The Housing Bubble

A report from the Marin Independent Journal in California. “When Sean Cook put his family’s San Jose home up for sale for more than $3 million this summer, he assumed it would fly off the shelf in a week or two. A similar house in his neighborhood took just three days to sell for $3.3 million in the spring. But two months after Cook’s four-bedroom home in the desirable Willow Glen neighborhood hit the market, he still hasn’t received a single offer — even after he shaved $200,000 off the price last month. ‘Given the way the market has been,’ he says, ‘you feel a wee bit disappointed.’”

“After a record-setting run-up, the Bay Area’s red-hot housing market appears to be cooling. ‘For sale’ signs are lingering longer in homeowners’ front yards, and alerts of price reductions — sometimes for hundreds of thousands of dollars — are cropping up on Zillow. And an array of market data — including sale prices, inventory numbers and tallies of discounted listings — supports the notion that the market has shifted in some counties.”

“Wannabe buyers, discouraged after getting outbid again and again, are pulling back, said Sean Manning, a San Jose-based real estate agent with Sereno Group. An increase in inventory also is allowing buyers to be more selective. More homeowners — unaware that the market has cooled slightly, and excited by the high offers their neighbors scored in previous months — are deciding to list their own properties, Manning said.”

“In Oakland, for example, the number of single-family homes for sale last month jumped 18 percent over the year before, according to MLS data from the Bay East Association of Realtors. Meanwhile, the number of homes sold decreased 11 percent.”

“In Santa Clara County last month, 25 percent of homes sold for less than their asking price, up from 19 percent in August 2017, according to MLSListings. Meanwhile, 68 percent of Santa Clara County homes sold above their asking price last month, down from 75 percent in August 2017. In Alameda County, 27 percent of homes sold for less than their asking price last month, up from 21 percent in August 2017, according to the Contra Costa Association of Realtors.”

“And more sellers — disappointed with a lack of interest in their properties — are offering discounts in an attempt to attract buyers. A recent Zillow report found that sellers in 9.5 percent of San Jose area listings slashed their prices in June, up from 7.2 percent a year ago. Rates of price cuts remained steady in the Oakland and San Francisco areas.”

“The housing market is still extremely strong — it’s just not quite as strong as it once was, Manning said. He sold a house in San Jose this month for $1.36 million, after receiving three offers. Four months ago he sold the house next door — which was the same size — for $1.5 million, with eight offers.”

“Real estate agent Joel Garcia, who recently slashed the price of a house in Oakland — twice — said those price cuts are the first he’s made since 2009. The seller tried to drum up interest by offering to cover the buyer’s closing costs — paying for the realtor and other transaction fees — but to no avail, Garcia said. ‘It’s been sitting on the market for two months now,’ Garcia said of the five-bedroom home, now priced at just under $1 million. ‘Normally it only takes a week, two weeks, and it’s gone.’”

“Diane Whitney, 55, put her San Jose condo up for sale in early July, hoping to cash out at the peak of the market and use her windfall to buy a cheaper home outright in Oregon or Washington. Two months later, after dropping the price $45,000, Whitney worries she missed the peak. ‘I wasn’t prepared for it, I’ll be honest,’ Whitney said, of the disappointing reception her home has received. ‘I’m revisiting why I’m moving, and what my feeling is.’”

“Whitney listed her two-bedroom condo for $735,000, and after seeing no offers, reduced the price to $690,000 at the end of August. But even with the discount, Whitney, who paid $115,000 for the home in a foreclosure sale 22 years ago, will walk away with a hefty profit.”

“Four months ago, Whitney’s condo would have sold in days with multiple offers, said Mike Gaines, her real estate agent. Cook, the owner of the San Jose that’s been on the market for two months, is in a similar position — he and his wife paid $1.9 million in 2012 for the house now listed at $2.995 million.”

A weekend topic starting with the News Tribune. “We don’t use the word ‘panic’ these days to describe widespread economic calamity. We use ‘great’ — as in Great Depression, Great Recession — or ‘crisis.’ Panic has been relegated to history books that hardly anyone pays attention to. That the term is considered anachronistic is partly because economic downturns look and play out differently than they did in the 19th century, which was littered with panics. The biggest difference is the role of the public sector as regulator, intervenor and safety-net provider, rather than bystander.”

“It’s also because the core financial causes and debates of those panics would seem to have little relevance today. The Panic of 1893 occurred against a backdrop of an issue — whether money should be backed by gold or silver — that would trigger befuddlement among most Americans today.”

“But it’s a mistake to overlook the significance and lessons of those downturns, 1893 in particular. Reminding us why is a recently published book, ‘The Panic of 1893: The Untold Story of Washington State’s First Depression’ (Caxton Press), by longtime business writer (and one-time colleague of this columnist at the late Seattle P-I) Bruce Ramsey.”

“The Panic of 1893 is relevant and timely in multiple ways, especially as we mark the 10th anniversary of news events that in accumulation launched the Great Recession. While the panic’s look, sound and feel might be unfamiliar to us, the factors that made it so painful are all too familiar and recent — too much debt, too much leverage, too much reliance on housing.”

“Housing — and the financing of same — played a role in both the Panic of 1893 and the Great Recession. Entire cities were platted and sold on the expectation of a population boom everyone was certain to come. Banks lent enthusiastically to finance that development. Governments borrowed with equal zeal. When the economy went sour — the people didn’t show up, commodity prices tumbled, someone else got the port or the railroad terminus — borrowers were stuck with debt they couldn’t repay, which meant lenders were stuck with worthless assets as well as debts of their own.”

“That was especially true of banks, which had lent depositors’ money for schemes that went bust. Banks failed in huge numbers during the Great Recession too, because of their exposure to the housing market. But in an era of no deposit insurance, the prospect of a bank closing without notice or likelihood of repaying its customers made the term ‘panic’ much more than an abstract concept, and helped deepen the downturn.”

“Ramsey’s book concludes with newspapers of the time noting that the panic did serve the purpose of reminding people of the hazards of debt. The Oregonian writes in 1897 that those who lived through the panic and the hard times that followed would retain a ‘horror of debt.’ Adds, Ramsey, ‘They will, of course, eventually unlearn it.’”

“Indeed they will. It took decades for the lessons of the Great Depression to wear off. The Great Recession taught people who had never learned those lessons in the first place some painful truths (incomes and housing prices don’t always go up, interest rates don’t always stay low, employment isn’t guaranteed). Now the question is how well that learning stuck.”

From Nine News. “When it comes to the rapidly cooling property market, I’m part of the problem. At the start of this year I was looking to buy a house in Sydney, despite most likely having to sell a kidney and ownership rights of my first born to do so.”

“We’ve all been told for so long you need to be on that you need to get on that property ladder sooner or later, and as house prices continued to soar to unprecedented levels, I figured I had better opt for sooner.”

“But after a couple of months after I began my search, I got an email from a real estate agent telling me that the owner of a property I’d taken an interest in was willing to accept offers of $250,000 below the asking price.”

“‘Sorry, do you mean $25,000?’ I replied, assuming that was some sort of typo. Nope, it was spot on – they were willing to cop a quarter of a million-dollar loss.”

“That to me said they were panicking, and in turn, it made me panic that this was definitely not a good time to be getting in to the market. And so I decided I was going to sit it out for a year or two and just see how far prices will fall.”

“Turns out I’m far from alone – clearance rates are now down significantly from the madness of a year or two ago, and the dip in property prices can so quickly become a crash when people like me lose confidence in the market. The million/trillion dollar question now is how far will prices fall.”