Tuesday, March 27, 2007

Doom and Gloom?

From today's Bakersfield Californian an update on the real estate market. Most of the stories have been covered here in the last few days. However, they do have some excellent quotes that we can post now and get fired up about, then review in 6-12 months and recall how idiotic they were. I have highlighted the "money" quote:

Rapid rise left room for decline

BY RYAN SCHUSTER, Californian staff writere-mail: rschuster@bakersfield.com Monday, Mar 26 2007 10:05 PM

Last Updated: Monday, Mar 26 2007 10:14 PM

Bakersfield's cooling home market landed the city on a list of the nation's worst housing markets Monday despite holding its own against other California markets.

Based on a wide range of data, real estate Web site housingpredictor.com forecasts a 5.9 percent decline this year in Bakersfield's median home price, now about $280,000. Only 23 other markets nationwide are expected to experience steeper declines, according to the site's Worst 25 Market Forecast.

Mike Colpitts, the Web site's founder and editor, said the local market is returning to normal from the boom market of recent years.

"This is a transition back to normal cycles," Colpitts said.

While some local real estate professionals voice skepticism at predictions of tough times for the Bakersfield market, many see a reckoning ahead.

"I think our market is in for a correction," said local appraiser Gary Crabtree of Affiliated Appraisers. "It was just a matter of time. We went up so rapidly in such a short period of time that the salaries of homebuyers could not keep up."

Crabtree has forecast a 5 percent to 6 percent decline in Bakersfield's median home values in 2007.

Moody's Economy.com has predicted that Bakersfield home prices will decline by 5.5 percent in 2007. And Business 2.0 magazine, using some of Moody's data, last fall included Bakersfield in its list of the 10 housing marketings across the country "ready for a fall."

Ray Karpe, president of Karpe Real Estate Center and president of the Bakersfield Association of Realtors, wonders how such projections are reached.

It's awful easy to make these broad-sweeping predictions," Karpe said. "Doom and gloom tends to catch people's attention. How do some of these people know what our market is like when they are not here? You can put numbers together to make it say just about anything."

Local appraiser Michael Launer of Launer & Associates Inc. said the new housing market is strong. He said median sales prices do not accurately reflect the market as a whole and can be skewed if fewer high-priced homes are sold during a certain period.

"I don't think it's time to panic," Karpe said. "Two or three years ago we were one of the hottest markets in the country. Our market couldn't sustain that growth. It is in a correction phase. It's not bad. It's not going to crash."

Kern County had 634 properties enter some stage of foreclosure in February, up from 185 in February 2006, according to RealtyTrac, an online marketplace for foreclosure properties.

Crabtree said that recently about one of every three notices of default have led to foreclosure, up from a historical average of 10 to 15 percent.

"It is a sign of weakening of the market," Crabtree said, blaming questionable subprime lending practices for the increase. Subprime loans, which usually require no down payment but carry above-market interest rates, are typically made to homebuyers with credit problems or meager financial reserves.

"Foreclosures will increase and supply will increase, which will place downward pressure on prices," he said.

Crabtree predicts a 27 percent decrease in overall home sales volume in 2007. Building permits issued for new construction are down 42 percent between February 2006 and February 2007, Crabtree said.


Rob Dawg said...

...one of every three notices of default have led to foreclosure, up from a historical average of 10 to 15 percent.

Yep, this is the fatal flaw in all the MBS risk models. Their risk model doesn't anticipate the hetrodyne involved in higher default percentages. I would add 1 out of three already. Not just double the usual rate but so early in the cycle when a lot could normally get out ahead of the crush.

Bakersfield Bubble said...

Also, the foreclosure process can take 6-12 months.

Most of those homes going back to the bank now were, pre massive inventory buildup, pre credit tightening (see subprime, alt-A posts) and before the shift in buyer mentality of buy now or be priced out forever (see price decline posts) and....