Santa Maria Facing 5 Years of Negative Absorption for Housing
Submitted by
CalculatedRisk on Wed, 06/04/2008 - 9:31pm (58 comments)
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Yup, negative absorption, ask the upper midwest small towns also.
A study in highest and best use also,
and where greed and thoughtlessness take us as a species.
"Under all is the land" as the preamble to the Realtor Code of Ethics states, perhaps this
Santa Maria situation will unwind by house removal back to broccoli fields.
Though I would prefer strawberries, for sentimental reasons.
haloscan wacky again but I just have to say,
CR, man, you are on a roll, pumping out the posts, so go ahead and take a day off if you feel like it.
You have earned it.
Isn't negative absorption offset by positive absorption to another city? Or do households just vanish and disappear from the numbers to live with their relatives?
Then again, here in Berkeley a seriously funky, smallish, 100-yr old duplex on my block is on the market for $970K and lots of folks are coming around (2 BR, IB per unit. I told one group of lookers that crime was high and they said its all relative - they're from Oakland! According to zillow, our zip hasn't gone down at all. I don't understand it ... but, then, I never understood it before either.
So what's going to happen to Japan, Europe and even China with their ageing populations.
Can't fight demographics.
CR can't rest! He needs to give his daily dose of bad news! You know what? This country is going down the toilet for the next 10 years...atleast!!!!!
And that is reality. I'm prepared. Stop talking and prepare.
There are indications that expectation of bad news is rising. For now, I believe the bad news is contained, at least for today.
And Calculated H. Tanta... gas prices around here went from $4.17 over the weekend to $4.29 on Monday now to $4.39! But oil apparently "dropped" to $122? I don't want to play if I don't understand the game... we're now seeing June deliveries in the current price? So in the future (July?) we'll see a 10% drop? Which should send gas back down to $4.00... no?
Though I would prefer strawberries, for sentimental reasons.
Strawberry Fields Forever!
"...living is easy with eyes closed, misunderstanding all you see,..."
America is swirling down. I feel sorry for the people who bought way more than 4 times their income. They will lose their house in the future for sure. Forget recession...h'bout depression! We'll see. Anyone who haven't bought yet...I'd keep away from purchasing any debt, wait a few years to see where this country is heading. It's prudent to wait, it's not like you are gonna miss the boat on a home purchase; probably will get it very cheap and get a chance to refinance at a lower rate (instant wealth). The home owners will become poor and the savers will become wealthy. Rearrangement of wealth.
Gas price will not drop as fast. Once the fed announce rates will hold, we will hit $5 a gallon. When the rates is raised, gas price will be around $5 bux. Of course ,the fed will not raise rates as fast,...the next reaction in gas price will be around $5.50
Meanwhile, American are grasping at straws.
Poor Santa Maria, the las thing they were noted for was the Michael Jackson trial, pre-Dubai.
It's a nice small town north of Santa Barbara, and hopefully it will stay that way. It would be nice to contact e.g. the Nature Conservancy about this land.
Enough is enough.
Yes, it is fraud for housing, as opposed to fraud for profit, and fraud for housing is rarely prosecuted.
Oh come on. Are you suggesting these people weren't hoping for the kind of appreciation they'd been witnessing? This was fraud for profit, no question. Aided and abetted by the stupidity (at least, if not criminal complicity) of the lender.
Is Santa Maria the town where they held Jacko's trial?
I know that Wacko lived in Santa Ynez and harangued his congressman in Solvang behind a Halloween mask because there wasn't a Taco Bell there close enough.
But Santa Maria? Who in their right mind live there unless you were a farm foreman?
He said the lenders are still in shock at the price.
Tell me again why foreclosure is better than cramdowns and loan modifications?
Maybe this is an over-correction. If so, then hold on to these foreclosed properties for a few years while prices make a bottom and sell on the way back up. I'm guessing the carrying costs and property management fees make this a bad approach too.
Gas in MI peaked (for the moment) at $4.18 last week and is now $3.98.
I saw Detroit post-riot. I hope I never see that again.
Rentals, such as they were, were very cheap. Not much value placed on life, either.
"He told me about two deals he is working on with lenders for foreclosed land at about 20 cents on the dollar. He said the lenders are still in shock at the price."
How much do you want at .10 on the dollar off peak ???
7 /1979 VACANT $2,000
6 /1986 VACANT $100
3 /1999 VACANT $100
4 /2004 VACANT $70,000
5 /2008 VACANT $5,000
This sold within the last month. I know of canal lots that sold for 150-200k at the peak that might be worth 10k right now. The best part?? Those lots sold for 10k in 1988.
Chris
Overly-optimistic fred
I don't understand it either. Of course housing is scarce in Berkeley because of rent control. But what's so wonderful about living in a crime infested area in Berkeley? But you have to remember the whole city exists in a reality warp.
According to zillow, our zip hasn't gone down at all.
Higher education, research labs and hi-tech companies.
About higher education tho.. I hear anecdotal stories coming out of Gainesville (U of Florida) that things are not going so well. Minor cutbacks here and there. Something to do with softness in state funding, etc.
The situation at the nations colleges might make for an interesting blog piece (as some of those schools are supporting towns with no other visible means of support).
This type of thing would scare me quite a bit if I was leveraged 30-1 on a bunch of MBS. I'd be leaking more than memos.
Gee, who'd have thunk that trashing all the high-paying jobs and then ramping up the cost of living to absurdly unaffordable levels (particularly in housing, but in other areas as well) would lead to a mass exodus.
This will be repeated soon in many Bubble areas as the jobs vanish, or, at best, cannot keep up with run-away inflation.
I don't think that Maxine Waters could see anything as fraud for housing. Every buyer was duped into buying an expensive house that they couldn't afford. (Ever).
Maybe after Maxine seizes the oil companies she'll have enough money to give away homes to deadbeats. If not, there's always the drug companies.
Prosecute fraud for housing, build several large prisons there with high overpaid paid correction officers and the problem would be solved, the place would still be a shit hole but that's another topic.
Your post is a bit sad, CR, but thanks anyway.
Reminds me of Counting Crows' "They paved paradise and put up a parking lot..."
Off topic, but I was asked to provide an example of how screwed up the fixed income market has become after I left yesterday, so here's an example. Foreign exchange forwards (a cash product, allows you to swap out of dollars into a foreign currency, then back again at a fixed forward date), are calculated from a strip of futures or fra's in each currency, with a small adjustment for short-term funding. If you look at 1 year Usd vs Gbp, that arbitrage relationship typically held within 3 bps. When the credit crisis hit, it blew out to 10 bps and stayed there. Over the past couple weeks, that relationship has now blown out to 30 bps, which statistically speaking is about the same as the sun not rising tomorrow. This is only one example, but it's hardly unique. Even with all the central bank liquidity being pumped in, this underlies the extreme stress behind the scenes in the banking system.
Trichet - ECB to consider hiking rates next month. Yikes!
soggy noodles,
Don't you mean Joni Mitchell?
Cap rates on residential in locales anywhere near to LA or SF etc are historically 3-4. Still represents a haircut for Santa Maria which would not sustain this low a rate in a shrinking RE environment.
These economically unjustifiable rates have been in place since at least 1980 when I started paying attention. They imply that investors are pricing in the expectation of excess capital appreciation. Except in 1990-91 and the past year, this has been the case in CA.
Thanks J. Bednar. Had to lookup Joni Mitchell
Don't you mean Joni Mitchell?
Was going to ask the same question. Must be different generations, different paradises.
Big Yellow Taxi
"You don't know what you've got until it's gone."
Time for Santa Maria to say their Hail Marys?
South west Florida is close to the same situation in areas where new houses were built like crazy in the last 4 years. Tons of short sales and forcloures.
Sorry. Page not found.
I drove through Santa Maria earlier in the year, and my question was, "Who's going to live in all these houses? What jobs will they get?" And many of the new houses were cramped and ugly things built on minimum lot sizes.
Nobody in their right minds would have invested in homes out there. But the definition of a bubble is that everyone acts crazy, I guess.
Eh writes: "It would be nice to contact e.g. the Nature Conservancy about this land."
And they can bring in their bulldozers. That will also help solve the negative absorption.
The bottom for negative absorption is the price that makes the locals stay or somebody else move in. Santa Maria will have a bottom as a retirement community - it has a nice climate.
Detroit would have a bright future if GM had developed the electric car rather than killed it. But - we're talking GM ...
I don't know about there being NO bottom in Detroit. Once the value gets to be less than the tax lein though, the bank will jingle mail the REO to the city. That's a bottom. Of sorts...
Santa Maria doesn't even have a university just a 20k enrollment community college. If California gets as fiscally desperate as it appears they might the next wave will hit places like Davis, San Luis Obispo and Santa Cruz which, while having their reasons for being, are still largely dependent upon the money poured in from higher education. Funding cuts to education and lower housing demand from declining enrollment have the potential to cut the knees out from housing values.
The "Last Resort" by The Eagles ... they put up a bunch of ugly boxes, Jesus people bought em. ... Call some place paradise, kiss it good bye...
This song reminded me of Vegas when I lived there in late 90's.
Poor Prado. All she had to do to claim the crown of victimhood was to glibly aver that she didn't read what she signed, and she blew it.
Guess the "little lie" on the application is the kind of thing that can be taught early:
Her biggest challenge, she said, was trying to keep her children, a 10-year-old boy and 7-year-old girl, from figuring out what happened. [...] To soften the blow to the children, Prado said she told them that they were only renting the home they had bought.
Ah, the lies come easily!
"It takes two to lie. One to lie and one to listen." -- Homer Simpson, from the television show The Simpsons
I grew up on the Central Coast (Lompoc) and couldn't believe what people were paying for houses during the bubble, relative to historic values for the area. Before I learned about all of the exotic financing a homedebtor could get, I questioned how all of these people could afford those prices. It was our own little Merced on the coast. Basically it's an ag town, with some jobs from Vandenberg Air Force Base and maybe a few more from Club Fed in Lompoc. Oh yeah, we also have the casino in Santa Ynez that is good for a growing number of jobs. People were moving from the Santa Barbara area up to the north county (Lompoc, Santa Maria) when 30 year old tract homes in Santa Barbara/Goleta went from 300K in the late nineties to 1M+ at the peak. The problem the city is facing now is that people willing to move or stay there and commute 70 miles each way are few and far between.
It's only going to get uglier there. As CR pointed out, there's really not much of a way out.
IP:
Nice one. That is one of my all-time favorite pieces of songwriting.
"Yes, it is fraud for housing, as opposed to fraud for profit, and fraud for housing is rarely prosecuted."
It was the builder who profited on this transaction. But that's not fraud -- that's just business. Selling a $150,000 house for $412,000 to a buyer who they knew couldn't afford it -- its just business, not fraud!
Prado is not lying. They were in a rent to own scheme and decided that it wasn't for them.
The nice thing is that when things get out of control, the government will fix it.
I am from Santa Maria, now living in the Sac area. My mom worked for a family owned fertilizer company.
She just retired this year. Her company was recently bought by big agribusiness.
She and her boyfriend had both sold their homes in Fall of 2006, rented then bought a new place, paid cash, last week.
The only good paying jobs came from work at Vandenberg AFB in Lompoc. We used to joke that if you didn't get good grades in class, you would end up picking strawberries (the fields weren't too far from our HS).
The bottom for Detroit will come this Halloween, or during the next riot when all the REO is burned to the ground.
Living in the Central Coast, I drive through SM from time to time. The developers are even now widening 101 to three lanes each way. I can imagine their dreams of Central Coast LA. I, for one will be happy to see development in this area slow for decades to come.
When Devil's Slide, Competition Hill and the Sand Highway were open everyone wanted a beach house around there.
Now there is no point, suicide by over regulation.
State universities and colleges in Calif are state-supported in name only. Univ of Calif. (all of them) receive less than 20% of their funding from the state. By now, it's probably much less than that, so funding cuts will not impact those schools as much as has been proposed in these comments.
The most surprising thing I find in this LA Times series are the demographic statistics.
No high school diploma:
Santa Mara 39.1%
Merced 31.4%
American Canyon (Napa) 20.9%
La Quinta (Palm Springs)14%
White Population:
Santa Maria 26%
Merced 32.3%
American Canyon: 35.9%
La Quinta 55.4%
Just wait 'til the entire US has "negative absorption", i.e., an emigration, rather than immigration problem.
That'll be after the fall, whenever it comes.
one more:
"The "Last Resort" by The Eagles ... they put up a bunch of ugly boxes, Jesus people bought em. ... Call some place paradise, kiss it good bye..."
Thanks, IP, my crusty brain was trying to remember that one--the last song on the back side of the Hotel California album. I used to listen to it on the floor in my teenage bedroom, with my head laying between the speakers.
I feel sorry for the idiots who are buying now, because they have no clue that the prices will keep falling through 2010 as all of the interest only 5/1 ARMs from 2005 reset now that the equity in most of these loans is negative. Maybe not as bad as Detroit, but it we're looking at pre-2000 prices for sure. Why hasn't anyone talked about the millions of foreclosed on people who are effectively taken out of the economy for 7+ years due to bad credit scores? How can a lot of them be blamed for getting caught in the middle of a really bad situation?
I spent a few years in Lompoc. Graduated from the CC in Santa Maria and I worked at the Taco Bell just outside of Solvang in Buellton. (Jacko visited on afternoon).
Great place to live in the early 90s, but I still do not know how people could afford to live in NW Santa Barbara county. Good paying jobs were scarce even when the house prices plunged with the RIF at VAFB (after the Peace Dividend from the canceled Cold War and the termination of the west coast space shuttle program).
How many good paying jobs were really created as the housing prices more than doubled in the last 15+ years? Median household income for the entire county is still around $50,000.
CR/Tanta, I'm not buying that this wasn't fraud for profit. Methinks this site is going soft. Too much "pro-bailout for the common good" talk here now. Sounds like Tom Lindmark has taken CR hostage.
Also, let's not ignore the money quote from the Prados:
Her biggest challenge, she said, was trying to keep her children, a 10-year-old boy and 7-year-old girl, from figuring out what happened. To soften the blow to the children, Prado said she told them that they were only renting the home they had bought. In many ways, thats true.
If Mrs. Prado can't break the news to her sheltered little darlings, I guess I'll do the honors:
Dr. Prado children:
You better sit down, kids. I've got some bad news.
Your parents are greedy idiots who lied to their lender -- and then were dumb enough to admit it in the newspaper. I hate to tell you, but you both come from a poluted gene pool. My condolences.
Sorry, someone had to break the news to you.
(Let's see Tom Lindmark show up to shower some pro-bailout, anti-responsibility sympathy on the Prados.)
-- Judge Smales
"You'll get nothing and like it"
zzyzx: Yep, exactly. Look at the median home price and them look at the median household income in the same place. If the ratio of median home price to median income is over 3, then that's an expensive place to live. At the peak in 2005 in my neighborhood in Northern CA, the ratio was over 7. This figure probably doesn't count all of the illegals that bought houses on stated income with ITIN numbers. I think that this ratio should be no higher than 2, as you won't be saving much money at 3, and you will be broke at 4. Been there, done that. Happily out of California now.
Well, there's always the wine business around Buellton, if I recall Sideways.
Don't forget Pismo Beach, Bugs Bunny's favorite vacation spot.
(Insert vacation picture here $%$&*$! thumbsnap!)
Don't Cry For Me Santa Maria... Who in their right mind would live here? People like me who could not afford to buy any closer to where I work. Well, worked. I had to change jobs, increase income and zero out commute costs to prepare for the re-setting of my interest only 80/20 on a one bedroom condo ($234k, @ zillow now about $175k). Miraculously, my payment actually went down! Good news is I can now afford to start hitting the principal. Santa Maria's foreclosures are clustered in spots where building went wild about ten years ago (just south of a scary looking dry arroyo). SLO Watch.com - San Luis Obispo Real Estate Market Statistics and scroll down for REOs and Short Sales for Santa Maria Jan-May '08.
In my condo complex (at the south end of town), we've been lucky: only four foreclosures so far, of 120 units. This is a mostly entry level, young working-middle class condo complex, and I'm just hoping my young neighbors can see it through. Re the demographics, there are a lot of hardworking immigrants here, a lot of farmworkers and tradesmen. Santa Maria is known for big box stores because the unimaginative city fathers-mothers have allowed a wholesale cashing in of great ag land (broccoli, yes, but also known for -- strawberry fields! [o the formaldehyde...a whole n'other type of forever...]) for a retail centered tax base. This of course will implode soon, as shoppers stop driving down here and go on line to save on gas, or just not shop anymore.
I've always thought this would be a great locale for light industry, or green collar startups...
Thanks for your blog. Don't know how you do it, you must not ever sleep! You've been an invaluable help to me as I've struggled to find a surviveable position in this nasty time. Information is power, and you have empowered many like me.