Friday, June 03, 2011

Sacramento Real Estate Market - June 2011 Water Cooler

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

23 comments:

Boba the IX said...

Reporting on the rental market in South Placer County:

A resident gave notice on June 4, so I put the house on Craigslist June 5th. Had 6 calls, showed twice on June 6th and rented it starting 3 days after the current resident moves out.

It is a tight rental market and I see a lot of landlords raising their rents. Under 2,000 SF and the rate is about $.90-$1.00/sf.

Many people who responded were short selling their own homes, since the loans were 1.5-2 times the current market value.

husmanen said...

Boba the IX. Your price per sq. ft. is about right for Folsom and EDH too.

I have friends SSing their home and getting out. They have been to a lot of different rental viewing, and the competition seems to be tough. They had the suggested rents raised twice, due to interest.

This is probably due to the large number of people moving out of soon to be REOs coupled with it being summer. The latter has quite an influence on the market as everyone tries to move before the school season is about to begin.

Then there is the timing, mid-month rentals seem to lag and so do pie-in-the sky request (at least initially).

Rental inflation, hmmm. We will need some more data first.

Also, those that I know that are getting out of their REOs have a pile of cash that they have saved from not paying their mortgage for over a year. This cash can push up the rental market prices too, I had not thought about this before.

Maybe this pile of cash will compensate for the lack of raises and wage inflation. Hmmm, seems to be short lived.

RV6Flyer said...

http://www.sacrentals.com/goinside/1736-41/

I know the owner of this house and they had overwhelming demand and ended up getting more than the asking rent.

husmanen said...

Yeah, the rental market is changing and it appears that there is upward pressure on rental prices.

Wonder what apartments are doing? Although not comparable it could be interesting to know.

Anyone?

Deflationary Jane said...

I seldom get to post anymore (promotion + renovation + investment property = 0 free time)

CR has been covering Sacramento a lot.
http://www.calculatedriskblog.com/2011/06/misc-flippers-in-sacramento-and-more.html

Sippin and I actually agreed on a few things. The world has certainly changed >; )

patient renter said...

I happened to see that CR post. The world has definitely changed.

From what I've noticed of the rental market it seems to move in waves between having plenty of rentals to choose from and plenty of new renters to compete with. I think there's enough of the former for longtime landlords to be content enough with having stable renters not to screw with them (at least this is the case with my rental).

Things are certainly looking up on the potential purchase front, but as usual we see no need to hurry and aren't exactly sure where we'd want to plant ourselves anyways, so renting life carries on. And we're happy with it.

Boba the IX said...

I am seeing apartment vacancies dropping rapicly too. One client's apartments have gone from 9% vacancy in 2009 to 2% today. 2% vacancy is almost the same a no vacancy, since many of the unit types have waiting lists (2bd 2ba, for example)

husmanen said...

So I took an informal survey here at work, where we have a number of people living in apartments. The general consensus is that the deals on their apartments, many months free or reduced cost, have disappeared. Some had small increases.

We have two new hires too and they are both currently under contract, at or below rental partiy (Folsom and in Arden Park area). A third person is now considering the trade off between their rental and a purchase.

I see no stress in the market to indicate any extra pressure on buying right now. The general economy doesn't seem to be going either up or down - more sideways.

Although I did hear that Intel is starting to hire lately. We'll see where this goes.

Roy said...

http://money.cnn.com/2011/06/09/real_estate/foreclosure_squatter/index.htm?section=money_realestate

"As the waterfront property's value skyrocketed, eventually reaching $750,000, she refinanced twice (once to expand a business), and took out a second mortgage. She now owes more than $600,000 on the home, which is worth only $235,000. "

She should pay all her debt back, she deserves to be homeless!

husmanen said...

Roy. I think the agreement is the bank gets the collateral if you don't pay, i.e. the house. It gets a little sticky when the money is not used for the house though. Bankruptcy is an alternative if the bank goes after the 2nds.

The house that I bought was built in the 90s and they HELOC'd the heck out of it. Then let it go. They walked away with a pile of cash, a big pile.

I know of people personally that took out 2nds to start business. The house is now back at the bank and the business is barely surviving, but it is surviving.

smf said...

Don't forget that no matter what, loan forgiveness for HELOCs and other non-house related matters is essentially zero.

And they have a few years to still come after those who did this.

husmanen said...

20% looks like the line for flippers at the auction steps. High risk, but could be high rewards. Those I know in the business are really tough cookies, scary tough ;-).

Also, the great website "Sacramento Flippers in Trouble" gets a shout out here...

http://www.sacbee.com/2011/06/12/3694096/real-estate-scavengers-flip-foreclosed.html#mi_rss=Real%20Estate

Boba the IX said...

Apartment Stats for Sac MSA (Metro Statistical Area = parts of 4 counties)

2009 Vac @ 7.8% Rent -5.1%
2010 Vac @ 5.7% Rent +2.2%
2011 Vac @ 5.8% Rent +2.0

The 2011 stats are for the 1st Quarter only and the feeling is they have strengthen in the 2nd Qtr.

Boba the IX said...

Wait.....NEWS FLASH

Deflationary Jane is a Landlord w investment property?

Next thing you know, she will be voting Rebublican.

Sippin' are you aware of this? 'Cause she now says...."Sippn' and I actually agree on few things..."

patient renter said...

"Deflationary Jane is a Landlord w investment property?"

Bring on the FB jokes? ;)

sacramentia said...

I can't believe DJ is a landlord. DJ - If you ever get into the property management business let me know.

I Just closed on a Flip and deposited the check. 30% return on a 9 month project. There is real lack of quality inventory out there.

David said...

We bought in Oct. '09 and I haven't posted much since. Please do not commisserate with me for "missing the bottom". We intend to stay in this house until it's paid for, so any payments we made were not wasted, as we would have made those payments anyway at a later date but for the same length of time. Wait for the bottom if you intend to sell before the note is paid, but don't wait so long the interest rates bite you in the behind.
I do check in and still read religiously, and I'd like to open a discussion on what the banks should do to reduce REO inventory.
Obviously, what they'd like to do is sell them. I will tell you we looked at hundreds of properties, and the majority of REOs were in terrible condition. Their response is to lower the price until some sucker picks up the house thinking it's a bargain when it should be torn down.
That's my point. What do you think about banks swallowing the losses and bulldozing the worst of the REO inventory?

Deflationary Jane said...

"Next thing you know, she will be voting Rebublican."

_never_gonna_happen_ Rofl >; )

The thing Sippin and I agreed on is the area. I have to admit it's weird but it was my best alternative to holding cash at this point. I have 1 property, a small SFR and don't really feel the need to buy any more. I will sell it eventually.

Boba the IX said...

DJ, you have made a smart move. I have purchased quite a few homes in the last 2 years and get 5-6%% cash flow on my downpayment, 3% more if you count principal reduction and with my lower income in 2010, I got to use $17,000 of "losses" due to depreciation. The real estate market can move up or down all it wants and it will have little effect on me, until I choose to sell something. I must say the rental market has serious demand these days. My vacancy on 9 houses has been under 1/2% over the last 5 years.

David, a house would have to be in pretty bad shape to not be worth rehabilitation. Just the building permits and fees for new construction in some areas is $50,000.

David said...

Okay, so if I'm a bank and I own a piece of dreck property the selling price of my asset is AT LEAST the cost of the land plus permit fees? Ummmm, don't you think that's a little dishonest? You end up with so-called "comps" that factor in an automatic $50K value on the improvements to the REO property when the house is truly ready for the scrap heap.

An alternative would be honest valuation (subtract permit fees, don't add them) with a requirement that the new owner repair/replace X, Y and Z before the house may be occupied or resold. That would make sure only qualified and willing fixer-uppers buy the property.

It breaks my heart to see prospective buyers out there looking at a "$100K" house that needs $50K of work to make it truly worth that much. In a rational market, there would not be any competition between the move-in ready and the tear-down ready properties.

We have to find a solution to this problem, and sitting on the sidelines telling people how dumb they are won't help. Even if you don't own, somebody you care about does and is being hurt badly by our collective failure to fix the inventory overhang that is killing the housing market.

RV6Flyer said...

David, I don't understand...

"Ummmm, don't you think that's a little dishonest?"

Why, because there is intrinsic value created by not having to pay permitting fees and razing the building if it can be rehabbed? It's like buying an empty lot with permit fees thrown in at a discount. The banks price to the market, why should they price below and further their loss?

My thought for reducing REO inventory is to make it more painful to walk away...add a little recourse. At least we would slow the growth of REO's.

Last year I went from structuring CMBS deals to working out CMBS portfolios. You're late 61 days, you better believe I'm recording an NOD, engaging council, and starting a judicial foreclosure so I can go after all your personal assets to make up any deficiency. It's amazing how quickly people find the money and get current. If they really can't cure the default, I'll get creative in a workout to avoid foreclosing at all costs, and will probably sell the note to a private equity fund and be done with it.
Government sponsored loans make it too easy for banks to pass the buck and let people just walk away from a promise and never look back. I can guarantee you if banks had to hold every home loan on their books from birth to death, underwriting would be much stricter and the repercussions of default much stiffer.

David said...

You're right, RV, pricing takes many things into consideration. However (don't you hate it when people say that?)...

"The banks price to the market..."

Sooner or later, but generally later and IMHO much later. Market value has little to do with the bank's initial pricing. What the bank wants to do is minimize its loss on a property that's under water. I saw a fantastic house in the finest Fair Oaks neighborhood fail to sell on the courthouse steps because the minimum bid was set at mortgage balance, then two years after the auction the same house sold for half that. I don't call that pricing to market.

Here's what's dishonest -- I am talking about the worst of the worst, say the bottom 10% of REOs in terms of condition. If the house and land together are worth $75K, your bank will price that at $125K because it knows anybody who wants to rebuild has to pay permitting fees. Did I get that right?

BUT it's in deplorable condition and there are many, many properties that are much, much more desirable at the same asking price because those sellers didn't tack on the "tear-down penalty". That deplorable house will sit on the market until doomsday or correct pricing.

So where's the advantage of assuming (dishonestly, I still maintain) $50K of bonus "value" on a house that should be torn down? It just skews pricing for everybody else. Think about it -- the bottom of the market is the tide, and the rising tide floats all boats. Because you have assumed that bonus value AND described it as "priced to market", a seller with a property in better condition must think his is worth commensurately more and will price it accordingly. In fact, both properties are worth considerably less but each seller points to the other and says "If he's priced right, I'm priced right". Those are called "comps". If a material portion of the comps is dishonest, everything based on them is equally so.

Remember, just the bottom 10% in terms of property condition. Yes, there's loss but it's mitigated by a number of factors and offset by gains both tangible and intangible.

Intangible -- picture a homebuyer asking the seller's agent about that $75K property I mentioned earlier. The agent says, "Well, it's priced at $125K because we know it will cost you $50K to get the permits." I know the agent won't say exactly those words, but the truth will out. That homebuyer should run, not walk, to the competition and never speak to that company's agents again. If you want to stay in business you don't insult your customers.

Tangible -- with the bottom 10% of properties permanently off the market, all the averages and means go up. Banks shore up their balance sheets without having to mark all their properties to market, only the absolute worst of the worst. I'm sure there's more, but you're the insider so you tell me.

RV6Flyer said...

David - it's more the appraisers fault. Banks price to what the appraisal says the market will support. Before going to foreclosure, I must have an appraisal dated within 3 months. At auction I will bid on the value of my note or the appraisal, which ever is lower, then list it for sale at the appraised price.