Tuesday, June 02, 2009

T2 Partners On The Sacramento Housing Market

Via Zero Hedge, T2 Partners had a lot to say about the current state of the Sacramento housing market in their latest presentation. I've cued it up to the Sac-related content, but the whole thing is worth a read:

13 comments :

Wadin' In said...

Max, you made a great find. Basically, if you want the best deal on a nice house, 2012 should be about the right time to get into it! Wow. I should have had more patience. My $3,000 a year principal reduction pales in comparison to the $100,000 a year reduction in my home price, since late 2007. I guess Business Week was optimistic in 2006, when they published that 2005 home prices would not return until 2015. It seems it may take much longer. This is all getting somewhat surrealistic these days.

husmanen said...

We have a new hire at work and he is fresh out of college and wants to buy. I showed him the report and he said... WOW... think I should wait a while, just rent and get to know the area.

One of my favorite slides is the one that states home prices went up 300% in 6 years and have now fallen 47%. That is the overall market, we have a very bifurcated market here (lots of low end sales) and the upper end is dead.

With Alt-A and pick a payment loans dominating the upper end median will go up and those waiting will have much more and better homes to choose from. The most difficult part is waiting.

Max said...

I showed him the report and he said... WOW... think I should wait a while, just rent and get to know the area.

Speaking as someone in the market (not as a stats guy), a lot of what you see on the low pricing end is an illusion. The "investor"-agent cartel has the few cheap bank owned properties sewn up, and short sales are impossible to buy.

The stories of multiple bid/offers are true, but the offers fall within a very narrow range (profitability for the future landlord, afforfability for the future owner-occupier).

Some advice to prospective owner-occupiers: find out what the prevailing rents are for like properties in the neighborhood you want to buy in, and bid no more than 5% over what a cash-flow investor would pay. Also, don't be afraid of "trash outs." These scare the hell out of 90% of the weekend warrior wanna-be landlords who need a renter within 30 days of close to stay in the black.

All the industry people I talk to believe a fresh pile of REO will hit the market in a few weeks. If it does, the feeding frenzy will be brutal.

Psycologically, I think we're in a classic dead-cat bounce. None of the old "investor" mindset is gone, and all the buyers now are congratulating themselves for being smarter than the 2005-2006 buyers. I believe we won't be at a bottom until every last drop of hope is squeezed out of these guys.

husmanen said...

Max, thanks for the examples regarding rental comparisons, especially the rentals and 'trash outs'.

I use rental parity in EDH and Folsom, where I compare PITI on a 30yr, fixed rate, 20% down mortgage to rents.

Your 5% over rental example, would that be the loan type I describe above?

Max said...

The 5% would be how much over the break-even cash-flow investment price to offer on a house. You'll know the seller is serious if the asking price is close: too low and they're feeling out the market, too high and they're in denial.

As a potential owner-occupier, your main competition are the investor types. It pays to know how they think.

Deflationary Jane said...

Looks like an acquaintance is about to have new neighbors on his north side. The house was one of the tax liens I wrote about on Lander's. Investors picked it up. The weird part is it never hit the market once. Never hit the courthouse steps, the trustee rolls, Realty Trak, No MLS listing, nothing, nada. It had been empty since Dec.

The good news? They're doomed. They paid too much and I love seeing investors loose money. It'll rent for 1950 if they aren't picky about tenants. With 20% down still will only cover their P&I maybe. Taxes and MR ($10,700 a year currently) and ins will hose them. Planning for vacancies? that's for pessimists.

Sorry Max, investors I see seem to have all the common sense of a golden retriever chasing a car too closely. One tap on the breaks and they'll get a snoutfull.

Now to go back to reading a 69 pg survey with comments on the UC furloughs. Apparently the staff have some really colorful things to say about the faculty. This should be fun >; )

Deflationary Jane said...

oh and very spiffy find. I read the whole thing. Made me feel like an optimist >; )

Anonymous said...

Great read.

The presentation is available as a pdf download at http://moremortgagemeltdown.com/download/pdf/T2_Partners_presentation_on_the_mortgage_crisis.pdf

Anonymous said...

What is a "Trash out?"

Bryan said...

It's what I do on Thursday mornings, hopefully before the trucks come.

Max said...

What is a "Trash out?"

Here's an example

Jim TV, Vista

patient renter said...

Wow. Exerpt:

"Five years from now when things look to be stabilizing, all of these terrible kick-the-can-down-the-road modifications that leave borrowers in 5-year-teaser, ultra-high-leverage, 150% LTV, balloon loans will start adjusting upward and it will be Mortgage Implosion 2.0. These loan mods will turn millions of homeowners into over-levered, underwater, renters and ensure housing is a dead asset class for years to come."

"None of the old "investor" mindset is gone, and all the buyers now are congratulating themselves for being smarter than the 2005-2006 buyers. I believe we won't be at a bottom until every last drop of hope is squeezed out of these guys."

Yes, Yes and Yes! This has been my mantra for a while, but I still think it's true. How can you achieve a bottom when the bubble mindset still exists?

Anonymous said...

Thanks for the explanation of "Trash out". That video made it very clear!