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Originally Posted by brandon12
I don't know for sure, but I'm fairly certain the deposits were 15% (50% more than the 10% deposited by the Towers' buyers) That seems to me a pretty solid down payment on a preconstruction contract, equalling about $100K for most units. As far as I'm concerned, the quality/magnitude of the deposits are of no concern to the eventual likelyhood of this project getting off the ground.
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A few points:
As of this month, Sacramento market’s homes for sale inventory is over 15,000. I believe this is a record number.
In the first quarter of 2004, more than one in four houses sold in Sacramento County were to investors and second-home buyers. But at last count this summer it was closer to one in six,
“The wave of investors and Bay Area arrivals who helped drive the (Sacramento) region's real estate market to what many believe were unreasonable heights has primed it now for an aftermath that no one can yet measure. Adding to the uncertainty is the continuing inability of many locals to afford even today's weakened prices as the market slowdown enters its second year…. "Now the market is going back to core activity where local demand is self-generated."
Source: DataQuick.
California foreclosures are increasing at an even faster annual rate, up 160 percent since last year to 12,506.
Source: CNN
Foreclosures in California increased 25 percent from July to August.
Source: RealtyTrac.
Ivy Zelman, a housing analyst at Credit Suisse Group in Cleveland, estimates that prices of newly built homes in San Diego, Sacramento, Calif., Phoenix, northern Virginia and southwest Florida already are down as much as 10% to 15% from a year ago… "We believe that the housing market is still in the early innings of a hard landing that will likely take several years to develop,"
Source: Wall Street Journal
The Sacramento Real Estate Blog reports that sales of existing homes in Sacramento County fell 52.5% in August.
Here’s a little something from Business Week (please note local angle):
For cash-strapped homeowners, it was a pitch they couldn't refuse: Refinance your mortgage at a bargain rate and cut your payments in half. New home buyers, stretching to afford something in a super-heated market, didn't even need to produce documentation, much less a downpayment. Those who took the bait are in for a nasty surprise. While many Americans have started to worry about falling home prices, borrowers who jumped into so-called option ARM loans have another, more urgent problem: payments that are about to skyrocket...
After prolonging the boom, these exotic mortgages could worsen the bust. They also betray such a lack of due diligence on the part of lenders and borrowers that it raises questions of what other problems may be lurking. And most of the pain will be borne by ordinary people, not the lenders, brokers, or financiers who created the problem.
Gordon Burger is among the first wave of option ARM casualties. The 42-year-old police officer from a suburb of Sacramento, Calif., is stuck in a new mortgage that's making him poorer by the month. Burger, a solid earner with clean credit, has bought and sold several houses in the past. In February he got a flyer from a broker advertising an interest rate of 2.2%. It was an unbeatable opportunity, he thought. If he refinanced the mortgage on his $500,000 home into an option ARM, he could save $14,000 in interest payments over three years. Burger quickly pulled the trigger, switching out of his 5.1% fixed-rate loan. "The payment schedule looked like what we talked about, so I just started signing away," says Burger. He didn't read the fine print.
After two months Burger noticed that the minimum payment of $1,697 was actually adding $1,000 to his balance every month. "I'm not making any ground on this house; it's a loss every month," he says. He says he was told by his lender, Minneapolis-based Homecoming Financial, a unit of Residential Capital, the nation's fifth-largest mortgage shop, that he'd have to pay more than $10,000 in prepayment penalties to refinance out of the loan. If he's unhappy, he should take it up with his broker, the bank said. "They know they're selling crap, and they're doing it in a way that's very deceiving," he says. "Unfortunately, I got sucked into it." In a written statement, Residential said it couldn't comment on Burger's loan but that "each mortgage is designed to meet the specific financial needs of a consumer."
He’s a guy I’d call newly unqualified, but the key point is how creative financing prolonged the boom.
In my own experience, I am aware of projects suffering cancellation rates of 40% or more because those who qualified in May or earlier now no longer do. This type of problem becomes even more acute if there are significant delays in construction and thus, closings. Or, buyers who thought they’d be able to pull $200k equity from current property and swing $600k mortgages find the deal no longer pencils.
The point is that in today’s market and particularly in Sacramento, quality of buyer most certainly does matter. It may, in fact, be the single most important factor in determining the viability of a project. I suspect Aura has very quaified buyers and thus should continue. But unless someone here works for Nassi, none of us knows for sure.
What is for sure is that there seems to be an unexplained delay in this project. That’s why it’s the crucial question to ask.
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