the country what their current home is worth, where they should renovate if they are planning to or just how much equity is available to fulfill a life long dream (child’s college, wedding, trip around the world, etc.).
If you’ve never seen My House is Worth What? and would like to see what our show is about, you can peek at one of our episodes.
Homeowners
Appear on our television show My House is Worth What? and get a free evaluation of your home by the experts. Find out its current worth, what renovations are worthwhile and what you need to do to increase your value!
If you live in the following locations and meet our requirements, complete the application.
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Albuquerque, NM
Atlanta, GA
Baltimore, MD
Boston, MA
Brattleboro, VT
Chicago, IL
Detroit, MI
Los Angeles, CA
Manchester, NH
Milwaukee, WI
Minneapolis, MN
Nashville, TN
New York, NY
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http://www.pietown.tv/shows/myHouseIsWorthWhat.html
I hope this time the “flipper” really owns the house, the renovation was real, and the house was really sold to the “buyer”.
Last time your show was a complete fraud.
It’s apparent you haven’t seen the show. You haven’t missed much.
Sometimes it’s pretty damn funny though, watching the homeowners who are either squealing like they won the lottery or about to cry because they overimproved their house. I kinda have to be in the mood to watch because the host Kendra Todd is hella annoying.
Cmon stucco, DO NOT POST ANYMORE SHIT LIKE THIS!!! YOUR BRINGING ME CLOSE TO VOMITING!!
New flipper show advertised today made me laugh (due july 31).. Some excentric fag with a bunch of flunkies working for him flipping.
Anyhow, the funny part was him having a flunkie take his cat to acupuncture. He said the cas loves it,…. next scene is the flunkie trying to get the very pissed, screaming, fighting cat out the box for it’s treatment. I had a good belly laugh at that.
“Prices in most Centex neighborhoods in the county are more than $100,000 less than they were last summer, said Bowley. ‘We want to keep the engine running, even if we have to take less profit on a house—or sell it at a loss,’ said Bowley. ‘We can afford to take short-term losses. The negative, of course, is that we are forced to do that.’”
This is what I’ve suspected all along. Big builders have enough reserves to sell at a loss, they’re just holding out as long as they can, praying for a turnaround. These guys made phenomenal profits during the boom, and can easily slash prices well below what they’re still asking.
Yah, keep that engine running. $4 gas is around the corner.
but what’s with this “keep the engine running” business.. Do they not want to stop an engine that’s running profits backwards?
I guess that re-starting at some later date involves not only taking some losses but also requires renewing connections with lenders and employees and subs and suppliers, and is not worth the effort? nah.. There’s gotta be more to it..
It is all about sunk vs. marginal cost. If they have already purchased the land and put in infrastructure (streets/utilities) these are sunk costs. They have already lost that money whether they build or not.
Now the only question is whether it makes sense to build after writing off the sunk cost. This is perfectly logical behavior EXCEPT: they are not taking into account the collective decision making and behavior of all the other builders/developers out there. So when everyone builds out looking for a marginal profit (assuming sunk cost for land is gone) inventories will reduce prices further… guaranteeing marginal losses.
Bottom line: builders will keep building until the market forces them under. Mortgage banker bankruptcies are the story this year. Next up builders!
Not to keep beating on the same drum, but the double-A (”AA”) tranche of the ABX index (specifically the 07-1 series) is now following the same pattern of the “A”, the “BBB”, and the “BBB-” tranches…it was at 100, now down to 92, over a span of only two weeks (the graph looks like falling over a cliff).
Casual prediction:
Higher tranches of ABX will follow the BBB- down the tubes w/ a long and variable lag.
Yep… and while AAA hasn’t moved down “much,” it is moving… down. We’re heading toward a liquidity crunch. Now… combined with the conniptions the CDO market is going through…
Got popcorn?
Neil
Does that translate into higher interest rates? Would a liquidity crisis necessarily involve higher interest rates, or not?
I once read the prospectus for the ABX index (I must have been REALLY bored), and IIRC it looks like the ABX either is or will be tending to make the debt derivatives look better than they really are. The ABX is based on a ‘basket’ of bonds from different securitizers, but the contents of that basket can change over time. In particular, if a securitizer implodes to the extent that it does not provide timely infomation on its bonds, that securitizer will be removed from the pool and replaced. This will give the index an upward surviver bias. I don’t know whether this has happened yet, but Fremont was in the collection at one point- I don’t know if it still is. If a bunch of securitzers implode, the ABX might end up looking much better than would be justified.
Pretty much all financial indices work that way. But if a lot of the issuers start imploding, this will drag down the survivors as well, and no amount of delisting will hide it.
Funny - no mention in the Tribune article from home buyers who bought last year and are now $100,000+ poorer.
http://centralcoasthousingbubble.blogspot.com/
Just imagine what the situation will be like next year, with a nasty recession taking hold! Whew! This is going to be a stinker!
We are in the second inning and this game is going extra innings for sure! So you are thinking of buying, huh. Are you nuts? Do you have a death wish?
Did this show up on an earlier thread? I hadn’t seen it.
“Ex-USC professor gets six years for scam
From Times staff reports
July 11, 2007
A former USC real estate professor, who ran an investment scam luring students and others with bogus claims of large returns in commercial developments, was sentenced to six years in federal prison, authorities said Tuesday.
He pleaded guilty in March to using his influence as an adjunct professor to persuade several students and others to invest large sums of money in purported real estate projects in Chicago and Las Vegas with promised returns of 190% within 30 to 45 days. Instead of investing the money, however, he used it, among other things, to buy a Cadillac Escalade.”
“‘We made cuts in every product line in February because we had to make our numbers,’ explained Chris Bowley, Central Coast division manager for Centex Homes. ‘We have an obligation to our shareholders.’”
“Shareholder value” [rather than a long-term commitment to the company, its products, and work force] destroyed the Big Three US automakers, and is sympthomatic of the corporatist cancer that is destroying the healthy [production-based] economy. I believe Centex homebuyers will pay the price of the short-sighted metric of “shareholder value” based on short-term profits today, with no heed to future prospects or the long-term outlook. The economic “health” of the Casino Economy, based on debt binges and speculation, is a house of cards waiting to come crashing down.
http://www.larouchepub.com/other/2005/site_packages/strategic_bankruptcy/3231auto_suppliers.html
“Prices in most Centex neighborhoods in the county are more than $100,000 less than they were last summer, said Bowley. ‘We want to keep the engine running, even if we have to take less profit on a house—or sell it at a loss,’ said Bowley.
Somehow I doubt these homebuilders are “selling at a loss”. Even with 100k price reductions they are still making a killing.
“Husing said a market like today’s, when home values are tens of thousands of dollars above what the market will pay, is without historical precedent.” … “Current homeowners resist selling houses for what they believe they are worth.”
The misuse of “values” to mean “asking prices” is so common that I wasn’t going to comment on it, but the second statement is so cryptic that I don’t even know what was meant. Homeowners resist selling for what they believe their properties are worth? I don’t think so. I think anyone who now gets what he thinks his property is worth is probably thanking his lucky stars. I think the Victorville Daily Press reporting and editing staff is undereducated.
Its soon gonna be a race, the first seller to drop his price “drastically” will get it sold then for the others to sell, they must drop prices below this seller due to comps dropping. Give it a few more months for things to accelerate. As for gas prices, I think alot of people are going to be biking for transportation.
Houses can drop a LONG way and the builders will still make a profit. In my last neighborhood, the long time construction manager was allowed to buy a house at cost from his employer for his years of dedicated service. It was a 44% discount. Unless lot prices in CA are over $500,000 a piece and the CA builders are paying the illegal immigrant labor $25/hr (doubtful), a $1M 2500 sqft house could probably drop to $250,000 and they’d still make money.
How much exactly did they pay? I read that some builders are actually losing money cause they bought land at the peak.