Lest Elk Grove Forgets, Tough Times Continue in Housing Market

Foreclosures chug along, more strategic defaults – What about the city’s budget?

Last year at this time, Elk Grove city officials had widely discussed the coming budget challenges for the current fiscal year. Much of the discussion was centered on falling sales tax revenues and the housing foreclosure crisis.

With exactly six week before the start of fiscal year 2011, there has barely been a peep out of city officials regarding the state of next year’s budget. What is the forecast for next year’s budget?

Perhaps public discussion of the budget will begin during the Wednesday, May 26 city council meeting.

In the mean time, perhaps a quick review of our current economic review can help us gauge what we can expect for the coming year.

With regards to retail sales, which are Elk Grove’s mother’s milk, there are indications that they are improving compared to the doldrums of last year. For example Target stores reported today a 29% profit increase from the same quarter last year.

With one store in Elk Grove and another on the way, this is a positive sign for the city coffers. Of course many analysts believe Target’s increase came at the expense of rival Wal-Mart, who saw its same store sales fall 1.4% for the same quarter last year.

On the employment front, the outlook in California has not substantially improved since this time last year. Currently that rate is 12.6%, which does not include a large number of people who would work but have officially given up a job search.

Speaking of budgets dates, the state’s annual budget process is underway and who know when and how this will end. With a high portion of Elk Grove’s population government employees, there is a good chance of continued furloughs and perhaps layoffs.

With foreclosure delinquency continuing unabated, another aspect of foreclosures has emerged – strategic defaults. Researchers from the University of Chicago and Northwestern University show that people who can otherwise pay for their mortgage are walking away.

The total number of has increased from 227,922 in the first quarter of 2009 to 288,992 in the first quarter of 2010. Many people apparently the value of their home will never rise to the original purchase price and therefore are making a strategic decision to cut their losses.

Of course with more foreclosures on the market, housing prices will remain soft.

So as Elk Grove city officials prepare and ultimately unveil their 2011 budget, don’t expect a return to normalcy for some time.