Enough About You, Let’s Talk About Me

Here’s an account that may sound painfully familiar to you (from www.dowtheoryletters.com):

“In January 2006 I had an offer from a buyer using a sub-prime loan on a Vallejo, CA
condo for $285,000. I negotiated with him since I knew a condo about 60 feet from
me had sold for $365,000. The deal fell through and I decided to improve the
premises to get an even higher price. In February 2007 I placed the property on the
market and had four offers in days – at $240,000 – not one of them closed as not one
of the buyers could get “100% no-doc loans”. I sold the unit this week for $129,500
with credits of $4,000. Net price – $125,000!

“Building costs in Vallejo are $225 per square foot (sf). To this you must add land costs -
$100,000 to $120,000 per lot of about 6,000 sf or say $20 per sf. Total costs $245 per sf.
Carrying costs while the building is being constructed may be another $20+ making a
final total of $265 per sf.

“On any day you can buy a property in Vallejo in foreclosure for $125 per sf, and
$150 per sf would be a high price – and that includes the land and building.
What surprises me is why there is ANY building of residential buildings when you
can buy at $150 versus build at $265 – and the delta is getting bigger, not smaller.

“A typical day in the foreclosure arena involves 30 sales with almost all the
properties being taken by the banks. 30/day is 150 per week, or 600 per month
- or each month twice or three times the number of homes actually sold – 239 -
and the sales pace is slowing.

To state the obvious, this is an Armageddon, with supplies soaring, demand
falling and yes, prices collapsing. Yet the available statistics say prices are down
only 12% in Solano Co. — nonsense!

The banks hold the foreclosed homes and drop prices only slowly. Yet in the
last few weeks more and more of them are dropping bids at the auctions.
An example today: $235,000 owed, opening bid $112,000 – and this was one
of seventeen dropped bids. No one bid!

t is my understanding that banks are limited by law in what they can retain,
so how long will it be before they crack and slash prices of what they
already own?

Far from the situation being at a bottom, the database I keep of these
auctions is accelerating in speed of size increase. Where a year ago the
30-day moving average of new auction sales for all seven Bay Area Counties
was 30/day, reaching 60/day a few months ago, it is now 100/day.
I see an increasing flood of properties increasingly being dropped in price.”