So what exactly does it look like when property values fall dramatically? Well, in this story from a recent auction in Vacaville, California, its a tale of a a meal gone ice cold.
From a story in The Reporter by Kimberly K. Fu entitled: Proof that it’s a Bidders Market
"They came, they saw, they bid.
And when the proverbial smoke cleared following Sunday’s housing auction, 18 new homeowners emerged victorious while their existing neighbors in a luxurious Vacaville development were somewhat less enthused.
"We welcome them to our neighborhood. We’re just upset that it’s affecting our property values," said Kris McLean, one of the original homeowners in the upscale Meadow Woods subdivision off Fruitvale Road."
"Case in point – McLean and her husband paid top dollar for their $786,000 property in April.
"We would’ve waited, but they told us we had to … buy now," she recalled, addling that there was no allowance for haggling over costs.
At auction on Sunday, a five-bedroom dwelling initially priced at $809,900 sold for $605,000 and a similar residence previously priced at $826,900 went for $606,000."
Wow talk about a haircut. That left everyone that "got in" on the development early underwater by upwards of 26%. Ouch.
Up the road a bit in Bend, Oregon the scene was no different. And that’s not exactly surprising since Bend in many ways came to exemplify what became a massive national bubble.
From an article in the Bend Bulletin by David Fisher entitled: How Builders Plan to Face the Housing Slide.
"Frustrated by a season of sluggish sales, Brooks Resources Corp. put the last three unsold townhomes in its prime RiverWild subdivision at Mt. Bachelor Village up for auction Nov. 2. It was a bit of a bust. Only one of the three sold, and at the minimum bid – more than $200,000 below list price. The other two attracted not a single offer."
That, for Central Oregon’s largest land developer, was a sign of the times.
Now, with an overhang of unsold inventory glutting the housing market – the aftermath of a three-year boom run amok – Brooks, along with some of the region’s other large builders and developers, is trying to adjust to a slump that Brooks CEO Mike Hollern believes may last another two years."
"I wouldn’t be about to predict that we’re at a bottom," Hollern said. "I know that’s not what the real estate community likes to hear. But the problem is, you don’t know when the top occurred until after it’s there, and you don’t know the bottom has occurred until after you’ve been through it."
Unfortunately, the problem with values is one that’s really only just begun. And don’t think for one minute that its going to be "contained" to the West Coast either.
But don’t take my word for it. Ask Goldman Sachs.
Sure they rattled the markets yesterday with their huge downgrade of CitiGroup, but they also had this to say about the housing market on the same call (hat tip to Calculated risk):
"House prices have 13% to 14% to fall from current levels."
"Eight states … for which there is greater than 30% house price depreciation forecast would be California, Florida, Arizona, Nevada, Virginia, New Jersey, Maryland, and Washington D.C. … 13% to 14% nationally masks some states that we have accute concerns about."
Now that’s a meal that’s going to be pretty hard to swallow.