Analyst sees 'ghost town' in Inland Empire

A financial analyst fresh from a tour of construction sites in the Inland Empire is warning Wall Street of a "ghost town" where finished homes sit vacant and additional homes are still under construction. 

"At several properties, there were a significant number of fully built homes sitting vacant along with a large number of additional homes still under construction," Sandler O'Neill & Partners analyst Aaron Deer wrote today after touring developments in Corona and Ontario. "At one master plan community, the entire development appeared to be vacant -- with the exception of crews working on new construction, it was a ghost town."

Median home prices in both communities have dropped sharply over the last year, declining 33.6% in Corona and 30.3% in Ontario, according to DataQuick Information Systems. In Corona, the median sales price fell nearly $200,000 from May 2007 to May 2008, dropping from $565,000 to $375,000.

More from Deer's note: "The homes all appeared to be empty, and there were no prospective buyers anywhere to be found. Surprisingly, the sales office was open ... but the woman working there had questionable English fluency. When asked how many homes had been sold in the past month she simply responded, 'Uh huh. Thank you. Yes!' and handed us some additional literature on the property."

More: "Perhaps the most interesting aspect to the development was what it revealed about the nature of the housing boom: that at the peak even the most undesirable and remote locations were worthy of expensive, high-end homes."

Overall, Deer's note on the California economy -- and the relative health of California-based banks and thrifts -- strikes a balanced chord, reporting that, while the "outlook remains gloomy," "the pace of new problems has slowed somewhat."

Other highlights:

• "Not surprisingly, the banks said they are seeing continued deterioration in their single-family residential construction portfolios."
• "In areas where developable land is scarce, namely San Francisco and west Los Angeles, markets are still holding up. Several banks noted very little, if any, deterioration in credit quality in these markets. Specifically, residential construction projects in San Francisco ... and western Los Angeles (mostly teardown/rebuild projects) are seeing stable prices despite slower activity."

Your thoughts? Comments? E-mail story tips to peter.viles@latimes.com
Photo credit: Sandler O'Neill & Partners

Comments

[tealeaf]

I would be extremely interested to know the following:

1) How much of the activity that drove IE was speculative? The accepted national average at peak was 25%. I'd bet it was over 40% in the IE.

2) Somewhat to SFVRE's point on housing costs, what is the mix of where these folks going? Mom & Dad's? Mexico? Kansas? OC/LA? Tent city?

I wonder if John Husing is tracking this stuff and is changing his tune. Perhaps Uncle Billy can leverage a new alias.

[yours truly, Johnny Dollar]

This isn't newsworthy.
There are ghost towns all over the California Gold country
(apologies to Huell Howser); the '49ers have long gone.
And now that the get rich quick crowd have come
(and gone) from the "Inland Empire" (what "empire?")
It's a game of musical chairs.
Are you the last man "standing?"

[Lars]

High prices bring low sales, especially now. California has been the highest priced place to live for more then 20 years, yet you people act like you cannot get a grip on why the homes are vacant. No sweat, why don't you get all those Liberal cry babies together and buy the houses for Illegal Aliens, then you can feel as if you have done something. Gosh I feel sorry for you poor folks.

[Janice Gammill]

This sentence said it all....the office worker who was NOT ENGLISH FLUENT. Last citizen out of California, shut the lights.

[pugtv]

ShockG,

Instead of making bitter comments about Laker, you can better promote your agenda by buying up one of these places at a high price.

Think about it, you reduce inventory and improve median / average price. =)

[RJP3]

As someone who grew up in California in the 1970's and lived there in the 1990's - the Inland "Empire" I laughed my butt off at the obviously desperate "wanna-be" middle class people buying homes out in the middle of no-where - with insane commutes.

Now with gas going up to $6 a gallon by the end of the year - those discount "suburban" homes will be worth their actual value considering where they are. Very little.

You do not build home that far away from jobs. Pure madness. Now everyone has to deal with reality.

[Dave Martin]

Wow, now there's a story that needs reporting...

The LA TImes headline on April 10, 2008 says, "Inland Empire's Growth to Continue."

So I guess that in 3 months the area that would rank 32nd largest in total U.S. income has just vanished.

This is not news. Is it any wonder why circulation continues to decrease at the LA Times.

Sheesh.

[Hi]

Uh-huh, thank-you, YES!

[Bob Smythe]

Image, not just crack houses but crack suburbs. Whole tracks of houses where gangs and crime can thrive. Even worse, imagine terror cells taking over whole housing tracks. Scary.

[Marc S.]

These vacant homes will turn into once-in-a-lifetime buys for middle income families . You can't point to a single place in the U.S. where vacant new homes in the midst of a financial crisis did not eventually get sold to very grateful buyers or investors who appreciated the opportunity to buy distressed properties. Five years from now the buyers who sat on the sidelines are going to want to kick themselves for not jumping at the opportunity to buy NEW homes at below replacement cost.

[Ignatz Horowitz]

Oh, well...ghost towns never hurt anyone.

[JPG]

This listing from ZIP:

"12208 BRADDOCK DRIVE, Culver City, CA 90230

4/2 2,265 sq. ft, 4,880 Sq. Ft. lot
List Date: 08/14/07 On Market: 323 days

Reduced !!! Appraised at 1,120,000... Spectacular new construction in mar vista... Craftsman inspired home with all the modern conveniences. Chef's kitchen boasts granite counters, extra deep sink,walk in pantry, and high end stainless steel appliances, including ice maker, and separate full width refrigerator and freezer. Throughout the downstairs, you will enjoy the classic appeal of oak hardwood flooring, cherry cabinets and entertainment center 10 foot ceilings and crown molding. Full pane glass doors lead to a spacious back porch, inviting guests to linger.Master suite upstairs with balcony and jaccuzzi, and bedrooms with jack&jill bath are perfect for a family with office/guest room and 3/4 bath downstairs. Laundry area is conveniently upstairs with front loading machines. Cable/network pre-wired. Two car detached garage with bonus shop area."

Price Reduced: 11/09/07 -- $1,299,000 to $1,235,000
Price Reduced: 12/05/07 -- $1,235,000 to $1,150,000
Price Reduced: 01/22/08 -- $1,150,000 to $1,120,000
Price Reduced: 03/17/08 -- $1,120,000 to $1,050,000
Price Reduced: 04/17/08 -- $1,050,000 to $984,900
Price Reduced: 06/05/08 -- $984,900 to $960,000
Price Reduced: 06/30/08 -- $960,000 to $889,000

Yes, I see, prices for new construction in West Los Angeles are holding up quite well... Perhaps this is the Compton-adjacent section of Mar Vista?

[MarkW]

This is the housing equivalent of Detroit cranking out huge SUV's that people no longer want.

Maybe the developers are legally bound to finish these developments by their respective cities. Otherwise, why are they still building?

[Lance Manco]

The place was the armpit of California 20 years ago when I left. The crime and the airpolution was unbearable. Where else could a law abiding citizen get shot at three times and have a gun pulled on them twice? I remember a few times times that a helicopter flew over with a loud speaker telling people to stay inside because the air was so bad.

[CD]

Deer's notes on California economy are complete BS. Did you see the stock market, did you see Paulson today?
Do we live on another planet in California, or do we share the same government and global economy. Deer means everything will be OK on the west side forever and ever....???Well as long as the West side is holding up, America is saved !!!! Where does he get his infos??? Who is he kidding? Are they High on something ?
Realtard mentality as usual.....

[Darrell]

I bet if I called my good buddy Chris Dodd (D) Connecticut, I could get a sweetheart deal from Countrywide Mortgage!!!

[Edditor]

Does this mean there will be enough water to go around now? The Inland developers violated almost every pact and the cities let them................we would have all eventually died of thirst. Zero lot lines. 5 bedrooms in 2000 sq ft homes...it was a disaster from the very, very beginning. All we have are the slums of the future in the Inland "Empire".

[AnEconomist]

Just wait till the water dries up....lol

[Ric]

Wow! Analysts and Speculators! Don't you just love 'em!!?? Either or these is what you become when you can't get a REAL job!!!

[Tim]

Greedy developers and quick-profit mortgage companies spent the last decade selling homes to those who had no business buying them. Now the economy is correcting itself and those who just had to build all those homes are seeing the results of this natural correction. This is no "housing crisis" like the media and Real Estate professions would like us to believe. This is simply a natural correction resulting when people who can't afford houses in the first place can no longer buy them, and the rest of us realizing that 2-hour commutes are insane.

Short term profits aren't everything. Foregoing short-term profits for long-term stability could have prevented all of this.

Tim

[Mael]

I don't know why people are amazed that housing prices fluctuate. When the real value of houses are so inflated that people end up purchasing what is essentially a crap house for outrageous prices then it is clear that something is wrong especially in California. People who value their income and personal sovereignty are leaving and rightly so. I'd love to live in Southern California but 100-150k in CA doesn't go as far as it does in the South. I hope that Californians get the message and clean house in Sacramento where the politicians seem to care more about the well being of self professed proud freaks than they do common men and women who just want to live unmolested by their government. Leave it to government to screw up paradise.

[Uncle Billy Lacks References]

Who are these people? What note are you referring to?

Here's a little humor for the day: Laura Richardson was chair of the budget committee on the Long Beach city council. Check out the photo from 2006 where she and pals are shredding an old bloated budget.

...and then read on... about how all sorts of contracts were approved with labor unions (her power base) despite not having the money for them. It will be interesting to follow this story to see if she was really a hero of the LB budget, or if she helped send them into b/k.

[mike]

What is an Inland Empire?

[clemycali]

Nothing new. The same kind of ghost towns are all over Central Valley too.

[Grant]

The fact that the photographer couldn't be bothered to roll his window down as he passed through kind of goes with the whole tone of the piece, doesn't it?