‘When Your Asking Price Doesn’t Mean Anything’
The LA Times reports on the San Diego numbers. “San Diego County kicked off California’s housing boom six years ago with dramatic price rises. Now it’s the first major California real estate market to see its median home price fall below year-earlier levels, according to data released Wednesday. Los Angeles County, saw home prices in June rise at their slowest year-over-year rate since 2001.”
“‘Does it mean we will continue to see weakening of the hot housing markets? It almost certainly does,’ said Raphael Bostic, an economist and professor at USC. ‘Does it mean that we will see massive declines and loss of values in these markets? No.’”
“Nonetheless, sellers such as Michael Pines are nervous. The professional real estate investor listed his Encinitas ocean-view home for sale at $1.3 million two weeks ago. But believing that the current downward trend will continue, he figures he may have to lower the San Diego County home’s price soon to close a deal.”
“In many ways, San Diego County has been ground zero for a nationwide debate about whether the housing market is in a speculative bubble. Over the last year, the county has exhibited many classic signs of a topped-out market.”
“It adds up to a change in the market that is giving prospective buyers the advantage, local real estate professionals say. Parham Firouzi, a La Jolla-based agent, said sellers were finding it harder to get their asking prices. Buyers, he said, ‘know what they want and what they are willing to pay.’”
“‘You know it’s a buyer’s market when your asking price doesn’t mean anything,’ he said.”
“San Diego County in particular has been an important and lucrative market for the mortgage industry’s peddling of unconventional loans. ‘People are realizing that they will have more mortgage than value in their house, and that’s making some hesitate,’ said William Hinck, a senior mortgage consultant in San Diego.”
The North County Times. “Economist Jack Kyser blamed part of the San Diego area’s housing woes on a rush to develop high-rise condominiums in downtown San Diego. ‘You have speculators. Are they going to be able to hold onto those units? Or they might have to sell them at a loss,’ said Kyser. ‘They’re out on a limb,’ he said. ‘Some are overleveraged using variable rate mortgages. And interest rates are going up.’”
The Union Tribune. “‘We are seeing an increase of inventories to normal levels, but it has dramatically changed the psychology of the market,’ said Leslie Appleton-Young, chief economist for the California Association of Realtors. ‘There is excess steam in the market created by three to four years of very rapid price appreciation,’ she said.”
“Pat and Sandra Daugherty have been trying to sell their Fletcher Hills home since February with no luck, despite lowering the price by more than $50,000. Currently out of work and eager to move to Colorado or Texas for a new job, Pat Daugherty fears he and his wife might lose money on the 2,000-square-foot home they bought two years ago for $540,000.”
“They’ve put roughly $75,000 in improvements into the house and have an asking price ranging from $635,000 to $675,000. ‘At this point, we’re willing to take a loss,’ said Daugherty. ‘We really need to get this off our back so we can get on with it. I’m obviously frustrated because we worked so long and hard on this, but sooner or later the prices had to back down.’”
“Dyann Reilly has been struggling to sell her two-story, 2,010-square-foot downtown condo for a year while she lives in a one-story downtown unit that is more comfortable for her. She originally listed the condo she bought four years ago for $630,000 at $1.2 million but has since lowered the asking price to $900,000.”
“‘I think people who come downtown want a view, and I don’t have one,’ said Reilly. ‘I also think there are too many condos available.’”
“The segment of the housing market showing the biggest drop last month was new home sales, which saw prices decline 8 percent. That was influenced, in part, by a weakening demand for condo conversions. ‘Sales have slowed, concessions have increased, and prices have dropped fairly significantly,’ said Paul Kerr, a local condo converter. ‘Buyers are sitting on the sidelines waiting for a theoretical price reduction of 30 percent, and I don’t necessarily believe that’s going to happen.’”
“Nonetheless, sellers such as Michael Pines are nervous. The professional real estate investor listed his Encinitas ocean-view home for sale at $1.3 million two weeks ago. …
Isn’t “professional real estate investor” an oxymoron?
these days “professional RE investor” is shorthand for “quit his job to flip houses.”
Yes, because “professional” means “gets paid for it.”
I just wrote this email to my brother (paid 508k for a 3bdr in 2004 - bad neighborhood). Thanks to everyone’s insights and opinions here for the past few years!
“Bro,
Talk to [roommate's name] and do your best to sell the house as quickly as possible.
This was the frontpage headline in today’s Union-Tribune:
http://www.signonsandiego.com/uniontrib/20060713/
People are reading this all over the county today. Like you said 2 years ago, prices are determined by supply and demand. Unfortunately, demand for housing is significantly affected (though not entirely determined) by perceived future value. The mood of the county - and country - is quickly shifting. Prices are going to fall much more quickly than any used-car salesman (real estate agent) would have had you believe a year ago. Heck, they used to say RE always goes up. Last fall they were proclaiming that it will level out. Next it will be something to the effect of “now is the time to buy.” Must remember that the agents’ livelihoods depend on sales VOLUME much more than transaction price. No sale, no income. Next up: they will start to encourage sellers to lower their price to get the sale done! Agents are looking out for exactly ONE person’s interests - their own.
Note that 92116 [brother's zip] is mentioned at the bottom of the article as the third worst zip code from 6/05 to 6/06.
Talk to [roommate].”
Such a colorful waterfall…
http://finance.yahoo.com/q/bc?s=TOL&t=6m&l=on&z=m&q=l&c=kbh,dhi,hov,phm,hov,bzh
Looks pretty bad on a 1-yr basis too.
However, I’ve been nibbling on TOL & the XHB based my premise homebuilders will have an easier time weathering the developing, multi-year decline in the residential real estate market (price declines are easier for them to digest than for mortgagors/homeowners). I favor TOL due to their market focus (away from 1st time buyers & the low-end of the market) and their strategic land bank.
well my tol puts are already in the money..long term i don’t see toll above $20.
agreed…they’re living in the 24’s now…long way from heighday in the 50′, and closer to sub-20 historical norm pre-bubble.
Silly norjac making rational choices in the stock market!!
Seriously, I agree the HBs may be long-term buys as many HBs can undercut resales all day long and still turn a profit. However, these things will always overcorrect. There will come a point where no one wants to see, taste, smell, look at, or talk about housing. The P/Es on these stocks will be at 5 or less on RISING earnings, not falling.
And I’m glad I didn’t unwind my PUTs yesterday. Going to sell half of them today and hold on for more fun.
Anybody have a clue why JOE is rising lately? According to yahoo finance, they have a P/E of 31!!! They’re also heavily exposed to Florida, and I caught the end of the last CC where the CEO kept stating “Can’t give you information on price - right now, inventory isn’t selling so there’s no pricing info.” That was the LAST call! It sounded like he thought sales would pick up (haha.)
http://finance.yahoo.com/q/bc?t=6m&s=TOL&l=on&z=m&q=l&c=kbh%2Cdhi%2Chov%2Cphm%2Chov%2Cbzh%2Cjoe
I posted yesterday about that. Being bought by value funds. The whole group is ripe for a huge bounce, fundamentals or no.
You guys buying on the coattails of the value funds are playing with fire. Eventually the fundamental picture will sink the homebuilders the same way that fundamental reality sunk the NASDAQ in the tech stock crash. And that eventuality is playing out as I write, even if it is a bit on the slow side for the recent past.
You are a fool. Didn’t you hear that they have run out of McMillionaires who are qualified to buy a Toll McMansion?
Ditto. The ‘wanna-be luxury’ market is going to take a caning.
That graph is mere whitewater. The waterfall is downstream, and the boat is headed straight towards it.
‘Does it mean we will continue to see weakening of the hot housing markets? It almost certainly does,’ said Raphael Bostic, an economist and professor at USC. ‘Does it mean that we will see massive declines and loss of values in these markets? No.’
How can you be so adamant about predicting a weakening market but pull back so abruptly to say that there won’t be massive declines? I mean, was this economist not looking at any comparable statistics on the LA housing market circa 1979 - 1994?
I think he understands that the FED will do everything they can to print themselves out of this mess, and keep nominal home values afloat (or even rising) by sinking the dollar.
The Fed isn’t going to print. Inflation is much stronger than Bernanke anticipated when he announced the June rate increase. Look for 50 bps in August.
From your lips to Ben’s ears.
I’m beginning to think the Fed is going to pause. The U.S. economy is weakening at an accelerating rate.
Of course, there’s nothing the Fed can do at this point to save an overvalued real estate market. Whether rates go up or down, gravity will have it’s way in the bubble markets.
Some real estate goofball in one of the recent articles on this blog opined that a rate pause would actually be bad for the housing market, because it would remove the urgency to jump into a mortgage now before rates get any higher.
You name an opinion, and there’s surely an economist out there who holds it. Dismal “science” indeed.
The fed does not have all that much to do with long term rates - those are set by the demand and supply of private and governmental investors in the bond markets - the fed only sets the short term rates (which have more of an effect on the initial rates of ARMS). The rise of long term interest rates and drying up of easy credit for sub-prime borrowers is inevitable as more of these investors get screwed by over-extended borrowers go into default. This, more than anything, is what will sink the RE market in the next two years.
If the Fed pauses in the wake of a BOJ rate increase, expect the dollar to crash, long-term rates to skyrocket, and thirty-year mortgage rates to follow the long-term Treasury yields straight up to the stratosphere. Maybe this does not matter so much around San Diego, as almost nobody can afford to buy with a thirty-year fixed.
IMHO this is an excellent analysis of current conditions.
From Money Week
July 13, 2006
Dr Marc Faber
http://tinyurl.com/qakje
Why an inflationary bust is inevitable
… As GaveKal Research pointed out (see above), in order to sustain a bull market in asset prices, an ever increasing pool of liquidity is required and this is, in the short run, impossible for a central bank to achieve — even if its intentions are “to print money”….
…So, in order to generate nominal GDP growth of US$751 billion, in 2005, total credit market debt had to increase by US$3,340 trillion — 4.4 times faster than GDP. Now, as is the case for the current account deficit, which hovers around 7% of GDP at present, the optimists will say that debt growth that is four times larger than GDP growth is sustainable. This may be the case for now, but the point is that, in the 1950s and 1960s, debt and GDP grew at about the same rate, with the result that in 1980, when Paul Volcker tightened meaningfully, total credit market debt was “only” about 130% of GDP….
However, it is my belief that the Fed, and other central banks which are at least as agile at printing money as the Fed is, will try to postpone the hour of truth by a renewed massive liquidity injection when the next recession arrives. So, my concern remains the same: before the final debt crisis hits, we might see very high rates of inflation — most likely hyperinflation, with all asset and consumer prices soaring (amidst falling real incomes).
What are you smoking? 25 bps at most!
Even if the FED tried that, and they wont!, it would not save housing at this point. Besides if the FED inflates and dollar tanks, there goes US Treasuries which will send yields higher which will make mortgages more expensive. Higher yields usually attract foreign money to US Treasuries but not if the currency is falling so they have to be super high yields. The FED will not intentionally do this.
… not if Bernanke starts buying up his own Treasuries. They must be desparate by now because they have painted themselves in a corner. We know they are prepared to use very unorthodox measures to keep the statistics looking healthy.
Ultimately it will not help and the market will collapse anyway, but I would not be surprised if this FED RE/inflation game continues for another 1 or 2 years.
The bubble areas have already popped and now face falling prices. The psychology is turning rapidly. The concept that RE is a deprecaiting asset is beginning to take root. If the FED were trying to prop this up it’s too late now. Once pscychology shifts in a sector like RE there is no turning back. My point is that RE is already depreciating.
Amen, the front page of the San Diego Union Tribune this morning has the huge headline “Housing Hangover” accompanied by a picture of some FBs.
depreciating asset
Sounds like a euphemism for “liability” to me!
well, homes are still ‘appreciating assets’ in Europe so please, hurry up with that housing crash on the other side of the pond …
Does Bernanke, as the CEO of the GED get options
?
I don’t think “printing money” will work at all. These days, the term printing money is shorthand for the monetization of debt and/or the general increase in M3 money supply via derivatives, credit, and Wall St. wildcat finance. Prechter brought up a good point the other day when he noted that a true Weimar-style hyperinflation was really dependent upon the actual printing of money, not ever-increasing debt creation. The reason being that its hard to pull actual printed money out of the economic system, whereas simply making more credit available won’t necessarily cause people to use it (witness what’s happening now with the housing market.)
I guess it would be possible for Ben to monitize a crapload of debt and mail everyone “peace dividend” checks or something stupid like that, but this would basically destroy the dollar. They may try this as a last-ditch effort to save the economy about 4 or 5 years from now, but all of this bad debt that’s been created over the last several years still needs to be liquidated and that is an extremely deflationary process.
Pretty good point. But wouldn’t buying the MBS directly infuse cash back into the economy? Instead of house + cash + debt there would be house + cash. The cash can now be spent and it basically keeps the economy at the same level, if not housing.
And I don’t trust them not to mail everyone a peace dividend. Government borrows money (from thin air) and lowers taxes. Is that not the same thing? [Please don't take this as a partisan comment.]
Feepness,
Yes, it is. For an example, see the end of the posts under the Bits bucket for 12 Jul. Congress just passed in March another almost 1 trillion dollar increase to the budget. By upping that debt limit, paying all the gov’t employees that extra deficit money is one form of increasing the money supply. It is just one form. Reference the posts, and you’ll see the discussion that it is mathematically impossible to cut taxes and raise tax revenue without increasing the money supply. It just isn’t mathematically possible, no matter what the “churn” (or any other fancy economic term). They will have to raise rates if the EU and other main CBs raise rates just to keep folks financing our debt. However, Canada and the EU just paused. I feel the US was pleading with these other countries to stop raising rates. It should be obvious that with our massive housing bubble financed by the exotic loans, we just can’t go any higher. I don’t see how the FED can raise again in Aug. They aren’t totally braindead (or maybe they are). It is coming apart, versus will, may, should.
In my view, the buying of MBS (or any ABS for that matter) is essential in the credit creation process. Let’s talk it through for a second: A bank creates a loan on a house and sells the paper to FNM. FNM combines this loan and numerous others into MBS and sells bonds to (mostly foreign) investors. If the Fed steps in and buys these bonds directly from FNM, and I’m not suggesting they won’t, all they’ve actually done is lubricate the system some more and make sure that the system is awash with liquidity (same thing they always do.) The problem is that the system already has more credit than it can possibly use, and all of the above requires an ever-increasing demand component, ever-increasing asset appreciation along with ever-lower interest rates to secure affordability. Any disruption in the DEMAND piece and the whole liquidity cycle turns, and you get a bunch of bad debt that needs to be written off. So the best the Fed could hope for in this scenario, would be to control mortgage rates by buying FNM bonds directly, but they cannot really influence demand beyond this. BTW, there’s no real evidence that keeping interest rates low will improve housing demand at this point. Interest rates have been and continue to be historically low and housing has turned regardless.
To me, a much bigger danger would be sending out peace dividend checks where you are essentially giving the peeps currency that is highly liquid and convertable, with no consumer-level debt component. This is not dependent upon demand and will translate directly to inflation of the worst type (and likely won’t help housing much anyway.) If the Fed does this to keep the economy at around the same level sans housing, that still leaves a lot of bad debt floating around that needs to be liquidated. This type of hyperinflation would destroy the world’s last reserve currency and plunge the entire world into an economic nuclear winter. Ben will do what Ben will do, but that’s a huge gamble to take just to save housing.
This topic is always fascinating to me. I never understand fully this idea of liquidity. For instance, if I borrow 100K to buy a house and that money (for purposes of debate) is fully loaned into existence by the bank, how does that money ever come out of the economy? If I default on my loan then perhaps that loan is paid off in the future (by me through collections process) but if that loan is written off as unrecoverable bad debt, then aren’t the actual dollars/digital credits still in my builders account (who I paid the 100K) and doesn’t the house still exist as well? Am I still going to score with the chicks? What is my favorite color? Where am I going with this? Sorry, got carried away with all the questions floating in my head.
I watched the movie “Hudson Hawk” the other night (I enjoyed it)- in the movie one of the “bad guys” prior to launching his plan to destroy the world’s economy says
“money will always be paper, but gold is still gold”.
“whereas simply making more credit available won’t necessarily cause people to use it”
Remember who you’re talking about. People enticed by get-rich-quick schemes that they see play out every night on network television, then get offered a line of credit so that they too can live large with tons of bling? On the contrary, I think extending more credit is the absolute worst thing that can be done at this point. It’s time to take our medicine.
You’re wrong. The Fed does not care about the price of middle class housing. Nor does the Fed care about real estate losses incurred by the foolish middle class.
The Fed cares about the things that the big business and the truely wealthy care about. That would be inflation and stock values. They will do everything they can for as long as they can to keep inflation down and stock prices up.
Personally I think the whole system is hosed. Too much debt has built up, too much productivity has moved overseas. The Fed may tighten or the Fed may stand pat. It doesn’t matter because we are facing a massive recession and I don’t think it can be avoided tihs time around.
Massive decline = ? %… Maybe his definition is greater than 50%. My definition of a massive decline is 30-40%. He may be feeling a “moral obligation” to not cause or feed a panic, but it’s not illegal (or immoral) to yell “FIRE” in a crowded theater, if there is indeed a fire.
VOILA!!! Now I see why this scrub USC economist feels the needs to scale back his words on the possibility of a ‘massive’ decline. Check out this list of members who represent the board of USC’s Lusk Center for Real Estate. Just a smorgasbord of executives in the building, lending, and planning industries.
http://www.usc.edu/schools/sppd/lusk/luskcenter/boards.html
Sorry Mr. Bostic, but your credibility for unbiased opinion on this matter is officially null and void. BTW, Mr. Bostic’s current title at USC is Director, Master in Real Estate Development Program. Hello???
Well done!
Good detective work,PS!
Good sleuthing on exposing an ivory tower shill.
Gotta luv this blog.
Is it too much to ask the f*cking moronic reporters to just do their frickin jobs for once? How do these idiots justify their paychecks? Not one of them will do any due diligence on the folks they interview. No journalistic integrity, no apparent pride in doing a job well. Just hoe de doe on out and grab someone with a title to get an interview for the paper. Give no thought as to what is being said and whether it is true or makes sense or any underlying conflict of interest of interviewee with subject matter.
Great job uncovering this guys’ true motivation, PS.
Let’s make a deck of cards for RE Bubble perpetrators like they made for the Iraq War! These Lusk board members can be on some of the cards, but Lereah gets to be the King of Spades, Appleton-Young is the Queen of Clubs, and Gary Watts is the Joker.
I’m starting the rumor that Appleton-Young was a fluffer in a previous life. Her current actions make sense in that context so I’m going with it.
I’d buy a pack. We should get a Dot Com and Enron set too!
Yes, but is it ok to yell “thermal rise in excess of historical averages with continued self-sustaining catalytic conversion” in a crowded theater?
Or “Building codes have historicly provided for exits sufficient to evacuate the building in 10 minutes, however in an uncontrolled oxidation event, radiant energy levels can rise from
Or “Building codes have historicly provided for exits sufficient to evacuate the building in 10 minutes, however in an uncontrolled oxidation event, radiant energy levels can rise from 1 to 40 calories per square centimeter in a three minute period.
USC is a private school; I wonder who or what entity funds the Lusk Center that this professor works out of…anybody know? This guy sounds like he’s shilling for somebody (no pun intended).
chiphxla,
Just outed the guy and his Lusk Center boys in the post above…
I recently graduated from USC’s Master of Real Estate Development Program and I am a raging bear (and consistently was through the program). I can assure you that Prof. Bostic’s position is an objective one. We discussed his data at length in our class with him. People can disagree about the inferences to draw from data, but that does not mean that either party is a hack for a particular industrial group. Also, Prof. Bostic’s speciality is affordable housing and he is a strong proponent for it — a position strongly at odds with almost 100% of the Lusk Center Board’s financial interests.
That’s all fine and dandy Caiden, but don’t you find it just a tad perplexing that the house expert on the subject didn’t take the opportunity to even remotely express the possibility (with the backing leverage of historical data) of a sizeable market adjustment given his ‘affordable housing proponement’ position?
To read his quote ‘Does it mean that we will see massive declines and loss of values in these markets? No.’ seems rather black and white to me.
Am I just being thick?
In addition, “affordable housing” programs are almost always scams that ultimately benefits builders, loan agencies, and government tax agencies far more than the people they’re supposed to help. Also, such programs create a false bottom in pricing to a housing market. (Witness the $600K+ “affordable housing programs” in San Francisco right now. If “poor” people can afford a $600K house, what are well-employed supposed to pay?) What we need are strong lending standards, not RE shills pushing overpriced homes on people via air-packed “affordable housing” lending programs.
I can relate to what Caiden is saying. I recently took a grad class in managing IT outsourcing. The professor was a Chinese immigrant who is (imagine this) strongly in favor of the industry position on unlimited H1-b/L-1 visas and all. Anyway, he is a really smart guy and I did learn quite a bit from him in terms of how to manage outsourcing projects, but his personal bias was somewhat annoying. My point is that professors come to their jobs with their own personal opinions. Of course an organization like USC’s RE school will only hire somebody with a personal opinion that supports the views of the school.
PS,
That’s what I get for speed-reading the blog at work
thanks…
She originally listed the condo she bought four years ago for $630,000 at $1.2 million but has since lowered the asking price to $900,000.”
She now only hopes to make 40%+ in four years. My heart bleeds……… and I still think she is dreaming at $900,000.
Condo will soon become a four-letter word.
Cond or Ondo?
Conn
You can’t spell “condo” without the letters “con”.
I can: “Doh!”
Shout out to Homer!
conned-dough?
No kidding. Cry me a freaking river. Greedy bitch.
To Ms Reilly, I say this: F$ck You with your million dollar price tag when you bought for 630K.
“‘I think people who come downtown want a view, and I don’t have one,’ said Reilly. ‘I also think there are too many condos available.’”
No view? I’ll offer you $300K. Chew on that.
I think buyers may soon have a view of the Dyann Reilly memorial placed where she landed after swan-diving off her viewless balcony.
The base assumption that the prior 630K sale price was a fair price is the real stopper. As she herself bought at that price, it has the be the absolute minimum (at least in her mind). To think otherwise is to admit a real mistake. From that perspective, a near 100% bounce is only ‘fair’ (as she probably bought it from a flipper whose base was 350K+/-). To ‘lower’ that fair price to $900,000 must be so wrenching.
There is a ton of leverage in RE transactions. If she put 10% down (maybe less?), 63K, % increase would be 430% over 4 years.
Of course, leverage has a nasty bite too, when prices swing the other way. We’re about to witness that in a really big way, beginning soon in a RE market near you.
A great and sometimes forgotten point. Ouch!
Leveraging in RE is similar to margins in stock.
Similar? Leverage in RE makes stock margins look like child’s play. Try asking your broker for a 100% loan to buy GOOG. Explain to them that it has appreciated greatly and that an outside stock appraiser has confirmed the value.
Similar except you have to put 50% down to buy stock.*
*Prime brokerage clients are allowed lower margin requirements, but they generally aren’t supposed to be betting on pure capital appreciation.
on the downside repoting is slowed by DOm- in real time ALL US markets are down wexp for a few in UT , maybe
With home sales slowing so dramatically it will be nice to see the months of inventory. DoM doesn’t tell the whole story and is often manipulated by Realtors who delist and relist properties. Total available inventory will likely peak way before the bubble burst as many who can’t sell for enough to cover their mortgage will delist homes.
Take a look Loudoun County’s inventory of active single family MLS listings devided by the number of single family contracts signed in that month:
JUN 1999: 2.87 months
JUN 2000: 1.96 months
JUN 2001: 2.40 months
JUN 2002: 2.36 months
JUN 2003: 1.69 months
JUN 2004: 1.46 months
JUN 2005: 2.16 months
JUN 2006: 11.01 months
I see a slight uptick in months inventory in JUN 2006 compared to the last 7 years. People who don’t think this will have a significant impact on prices are delusional. This also is for signed contracts, which have recently had much higher cancelation rates this year than in years past due to contingency trainwrecks .
JUN 2006: 11.01 months
Thanks for the stats Northern VA!!
And these homes on the market for months are now for sale/rent!!! We’re getting ready to rent one!
LIZ I have noticed the same thing. The number of for sale/rent signs on lawns has become noticible in single family homes around here. Mostly I’ve seen the rent prices as pretty extreme on some but it could just be that these sellers aren’t in-tune with the rental market.
I know of a few families who have purchased a new construction house sometime last year that greatly overestimated the price they would be able to get for their current home. They already closed and moved into the new place and now they list the place for sale and it sits on the market empty. These guys are bleeding badly from 2 mortgages and are desperate for anything to come along and help slow some of that bleeding. This could be one of the reasons we see the for sale/rent numbers increasing.
Maybe this will get rid of those idiotic “Rents are GOING UP!” scare stories floated by the NAR once and for all.
‘Buyers are sitting on the sidelines waiting for a theoretical price reduction of 30 percent, and I don’t necessarily believe that’s going to happen.’”
Yes, by definition of the buyers sitting on the sidelines long enough they will basically drive prices to their hoped for 30% reduction. And even then, who would be happy to jump in at that time when prices might fall by 40%? It’s not like prices will bottom to an exact percentage point and then everyone rushes back in. It’s going to be long and painful.
You beat me to it!
I don’t know how much home values are up in the US over the last 5 years or so, but I guess even with a 40% reduction prices are still ridiculously high in certain areas.
In the Netherlands, prices of individual homes are up around 1000% over the last 15 years in some areas (the severely manipulated national average is up 500% or so). With a 40% reduction prices would still be many hundred % overvalued, not exactly what I would call a ‘buyers market’.
so yes, it’s going to be a long and painful slide, with people catching falling knives all the way down.
I think I need some enlightenment regarding European markets. How can your gas, homes, etc. be so much more than ours?! (I believe that to be the case, am I correct?) Are your wages way up there, too?…
what nhz means is that there is still time to earn free money in USA by flipping, prices can go up by 1000%
yes, I would not be surprised by further price increases - although not in current ‘hot areas’ like CA. In the Netherlands, the biggest price increases occurred in the outer regions, AFTER the national housing bubble stopped growing at double-digit rates.
I wouldn’t recommend any flipping though because it is obviously a musical chairs game and no one knows when the music stops for good.
no, wages are not way up. In the Netherlands individual wages went up 59% over the last 20 years, CPI is up something like 50% (2% yoy) over the same period, so real wages are hardly higher than 20 years ago.
Part of the disconnect is explained by lower mortgages rates (between 1990 and 2005, 10-year fixed rate went from +/- 11% to 3.5%) and higher household incomes (more women joining the workforce), but most of it is simply crazy lending and unprecedented leverage.
Gas price is much higher than in the US, but it was much higher 5 years ago as well and probably it is up less than in the US percentagewise over the last years; most of the EU gas price is energy tax and VAT.
In many other EU countries the situation is similar, although the Dutch housing market is probably the most leveraged of them all.
You know, I hear all these so called economists making statements like this and I just don’t get it. Doesn’t an economist base his knowledge, for the most part, on how the past has reacted to any given set of circumstances. So, wouldn’t they be able to look at historical graphs that tell them where the “mean curve” should be and know where probable predictions should be cast? We have gone well beyond 30% to the upside of the mean, in some cases more than 50%. So, Mr. Economist, when you tell me that we will not have a 30% correction, you’re telling me we’re breaking away from an established trend. You’re telling me it’s different this time. So, if you’re the pro, you better explain to us why, in no uncertain terms, we are going to break away from what has been established in our history with real estate. Don’t just give us the “I think”.
There is no way for anybody to know how low it will go so, IMO, it is wrong for him to postulate. However, once prices start declining in earnest and a deflationary psychology takes hold people will not jump in for fear of prices going even lower. Kind of like the psychology of a bull market in reverse. Wall of worry, slope of hope. Personally, like many others on this board, I think the downside will be long and ugly. It will probably go further than most thought. Remember the NASDAQ? After droping to 3000 I thought it had run it’s course. I didn’t jump in though - but many people did. I doubt that even the most bearish people thought it would slide as far as it did.
‘Buyers are sitting on the sidelines waiting for a theoretical price reduction of 30 percent, and I don’t necessarily believe that’s going to happen.’”
Remember the CNBC mantra from 2000 “20% is a classic bear market”? I guess 30% defines the limits of a RE bear market…
are there any buyers left? i thought these are just the new breed of flippers. smart and loaded.
“Today’s situation is more reflective of a normal environment,” said Karevoll, who predicts that other California markets will follow San Diego County and eventually will hit flat or negative growth, but not give up all the gains made in the last few years.
“San Diego had a 100% increase in the past five years,” he said. “So far, it’s been able to keep 99% of that, which isn’t so bad.”
Karevoll will be telling us how great real estate is in the long-term all the way down the other side of the cycle.
So far, it’s been able to keep 99% of that…
Should read: So far we’ve been able to keep up payments on 99% of our toxic loans. Sure hope we can unload soon…
Doesn’t that not work, mathematically? Say I have $5 and it goes up 100% to $10 (an additional $5). 1% of that $10 is $.10 leaving $9.90 if it goes down 1% from its peak $10, but that means that you have actually only gained a total of 4.9/5 or 98% over the original $5 investment. So a loss of 1% from peak actaully means a loss of 2% profit or “keeping” 98%. Right?
I see what you mean. It is therefore mathematically impossible for them to keep 99% of the price gains as you have just given the proof. Very interesting. But then 67.3% of all percentages are made up on the spot anyway.
y-o-y is no longer the standard used.
it’s now y-o-2001
Robert –
I guess we ought to not be too harsh on him, as it is his job to convince the sheep who pay commissions to his constituents that “real estate always goes up.”
“‘Does it mean we will continue to see weakening of the hot housing markets? It almost certainly does,’ said Raphael Bostic, an economist and professor at USC. ‘Does it mean that we will see massive declines and loss of values in these markets? No.’”
Remember that this guy with all his friends and colleagues live in a once-hot housing market and may personally have much to lose with “massive declines”. Could this be influencing his comments?
Never! These fellows have a code of ethics.
He’s been consistent over the years. In February 2003, he was basically saying the same thing, although he qualified it by insisting that no more than 10% of real estate is owned by investors. I find it amazing that he hasn’t changed his tune in three years, though, given the stats that have since revealed about these so-called “professional investors”.
From a transcript of a 2003 interview on Life & Times:
JESS>> MR. BOSTIC, FIRST OF ALL, ARE WE IN A REAL ESTATE BUBBLE?
RAPHAEL BOSTIC>> I DON’T THINK SO. I THINK THAT WHAT PEOPLE ARE CONCERNED ABOUT IS REALLY HOUSE PRICES FALLING. THAT MAY HAPPEN, BUT IT WILL NOT HAPPEN BECAUSE OF SPECULATION IN THE MARKETPLACE OR HYSTERIA IN THE MARKET, WHICH IS REALLY WHAT WE’RE TALKING ABOUT WHEN WE TALK ABOUT A BUBBLE. IF PRICES GO DOWN, IT WILL BE BECAUSE THE ECONOMIC CONDITIONS DETERIORATE SIGNIFICANTLY SUCH THAT DEMANDS FOR HOUSING GO –
JESS>> — BUT PRICES HAVE SOARED.
RAPHAEL BOSTIC>> PRICES HAVE SOARED AND IT’S BEEN FOR TWO REASONS IN SOUTHERN CALIFORNIA. THE FIRST IS THAT THE ECONOMY HERE HAS BEEN FANTASTIC FOR THE LAST COUPLE OF YEARS, EVEN THROUGH THE RECESSION. THIS ECONOMY HAS BEEN AS POWERFUL AN ECONOMY AS ANY IN THE COUNTRY, SO THAT HAS KEPT DEMAND FROM FALLING TOO MUCH IN THE HOUSING MARKET. THE SECOND IS THAT THERE’S JUST NOT A LOT OF NEW SUPPLY GOING UP. IT’S VERY HARD, AS YOU KNOW, TO BUILD NEW HOUSES IN SOUTHERN CALIFORNIA AND, BECAUSE OF THAT, WE WIND UP WITH SUPPLY BEING FIXED, DEMAND GOING UP, AND PRICES HAVE GOT TO GO UP.
VAL>> AND PEOPLE POURING IN HERE ALL THE TIME. SO, IN OTHER WORDS, WHEN YOU AS AN ECONOMIST SAY IS THIS A BUBBLE OR NOT, YOU LOOK AT VERY SPECIFIC CRITERIA, CORRECT?
RAPHAEL BOSTIC>> THAT’S CORRECT.
VAL>> ONE OF THEM BEING, WHAT, THE HYSTERIA AROUND BUYING AND PEOPLE –
RAPHAEL BOSTIC>> — RIGHT. IF YOU TAKE THE TECH BUBBLE, FOR EXAMPLE, THE –
VAL>> — THE HIGH-TECH? SILICON VALLEY?
RAPHAEL BOSTIC>> THE HIGH-TECH BUBBLE IN 2000.
JESS>> THAT’S FRIGHTENING.
RAPHAEL BOSTIC>> THAT WAS A LITTLE DISTURBING, BUT IT WAS A SITUATION WHERE THE BASIC CONDITIONS IN THE MARKET DIDN’T CHANGE FROM ONE DAY OR ANOTHER. PEOPLE JUST DECIDED THAT THEY WEREN’T GOING TO KEEP INVESTING IN COMPANIES THAT HAD NOT GIVEN THEM RETURNS, SO IT WAS –
VAL>> — IT WAS A VERY ALMOST EMOTIONAL OR PSYCHOLOGICAL –
RAPHAEL BOSTIC>> — IT WAS A PSYCHE TO IT THAT REALLY LED TO THE DECLINE IN PRICES. IN HOUSING, YOU DON’T HAVE THAT SAME SORT OF PSYCHE. FIRST OF ALL, PEOPLE DON’T REALLY BUY HOUSES AS A SPECULATIVE TOOL. MOST HOUSING IS PURCHASED OR SOLD TO LIVE IN. WE WANT TO CONSUME THE HOUSE. SO IT’S A VERY DIFFERENT MARKET AND IT’S NOT REALLY APPROPRIATE TO DRAW COMPARISONS BETWEEN THE TWO.
JESS>> TO WHAT DEGREE ARE THE EXTRAORDINARILY LOW INTEREST RATES FUELING THIS MARKET?
RAPHAEL BOSTIC>> THAT IS A VERY IMPORTANT POINT. LOW INTEREST RATES HAVE MADE MORTGAGE PAYMENTS AFFORDABLE FOR HOUSES THAT ARE HIGH-PRICED, SO IF YOU FACTOR IN THE INTEREST RATE INTO MORTGAGE RATES, MORTGAGE RATES FOR MOST HOUSEHOLDS NOW ARE ONLY SEVENTY PERCENT OF WHAT THEY WERE TEN YEARS AGO. SO FOR THE AVERAGE HOUSEHOLD IN THIS MARKETPLACE, IT’S JUST MUCH EASIER FOR THEM TO CARRY A MORTGAGE AND BUY A HOUSE.
VAL>> NOW WHAT DO YOU SAY TO PEOPLE WHO DON’T OWN HOMES. THEY WOULD LOVE TO GET IN AND THEY’RE SAYING TO THEMSELVES THAT PRICES HAVE GOT TO COME DOWN BECAUSE NOBODY CAN AFFORD THESE ANYMORE? YOU KNOW, EVEN IF YOU GO TO COLLEGE, YOU HAVE A DECENT SALARY, YOU STILL CAN’T AFFORD THE AVERAGE HOME HERE, SO THEREFORE PRICES HAVE TO COME DOWN BECAUSE NOBODY CAN AFFORD THEM. IS THAT AN ACTUAL SOUND ECONOMIC PRINCIPLE OR NOT?
RAPHAEL BOSTIC>> IN PRINCIPLE, THAT’S RIGHT. I MEAN, THE PROBLEM IS THAT PRICES WILL FALL WHEN DEMAND FALLS A LOT. SO THE QUESTION THAT YOU HAVE TO THINK ABOUT IS, WELL, WHO ARE THE PEOPLE WHO ARE DEMANDING THESE HOUSES? WHAT ARE THE INCOMES ASSOCIATED WITH THEIR JOBS? AND AS LONG AS YOU HAVE AN ECONOMY WHERE YOU HAVE SOME HIGH-PAYING JOBS AND PEOPLE ARE ABLE TO LIVE FAIRLY COMFORTABLY AND BE RELATIVELY AFFLUENT, PRICES ARE NOT GOING TO FALL APPRECIABLY.
JESS>> THE FLIP SIDE OF THAT, THOUGH, IS AN ECONOMY THAT IS SOMEWHAT THREATENED PARTICULARLY AS WE LOOK AT THE POSSIBILITY, IF NOT THE LIKELIHOOD, OF WAR. IF THE ECONOMY GETS THAT SOUR, THE REAL ESTATE MARKET HAS GOT TO GO DOWN TOO, DOESN’T IT?
RAPHAEL BOSTIC>> ABSOLUTELY. I MEAN, THERE IS A LOT OF UNCERTAINTY IN THE MARKETPLACE RIGHT NOW. PEOPLE COULD DECIDE THAT, YOU KNOW, WE’VE GOT TO CHECK OUT OF THIS MARKET, THIS ECONOMY, AND THE ECONOMY COULD REALLY SUFFER. IF THAT HAPPENED, HOUSING PRICES CAN FALL, BUT I WOULD NOT CALL THAT A BUBBLE. I WOULD SAY THAT’S ECONOMIC CONDITIONS CHANGING IN SUCH A WAY THAT HOUSING PRICES HAVE GOT TO COME OFF OF THE LEVELS THAT THEY’RE AT RIGHT NOW.
VAL>> WHAT CAN WE DO, YOU KNOW, WHETHER IT BE PLANNERS ON A COUNTY OR CITY LEVEL OR STATE LEVEL, TO MAKE HOUSING MORE AFFORDABLE, TO GET MORE HOUSING BUILT? I MEAN, IT IS GETTING TO THE POINT WHERE IT’S TRULY TEARING APART THE SOCIAL FABRIC, THOSE WHO OWN HOMES AND THOSE WHO DON’T.
RAPHAEL BOSTIC>> RIGHT, SO THERE ARE A COUPLE OF POINTS THERE. THE FIRST IS THAT, IF PRICES KEEP GOING UP, WE WILL, AS A REGION, START TO FEEL IT IN TERMS OF COMPETITIVENESS AND THAT WILL IMPACT THE TYPES OF JOBS WE CAN ATTRACT TO THIS REGION. IN TERMS OF WHAT DO WE DO TO TRY TO EASE OFF THE HIGH RATE OF APPRECIATION, WE’VE GOT TO INCREASE SUPPLY AND THAT CAN HAPPEN IN ONE OF TWO WAYS. YOU CAN EITHER BUILD MORE ON THE FRINGE. THAT WOULD BE THINGS LIKE AHMANSON RANCH AND OTHER TYPES OF DEVELOPMENTS THAT ARE FINDING A LOT OF OPPOSITION. THEN THE OTHER THING IS TO DEVELOP INFILL HOUSING, TO BUILD MORE IN PLACES THAT ALREADY HAVE A LOT OF DEVELOPMENT.
VAL>> EVERY LITTLE VACANT LOT, EVERY LITTLE BLOCK.
RAPHAEL BOSTIC>> EXACTLY. WHAT THAT WILL REQUIRE, THOUGH, IS A COMMITMENT TO INCREASE DENSITIES. IF COMMUNITIES ARE WILLING TO ACCEPT THE FACT THAT WE’VE GOT TO INCREASE THE DENSITIES, THAT CAN GO A LONG WAY TOWARD ALLEVIATING THE SUPPLY PRICES THAT WE HAVE RIGHT NOW. BUT I SHOULD SAY, WE’RE NOT SEEING A LOT OF COMMUNITIES VOTING TO INCREASE DENSITIES –
VAL>> — QUITE THE OPPOSITE.
RAPHAEL BOSTIC>> SO THIS IS A REAL CHALLENGE THAT THE REGION IS GOING TO FACE.
JESS>> AS YOU NOTED AT THE BEGINNING, MOST PEOPLE BUY REAL ESTATE TO LIVE IN, TO OCCUPY, TO CONSUME, AND YET WITH THE STOCK MARKET IN THE DECLINE IT’S BEEN IN IN THE LAST YEAR OR SO, PEOPLE ARE BEING ENCOURAGED TO INVEST IN REAL ESTATE. IS THAT GOING TO AFFECT THE MARKET SUBSTANTIALLY?
RAPHAEL BOSTIC>> NOT SUBSTANTIALLY. I MEAN, IF YOU LOOK AT THE DATA ON TRANSACTIONS, ONLY ABOUT FIVE TO TEN PERCENT OF TRANSACTIONS IN ANY GIVEN YEAR ARE FOR INVESTMENT PURPOSES. SO WHEN WE TALK ABOUT THE INVESTMENT MOTIVE, IT’S REALLY JUST A SMALL SEGMENT OF THE MARKETPLACE AND THAT SMALL A SEGMENT IS NOT LIKELY TO BE ABLE TO DRIVE LARGE TRENDS.
VAL>> PROFESSOR RAPHAEL BOSTIC FROM USC, THANK YOU SO MUCH FOR FINALLY SETTLING THAT QUESTION. IT IS NOT A BUBBLE. THANK YOU
At this point, we’re willing to take a loss,’ said Daugherty. ‘We really need to get this off our back
Do you expect to be able to make a profit again real soon? Maybe wait 6 months and the price will magically double? Waitress, a good ole’ fashion ass pounding for my good neighbors here. Hold the lube. LOL
“We are seeing an increase of inventories to normal levels…,” said Leslie Appleton-Young, chief economist for the California Association of Realtors.
Normal levels. unRealtors. What a bunch of friggin’ ——
Do we have nose length data on these people???
I was thinking the same thing myself. San Diego went from a record low inventory to a population adjusted high inventory in two years and it is still going up. Yea that’s normal. There is not ONE thing that is normal about this market.
OMG!!! That is just blatant lying!
Exactly. That is a lie. A well orchestrated lie. A conspiracy by the RE complex to talk this market into a false sense of security. These industry leaders should be held accountable for what they say. The chief economists are (should be) paid to know what they are talking about - not paid to lie.
There need be harsh legal consequences for intentionally misleading!
shouldnt all of these ‘chief economists’ be working for a third party and not directly tied to realtors?
more like chief cheerleaders
i’m not baffled at what these chiefies say, i’m baffled at why people listen to them.
i’m not baffled at a ford salesman telling me ford explorers are a great buy, i’m baffled at someone actually believing it.
I vote for hooking them up to lie detectors and have them make their presentations. That would be good!
I think the technical expression is “cooling the marks”.
This too struck me as odd. To blatantly lie like this was shocking to me. Not that they don’t spin/lie about most things. But to make such an easily disputed statement is a little perplexing. It’s like their not even trying anymore(blatant lies are all they have left).
OCBear
English doesn’t borrow from other languages, it follows them down dark alley’s, knocks them out and goes through their pockets for loose grammar.
You’ll see that OC numbers will actually look worse for June. I also track South Bay Los Angles, and that are too is starting to spiral downward.
But for us…worse is better and better is worse!
YES!
I would like to know if I am making a correct assessment. In my neighborhood in Albuquerque our homes are stucco finished and 6 yrs old. We recently had a series of rainstorms. Our neighbors home had the look on the stucco of a major part being darker than other parts. I am estimating that they have some extensive water damage inside of the exterior walls on the home. In looking at the side, same deal, and it won’t get sun there now because of the proximity to my home. They are trying to FSBO this home? Would any of you buy this (assuming normal circumstances)? Would an inspection uncover that kind of damage? How much problem to fix? Just curious to see if they are really f@cked owners.
Just curious to see if they are really f@cked owners.
No, their just stuccoed!
Is the base under the stucco concrete block??
Or are these houses wood constuction with a laminated mesh attached to a water barrier??
Has there been a lot of rain there lately?
Do local codes require a vapor barrier between the stucco and the wall base construction material/?
I suspect that Much of the recently built homes in US done by unskilled illegal alien contractors who skip over much of the necessary coatings and waterproofing of home interior/exterior wall-roofs-floors. Small unfilled or improperly sealed cracks around windows, sills, baseboards, ext would certainly result in waterlogged interiors.
I recently had floor work done on my home. I made sure that corners, baseboards, wall/floor boundaries patched with the best silicone-based sealant/caulk. I also suspect that in much recent construction cheap untreated wood is used. MY old house was built in 1944 and it is virtually 100 rot-resistant redwood. MY 60-year olds house is far better built using far better standards of craftsmanship than the new plunkers being put up today.
My house was built in 1926. Plaster walls. It’s like living in rock. I can’t recommend it enough. Holds heat/cool as appropriate.
I don’t expect the condo I purchased in 1994 to be here in 2075. Not even 2045.
If water actually did get behind the stucco it would depend upon how much water, how often and for how long the process continued. Worst possible case is rotting studs/structural member (if wood studs), wiring problems, deteriorating sheetrock on inside walls and toxic mold. Might be a real disaster, but any decent inspector should spot it immediately. Could it also just be paint fading unevenly on that side of the house?
Is it real stucco or dryvit? If it is real stucco - it can be corrected reasonably, if dryvit then (in the midwest ~100K) the entire siding must be replaced.
“‘We are seeing an increase of inventories to normal levels, but it has dramatically changed the psychology of the market,’ said Leslie Appleton-Young, chief economist for the California Association of Realtors. ‘There is excess steam in the market created by three to four years of very rapid price appreciation,’ she said.”
Highest inventory levels in history are “normal” ? No it’s not the “normal” levels that are dramatically changing the psychology of the market, it’s the biggest run up in inventory in the history of the market that is making those buyers become a *little* hesistant.
The only excess steam here is rising from the bullsh*t this idiot is spouting
This is the first time I’ve seen anyone use the metaphor of “excess steam”…I’m not sure i get it. I understand “froth” and I sort of understand “balloon” but what is “steam” supposed to mean?
Then again, I recall that Appleton-Young recently confessed that she was unable to come up with a metaphor for the current market, so I guess she’s just doing the best she can. I’d love to see the metaphors that didn’t make the cut (”too much yeast”? “intestinal bloating?”
I am sure that you have heard the steaming pile of dogshit expression for a fresh one on your lawn in the morning.
That is the steam.
I was initially perplexed about the “excess steam…” metaphor and had not heard it used before. Technically “steam” refers to water vapor, which is produced when water is heated above 100C. So she maybe trying to say that the market is excessively and dangerously overheated. Most think “steam” is the mist that one sees when water is boiled. It is not. That mist (”steam”) is formed when hot vapor comes in contact with cold air. Therefore, the term “excess steam…” is new metaphor that can be used to describe the situation we currently have with real estate - overheated market mixed with an now extremely cold and frigid market. Perhaps Ms. Appleton-Young was once a physical chemist.
You could go one further and talk about superheated steam like is used to heat old buildings and campuses.
She was once a fluffer. That’s the story I’m spreading at any rate. Nothing else makes sense with regard to her actions lately.
Some more doomed comparisons
-Mentos and Diet Coke Market ( http://www.eepybird.com/ if you’re bored. )
-Excessive chili and now we’re just letting the air clear a bit.
-The market was running a fever, but now it’s all better.
-Goldilocks is buying. Why aren’t you?
-
Professional Real Estate Investor? Not only an oxymoron. It really means that they are MORONs who are going to need some OXYGEN to begin breathing (or a paperbag to stop hyperventalating) when it dawns on them they are F@CKED on home prices and COMPLETELY BROKE, and DEEP IN THE $HITTER on DEBT.
The real professionals left this market a long time ago.
About these idiots still shrilling on. I am sure there are still some GFs out there. But do these folks really believe the few that are left really have the ability to get a loan to pay an insane price to bail out the first idiots.
“Normal inventory”? The numbers I have seen for SD indicate that we are in excess of 20,000 and are at an ALL TIME population adjusted high. ALL FREAKIN’ TIME HIGH? How is that “normal”????
Come on now! You guys skipped past the most amusing quote in the whole story!
“San Diego County in particular has been an important and lucrative market for the mortgage industry’s peddling of unconventional loans. ‘People are realizing that they will have more mortgage than value in their house, and that’s making some hesitate,’ said William Hinck, a senior mortgage consultant in San Diego.”
Let me translate: People are realizing that they are buying a house that isn’t worth what they are paying, that’s making some hesitate! Gosh, I don’t know why that would cause anyone to hesitate? Moron.
So a ’senior mortgage consultant’ would advised people to purchase a home underwater!!?? And those that don’t ‘hesitate’ are surely patted on the back and the fee pocketed. Save us all from hucksters like that.
“‘You know it’s a buyer’s market when your asking price doesn’t mean anything,’ he said.”
Try dropping your asking price to zero before you get too sure. The only reason it means nothing is that it is so far above the latent market price that you are not even getting so much as a nibble.
(“Dyann Reilly has been struggling to sell her two-story, 2,010-square-foot downtown condo…She originally listed the condo she bought four years ago for $630,000 at $1.2 million but has since lowered the asking price to $900,000.”)
A 2,100 condo in Downtown San Diego could be a wonderful family home for $400,000. Thanks for the affordable housing, speculators!
For the NAR, realtors in general and the mort. industry defending San Diego is an absolute must! If (when) San Diego falls they know full well the panic will spill over into Orange County, the “Inland Empire” the Bay Area and God knows where else. For the west coast anyway San Diego is the “Corregidor” (think Bataan Death March)! They’re defending it with nothing more than sheer defiance. Btw, Corregidor eventually fell.
There is excess steam in the market created by three to four years of very rapid price appreciation,’ she said.”
hot air is more like it.
Excess steam?? Leslie A.-Y. still needs to do some more reworking on her new moniker for describing the market since admitting that “soft landing” had crashed and burned. Maybe Suzanne can help her with the big words.
The reasons that the market took off wildly were far from normal and I would really enjoy seeing what the California Assn. of Realtors are choosing to use as a new and improved baseline for defining their new “normal.” Record inventories and sharp declines in sales don’t seem to make up part of the equation. It’s also easy to point at San Diego and call the market situation abnormal to try to reassure the rest of the state that everything is just fine… until it isn’t just San Diego anymore.
It will be really interesting to see how they defend 10% YOY price declines in San Diego in November.
The psychology is going to shift extremely quick, and panick is going to set in among the people who need to sell.
November will get the ball rolling for 2007, when a huge chunk of ARM’s are due to reset.
Not to mention the tax man and the guy in the big fat red suit are hanging out in November as well.
“Pat and Sandra Daugherty have been trying to sell their Fletcher Hills home since February with no luck, despite lowering the price by more than $50,000. Currently out of work and eager to move to Colorado or Texas for a new job, Pat Daugherty fears he and his wife might lose money on the 2,000-square-foot home they bought two years ago for $540,000.”
“They’ve put roughly $75,000 in improvements into the house and have an asking price ranging from $635,000 to $675,000. ‘At this point, we’re willing to take a loss,’ said Daugherty. ‘We really need to get this off our back so we can get on with it. I’m obviously frustrated because we worked so long and hard on this, but sooner or later the prices had to back down.’”
————————————————————————
this story does not ring true. Bought at the absolute peak, spent $75K on inprovements, no job, sounds like a flipper. Wants to sell and move to CO or TX? Can you say equity nomad wanna-be?
Brad,
My sentiments exactly! Also please to notice the “2 Year” time frame to exclude capital gains! We call them “equity locusts” as in, attack of the equity locusts.
Yeah, we didn’t screw over enough people here in San Diego by jacking up comps and taxes so now we just want to break even and walk away and see if we can’t find a “job” flipping houses where the local people understand our desire for tax free money better.
Jitbags.
Funny that their greed comes back and bites them like this. Hoping to save 15% in tax and ending up missing the peak by 9 months.
I agree. There’s something off here. Maybe the $75K in “improvements” is a rough estimate generous to the upside.
Doing standard maintenance on the roofing and paint and having the place tented for termites is not an “improvement”. It is “maintenance”.
you mean like the builders offering 50K in upgrades that cost them 15K?
I’d really like to know how the Mortgage Banker’s Association can say this:
“Loan applications were up 1 percent on a seasonally adjusted basis but down 29.1 percent on an unadjusted basis from one week earlier. The decrease might be accounted for by the fact that the Tuesday Fourth of July observance created a virtual four day weekend. Applications continue to be way off of 2005 volumes and were down 36.3 percent from the same week in 2005.”
What “seasonal adjustment” are they using to be able to claim a 1% increase when there was a real decline of 29.1% week over week and a 36.3% decline y-o-y.
Someone needs to cry “foul!”
The Union Tribune. “‘We are seeing an increase of inventories to normal levels, but it has dramatically changed the psychology of the market,’ said Leslie Appleton-Young.
WTF? When does record inventory levels in SD = normal levels? Anybody, anybody…? I must be really dumb…I just can’t figure this one out. This chick is a total fraud and a disgrace to CA. I wish she’d just shut her mouth once and for all.
This is about the fifth thread I’ve seen on this statement. Everybody’s reaction is WTF? I emailed the Union Tribune about this statement saying it’s basically as OCRenter put an blatant lie and that I’m disappointed the Union Tribune did fact check this statement. This is way past spin!
OOPS, I meant “did NOT fact check this statement”
lalaland, yes that $75K in improvements is that Mercedes in the driveway purchased with a HELOC.
Doesn’t it strike you funny that he plans to go to Colorado or Texas to find work? Can someone explain how someone just pulls up stakes, moves to another state and then sets out to find a job? I’d want to have the job nailed down before moving.
Fast rise means marginal pricing got set on relatively small sales volume. That means a fast fall is likely since what goes up on small volume can come down the same way.
Ooops - previous comment went to the wrong post - sorry.
I meant to comment that it seems a bit strange that he plans to go to Colorado or Texas to find work. Unless he works in geology I don’t think either of those areas are particularly flush with opportunity.
Maybe they have family in Colorado and/or TX?
Especially with the job market in Colorado…Not that great since Lucent moved out…telecom has tanked, etc.
Good luck on the Wal-Mart greeter job. Should cover the new house payment just fine.
‘Buyers are sitting on the sidelines waiting for a theoretical price reduction of 30 percent, and I don’t necessarily believe that’s going to happen.’
Good point. 40 to 50 percent is more likely!
Gang, all I know is Irvine’s inventory (SFR&condo per homeseekers.com) is over 1200. My realtor neighbor the flipper still hasn’t sold his overpriced condo with “galaxy granite countertops.” lol.
On a side note, my chica and I got caught up in looking at this house the last wknd. Almost made an offer, but I stuck to my guns because my gut really told me the market was going down. This article confirms my belief.
Oh, sorry just to add Irvine’s inventory just 6 months ago was around 600…
Thanks to all that gave some insight into the potential water damage on a neighboring home. From the comments, I am assessing these folks will have extensive damage and it will be an expensive fix. Albuquerque’s weather was weird last 2 wks, sunny during day and around 5 to 7 pm, rain clouds move in quickly - dump a large bucket of rain, and go away in about 30 minutes. So there was a ton of rain that would be enough to make such damage if caulking was not done. This discoloration is due specifically to water, because was not there before. These homes are 6 yrs old.
A few weeks of bad weather/rain cannot ruin a house even if untreated lumber was used and exposed. It could feasibly dry out with no rot even if it did get wet internally. Would take some time to develop significant problems. It is impossible to know what the discoloring signals without inspecting it. Up here in Washington, with our significant rain, untreated wood for home building is left exposed to the elements for often times months prior to being used. There are ways to check moisture content, etc. If wet studs, or sheathing, have a high moisture content, and are then covered up with no ability to breath and dry, then you get mold, rot, etc…
From the LA Times article:
Harvey Williams is one San Diego-area homeowner who is confident the market will hold up. The retired dermatologist figures the prime location of the $3-million, custom-built oceanfront estate he bought in Cardiff a year ago and his ability to stay put will trump a slowdown.
“If you have staying power you’ll never get hurt,” said Williams, who was able to pocket an $800,000 profit from the sale of his previous San Diego-area home. He is also about to close escrow on a $570,000 condo in downtown San Diego.
Okay, lets say as a retiree he’s in his sixties, he bought a $3-million estate two years ago near the peak, plus he’s taken on a downtown SD condo (which we all know is a great place to put your money
. But he has “staying power” so he wont get hurt.
By the time the market gets back to a point for Harvey to turn a profit he’ll either be six feet under or eating applesauce through a straw.
Even a dermatologist wont be able to save his own skin.
p.s. I live in Encinitas and there are zero oceanfront homes in Cardiff. Ocean view, yes.
Staying power? He’ll need industrial strength Viagra.
I just heard on the radio that a woman in California has taken out radio ads inviting people to come over for an open house. Other news stated that Americans applying for unemployment jumped by 19,000 last month. This news was followed by an advertisement for debt relief counciling company. All you have to do is listen and the truth will show itself.
What are the refreshments at the Open House that was advertised on the radio. All LA based folks, go eat her out of house and home (literally) and then LOWBALL her. Give reports of the fun
About the housing bubble.
I’ve been a renter, homeowner, landlord and was a resident in San Diego county for 30 years so I’ve had a chance to see things from all angles. Here are a few topics that keep showing up that are driving me crazy.
1) Everyone wants to live here. No they don’t. Southern Californians can be very smug about this since they cornered the market when it comes to beautiful weather. It’s also incredibly expensive, crowded and smoggy. Up here in the Pacific Northwest I’ve yet to meet one person wanting to move there.
2) If I can’t sell it I’ll take it off the market and rent it: As a former landlord, I can assure you this can be a nightmare. There are very good renters, which all landlords want, and there are very bad renters. If you are lucky to get the first, what is it about your rental that would make them want to rent it? Before we left California we rented a nice 3 bedroom townhome for $1,800 a month. I calculated what is would have cost to buy the same townhome with a 20% downpayment, 6% convential loan. With taxes it was $3,500. Why would I pay anything close to $3,500 when I can rent it for $1,800? The point is, if you can’t cover your expenses you are in trouble. Keep in mind, renters move. Plan on at least two months of vacancy between tenants. You are also responsible for all repairs. Even new homes can have leaky faucets, etc. Hopefully you won’t end up with a bad tenant. We had a beautiful little duplex destroyed by one. When we bought it, it was perfect. Later, we had to evict the tenants for not paying the rent. The condition was so bad that the property manager didn’t want us to see it. He said it would break out hearts. It did.
3) If I don’t buy now, I’ll never be able to: Yes you will. The same thing happened in the early ‘90. Contrary to what some may say, in the long run, buyers hold the cards. First time buyers to be exact. I look at the real estate as climbing up a ladder. First time buyers buy the house from a seller wanting to move up a notch. The seller of the house they buy moves up a notch, etc. With no first time buyers, nobody moves. This is where we are right now.
4) Prices don’t come down: By now, everyone knows this isn’t true. They can drop dramatically. In the early 1990s, we purchased a nice home in North San Diego County. The original asking price was $239,000. The seller had dropped the price to $199,000 when we looked at it. We bought it for $189,000. Over the next couple years the value dropped to $179,000 and stayed there for nearly eight years. The house had not changed. The neighborhood was still nice. I have friends that were actually able to lower their property taxes due the drop in equity.
5) Cashing out and moving out of state: Could be a good thing. Could be a bad thing. We did this and it worked out really well. But I would be lying if I said that I don’t miss the Southern California climate. Have a good understanding of what is important to you before you move.
6) Property Taxes: This doesn’t come up enough. In California, Prop 13 will help those that have owned homes for a long time. People living in other states won’t have this luxury. Homeowners boasting about the equity they have in their home may not be so happy when their homes are reaccessed. It already happend to a friend of mine, who is in her 70s, on a fixed income. Her property taxes just increased by $1,000 per year. In Kitsap County here in Washington, taxes increased an average of 21% this year. If you don’t think that this mess won’t affect everyone, guess again.
And finally, greed, fear and anger. I think this sums things up. Forget economics. It was greed and fear that drove the prices up. The same will take it down. And then there is anger. Future buyers, please don’t be so angry with the sellers. With the exception of the flippers, that is. Be patient. The greedy will get their due. There are sellers, like myself, however, who are shocked and disgusted to see how long this has gone on. I will be thrilled when it’s over, even if it means my home is worth less. And if you are honest, if it was your home, wouldn’t you also try to sell it for what you could get for it? Sellers have a bitter pill to swallow. They need time to adjust.
Thanks for sharing the wisdom that comes from experience KC.
We’ve been watching the Orange County canyon areas - the slide over the last month is amazing out there! One house on a 2 acre lot (unheard of in OC) with a nice 2,000 square foot lot went from 875,000 in March to 599,000 today. Another place we looked at has dropped $80,000 in about a month. Seeing these larger places dragging down the comps for all the other dinky little places out there that people are trying to get half a mil for. Don’t know what the point of living on horse property out there would be with no yard (like one place we looked at and thankfully yanked our offer off of).
Best quote of the day:
‘Both Gin and Thornberg described the drop in prices as “statistical noise”.’
Check out the graph. Looks like a pretty solid trend, but then I’m not a chief economist…..
Then there’s this one:
That synopsis was backed up by Peter Dennehy, senior vice president of Sullivan Group Real Estate Advisors. He said the drop in median prices is merely due to sellers getting real about the fact they’re in a buyer’s market.
…..So it’s not a real price drop, right?
Sorry, I put the link in the wrong spot:
http://www.voiceofsandiego.org/articles/2006/07/13/news/01pricedrop.txt
“Los Angeles County’s median price in June rose 8.8% to a record-high $517,000, DataQuick reported.”
Okay, I’m assuming Karevoll’s talking about y-o-y for june. after checking may’s zip charts, the median sfh price was $540,000 and the may y-o-y gain was 12.5%. Can someone help me here. How is $517,000 a record? Am I missing something here or is he just a blatant liar?