‘Too Much Supply And Prices Too High’ In Fresno
Some housing bubble reports from the Fresno Bee. “Fresno’s soaring housing prices, which outpaced the rest of the nation over the last five years, are floating back to Earth. The number of homes for sale in Fresno and Clovis has more than tripled since May 2005 and the number of transactions is down 24% from a year ago. That puts a lid on price hikes, real estate agents say, and means that sellers cannot set unrealistic objectives.”
“‘They have to put the ‘real’ back in real estate,’ said Joan Jolly, president of the Fresno Association of Realtors.”
“Meanwhile, sales activity has slowed so much that some lenders are ordering a second appraisal near the end of the transaction process, especially on 100% or other risky loans, said (realtor) Anthony Gamber. ‘There is more caution in the air,’ he said.”
“The Fresno-Clovis area, with nearly 5,000 housing starts, was among the state’s leading growth regions in 2005, according to figures from a trade association. Only San Diego, Bakersfield, Riverside County and Los Angeles ranked higher, according to statistics from the California Building Industry Association.”
“However, this year promises to bring a much-needed lull. ‘It’s a slower market with too much supply and prices too high,’ said Steve Lutton, division president of Lennar Homes.”
“‘Housing starts are off and cancellations are up,’ added Mitch Covington, this year’s president of the Building Industry Association of the San Joaquin Valley. ‘In 2005, developers in Fresno were handed 2,247 permits for single-family homes. In Clovis, 1,310 single-family home permits were approved. Add permits for 1,147 apartment units in Fresno and 184 units in Clovis, and the region had a building boom that was unprecedented in volume.”
“In fact, Fresno officials had a record year, issuing 10,210 permits for new construction, alterations and remodeling worth $773.5 million. That number was a 68% increase from 2001, said Nick Yovino, the city’s development director. ‘In the past, when the application volume has leveled off that has translated into a reduction of building activity,’ he said.”
“A cooling is what the market needed, Covington said. Prices skyrocketed over the past few years and could have climbed beyond people’s ability to pay. ‘The market could not have kept going up,’ he said. ‘It would have put us out of business.’”
“This year, builders are back to constructing houses for expanding families and changing households. Investors are in short supply, and a sluggish resale market is keeping many others on the sidelines. As a result, some national builders are paring down their land holdings and selling excess lots.”
“The San Joaquin Valley was in the middle of the fray. Bakersfield ranked second in home construction, with permits for a record 5,218 single-family houses. ‘We have a lot of new builders in town,’ said Stan Grady, development services director in Bakersfield. ‘And their style of building is different. It is more production-style housing. They build in groups and may pull 20 to 30 permits at once.’”
“But what a ride it was in 2005. California produced about 10% of the nation’s new housing, an estimated 208,804 houses, apartments and condominiums. And that number marked a decrease from 2004, the California Building Industry Association said.”
Let me summarize for the non-valley residents:
WE ARE TOAST!
Our entire economy the last 4 years has been REAL ESTATE. 80% of all jobs, most very high paying, are REAL ESTATE.
I was born in Fresno, grew up there, got my BA degree from CSU, Fresno, and left the area in 1985 because there were no reasonable paying engineering or computer science jobs back then. Most top high school students in the Valley and most California State University students who major in lucrative areas leave the Valley. For decades, Fresno, Visalia, Tulare, Madera, and other locales in the 6 county region have had double digit unemployment rates. The number one industry (until this bubble struck Fresno 4 years ago) in the region has been agriculture. Lots of farm labor jobs are seasonal, which causes the distorted, yet real, high unemployment rate there and the inexpensive houses. The current bubble was caused by real estate refugees from San Jose and other S.V. areas.
Traditionally, Fresno’s houses lose value over time. My late mother used to listen to police scanner broadcasts for years (up to the early 1990s when she passed away). What she heard on the scanners and what crimes the local liberal media reported were very different. There were massive gang fights frequently in some of the barrios. In our neighborhood, which was turned from middle class to section 8 in 1978 (by construction of apartments across the street) there were stabbings, shootings (one neighbor across the street and down 150 feet from our house had his head blown off), drug deals, and once a drugged up naked fat man roaming the apartment complex. The neighborhood of the high school where my older sisters and I attended is a good example of blight. When my oldest sister started attending that high school in 1968, the area was clean and middle class. There was a clean bowling alley, an Ice Cream shop (31derful flavors), a very nice bookstore. By the time I finished high school in 1977 it was starting to be unsafe to go out at night in the neighborhood there. A lot of the families moved further north while the houses became rundown and poorer families moved in. By the mid-80s the blighted areas were 2 miles north of that high school. I imagine this stuff reversed a bit, but I figure the same pattern will continue when the bubble bursts. Yes, most of the job growth was from construction. Those jobs will leave Fresno and go to the bubble-ets that are in other parts of America - Albuquerque, for one.
One thing that cannnot be stressed enough is the very poor cancer-causing air quality and water quality in the San Joaquin Valley. Some of the pollution is from agriculture chemicals. Much of it is from cars in the Valley. A large deal is blown in from two of the cleanest cities in the U.S.: San Jose and San Francisco. The breezes carry the air pollution from those big metro areas into the San Joaquin Valley and into the lungs of the residents. My parents both died from cancer, and I think it was from the water they drank. In east Fresno the chemicals that were used for decades on grape orchards were banned, and no longer used since the late 60s, but the chemicals seeped into the groundwater and headed west into the cities wells. I highly suspect that is what caused my parents to get their rare cancers. They took joy in raising a food garden and used the water from hoses to water the plants. Oh well. Real Estate Boom in Fresno, pollution. I figured I could not do anything about it by convincing politicians, so I think the best approach is for people to do what I did: Get the sheepskin in a marketable skill and leave for where you can breathe.
“‘They have to put the ‘real’ back in real estate,’ said Joan Jolly, president of the Fresno Association of Realtors.”-
This makes me want to puke. Agent’s - tell the consumer’s Buy!, cause real estate’s only going to appreciate, then when the market turns, “seller’s need to get ‘real’.” They get em while it’s going up and change their tune when it goes down and get em again.
It makes me want to puke also . What happened to the 20% a year sure bet appreciation the real estate group was predicting .Why did the news media give them such a voice for the last 4 years ?
‘Cause it was just that, Wizard…news. The media reports what will get the viewers.
BayQT~
Yep ,I quess they felt it was news , but interviews with salespeople on a commission is news ? Again we go back to the advertising dollars . I can’t watch a TV program without getting loans or real estate pushed at me 24/7.
Who are “they?”
“Meanwhile, sales activity has slowed so much that some lenders are ordering a second appraisal near the end of the transaction process”
Extremely damning, and virtually conclusive, evidence of the turning tide in prices.
“A cooling is what the market needed, Covington said. Prices skyrocketed over the past few years and could have climbed beyond people’s ability to pay.”
COULD have??? Give this guy a blindfold and a last cigarette.
LOL, nice one.
Regarding the second appraisal, it seems to me that there would still be a lot of pressure for mortgage brokers and appraisers to “hit the number,” even on a second appraisal. The underwriters and bank management are feeling the need batten down the hatches a bit, but I’m still doubtful whether meaningful lending tightening will happen until foreclosure numbers rise significantly. Of course, by then it will be too late.
This is happening in NNV too. It used to be (seems like just a few months ago) that we were having issues with accepted purchase contracts being higher than appraised value because homes were appreciating faster than comps could keep up with. Lately we have a whole different monster. I’ve seen a couple of deals lately where the seller was lucky enough to find someone to take his asking price, only to have it killed by the appraisal because recent sales prices have dropped so much. The most damaging aspect of this for the realtors involved is it now informs the once ignorant buyer that he is buying into a falling market. It’s pretty entertaining to see the realtors dance around this one.
I had a refi in the office last week where the borrower was screaming his head off because the appraiser did not bring the in the value needed to get the cash out he needed (really needed) We sat down and showed him the comps, two of which were the exact same floor plan. He still didn’t want to believe it. Denial is still strongly entrenched in many. (What’s interesting is that in one of his rants he refered to a recent “everything is rosey” article in our always pro real estate local newspaper. It’s Hard to believe that people are that stupid)
Appraisers are playing a risky game latley of going as far back as they dare to get the comps that sold higher to prop up values. The risk they run is that if their appraisal is reviewed by one of the lenders review appraisers and it’s very apparent that recent comps were ignored for this reason, they could be in deep ca-ca. The appraisal business is a very competitive one, and these guys just love turning one another in.
NNV-Where is this?
Just curious-
NNV - Northern Nevada. Includes Reno/Sparks, Carson City, Lake Tahoe.
That is a heart warming story about the guy screaming and not able to get his refi. Usually when clients are screaming their heads off in my office security comes and takes them away.
What a great, informative post NNVmrtgbrkr. Thankyou.
I’m wondering, how DOES a realtor politely and in the most non-alarming way, inform a buyer s/he is buying into a falling market?
The market could not have kept going up,’ he said. ‘It would have put us out of business.’”
____________________________________________________________
Too late. Many of your peers will be out of business.
>>In fact, Fresno officials had a record year, issuing 10,210 permits for new construction, alterations and remodeling worth $773.5 million.
That’s about the cost of five brand new 747s - just for the FAT area. And it’s all done on borrowed money that WE KNOW WILL NEVER BE REPAID. Can someone say, “banking crisis?”
Banking crisis? No
Bond market crisis? Yes.
Neil
I was at a BBQ yesterday in Chandler, AZ and talked to a RE agent who was very candid, simply put he said “We’ve run out of idiots…”
Come to think of it, there should be a new slogan in RE:
We’ll run of idiots before we’ll run out of land.
Good one Max
Another dubious honor for Fresno. From another article this morning citing a new study from the OFHEO ranking percentage gains in the past 5 years and ranking the top 25 metro areas which have appreciated the most.
“Fresno County, with a recent median home price of $310,000, posted the nation’s biggest five-year (percentage) gain of 145 percent, followed by Bakersfield at 142 percent. Sacramento ranked 25th nationally with a 112 percent increase.”
Also from the same article, a mention of an example of the degree of home equity ATM spending that has gone on in the northern end of the Valley.
“Fueled by low interest rates and new adjustable rate mortgage products, the Valley’s surge in home values also spawned a sustained consumer-spending spree. Homeowners in El Dorado, Placer, Sacramento and Yolo counties alone borrowed and opened equity lines of credit for $21.9 billion from 2002 to 2005, according to DataQuick Information Systems, a La Jolla-based property researcher.”
Yikes.
The chart on the side of the article that ranks the cities nationally is definitely worth a look.
http://tinyurl.com/mdy9y
Based strictly on that chart of top 25 cities with the most appreciation since 2001, I would have to say that the entire Central Valley is truly ground zero for the housing bubble (tied with FL. at 10 cities each.) So-Cal has 4 cities and DC area has one. Strange that known mega-bubble cities like LV, SD, and Phoenix didn’t even make the list.
I was really surprised not to see more of the usual obvious suspect bubble cities on this list too. The number of areas in the Central Valley that made the chart is scary. There’s certainly nothing there in the way of fundamentals to prop up parabolic home price gains there for long.
Perhaps its as simple as SD being a fairly expensive place to live to begin with, therefore any dollar increase, while dramatic, won’t be enough to get SD on a percentage-gainer list. LV and Phoenix can perhaps be explained away due to gigantic gluts of new-home building and also higher base price than some of those Central Valley hell-holes. Nevertheless, your point is well taken about there being no economy to support high prices at all in Central Ca. Sacramento (my market) was always known as an inexpensive 2nd tier market - a good place for a family to get a start. Now, some of the outlying areas of Sac on the East side rival Bay Area prices. Ridiculous to say the least.
Looks like others have finally figured out that fogging a mirror shouldn’t be the only criteria for a mortgage– OCRegister:
http://tinyurl.com/zbdem
This article is worth a full posting.
It pretty much covers lax lending practices and confirms Thornberg’s assertion that OC will get HAMMERED!
It’s to late ,these lenders made to many bad loans between 2004 and 2006. Real estate didn’t keep going up to cover these lenders faulty underwriting .
These subprime Lenders are still making these risky loans . Making these kinds of loans increased demand in many areas and drove the prices up . The buyer of a house has to be a “willing and able” buyer for a market to be stable .In fact , alot of “able” borrowers got pushed out and bid out of the market by these subprime loan borrowers .
Also these risky borrowers are always the types that overpay for property . They have money problems to begin with so they exercise no intelligents in property choices and prices .This is the group of borrowers most willing to believe the realtors when they say “real estate is a sure bet”,and “real estate will go up 20% a year “.
Housing wizard:
We don’t disagree.
the article is in an OC paper and OC is where the denial seems to run the strongest and where the bust will hurt worse than most places.
OT: Vegas inventory jumps from 2,992 to 17,161 in 2 years, not including new houses for sale:
http://www.reviewjournal.com/lvrj_home/2006/Jun-04-Sun-2006/business/7730279.html
However, experts say the increase in housing availability is not a major concern yet. Inventory could become an issue, though, if the number of available properties doesn’t peak soon and begin to retreat, industry watchers say
_________________________________________
experyts/ industry watcher = Realtor or flipper looking for great fool!
Almost six freaking times the inventory in two years time on the existing home side, plus thousands more new units being dumped on the market. If that’s not a recipe for a nice, gentle soft landing, I don’t know what is. Sign me up for another investment condo … I want to get in on that action.
Seriously, though, how can anyone argue we aren’t severely screwed as a country here?
“Meanwhile, sales activity has slowed so much that some lenders are ordering a second appraisal near the end of the transaction process, especially on 100% or other risky loans, said (realtor) Anthony Gamber. ‘There is more caution in the air,’ he said.”
Imagine that, banks and such lenders actually want to protect their money.
The nerve!!!
“Two college students were found dead inside a large, deflated helium balloon after apparently pulling it down and crawling inside it, officials said.
The deaths of Jason Ackerman and Sara Rydman, both 21, appear to be accidental, Hillsborough County Sheriff’s Maj. Bob Schrader said.
Their bodies were found Saturday partially inside a deflated helium balloon at the entrance of a condominium complex a few miles north of Tampa. The 8-foot-diameter balloon was used to advertise the complex.”
College students found dead inside balloon
This is a definite Darwin Award winner.
The housing bubble should have the financial equivalent of Darwin Awards.
So Cal Mtg Guy your website lends itself to that type of an award.
I don’t know about all of this inventory on the market but I think the cities with major universities should take some of their endowment monies and be ready to buy up cheap student housing so students don’t have to use student loans to go into debt to obtain a decent education.
Yeah, the Reno newspaper is pollyanna in print. Quote from Teri Scharosch’s column in Sunday Homes section today. “An equity line of credit is similar to a credit card except you house is used as the collateral…” It also quotes rates at 6.40 APR for a 30 year fixed, is that even close to accurate? BTW you seem to be the only other NNV poster. What’s your take on the current prices, inventory, number of ARMS etc, is the party coming to an end in Reno as well as Sacto? I’m coming back to Reno in about 6 months, after a 10 year absence, with about 70K in hand and a 100K income; what will I be able to get, some Sparks POS?
DA, you’re seriously considering moving back to Reno??? WTF??? I was fortunate to get out a few years back after spending a year there. Trust me, it hasn’t gotten any less dusty or dry and the climate still sucks.
I’m positive that with the DP you have and your income, anything in Sparks will be available to you. But I’d check out South Reno instead, there are a some nice newer developments that are currently overpriced but I’m sure will become more affordable, very soon.
BTW - There’s only a couple of NNV posters on this site because most people there don’t know how to turn on a computer.
POS in Sparks? Always liked John Asuagwas (sp) crap tables.
From firsthand experience (although I moved away from the area at the end of 2005), the southern San Joaquin Valley is in for hard times. My former neighborhood in Visalia (a nice, tract home development with 1700-2400 square foot homes built between 2001-2003) commanded prices of between $350K-425K as recently as last September. I’ve kept tabs on the neighborhood since then, and prices are down to between $300K-365K, with one house down the street in and out of escrow FOUR times since its listing back in October. Very little is moving, and the significant price drops already will be followed by much more massive bleeding as the standoff continues.
From what friends and former neighbors say, everyone is scared $hitless that if they buy, they will lose money. I wish I could say the same was happening in my new home in Eureka. Although housing inventory has climbed modestly, there is very little change in housing prices as the retirees/speculators from the Bay Area continue to stream up here.
Of course, it doesn’t help that the local newspaper features a column every week from a local real estate agent proclaiming the benefits of home ownership and convincing people (fairly successfully given the number of people STILL buying houses here) that RE will never falter here.
I was working down in Merced two years ago and over heard several conversations of people who were so excited about their home going up in value. I would be excited too. It must of given some of these people hope to be able to sell their home and move away from MERDEAD. They may have missed their chance now.