Home Front

A blog about the economy and the Sacramento-area real estate market.

January 31, 2009
Mortgage brokers who ruled the roost getting pushed out
Mortgage brokers - that category of financial specialist with access to a wide-range of loan products - are being pushed to the sidelines as more banks refuse to let them originate their loans, says this report in the New York Times.

   Bad as the image is of big banks now, the reputations of mortgage brokers have suffered more in the eyes of many consumers and lawmakers. This comes as tens of thousands of brokers have left the business, says The Times.
January 30, 2009
Worse than 1993 and 1982 for California's housing starts
 I was 11 years old and living on the family farm in Ohio in 1963, when the biggest surge of the postwar California boom erupted with a stunning 322,018 housing starts!

 What an amazing sight that must have been. Anyone who has griped since about "all this construction" surely can't even fathom that level of building activity.

 But everyone alive now in California has just lived through the opposite of that superstar year.

 The Construction Industry Research Board and California Building Industry Association now reports 65,380 construction starts in 2008. It's the lowest since CIRB began keeping records in 1954 in the Eisenhower Administration.

 It is so low that builders in the dismal, economic wreck of  a year, 1982, when mortgage interest rates averaged 16 percent, built almost 22,000 more houses than last year, according to the archives of federal mortgage giant Freddie Mac.

 It's so low that even in the lowest point of the 1990s recession - 1993 - with Southern California base closings, a defense industry imploding in the wake of the cold war ending, with job losses from San Diego to Eureka, builders still planted 84,656 houses on California soil. That's 19,276 houses more than last year.

No wonder last year was all about downsizing, layoffs, consolidations and bankruptcies in the home building industry. It was far worse than the worst this state has ever seen.

The Construction Industry Research Board and CBIA offers this chart of home starts from 1954-2008.

 Yuba and Sutter counties showed the state's most severe regional slowdown in 2008. Builders started 191 homes in the once-booming areas for Sacramento-bound commuters, down 79 percent from 932 starts in 2007.

Builders in El Dorado, Placer, Sacramento and Yolo counties started 3,990 homes in 2008, down 43 percent from 6,999 in 2007.

  Bad as this slowdown is for the construction industry and builders, it's Economics 101: anything that reduces supply in this overbuilt environment is a force for market correction. 

January 30, 2009
Those bad GDP numbers

     Well, we're really slipping now.

     The nation's Gross Domestic Product fell at an annual rate of 3.8 percent in the fourth quarter, the government announced this morning. It wasn't as bad as some economists predicted, but one of our favorites, Sung Won Sohn of CSU Channel Islands, says that the real slippage was 5.1 percent.

  The difference: goods that were produced but are still sitting on shelves, unsold, are counted as growth. Take them out of the picture, and the economy shrinks by 5.1 percent, not 3.8 percent.

    If that isn't unsettling enough, he says the first quarter of 2009 will probably be worse.

    Ah well.

    Meanwhile, here's a footnote to our story about NEC Electronics closing a manufacturing line at its Roseville computer chip plant in 2010:

   Things could always be worse. Today NEC's parent in Japan announced it will eliminate 20,000 jobs worldwide. 

January 29, 2009
A new twist on the Promenade

   It seems like we've been covering the delays at Elk Grove Promenade for years. This morning came an odd twist: troubled developer General Growth is searching for investors to help it finish the mall.

    Is this good news or bad news for the mall? My colleague Loretta Kalb and I are trying to figure this out. Clearly it's a sign of the depth of General Growth's problems. But it's not clear if anyone will fly to the Promenade's rescue.

    We'll have more in Friday's paper.

January 29, 2009
The chips are down in Roseville

    Now NEC's computer chip plant in Roseville is joining the layoff parade.

     NEC Electronics America announced today it will close one of its two manufacturing lines at the Roseville plant in March 2010.

     The reason, of course, is the recession. Just further proof, in case you weren't sure, that this downturn has gone way beyond housing and finance. Technology companies are cutting like mad in the face of declining consumer demand.

      We'll have more on this in Friday's paper.

January 28, 2009
Trying to make sense of it

     This is one of those days when it's impossible to sum up what's going on with the economy.

     The stock market shot up in anticipation of the Obama administration announcing another plan to bail out the banks (This time, the government would create a sort of "bad bank" that would absorb all the crummy loans out there). There also was some optimism that the House would pass the president's stimulus package.

     Meanwhile, the Federal Reserve...did nothing. In a closely-watched announcement, the Fed said it would continue holding the federal funds rate between 0 and 0.25 percent in an effort to revive the economy.

      So, a pretty good day, right? Not so fast. Starbucks reported lower earnings and said it would close another 300 stores, lopping off 6,000 jobs. And the US Postal Service said it might have to suspend Saturday delivery.

January 27, 2009
We're No. 10 (in store closings)

      It's not true that every store in Sacramento is closing. It just seems that way. And a new report by Marcus & Millichap, the commercial real estate broker, shows that store closures are worse in Sacramento than most other markets.

      The report says Sacramento's retail vacancy rate jumped 1.6 percentage points in the third quarter of 2008 vs. a year earlier. That was the 10th highest increase in the country.

      The highest was in Fort Lauderdale, where vacancies grew by 2.7 points.

     The highest in California was in the Inland Empire, where the rate jumped 2.5 points.

      If it's any consolation, Sacramento's vacancy rate for the quarter, at 7.6 percent, was still lower than the US average of 8.1 percent.

January 26, 2009
Layoff Nation, continued

     Was there some memo released today telling big companies this would be a good day to issue layoff notices?

      A total of 45,000 pink slips went out this morning, courtesy Caterpillar, Sprint Nextel and others. The Home Depot announced it will eliminate 7,000 jobs and is folding its high-end Expo design centers, a move that will close the Expo store near the Galleria at Roseville.

      Addendum, Jan 27: Geez. I go home sick for a few hours and the economy catches the flu. By the end of the day Monday, the layoff announcements grew to 75,000. And earlier this morning Corning chimed in with 3,500 layoffs, bringing the two-day total to 78,500.

January 23, 2009
A long slog to come

Garrick Brown, whom we often quote in matters of commercial real estate, has just released a sobering 2009 Sacramento-Roseville investment report from Colliers International (He is director of research in the capital region).

It's 21 pages of analysis about how we got into this financial mess, a little about how we're going to get out and how it will affect housing, retail and office while we endure it.

A couple of teaser points:

  • We are halfway through the foreclosure crisis (though government action may yet blunt its effects more than it has so far).
  • The worst of the recession will be over as we head into the 2nd quarter.
  • "By 2010, we expect glimmers of life, but economic growth will still be minimal."
January 23, 2009
Report: Most John Laing sales calls lead to answering service
 The National, a leading newspaper in Dubai, has this update on the state of Irvine-based builder John Laing Homes. Apparently, most sales calls, including those made regarding 10 Sacramento-area projects, are going to answering services instead of the company, the newspaper reports.

January 23, 2009
Apartment values/sales follow houses into the slow lane

 I had an interesting visit in Roseville this morning with a pair of Northern California apartment industry specialists, John Gallagher and Dean Bagneschi, partners in the Apartment Advisory Team at TRI Commercial.

 Here at The Bee, we do a ton of stories on the housing market, but don't often enough explore the world of apartments that house an estimated 35 percent of the region's population. That's sort of a hidden world to many, a world of big institutional funds and insurance companies and local families with money that buy and sell apartment complexes.

The bottom line right now: the apartment industry is slumping, too. Sales prices are falling, a few have fallen into foreclosure and buyers are waiting on the sidelines to see if prices fall more, the two said. There's still more supply than demand, which has lessened investor interest, too, in apartments.

  There's also the issue of credit. Even when brokers like them can put together a buyer and a seller it's hard to get the bank on board. They said Citibank used to be the biggest regional source of loans for apartment deals. Number two was Washington Mutual. Between them, they represented 75 percent of the region's financing.

Now both banking giants are struggling with their loan portfolios and have largely stopped lending in this realm, they said. The deals are there, they said. In some cases a buyer can pick up a complex for half of what it would cost to build the same thing new.

But the financing is the hard part.

Truly, if you ever wanted an example of what it means here on Main Street when the analysts talk about a freeze-up in credit markets, this is it.

Apartment complex buyers who used to make 25 percent down payments are now being asked for 40 percent down if they want to get a loan. So they're reluctant on that front, too.

All in all, it's hardly the express lane in their business sector.

Like everyone else, they're waiting for the state government to stabilize, for job growth to pick up and people to move here. In short, anything but the constant reports of layoffs and threats of layoffs that are keeping many buyers - even of apartment buildings - on the sidelines, waiting, waiting to see how the economy shakes out.

Like to hear it in their own words? Here's a brief video of Gallagher and Bagneschi after coffee Friday morning at The Fountains in Roseville.

 

January 23, 2009
Ugly job numbers

     Hard to find much good news in today's report on state and local unemployment. The state's unemployment rate went to 9.3 percent, the highest since 1994. Sacramento's rate went to 8.7 percent, the highest since 1993.

    December was the fourth worst month for job losses (78,200) on record, and the worst since the dot-com industry fell apart in 2001. The absolute worst month that Howard Roth, the state's chief economist, could find, was in December 1945, when the state's defense industries were cutting back after World War II. The job loss that month was 108,700.

      It seems everything is crumbling: construction, manufacturing, retailing, professional and business services (which takes in things like accounting, engineering and so on). Only health care is doing well.

      If you're a glutton for punishment, go to this database of layoffs assembled by my colleague Phillip Reese. He has put the company-by-company layoff notices, which are filed with the state, into an easily digestible form.

     

January 22, 2009
John Laing Homes is another capital builder in trouble

The Sacramento-area building industry has been abuzz for days over what seems a serious time of trial for Irvine-based John Laing Homes. The builder has 10 projects in the Sacramento area - mostly Natomas, Folsom and Roseville - and is considered a high-quality builder that does very well in a niche: putting a lot of residential development onto an acre of land.


  Indeed, many consider Laing the best locally at that type of "smart growth."

What gives? It's a little hard to tell because the company - one of the largest privately-owned residential builders in the U.S. - is not saying much.

Laing's corporate people issued this  statement, saying there have been staff reductions, but that operations continue while the firm reviews its options regarding "capital requirements."

 The Sacramento division, too, which runs operations in the capital region, the Bay Area and San Joaquin Valley - is not responding to press inquiries.

Global press reports indicate that a much-heralded 2006 deal, in which one of the world's largest developers, Dubai-based Emaar Properties, bought John Laing Homes for $1.05 billion, has turned bad. Plans were to use Emaar's deep pockets to expand the builder beyond its traditional markets in California and Colorado. That would also give the Middle East giant a footing in the lucrative U.S. real estate market.

Problem was the deal, done as the boom was already over in places like Sacramento, turned ever more sour as the housing market crashed nationally.

Laing has consistently ranked in or near the top 10 builders regionally for home sales.  The builder arrived in the capital region in 1999, according to old Bee stories, and invested $35 million in land from Miami's Lennar Corp. Things went great, by all accounts, until, well...it wasn't great any more.

Here's a look at one of its Natomas developments Thursday, where the sales office was closed.  The sales office was closed, too, at Candela in Natomas.



Here is what was on the sales office door at Mystique in Natomas:

January 22, 2009
Now it's Microsoft's turn

    The layoff news keeps getting worse. This time Microsoft announced its first-ever layoffs, and it's a big one: 5,000 jobs.

     It's further evidence of big problems in the tech sector, although we should also point out that Apple and Google reported strong earnings. But signs of a slowdown are everywhere - even Google is imposing small layoffs for the first time.

    All of which gives me a chance to hype a story I'm working on about the troubles in Silicon Valley. The story will run in the next few days.

    The valley's problems matter to Sacramento, given how many jobs and people tend to flow our way when the Bay Area economy is hot. With the tech sector cooling off, that'll prolong our own economic problems.

     

   

January 21, 2009
CalPERS and other topics

   Hi there. Sorry I've been out of touch the past few days. I was on the road and got preoccupied working on a story about Silicon Valley's economy that will run in a few days (Here's a hint: the economy there is lousy, too).

    Anyhow, a few thoughts while reporting on the appointment of Joseph Dear as the new chief investment officer of CalPERS (See my colleague Jon Ortiz's early, online version of the story here and look for more coverage in Thursday's paper):

    -- Dear is stepping into a difficult spot. This is pretty obvious, I know, but it's going to be hard for anyone to pretty up the CalPERS investment picture. Thanks largely to the stock market's troubles, the big fund has lost $64 billion since July 1.

    -- It's the burning economic question on everyone's mind. It gets asked over and over, because nobody really has an answer: How bad is the recession going to get? One minute it seems like things have stabilized somewhat, and while we're in the midst of a rough recession, we won't be in a Depression. Then all of a sudden it feels like the sky is falling again, as with the fresh fears that have surfaced in the past few days about the true health of the banking system. David Leonhardt's analysis in today's New York Times is worth reading; it compares 2009 with 1982 (A version of this story ran in today's print version of the Bee).

    -- What's interesting about the current downturn is this persistent fear of the unknown. I don't remember this kind of anxiety in 2001 (at least about the economy; we had other, more immediate things to worry about after 9/11) or the early 1990s. For that matter, as bad as the early 1980s recession was, I don't remember that same level of fear back then, either.

   -- And when was the last time we had this many retailers go out of business (or into Chapter 11)? Whew. If we had this many empty storefronts in earlier recessions, I've forgotten about it.

 

January 21, 2009
Capital's hotels see more decline than rest of Northern Calif.

It must be due to an overall decline in economic activity, and possibly to less travel to and from our stressed-out Capitol building. But it  keeps getting cheaper and easier to get a Sacramento hotel room.
 
Just arrived today is a survey from industry analyst PKF Consulting, showing that hotels in the Bay Area and much of Northern California have outperformed ours here at home.

This data is for January through November, 2008:

  • The 2008 average room rate was $98.74 in the capital, down 2.3 percent from $101.02 in 2007.
  • Northern California room rates rose an average of 3.1 percent over the same time in 2007 - from $149.19 per night to $144.69 per night, according to PKF. Much of this reflects higher rates charged in San Francisco, the Bay Area and Napa Valley.
  • Room occupancy in Sacramento also slid from the previous year. Capital hotels reported filling 66.9 percent of their rooms the first 11 months of 2008. That was down 2.5 percent from 68.7 percent the same time in 2007.
  • Northern California hotels as a whole reported filling 74 percent of rooms, down 1 percent from 74.8 percent in 2007.
  •   Occupancy in Northern California was strongest in rooms priced $175 or more per night. PKF reported that 79 percent of those rooms were occupied during the year. Lowest, at 71 percent, were rooms priced between $75 and $125.
January 20, 2009
Capital-area home sales: 7,763 more in 2008 than previous year
MDA DataQuick reported its December numbers today, giving us an overall look at a resurgent 2008 for home sales. It showed 41,030 sales of new and existing homes - nearly 8,000 more than 2007.  It's the first year since 2005 to see sales rise instead of fall - and discounted foreclosure properties, as you might expect, explain it all.

An early online story had the first draft of the story. A more complete look back at 2008 appears in tomorrow's Bee.

Here's a summary by county for new and existing homes combined:

  •  Sacramento County, the largest sector of the region's real estate market, counted 2,485 sales - the best December in three years - as its $176,000 median price fell 37 percent for the year to a low not seen since May 2001. Analysts say that low largely reflects foreclosure prices, which accounted in December for 70 percent of sales, according to the Sacramento Association of Realtors. Median is that point where half cost more and half less. Sacramento County's median price peaked at $387,000 in Aug. 2005.
  •   Placer County saw 546 sales as median prices fell to $317,250. That's down 15 percent for the year and the lowest median since March 2003. Prices peaked at $525,500 in Dec. 2005.
  •  El Dorado County had 160 closings and a median price of $330,000, down 24.5 percent from Dec. 2007. Its median price peaked in March 2006 at $531,250.
  • Yolo County reported 231 sales and a median price of $281,500, down 14.8 percent from Dec. 2007. The county's median price peaked in Nov. 2005 at $474,000.
  • Sutter County tallied 115 sales and a median price of $173,500, down 30.7 percent from the same time a year earlier. Sutter County median prices crested at $339,000 in Dec. 2005.
  •  Yuba County had 104 sales and a $160,000 median price, down 34.7 percent from a year earlier. The county's high was $351,500 in June 2005.
  • Nevada County reported 78 sales and a 20.2 percent annual drop in median prices, to $331,000. Its high was $501,000 in Oct. 2005.
  • Amador County counted 29 sales and a median price of $270,000, down 18.6 percent from Dec. 2007. The county's median price peaked at $425,000 in May 2006.


January 16, 2009
Three french hens, two turtle doves and $500 of gasoline
On the lighter side: I got a kick out of this new home promotion featured in today's print edition of Home Front. I thought I'd drop it online, too:

"The holidays are long gone, but the gifts will keep coming for beneficiaries of one builder's Christmas promotion.

To move inventory at the end of 2008, William Lyon Homes' Northern California division did a take on that song about three French hens and two turtledoves called "12 Days of Christmas."

Seventeen Sacramento-area buyers in December - seven during the slowest week of the year, Christmas to New Year's - learned new lyrics: the "12 deals of Christmas." Credit Rocklin PR agency Augustine & Associates for this one.

Corny? Maybe. But the deals included $500 in gas money, $500 for grocery money, a year's free cleaning services, a year's free HOA dues, a refrigerator and backyard landscaping. Who says incentives are so 2006?

Lyon, like most builders, has had a really tough year. But in December locally, it beat out everybody but Los Angeles-based KB Home, according to statistics from the North State Building Industry Association."

January 16, 2009
Steinberg and Bass to Obama: let judges rewrite loans

Seconds ago came this letter from Assembly Speaker Karen Bass and Senate President pro Tem Darrell Steinberg, urging President-elect Obama's banking officials to stop the foreclosures that are ravaging California.

 The duo - and other legislative leaders - urged Obama officials to require banks that get bailout funds to modify loans to keep people from losing them. Second, they asked for a change in federal bankrupty law to let judges rewrite mortgages if banks won't do it.

Democrats nationally want this as a foreclosure prevention tool. Most of the banking industry - with the exception of Citigroup - is opposed.

January 16, 2009
How the housing crash cut your library hours
I'm just back from an interesting California Research Bureau seminar explaining how the housing crash is taking down the twin pillars of sales and property taxes - and is really starting to hammer budgets of 480 cities across California. As the housing meltdown continues with no end in sight, most cities are now facing mid-year budget corrections. Estimates are they have $4 billion to $6 billion less money than their budgets say they do - because the housing crash keeps getting worse.
.
 That means they'll be cutting library hours and park maintenance so they can avoid cutting police and fire budgets.

No big surprises at this session. It was just interesting to see the links between the real estate declines that started here in Sacramento in 2005 and the budget nightmares that are now in full swing statewide as home values fall. The speakers made it especially clear that the housing crash that started in the Central Valley and the Inland Empire of Southern California is now happening everywhere in the state.

Normally,  we don't use the word "bubble" much on this site. But the seminar did start with an amusing Powerpoint slide from Michael Coleman of Californiacityfinance.com
(everything you ever wanted to know about city finances in this state): a soapbox picture of "Mr. Housing Bubble. Cleans out your life savings." We take our humor where we find it.

Some points: California sales taxes peaked in the 2005-2006 fiscal year that ended June 30, 2006 - about the height of the housing market, and have fallen fast since. And while it's true that when sales taxes begin to rise it's a signal that things are turning around, Coleman said, "We haven't seen it yet." Neither did he expect to for awhile.

 Coleman's graph showed how declines in median home values almost instantly begin to drive down sales taxes. The property tax declines that sink government budgets are always a couple years behind the actual drop in home values. So, he said, governments are now feeling the full stresses of the deflation in home values that happened in about 2006. That means the plunging values of 2007 and 2008 haven't revealed themselves yet in government treasuries.

A second speaker, Mark Paul, formerly of The Sacramento Bee and state treasurer's office and now with the New American Foundation, said it will take until 2011 for sales tax revenues in California to get back to where they were in 2007.
 
That means "worse problems with the (state) budget next year, and probably worse the year after that," he said.

January 16, 2009
Take a breath

   Chris Thornberg has been right about just about everything during the recession. The economist from L.A. was certainly among the first to say the housing boom was completely unsustainable - and the inevitable bust would take down chunks of the economy with it. He also was among the first to say the slowdown would turn into a full-fledged recession.

   So it was interesting to hear him tell the Sacramento Sierra Chapter of the Appraisal Institute this morning that things aren't as bloody awful as we might imagine.

     Make no mistake, it is a recession, and a bad one. But he dismissed talk of another Depression or a total financial Armageddon.

    "Whoa, time out - deep, deep breath," said Thornberg, who heads Beacon Economics. "Folks, it's not that bad.

     "We're in the midst of what I would call a nasty recession. Like a bad cold, you'll get over it."

     Some other comments from the meeting:

     Economist Suzanne O'Keefe of Sac State said the job losses in Sacramento should end in August or September. That will ead to "not necessarily job growth, but stabilization," she said. Actual job growth might begin in 2010.

     Garrick Brown of Colliers International real estate said the commercial market will continue suffering, with higher vacancies and lower rental rates in all sectors: retail, industrial, office. The office market is being helped by the state, which is still looking for space, although vacancies will rise once the new office tower on Capitol Mall opens.

     Greg Paquin of the Gregory Group, the Folsom housing consulting firm, is convinced the US government will do something to curtail foreclosures. His reasoning: Congress isn't going to spend $1 trillion or so to revive the economy and sit quietly while the housing market continues to erode.

     More in Saturday's paper.  

January 15, 2009
More on loan modification "swindlers"
The New York Times has this story on foreclosure rescue swindlers. Be careful out there.

January 14, 2009
The Gottschalks bankruptcy

    A few thoughts about Gottschalks Inc. filing for Chapter 11 bankruptcy earlier today:

     1. It's fascinating how quickly things can go downhill. Although its sales have been sluggish for some time, Gottschalks was still profitable in 2006. But in the fiscal year that will end Jan. 31, Gottschalks estimates that sales fell 11 percent.

     2. The Fresno chain will be trying to sell itself during a brutal climate for retailers. Revenues are collapsing all over. And arranging a deal becomes even tougher in a credit crunch; a consultant told me there's precious little credit available for these kinds of purchases, assuming someone does want to step up and buy Gottschalks.

     3. Another complication: This is the slowest time of the year for retailers. That might make it tougher to find a buyer (although anyone interested in buying a retailer presumably understands that the real business doesn't happen until fall).

     Meanwhile, my colleague with a penchant for the offbeat, Darrell Smith, just came back from talking to shoppers at the Gottschalks at Country Club Plaza in Sacramento.

     The first thing that caught his eye was a group of signs for sale - those little morale-boosting signs you hang in your kitchen. One of them read, "Things are bad. Send chocolate."

      On a more serious note, the other thing that caught his eye was the proliferation of "sale" signs - up to 80 percent off in some cases.

     Things were quiet, but those shoppers who were strolling about proclaimed their loyalty. . "I think Gottschalks is a landmark," said Susan Sevioun of Georgetown.

     It's true that loyalty is increasingly spotty in this era of relentless discounting and online selling. And obviously Gottschalks has struggled to keep hold onto its customers. But it makes you wonder: Where will the Susan Seviouns shop if Gottschalks disappears? I guess they'll adjust, like everyone else.

   Meanwhile, just to drive home the point about the lousy retail environment: my colleague Mark Glover reports that Ann Taylor and Banana Republic  are closing their stores in Downtown Plaza.

      We'll have much more on all this in Thursday's paper.

January 13, 2009
Canadian-backed Roseville venture resurrects R&B lots
You can see it starting to happen now: a realignment of the area building scene as ventures with capital take over ventures with debt.
 
  Roseville-based Granite Bay Development, recently become a subsidiary of Canadian real estate's United Communities, will breathe life into a pair of stalled area housing developments formerly owned by struggling Sacramento home builder Reynen & Bardis Communities.

 Granite Bay bought the projects from Reynen & Bardis and its lender in October, said senior project manager David Ragland this afternoon. The names of both projects will stay the same as under R&B: Romanesque at East Commerce Way and Elkhorn Blvd. in Natomas and Watercraft just west of Jefferson Boulevard in West Sacramento. Prices will be start in the low $300,000s. Plans are to release 26 home lots for sale and build when they get buyers.

The Natomas project has its permits, so it can build and sell during a long moratorium now in effect while the government rebuilds the region's levees.

The new 10-member development team includes Jack Reynen, son of Reynen & Bardis cofounder John Reynen. The elder Reynen filed for personal bankruptcy protection last year over debts taken on by his building firm during the housing boom.

After the moratorium, Granite Bay Development is also poised to resurrect another mothballed Natomas project started by Los Angeles builder Pardee Homes. The Roseville firm bought the 100-acre residential project from Pardee last October.

Details: www.unitedcommunities.us


January 13, 2009
Writing off the Golden State: Version 9.0
Moving Day2.jpg
 So it begins again,the great exodus from California. MSNBC carries this inevitable AP story about more people moving out of California than moving in.

This is one of the continual cycles of California's economy. Things fall apart, people start to leave for cheaper pastures and the media describes California as a new rust belt with good weather. It happened in the early '80s, the mid 90's and here it is again: Will the last one to leave turn out the lights.

The next stage, of course, is media stories from Idaho and Washington,  blaming all these new Californians for driving up home prices and ruining their states with all their bad habits.

Image: sawbill.com


January 12, 2009
Economy 1, Fitness O
We have a hunch that a lousy economy and fear of a lost job in coming months may have produced a new New Year's resolution this year: NOT to renew that annual membership to the gym. I'm starting to call around to get a sense of whether it's real.
 
 In the meantime, if you cut out your gym membership recently because of economic reasons, a layoff or otherwise, please call Jim Wasserman at 916-321-1102 or send an email to
jwasserman@sacbee.com. Thanks. Elk Grove residents preferred, but all welcome.

P.S. (Step away from the cake now).


January 12, 2009
The growing phenomenon of "walking away."
Over the weekend, The Washington Post took a lively look at "Walking Away" from mortgages.  If you talk to almost any struggling borrower in Sacramento they will tell you they have thought of it - and that many of their friends and co-workers are doing it.

A couple of excerpts from The Post:

  • "While there is no precise way to know how many foreclosures are due to people walking away, experts said the practice has become more common as more homeowners owe more on their mortgage than the home is worth. In some cases, homeowners can afford to keep paying but decide not to because they have little invested in the property or owe so much that they no longer see the value in continuing to pay."

  • "For someone with pristine credit, a foreclosure could mean a drop of 200 points overnight, said Craig Watts, a spokesman for Fair Isaac Corp., which developed the nation's most widely used scoring formula, FICO. The company's most recently updated credit formula, which will be available to lenders and credit agencies in the spring, will continue to count a foreclosure as a significant predictor that a potential borrower will be a high credit risk, Watts said."

January 12, 2009
State workers, the economy and you

   The Bee's coverage of the state worker furloughs and layoffs, including my story in Sunday's paper on the economic impact in Sacramento, generated a slew of comments on our Web site. Not surprisingly, a lot of people are angy at the bloat in government and could care less about the "plight" of the state workers.

    Some of you are even angry at us (I know, that's hard to believe) for reporting on this. You think we're taking the workers' side.

    So allow me to respond.

    We're not taking anyone's side. We're just trying to point out the economic consequences of the layoffs and furloughs. Whether you like them or not, whether you think they're hard working or worthless slackers, state employees generate a significant slice of the Sacramento area's economic output. Those furlough days will put a dent in the downtown and midtown economy; the layoffs will do a lot of damage as well.

   That's all we're trying to say.

    Anyhow, thanks as always for taking the time to comment.

January 12, 2009
2008: Sacramento sales up 81 percent, prices down 36 percent

Here come more year-end numbers - and a look back at 2008 home sales in Sacramento. It was a blowout year compared to 2007 - mostly due to sales of foreclosed homes.

The Sacramento Association of Realtors has this December and 2008 summary and a closer look at the neighborhoods in this ZIP Code report.

Some highlights for single-family home sales in SAR territory (Sacramento County and West Sacramento)

  • 19,286 closed escrows in 2008, an 81.6 percent rise from 10,620 in 2007.
  • A 35.8 percent drop in median prices (where half cost more and half less). The 2008 median of $215,000 compares to $335,000 in 2007.
  • December 2008 sales were up from those in November, which is somewhat unusual. Real estate agents closed 1,932 escrows in December, compared to 1,716 in November - and  805 in Dec. 2007. That's a 140 percent year-over-year gain for December.
  • Bank repos accounted for 1,402 of those 1,932 escrows closed. That's almost 73 percent.

I am watching for a similar report soon from the Placer County Association of Realtors.

 

January 12, 2009
Did you pay someone to get a loan modification?

I'm looking for a few struggling borrowers who have been contacted by people offering services - for a fee - to help modify your loan.

Since the beginning of this foreclosure crisis it's the offers of "help" that have really confused borrowers. So many questions: Do you need an attorney, or a loan modification consultant who charges $3,000? Do they get the job done? Can you get the same from a nonprofit - for free - like Neighborworks?

I am starting a story this morning on this outbreak of private loan modification consulting. Hopefully, we can get a grip on it with a story and offer some advice. I know some are legitimate. But the state Department of Real Estate says there's a lot of predators out there.

 If you're a borrower who is confused or has had some experience along these lines I'd like to talk with you for this story. Please contact me at 916-321-1102 or send an email to
jwasserman@sacbee.com

Meanwhile, here is a helpful recent blog item from local real estate broker Gena Riede, warning Sacramentans about loan modfication scams. It has several good links, including this one to a report from FOX11 TV in Los Angeles on loan modfiication scams.

 

January 9, 2009
Diablo Grande revisited

    Here at Home Front, we were amused to see this lengthy story in the New York Times about luxury golf communities going Chapter 11, featuring the Diablo Grande project in Stanislaus County (In the print version of the paper, there's a gorgeous, nearly half-page picture of two homeowners golfing).

    The story says World International, which bought Diablo Grande out of bankruptcy, will announce its plans for the big development soon.

    My fellow Fronter Jim Wasserman and I wrote about Diablo Grande and other golf-development bankruptcies last October.

January 9, 2009
Shutdown City

   Imagine much of Sacramento shutting down two weekdays a month.

    It's going to happen. Starting Feb. 6, the state will implement Gov. Arnold Schwarzenegger's furlough plan by closing most state offices completely on the first and third Fridays each month. My colleague Kevin Yamamura has the complete report on this on our Web site, including the governor's explanation that by creating three-day weekends, he's softening the blow.

     But the blow will be significant anyway. I have a story, probably running in Saturday's paper, exploring the economic impact of the furloughs (and layoffs) in Sacramento. Our calculation is that this will cost the region up to $1 billion over the next 18 months.

January 9, 2009
Gottschalks, again

    Something may be cooking with regard to Gottschalks Inc., the struggling Fresno department store chain that serves much of the Central Valley.

      Women's Wear Daily (earning its first-ever mention in Home Front) is reporting that the retailer is close to announcing a rescue package - possibly today. The plan would include investments from Everbright Development Overseas, the Chinese company that pulled out of an earlier commitment to Gottschalks, and El Corte Ingles, a Spanish retailer that owns a stake in Gottschalks.

     On the other hand, the Fresno Business Journal says Gottschalks is preparing to file for bankruptcy protection - also as early as today. The Journal says employees were told to cash their paychecks quickly. It also says the company might close 15 stores.

    Earlier this week we reported on Gottschalks' woes and what that means for the Valley. On Thursday the company reported a woeful 10 percent drop in same-store sales in December.

    Stay tuned.

January 9, 2009
Ethanol and gasoline

    Motorists love it when gas prices fall. So do economists. We're told that the plunge in gas prices the past few months has provided at least some oomph for consumer spending and has kept the recession from getting worse.

    But cheap gas hurts some businesses, including the ethanol industry. One of its most visible players, Pacific Ethanol Inc. of Sacramento, has been dealing with shrinking profit margins the past year. Today it temporarily mothballed its Madera production plant until further notice, blaming "unfavorable market conditions."

    The company is getting squeezed by expensive corn and low market prices for ethanol, which is a fuel additive.

     Madera is the company's first plant. It opened in 2005, a time when the industry was full of hope and expectations. Right now, though, the industry looks about as healthy as the housing market.

January 7, 2009
10 percent unemployment?

   How does 10 percent unemployment sound? No, we didn't like it either, but that's the inaugural forecast from the Sacramento Business Review, a joint effort of Sac State's College of Business Administration and the Chartered Financial Analyst Institute.

     The review sees recovery starting in late 2009 or early 2010, which is in line with what most analysts predict. What's startling is the 10 percent unemployment forecast - about a point higher than other predictions we've seen.

     For the full report, click here.   

January 6, 2009
Folsom house goes LEED Platinum - one of three in state

 Faithful readers may remember this item last summer about SMUD's "House of the Future" in Folsom.This morning we got a news release from SMUD that it's received a LEED Platinum designation from the U.S. Green Building Council. That's the greenest, most energy efficient category there is - and one of only three in California. Congratulations to SMUD and Folsom home builder Robert Walter.

Here is the announcement from SMUD and SMUD's House of the Future Web site about the project.

 Walter also has a pending sale on the house with an unattached guest house in back. Price: $625,000.

Industry flagship Green Builder Magazine has also dubbed the home its 2008 "Green Home of the Year." (click on current issue, story is on page 22).

There are other images and video on the builder's Web site.

Click here for real estate agent Jane Layton's virtual tour.

January 6, 2009
Gottschalks' guardian angel?

   Can Gottschalks be saved?

     A woman from Penn Valley just called me to discuss our story on the financial crisis at Gottschalks in today's paper. She started off by apologizing for not knowing much about business, and then asked me if I recalled the scene in "It's a Wonderful Life" where Jimmy Stewart's character convinces some of the failing bank's customers to withdraw just what they need, instead of taking everything out.

     The gist of this reader's argument was this: If lenders and others would back off a little, and reduce their demands, wouldn't companies like Gottschalks survive? And isn't that better than 60 or so empty storefronts?

    In a sense, this woman has hit on a metaphor for entire economy at a time of recession. This is kind of simplistic, but hear me out: Lenders and other creditors routinely back off, and forgive portions of debts - but only if they believe it's in their interest to do so. This happens all the time in bankruptcy. A creditor will approve a partial repayment from a bankrupt company if it believes the alternative - shutdown and liquidation - would yield even less.

    As for her second question: Isn't saving Gottschalks better than having empty storefronts? That's a little trickier. In a dynamic economy, failing companies give way to entrepreneurs with new (and presumably better) ideas. The buggy manufacturers were replaced by Henry Ford, etc. It's a little Darwinian, and it's no fun for the buggy manufacturers, but that's generally how our system works.

     Of course, in this current economy, the Darwinian process can be especially ugly. Those empty storefronts would likely stay empty for a good long while. And that'd hurt everybody. So believe me, no one's rooting for Gottschalks to go under.

    

January 5, 2009
About that map...

    I'm late on this. I've been meaning for the last few days to call your attention to a new feature at the Front, an interactive map in the right hand column. It provides extensive economic data about the five metro areas stretching from Sacramento to Fresno, including forecasts through the end of 2009.

     Wish I could claim credit for any of this. The map is based on data supplied by the University of the Pacific's Business Forecasting Center and was assembled by Mitchell Brooks from The Bee's graphics department.

    Anyhow, mosey on over to the right side of the page and give it a click. Let us know what you think.

January 5, 2009
CalPERS and CalSTRS

   On Sunday we ran this piece in the paper on CalPERS' disastrous investment in a real estate deal called LandSource. I'd also like to call your attention to this Wall Street Journal story about CalPERS, CalSTRS and other big pension funds becoming increasingly gunshy about "alternative" investments such as hedge funds.

    What's noteworthy from the Journal piece is that funds are increasingly parking their cash as a way of hunkering down in a recession. Nearly 9 percent of CalPERS' assets are cash, up from around zero in early 2008.

January 5, 2009
Steve Jobs' health

     As my colleague Mark Glover reported last week, the health of Apple Inc. CEO Steve Jobs is a big issue in the tech world. Jobs, whose company employs more than 1,000 customer-support and tech-support workers in Elk Grove, caused a ruckus when it was announced he wouldn't deliver the keynote speech at the Macworld conference opening today in San Francisco. Jobs was diagnosed with cancer five years ago.

    This morning the company offered fresh details about Jobs. In a letter to employees, he said he is battling a hormonal imbalance and is spending more time with family. He didn't specifically link the ailment to his decision to skp Macworld.

   He said treatment is "relatively simple and straightforward" and won't force him to step down as CEO.

    Apparently reassured, shareholders drove Apple's stock price up $4.13 in morning trading, to $94.89.

January 2, 2009
Opportunity for Apple

    Not everyone's throttling back in the recession. Apple Inc. has opened one of its Apple stores at an upscale "lifestyle" shopping center in Modesto.

    Yes, that's the same Modesto which sports one of the worst foreclosure rates in the U.S. But Apple has a reputation as a savvy marketer, and if Steve Jobs' people believe there's opportunity to be had in Modesto, who are we to argue?

 

January 2, 2009
"You sit in the street and it feels like it should be snowing."
 There's almost no neighborhood in Sacramento where the departure from regular standards is so abrupt. That's the 35-home Heritage Wood Circle subdivision in the Pocket area. It was built in 1980, and 28 years later the trees are giants. A walk through this place is like leaving Sacramento altogether for a few minutes.
 
  Resident Jane Smith Oxnaes (since 1996) and granddaughter Donna Davis gave Home Front a quick overview on this cold gray afternoon.Oxnaes said, "I'm from the East Coast, so I saw this architecture and loved it." She also provided the headline quote here.

The neighborhood has a colorful background story, which we expect to tell in the Friday Home Front column on Jan. 9.

 Here's an introductory video.
 
January 2, 2009
To all those who got it wrong
It used to be common among newspaper columnists to start the new year with confessions of the the mistakes they made in the previous year - or the predictions they botched.

  The Friday Home Front column kicked off 2009 in that sort of spirit - looking back at predictions made as the housing market was downshifting in 2006. We feature a lot of real estate experts who misjudged the extent of the downturn - and note that our own coverage was sometimes overly rosy, too, as a result.
 
  I haven't looked at comments to the article yet. But there's been some interesting reaction on the phone and e-mail. A couple by e-mail making the obvious point. (Both writers saw this housing mess long before it was accepted as fact, by the way).

"Few economists, and virtually no government agency heads or trade associations, stand to gain anything from telling the truth about economic downturns. In my opinion, the media should look at everything these folks say with skepticism, and stop according them the status of experts with superior knowledge and credibility."


"Look at the occupations of your so-called experts in today's article.  Every one of them either worked for the housing industry or banking which enabled the bubble to inflate and then burst.  They all wanted the bubble to continue inflating as it meant fat fees for them and their companies.  They are simply too biased to be relied on for the truth."


A caller suggested that this is why he's come to the conclusion that "conventional wisdom" is accurate about 10 percent of the time.

 "This is not a bitter conversation. It's more a point of philosophy," he said.


Another, still in the real estate business as a consultant to builders, suggested that it was difficult to accurately predict during this downturn because it was "unprecedented."


Another, a commercial real estate broker, said she still believes the media did this, by constantly looking for the bubble to burst and scaring people into not buying houses starting in 2005. She blames The Bee and said this column caused her to cancel her subscription - because we did not adequately blame ourselves.


And another, finally, a student of economics, pointed to Robert Schiller book, "Irrational Exuberance," that pointed out clearly years ago that the housing boom was unsustainable and would crash back to earth.


It had occurred to me a couple times as I researched today's column that there were early people saying we were going over a cliff with this housing boom. They were mostly bloggers and not mainstream "experts," predicting this was a disaster soon to unfold. Therefore, in the process that often leads to these kind of business stories, they seemed to have less weight than someone who sold houses for a living or financed them. (There's an MSM confession for you).


 But many of these seers proved correct.


 Everyone now is certainly more chastened by the immensity of this downturn - and seems less willing to chirp a company line. But the past is a lesson we'll try to take forward in our reporting this year. It's a delicate line, not wanting to be overly negative until there is reason to believe in its accuracy, yet not wanting to be overly positive if the facts aren't there. Usually it involves criticism from both sides, which is helpful in charting a tone as this continues to unfold.

January 2, 2009
In the Valley

   Took a little road trip the other day. I'm working on a story about Gottschalks, the  Fresno  department store chain that's in serious financial trouble, and I wanted to talk to shoppers in its hometown. I wound up at the company's flagship store in the River Park district, a shopping mecca of the sort you'd find in Roseville (the store's neighbors include a Ruth's Chris Steak House and a Sur La Table, the upscale kitchenware retailer).

    Then I headed into the Sierra foothills and stopped in Oakhurst (pop. 13,000), near Bass Lake, where Gottschalks is the only department store in town. (Pretty little town, by the way. And it was nice to get out of the fog for a couple of hours).

    What I found was enduring loyalty. Among certain customers, there remains a strong bond between shopper and store. Gottschalks might not be a huge name in Sacramento, but it's where generations have shopped in Fresno (and some smallish Valley communities) for decades.

   But I also found evidence of what's troubling Gottschalks and other department store chains: shoppers who say they only go to Gottschalks when there's a sale.

   Bottom line is, loyalties to particular stores are under assault as consumers increasingly search out the best deals.

    My story will appear in the Bee sometime next week.

     

January 1, 2009
Happy New Year!
Best wishes to all for the new year from Home Front. Here at home this morning the Rose Parade is starting on HGTV. The City of Roseville has an entry to put the capital region in front of millions of eyes and celebrate the city's 100th birthday. Congratulations!

RosevilleFloat.jpg



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