December 18, 2005

Here come the cancellations: Built on the boom: Realty feels a chill - Days of torrid buying, prices giving way to 'for sale' cycle

Wow. I would imagine people in Sacramento (and around the country) who put deposits down on condos and houses to flip are thinking real hard about walking away from those deposits right about now.

Also, don't the public homebuilders have to report surges in cancellations once they are known? This article today is right on top of one earlier this week on cancellations which noted:

Cancellations are up dramatically over a year ago, in large part because more would-be buyers are finding they can't sell their existing homes fast enough or for as much as they had hoped, said John Orr, the BIA's president. November cancellations represented about 40 percent of sales last month, BIA data show, compared with just 16 percent in November 2004.

From lines to buy to lines to sell in just a few months. Oh, how quickly the worm turns...

On a sun-scorched Saturday 18 months ago, hordes of people lined up for hours outside a sales trailer in a West Sacramento housing development called The Rivers. Their prize: stylish homes at $550,000 and up.

Now they're lining up to sell. The homes that sold in July 2004 have just been completed, and some owners want out. On one small street, Woodhaven Place, five buyers have put their properties on the market. Three have already dropped their asking prices.

"If I had known a year later that there would be a million homes listed, I might not have bought," said Lynette Wall, a real estate agent who helped her husband buy an $809,000 home on Woodhaven.

A wintry chill has descended on the Sacramento housing market. Sales have slowed, cancellations of new-home purchases have soared, and prices in some areas are edging downward - signaling the end of an epic housing boom that increased wealth, generated jobs and turned real estate into the healthiest sector of an otherwise sluggish economy.

"For Sale" signs have doubled in the past six months. Cancellations of new-home purchases shot up 260 percent in the third quarter over last year, says Hanley Wood Market Intelligence.


The Oracle said...

The two people featured in the article must feel pretty stupid right now.

Waddya expect when you combine a contractor with a broker from a no name local realty company? A stupid purchase that's what you get.

The house is worth about $50 to $500,000 NOT $860,000 or what ever those dufuses are asking for it.

The house featured in the article is 3 blocks north of Broderick (a high crime area) One of my friends who grew up in that hood said that place is just north of one of the biggest ghettoes in SacTown!

My take on Sacratomato and it’s housing bubble:

Take it from me I was pretty accurate when it came to forecasting the crash of 1989 – 90.

There really isn’t much of a labor market here once you take out the State jobs and construction, real estate and finance related jobs.

• The state is in financial trouble and it will be getting worse (tech companies continue to shed jobs in the Silicon Valley – over 300,000 jobs disappeared since 1999).

Fewer jobs = less state tax revenue. Higher prison population and welfare utilization = big time drag on state spending.

• Construction of new units is already starting to decline. With that go real estate, insurance and finance related jobs. There are so many new real estate salespersons here.

• Seems like “stay at home moms AKA housewives” and real estate are the biggest job categories among Bay Area people that recently moved to Elk Grove.

No more two income households with good pay in a lot of the new lower end subdivsions.

o The men in the lower end subdivisions primarily work in construction, real estate and mortgage brokerage.

o The men and women in the higher end areas like mine work in health care, government or commute at $2.50 a gallon to the Bay Area.

o Never thought having a State job would be considered prestigious.

The rest of the market consists of people making $20 to $30,000 per year without benefits.

They can’t afford these $500,000 cookie cutter 4 BR, 3 BA homes being slapped up in Lincoln, East Elk Grove and the Sunrise / Rancho Cordova areas.

Prices in Yuba County (AKA Flood Zone Central) are already in the mid to high 300,000 range (1,200 to 1,800 square foot

New houses in Dunmore’s “Provance” in Yuba City are already over $400,000. These houses (future dumps) have great views of the Sri Narayan Hindu Temple, the subsidized Mahal Plaza apartment complex and most importantly, the Roll a Home trailer park and several orchards and dairies (the lovely smell of cow)!

Most of the Sac region buyers use ARM’s, Negative Amortization / Interest Only loans. Or even worst, loans with adjustable interest rates, interest only for the first three years with payment level options (pay what you can afford).

On top of that all I see out here nowadays are new cars and I am talking about 35,000 Pickup trucks with leather seats (!), big SUV’s, BMW’s, high end Toyotas and even Mercedes (in a cow town!).

0% loans and goofy lease deals with high backends abound.

The best job you can get out here is working for the State at 40,000 a year with benefits and no prospects for a payraise.

What happens when the interest rates go up (and they are going up)? Mortgage rates increase at the time of adjustment. What is even worse is that a lot of the people buy with second and silent third loans.

Well the notion of creditworthy borrowers changed in 2003 under pressure from the Bush Administration that wanted to stoke the economy.

Greenspan in his speeches influenced a downward trend in rates, Fannie Mae and Freddie Mac lowered their lending criteria.

More importantly the Chinese Central bank bought a ton of treasury issues to keep rates down so that we can buy more of their output.

All you had to do in the last two years was "fudge" your application, be able to walk, talk and fog a mirror and you got a loan!

keith said...

oracle - since home prices are so detached from local incomes in Sac, the obvious question:

who the heck can buy one of these $1M houses?

$9,000+ a month for the payment - that's kinda tough on $60k in annual income

The Oracle said...

I have NO idea who the heck can afford those homes. All I know is that 1/4 of the houses on Woodvine (the street in the article) are up for sale.

The neighborhood is close to the Capitol and all the lobbyists (making big money in ArnieLand).

But you still have to take into account that the area is to the north of the Hood.

The developer is so hard up that they have big signs out saying "Builder Discounts" and their listings say investors welcome.

I assume that the Sac people that can afford those 1mm homes are few and far between.

The sales office in June 05 told me that alot of the buyers are tradeup buyers.

Now the more unfortunate of the trade up buyers are stuck with interest only loans on the new home and the old home that they are trying to sell. These guys are getting bit in the butt by two alligators!

I wouldn't buy in there unless you gave me an armed escort in and out of the "gated community". All the bangers have to do is wait by the gate and follow the fish in and jack them over for their money and Escalades.

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