November 3, 2012

Stockton: Gateway to Exurban Misery

Burbed has often featured links to real estate and economy pieces on the weekends, provided by both local and national news sites.  Today’s article comes from The Guardian, based in the United Kingdom.  Its excellent reportage capturing the civic death throes of California’s 13th largest city (4th largest in the Central Valley), and its British perspective offers an outsider’s look at some of our issues we can’t see ourselves.

Stockton, California: ‘This economy is garbage’

The middle-class families Obama claims as his bedrock are suffering in a city where foreclosure and violence are rampant

Aditya Chakrabortty, The Guardian, Friday 2 November 2012 13.12 EDT

121102-stockton-gatedIn some towns, visitors are warned to keep an eye on their stuff, or to watch out late at night. In the Californian city of Stockton, the anxiety is more precise – and it kicks in early. “Take care downtown after 5pm,” one local person told me. “Don’t hang out too long.”

A few hours later, I saw what she meant. Almost as soon as the offices shut, the city centre empties. Then the sun goes down and a different cast takes to the streets: the homeless, the drug dealers, and clusters of young men patrolling up and down on bicycles.

Stockton ranks among America’s 10 most dangerous cities, and everyone here seems to operate under a self-imposed curfew. The commuter admits she doesn’t dare go to the cinema after 8pm; the father expects his 18-year-old daughter home by 10 – “and she totally gets why.” Others prefer not to go out at all. All give the same reason: the spiralling number of violent crimes.

Last weekend, the city notched up its 60th murder of the year, up from 24 for all of 2008. At just under 300,000 residents, this river port has about the same population as a London borough. Imagine a couple of your neighbours getting killed every week, and you’ll understand why almost all the conversations here touch on a recent homicide.

TL;DR: Sucks, crime, cuts, crash, foreclosure, not the Real Bay Area, affordable big houses, long commutes, upside down, civic decay, life downgrade, bust redevelopment loans, abandoned shops, cheap rentals, farmland. We highly recommend this piece but warn you it has a somewhat high bummer factor.  If you’re the type who gets weepy and emotional reading about mortgage rates going up 0.1 percent, we suggest you read this with either a supportive friend or a drink with plenty of kick.  This is a news feature with a Steinbeck vibe by way of Manchester.

Fortunately, this is also your weekend open thread, so you don’t just have to talk about this essay, or Stockton, or the crap house you toured today that might as well be in Stockton, or the demographics of Weston Ranch versus Brookside. 

You’re all ready for our Fantasy Real Estate League, right? This is going to be great!

Comments (4) -- Posted by: madhaus @ 5:12 am






October 20, 2012

Economists say it costs too much for Bay Area to have an economy

More complaints that living where it’s Special isn’t all rainbows and unicorns:

Bay Area’s business climate is less friendly to startups than other parts of California, says study

By George Avalos, Contra Costa Times
Posted:   10/18/2012 10:43:17 AM PDT, Updated:   10/19/2012 08:10:22 AM PDT

121019-jobstudy-downgraphRelatively expensive housing, coupled with the high cost of living and doing business in the Bay Area, has made the nine-county region less hospitable to new companies than other big urban centers in California, according to a study released Thursday that urges improvements in what it describes as this area’s burdensome regulatory climate.

“You have to ease the regulations that people face when they want to launch a new venture,” said Jon Haveman, chief economist with the Bay Area Council’s Economic Institute, which produced the report. “If somebody is trying to start a small business and spend a small fortune on a new home, they will probably start that business elsewhere.”

The Bay Area lags major rivals such as Los Angeles and San Diego in jobs created by startup companies, the study determined.

The strengths of the region are reflected in household income and other factors, the report stated. The region has increasingly specialized in high-value industries such as professional, scientific and technical services, along with information services and products.

121019-jobstudy-boromirSo what the Institute is complaining about is it’s difficult to start cheap-ass startups where it’s expensive?  That isn’t a bug, that’s a feature.  If it’s expensive to live here, it should be expensive to work here. Besides, if you need money for a lower-capital startup, you should sell one of your vacation homes, or write put options for what’s under all the couch cushions at your furniture factory.

The article waits until graf 7 to admit there’s no problem with the Bay Area job market after all. Actual quote from report: “The Bay Area economy is one of the most productive and prosperous in the country.”  Sounds awful. Then again, engineers are being bought and sold like excess office furniture by a Bain Capital-funded startup, which decided staying in business was too much trouble.  The buyer?  Apple.

We swear we are not making any of this up.  Let us know of your ease or difficulty in starting a business in the Real Bay Area (summary: 90% say it’s Special here even though it’s expensive. So?)  Or read the full 68 page report yourself, and comment on it before falling asleep.  Or discuss anything you wish in this Weekend Open Thread.

 

Comments (2) -- Posted by: madhaus @ 5:09 am

April 7, 2012

Foreclosures, Ho!

Americans brace for next foreclosure wave

120405-foreclosure-waco-belongingsBy Nick Carey, Reuters
GARFIELD HEIGHTS, Ohio | Wed Apr 4, 2012 7:09pm EDT

(Reuters) – Half a decade into the deepest U.S. housing crisis since the 1930s, many Americans are hoping the crisis is finally nearing its end. House sales are picking up across most of the country, the plunge in prices is slowing and attempts by lenders to claim back properties from struggling borrowers dropped by more than a third in 2011, hitting a four-year low.

120405-foreclosure-fullerton-evictBut a painful part two of the slump looks set to unfold: Many more U.S. homeowners face the prospect of losing their homes this year as banks pick up the pace of foreclosures.

"We are right back where we were two years ago. I would put money on 2012 being a bigger year for foreclosures than 2010," said Mark Seifert, executive director of Empowering & Strengthening Ohio’s People (ESOP), a counseling group with 10 offices in Ohio.

"Last year was an anomaly, and not in a good way," he said.

In 2011, the "robo-signing" scandal, in which foreclosure documents were signed without properly reviewing individual cases, prompted banks to hold back on new foreclosures pending a settlement.

120405-foreclosure-ny-busBut nobody in the Real Bay Area got foreclosed on, right?  This is what happens in flyover states.  And flyover cities, like, um, San Jose.

And while nobody would mistake the Bay Area for the troubled city of Stockton (where home values are not expected to hit 2006 values again until the year 2030), the resumption of the Foreclosure Express by many banks will be leading to more short sales and bank-owned properties.

Blame it on the settlement that 49 states made with the major banks.  Now that the process is no longer under so much uncertainty, foreclosures that have been put on hold will resume.  And this time around, the lucky participants won’t be brought in courtesy of high-interest, no-down subprime loans.  Plain old unemployment will be the cause of most of the unpaid mortgages.

Zillow is projecting all kinds of gloom and doom because of this, including a housing market that won’t hit bottom until next year, and stay on the bottom until 2016. 

"The hangover from this crisis will far outlast the party of the boom years," said Zillow chief economist Stan Humphries.

Share your predictions on how this economic tragedy that could evict millions of homeowners will affect the Real Bay Area.  This is an Open Thread.

Comments (9) -- Posted by: madhaus @ 5:10 am

January 29, 2012

Oakland Tribune: SJ, SF are Special, East Bay Ain’t

This article won’t tell you anything you didn’t already know, but it’s interesting to see them admit it.  At least as far as the local economies go, things are much worse in the East Bay than in the SF or SJ Zones of Awesomeness.

South Bay expected to recover lost jobs by 2014; recovery slower in East Bay

By George Avalos, Oakland Tribune
Posted: 01/25/2012 05:48:06 PM PST, Updated: 01/25/2012 09:09:30 PM PST

The current economic boom will be robust enough for the South Bay to recover the jobs it lost during the recession by 2014 — but the East Bay and the San Francisco metro regions might need until at least 2015, the chief economist with the Bay Area Council Economic Institute said Wednesday.

“Every industry in the South Bay is growing except for construction and retail,” said Jon Haveman. “The East Bay is very much hurting, and it may continue to do so for a while.”

Haveman gave his divergent outlooks at a downtown Oakland conference sponsored by Torrey Pines Bank.

One big reason for the differing paces of recovery is that the East Bay tumbled into a much deeper economic abyss, an analysis of state Employment Development Department figures shows.

120126-oakland-fail

The article goes on to say that East Bay job growth during the oughties was fueled by the real estate boom: construction and the mortgage industry.  Alameda and Contra Costa Counties lost 105,000 jobs from peak employment in August, 2007.  Both San Francisco (defined as the City by the Bay plus Marin and San Mateo Counties) and the South Bay (undefined, but including at least Santa Clara County) lost much fewer jobs, which were each in turn a much smaller percentage of jobs lost.

And the conclusion of the article shows that the East Bay will be getting the trickle-down until they reinvent themselves as something other than manufacturing (gone), real estate (gone), or back-office space (still an option).

The best hope for an East Bay economic upswing may be to capture overflow tenants from its neighbors.

“Tech companies are filling spaces in the South Bay and rents are rising,” [director of a realty brokerage Edward] Del Beccaro said. “As office rents rise in San Francisco and Santa Clara County, you will see some companies migrate to the East Bay.”

120127-santana-row-win

Where do you see the job growth in the next few years?  Is President Gingrich going to have us all working on a Moon Colony Program?

 

Comments (3) -- Posted by: madhaus @ 5:13 am

December 18, 2011

Placing Blame for the Housing Bubble Where it Belongs

imageIf you want to test someone’s political orientation, ask what caused the housing bubble and subsequent crash (yes, we know, there is no housing crash in the Real Bay Area).

Conservatives blame the federal government (although I repeat myself).  In this case it’s a confluence of the GSEs, Freddie Mac and Fannie Mae, and both Congress and the Executive for pushing homeownership on people who weren’t ready for the responsibility and couldn’t afford it anyway.  In particular, the guilty parties are Barney Frank and poor people.

imageLiberals blame Wall Street for blowing up the economy by securitizing mortgages and creating more and more leveraged and abstract financial instruments using them.  The products required a steady stream of mortgages, so brokers had every incentive to approve everything.  There was no risk to them because they weren’t keeping the loans.  Also, since Goldman Sachs ultimately shorted the entire market, they’re doubly responsible for talking it up to customers while doing their best to crater it.

A new Federal report points the finger elsewhere.  They blame a different kind of speculator.

Federal report: Home flipping drove housing bubble

Associated Press
Posted: 12/13/2011 06:33:47 AM PST, Updated: 12/13/2011 10:31:40 AM PST

LAS VEGAS — A new federal report shows that speculative real estate investors played a larger role than originally thought in driving the housing bubble that led to record foreclosures and sent economies plummeting in Nevada, California, Arizona, Florida and other states.

Researchers with the Federal Reserve Bank of New York found that investors who used low down payment, subprime credit to purchase multiple residential properties helped inflate home prices and are largely to blame for the recession. The researchers said their findings focused on an "undocumented" dimension of the housing market crisis that had been previously overlooked as officials focused on how to contain the financial crisis, not what caused it.

More than a third of all U.S. home mortgages granted in 2006 went to people who already owned at least one house, according to the report. In Arizona, California, Florida and Nevada, where average home prices more than doubled from 2000 to 2006, investors made up nearly half of all mortgage-backed purchases during the housing bubble. Buyers owning three or more properties represented the fastest-growing segment of homeowners during that time.

"This may have allowed the bubble to inflate further, which caused millions of owner-occupants to pay more if they wanted to buy a home for their family," the researchers noted.

imageThis report won’t satisfy either of the above groups, because it fails to place the blame where it belongs: on either Big Government, Big Business, or Big Poverty.  How could a bunch of onesie twosie speculators drive up home prices as much as they did?  That’s like blaming high coffee prices on just Seattle residents.

Please identify and complain about your favorite party to blame for the rest of the country’s housing market imploding while our home prices remain insanely delightfully high robust.

This is an Open Thread. 

Comments (31) -- Posted by: madhaus @ 5:07 am

October 16, 2011

We Are the 99th Percentile

imageimageOccupy Wall Street is finishing up its fourth week in Zucotti Park (if they weren’t evicted yesterday), near Wall Street in Manhattan.  The massive protest against Wall Street excess has spun off Occupy movements across the United States, including our very own Occupy San Jose movement on the steps of City Hall. 

And that  in turn spread to, I kid you not, Occupy Palo Alto.  The very definition of the one percent has supporters of the other 99, or at least the 99 found the right location, location, location for the one.

Occupy Wall Street comes to Palo Alto

imageBy Jason Green, Daily News Staff Writer
Posted: 10/13/2011 06:09:44 AM PDT, Updated: 10/13/2011 06:09:51 AM PDT

Photos by Kirstina Sangsahachart/ Daily News

Some 150 people gathered Wednesday evening in front of a Palo Alto bank to lend their support to the growing Occupy Wall Street movement that has zeroed in on corporate greed and rampant unemployment.

Organized by the Peninsula Peace and Justice Center, the rally in front of the Bank of America on El Camino Real was one of several that took place across the Bay Area on Wednesday.

image"This is an upwelling of frustration, a deep-seated desire for substantive change and a keen awareness of just how unfair and unequal our country has become," said the center’s director, Paul George, as protesters sang and waved signs at passing cars. "I expect to see these kinds of demonstrations happening weekly, daily."

As with the demonstrations in San Francisco and San Jose, the Palo Alto rally was held in front of a bank that received a federal bailout but foreclosed on jobless homeowners. "They got $45 billion in bailout money," George said, motioning to the Bank of America behind him, "and they continue to evict people from their homes."

imageOne reason the movement has caught on has been the 99 percent message.  Signs from the Occupy groups tell their stories, and the Tumblr blog We Are the 99 Percent allows anyone to send in a photo with their tale of financial fallout.  (Click the image at left for a larger view.) And there are so many of these stories.  The enormity of misery and how so many people ended up near-destitute in these tales is what sustains both the demonstrations and those who add in their stories to the blog.

Even in the Real Bay Area, where It’s Special Here, people are living paycheck to paycheck.  We’ve discussed some of these ideas on Burbed before, such as the banks’ imagefailure to foreclose on expensive homes, the huge amount of shadow inventory keeping home prices high, and the requirement for two incomes in order to buy even adequate housing.  Now rents are shooting up in both San Francisco and Silicon Valley.

For the most part, people who follow a real estate blog do so because they plan to buy or sell property at some point.  They are most likely in a better financial position than the typical resident.  So given that most of us are doing better than average (We Are the Top 50%), and that with incomes and home prices near the top of the entire country (We are the 1%), how are you feeling about your own financial prospects? 

imageWhat do you think about them now that a number of economists are admitting that yes indeed, we are in a full-blown Depression?  The drop in homeownership rates suggests a Depression as well.  Do you feel you’re the “rich” “they” want to tax, or do you consider yourself “middle class”?  Does “middle class” even make sense in an economy as atypical as ours, where a sixty year old tract house on 6000 square feet can sell for over $800,000?  Or a two-income family taking home more than $200K a year has little disposable income after paying for living expenses?  Or as someone recently asked on patrick.net, if you lost your job today, in how many months would you be homeless?

Comments (80) -- Posted by: madhaus @ 5:18 am

September 18, 2011

What’s the Difference between the Bay Area and Procter & Gamble?

Simple.  The income divide between haves and have-nots have been obvious for years in the Bay Area.  Haves live in Atherton, Have-nots live in West Atherton.  But Procter & Gamble, makers of some of America’s most known household products, are just beginning to notice.

As Middle Class Shrinks, P&G Aims High and Low

By ELLEN BYRON, The Wall Street Journal, September 12, 2011

For generations, Procter & Gamble Co.’s growth strategy was focused on developing household staples for the vast American middle class.

A shrinking middle class has forced Procter and Gamble to adjust the way it markets its household products — to higher and lower income levels than the traditional middle-class levels, WSJ’s Ellen Byron reports on the AM Hub. AP Photo/Steve Helber

Now, P&G executives say many of its former middle-market shoppers are trading down to lower-priced goods—widening the pools of have and have-not consumers at the expense of the middle.

That’s forced P&G, which estimates it has at least one product in 98% of American households, to fundamentally change the way it develops and sells its goods. For the first time in 38 years, for example, the company launched a new dish soap in the U.S. at a bargain price.

P&G’s roll out of Gain dish soap says a lot about the health of the American middle class: The world’s largest maker of consumer products is now betting that the squeeze on middle America will be long lasting.

"It’s required us to think differently about our product portfolio and how to please the high-end and lower-end markets," says Melanie Healey, group president of P&G’s North America business. "That’s frankly where a lot of the growth is happening."

In the wake of the worst recession in 50 years, there’s little doubt that the American middle class—the 40% of households with annual incomes between $50,000 and $140,000 a year—is in distress. Even before the recession, incomes of American middle-class families weren’t keeping up with inflation, especially with the rising costs of what are considered the essential ingredients of middle-class life—college education, health care and housing. In 2009, the income of the median family, the one smack in the middle of the middle, was lower, adjusted for inflation, than in 1998, the Census Bureau says.

imageProctor & Gamble sells to 98 percent of the households in the United States.  If you use Tide Detergent, or their budget brand Gain, you’re a P&G customer.  P&G owns Gillette razors.  They have both Pampers and Luvs disposable diapers.  The first is the premium brand, the other, the bargain.  Now they’re going all in on Consumer Hourglass Theory because the numbers show the middle class just doesn’t have much around the middle anymore.

Consumer Hourglass Theory, a term invented by Citibank, says since the middle is getting pinched, market to the high-income spenders and the budget-brand penny pinchers.  This imageapproach says luxury brands will be profitable, as will low-end brands, but stores that aim to the middle will find more difficulty. 

Look what’s happening right here in our real estate market.  Old Palo Alto?  Pending, pending, pending, gone!  East San Jose?  Bargains are snapped up too.  But that in-between $600-900K tier?  Not so good.  Federal loan guarantees being reduced doesn’t help, either.

This is an Open Thread.  Which tier of houses are you looking at this weekend?


Comments (33) -- Posted by: madhaus @ 5:08 am

August 21, 2011

Rates that couldn’t possibly get any lower once more get lower

Mortgage rates hit lowest level since Eisenhower’s administration

Lani Rosales | August 19, 2011 

Low, low, low

According to the National Association of Realtors, the 3.5% decline in existing home sales is due in large part to contract cancellations from declined mortgage applications or because of appraised values coming in below the negotiated price, halting the contract.

The bright spot, however, in housing is that despite cancellations and difficult lending, mortgage rates have hit their lowest level in over 50 years.

Freddie Mac’s primary mortgage market survey this week shows 30-year fixed rate mortgages averaging 4.15%, 15-year fixed rate mortgages average 3.36%, 5/1-year adjustable rate mortgages average 3.08% and one-year adjustable rate mortgages average 2.86%.

image

The economy isn’t just circling the drain, it’s stuck in the strainer.  But don’t fret.  It’s the perfect time to sign a 30 year contract to borrow 3 or 4 times your annual salary just so you can paint your walls any color you want (not available in some HOAs).

Home sales numbers are dropping because of cancellations.  Homes are appraising lower than expected and loans are much more difficult to qualify for.  That means it’s a perfect time to buy!  You can get more house for less money, and you’ll have fewer people to compete against because everyone’s credit is shot.

Except yours.  Your credit is Special.

This is an open thread.  Let us know about the Special Houses you visited today.

Comments (11) -- Posted by: madhaus @ 5:09 am

March 6, 2011

Former Sun CEO Scott McNealy Worries About Region’s Prospects

Former Sun CEO Worries About Region’s Prospects

WSJ: When did you see Silicon Valley begin to recover from the recession, and how far along has it come?

Mr. McNealy: It’s not a terribly job-filled recovery. Productivity gains continue to push the need to hire out. A lot of the jobs today are around two areas: government-sponsored green initiatives and the social-networking space.

I’m skeptical that the green jobs are [going to drive the recovery]. So far, the track record’s been terrible. That’s going to be a challenge for the people here who stuck their neck out to go green.

Then there’s social networking, which is a pretty interesting phenomenon. There’s a lot of energy there, but that’s not a terribly labor-intensive kind of activity. I don’t think social networking is the jobs driver.

I see a migration from the early days of the Valley. We aren’t doing manufacturing; we aren’t doing design; we aren’t doing computers. It’s all moving to Asia and other places where there are lots of technical engineers who are willing to work at a more reasonable salary because they don’t have to spend $3.5 million on a home and pay half of it to taxes.

….

WSJ: What needs to change in Silicon Valley to foster job creation?

Mr. McNealy: It’s not the Valley. It’s the overhead and the overhang, the clouds brought in by Sacramento and Washington, D.C., the regulations, the deficit and the misallocation of resources. It’s all of those things. Obviously, I’m a believer in the private sector and in personal responsibility.

The biggest issues with the Valley are local, state and federal governmental overreach and overregulation. It’s over-pensioned, over-unionized and over the top.

Yeah! Damn all those over-pensioned and over-unionized workers in the Valley. If it weren’t for all those pensions and unions… we’d… uh…. have…. uh…. more tech jobs! (Quick, can someone fill in the logic?)

But hey… Scott feels your pain:

WSJ: Are there any unconventional indicators that you watch to judge the health of the local economy?

Mr. McNealy: It’s not very scientific, but my boys all play a pretty expensive, but middle-class sport: ice hockey. I see very clearly that there are a lot more financial strains on the families of the hockey teams here in the Bay Area. Families vote not to go to the tournament in Colorado Springs or their kids vote not to do the highest level of hockey because it’s too expensive. Or they drop out of hockey altogether. It’s significantly worse than it was a couple years ago.

Hm… the only families that I know who has kids playing ice hockey are now Scott McNealy and Guy Kawasaki. Goes to show that if you’re not worth millions, you’re not middle class here in the Valley!

Comments (35) -- Posted by: burbed @ 5:52 am

December 19, 2010

The Other Valley

Here’s an article sent in by a Burbed reader who doesn’t necessarily agree with the author’s conclusions or the site it’s on, but thought the piece interesting and thought-provoking.  Given that the Central Valley is a fairly easy drive from the Real Bay Area, what is it that makes it so different from here?

Two Californias

VICTOR DAVIS HANSON, National Review
DECEMBER 15, 2010

Abandoned farms, Third World living conditions, pervasive public assistance — welcome to the once-thriving Central Valley.

The last three weeks I have traveled about, taking the pulse of the more forgotten areas of central California. I wanted to witness, even if superficially, what is happening to a state that has the highest sales and income taxes, the most lavish entitlements, the near-worst public schools (based on federal test scores), and the largest number of illegal aliens in the nation, along with an overregulated private sector, a stagnant and shrinking manufacturing base, and an elite environmental ethos that restricts commerce and productivity without curbing consumption.

During this unscientific experiment, three times a week I rode a bike on a 20-mile trip over various rural roads in southwestern Fresno County. I also drove my car over to the coast to work, on various routes through towns like San Joaquin, Mendota, and Firebaugh. And near my home I have been driving, shopping, and touring by intent the rather segregated and impoverished areas of Caruthers, Fowler, Laton, Orange Cove, Parlier, and Selma. My own farmhouse is now in an area of abject poverty and almost no ethnic diversity; the closest elementary school (my alma mater, two miles away) is 94 percent Hispanic and 1 percent white, and well below federal testing norms in math and English.

Here are some general observations about what I saw (other than that the rural roads of California are fast turning into rubble, poorly maintained and reverting to what I remember seeing long ago in the rural South). First, remember that these areas are the ground zero, so to speak, of 20 years of illegal immigration. There has been a general depression in farming — to such an extent that the 20- to-100-acre tree and vine farmer, the erstwhile backbone of the old rural California, for all practical purposes has ceased to exist.

mendotadowntown Who here visits small towns in the Central Valley regularly?  Are things as bleak as Hansen describes them, “rural trailer-house compounds…no different from what I have seen in the Third World”? (Photo, at left, shows unemployed men in downtown Mendota.)

Has the Central Valley become a bifurcated version of “white flight,” either to the more affluent coastal areas or out of the state entirely?  And how hard was it to guess that a conservative magazine/website would observe high unemployment, loss of small-family farms to corporate agribusiness, and shuttered farm machinery plants that have moved to lower-wage countries… and conclude this is all somehow due to illegal immigrants?

One thesis of Hansen’s to chew on:

It is almost as if the more California regulates, the more it does not regulate. Its public employees prefer to go after misdemeanors in the upscale areas to justify our expensive oversight industry, while ignoring the felonies in the downtrodden areas, which are becoming feral and beyond the ability of any inspector to do anything but feel irrelevant. But in the regulators’ defense, where would one get the money to redo an ad hoc trailer park with a spider web of illegal bare wires?

Think about that the next time you deal with getting a permit for something.

Comments (76) -- Posted by: madhaus @ 5:13 am