News, insight and some thoughts about the Sacramento-area real estate market

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March 22, 2008

The Deepening Malaise

"The Home building industry is not in a recession. It's in a depression."
- John Hodgson, project manager for 1,900-acre Madeira development in Elk Grove.

The Saturday morning paper carries another
alarming story about a Sacramento-area builder that is apparently losing its shirt and taking down suburban finances along with it. Reynen and Bardis risks foreclosure on some of its land in Madeira because it has stopped paying property taxes. That means City Hall (i.e. taxpayers) are having to help make payments on Mello Roos bonds for roads and parks in the 1,900-acre area that is considered Elk Grove's crown jewel residential development.

Rynen and Bardis: Another prominent local home apparently dancing near the grave that has already claimed Dunmore Homes of Granite Bay.
By all accounts, R&B went on an optimistic land-buying spree at the height of the housing boom, with full blessings of banks that eagerly loaned it the money. And now, just like many struggling home owners who bought a house in 2005, it is upside down. It has high monthly debt payments while the value of what it owns - acres and acres of land for residential development - has collapsed.

I shudder to think of what it must be like now in meetings with those banks. The builder cannot make payments. The banks are stuck with collateral (the land) that I would guess is worth spit compared to what is owed on it.
The malaise is firmly digging in at City Hall. Banks can only be next on the list of many business stories still to be written.