California Is Reaching ‘The End Of A Real Estate Cycle’
Some housing bubble reports from California. “Home sales in the Bay Area continued to slow last month as prices reached new highs. Prices increased at their slowest pace in more than three years. A total of 9,892 new and resale houses and condos were sold in the nine-county region last month. That was down 24.0 percent from 13,014 for June last year, according to DataQuick Information Systems.”
“‘The Bay Area’s market is reaching the end of a real estate cycle, it looks like prices could flatten out sometime this fall. What happens after that is anyone’s guess,’ said Marshall Prentice, DataQuick president.”
“Home sales in the East Bay plunged in June compared with the year before, and the downturn was the largest annual decline since sales began to droop 18 months ago. Even worse, sales plummeted at a faster rate than the Bay Area overall. Sales fell 27 percent in Alameda County and an even steeper 28 percent in Contra Costa County.”
“Ryan and Susannah Maddox have been trying to sell their house in Loma Linda since March. At listing time, the couple realized this was a different market than when they put a deposit on their house in April 2004. ‘We knew the market was slowing, but we were hoping it would not take this long to sell,’ Susannah Maddox said.”
“A UCLA economist said the combination of rapidly falling home sales and diminishing home-price appreciation is the behavior of ‘a classic bubble.’ He predicts home-price appreciation will flatten out, and there might not be true appreciation again until 2011.”
“‘The soft-landing people are full of nonsense,’ said Christopher Thornberg, senior economist at UCLA. ‘This is a classic bubble. And unit sales are falling faster than in past bubbles. Next year will be critical from the standpoint of how the consumer will react to not having ‘a house cash machine’ that can be tapped for spending thanks to rapidly appreciating value. ‘A major pullback in consumer spending could get ugly very quickly,’ he said.”
“Second-quarter sales of new homes in San Joaquin County were down by 40 percent from a year ago. Builders have reported that aggressive discounting sales and some price cuts in the first half of the year to generate sales.”
“A rising supply of unsold homes is helping to put downward pressure on prices. One local MLS that covers metropolitan Los Angeles sent a letter to its broker-clients this month saying it had more homes listed than at any time in its history, about 13,000 properties.”
“‘It’s definitely a buyer’s market, but there are plenty of scared buyers too,’ said John Rygiol, a Seal Beach-based agent who works exclusively with home buyers. ‘That’s the really weird thing right now, the uncertainty. Buyers are hesitant to buy because they think prices will drop.’”
“Sales have declined three consecutive months in Riverside County and six consecutive months in San Bernardino County. Economist Chris Thornberg argued that an extended holding pattern for would create tremendous pain for the real estate industry. ‘The builders and mortgage brokers and real estate agents will take a hit,’ he said. Thornberg said Southern California home prices are easily 40 percent overvalued and it will take about six years for incomes and other economic factors to catch up.”
“Consultant Steve Johnson said a sales slowdown shows that consumers are confused about whether this is a good time to buy. ‘They are being very cautious,’ Johnson said. Johnson said the frenzy of home purchasing over the last several years also may have ’stolen demand from the future’ while pricing many out of the market. Johnson said builders ‘are in for a significant period of adjustment over the next 18 months. We have the wrong products built in the wrong locations and at the wrong price for this market.’”
“For the first time since the late 1990s, median sales prices for homes in Placer and Sacramento counties dipped below the previous year’s levels. Real estate agents attributed Placer County’s bigger drop to price cuts on higher-end homes and a rash of condo conversions in Rocklin and Roseville.”
“‘This is showing all the earmarks of a real estate cycle that’s reaching its end,’ explained DataQuick analyst John Karevoll. ‘The big question: Is it going to reach its end with a splat or reach the end with a relatively soft landing?’”
In San Diego. “Brokerage firm Marcus & Millichap holds that in San Diego County, 25 percent to 40 percent of condos under development or apartments that were converted into condos will return to the rental marketplace over the next 18 months, spokeswoman Stacey Corso said. She said the forecast also applies to Las Vegas, Phoenix, Washington, D.C., and much of Florida. ‘It is already beginning to happen,’ said Kent Williams.”
“Real-estate consultant Gary London said the condo conversion market had made ‘a major shift.’ ‘It is froth, with distressed properties, with condo conversion maps with no chance of selling at the prices they need to sell to be made whole,’ he said.”
“Real-estate consultant Gary London said the condo conversion market had made ‘a major shift.’ ‘It is froth, with distressed properties, with condo conversion maps with no chance of selling at the prices they need to sell to be made whole,’ he said.”
Time to hire more sign twirlers (aka human directionals) who can spin those signs faster than ever!
“Thornberg said Southern California home prices are easily 40 percent overvalued and it will take about six years for incomes and other economic factors to catch up.”
So according to Thornberg those who have not bought into the mania should plan to rent for six more years?
….and to expect a 40% wage increase in the next 6 years. Yeah, that’ll happen, and monkeys will come flyin’ out my ass.
Haven’t these UCLA boys gone from doom-n-gloom, to everything’ll-be-fine, to doom-n-gloom again? What’s up with that?
LOL! With all of the RE jobs that have been created over the last several years (not to mention outsourcing, etc.) folks would be lucky to see any wage increases. I’m betting on fat wage DECREASES in the years ahead.
Along with wage decreases of course come a lack of jobs. As I got to live through joblessness in the last recession, the reason wages drop (on a tactical level, not a macro-economic one) is that some get fired/laid-off and someone else is hired at a lower wage, or they load up on the poor bastard who is still employed(this actually seemed more frequent).
Look at the movies being made about the depression closely. You’ll see people walking in the soup line about 15 bodies wide and the line as long as the eye could see. Pretty depressing stuff but get ready it’s coming to a town you live in. The “poverty effect” is also associated with increased crime and violence. Keep your cash ready as the property tsunami is getting ready to hit. I’m betting prices won’t stop until they’ve at least gotten to about a 1970’s threshold. If you look at the real estate market, it has not had a correction that is commensurate with it’s rise since at least the 1970’s, maybe the recession of 1982. Any corrections in between again if you measure it like a market technician would, you clearly see that this is a very unhealthy run-up. Of course we see that fundamentally as well. Unhealthy run-ups always end up with a massive retrenchment of all their gains, so look at what a property cost in the late 70’s (when there was a price run up at that time too and you saw prices around $40-$70K). Sound ridiculous? Does to me, but that’s because I’m thinking and feeling in today’s atmosphere. Place yuourself emotionally at the crescendo of a “lack of cash” panic and it’s not so ridiculous to believe. Oh yeah, with the banks, pensions and many insurance companies so heavily invested in real estate, as the RE market falls, so will many of them who have played this for all its worth, so yes, some of them will fail as well. Keep your money safe, check your banks’ asset holdings.
best wishes, SV
Well, if you assume wages go up by 3% per year (in line with a rough inflation number), then there you have 18%, combined with a 20% drop in nominal prices now, you get there.
Given people’s propensity to hold onto real estate for emotional, not financial reasons (they will do all they can not to sell), this doesn’t seem all that unreasonable to me. I personally don’t expect wages to be coming down anytime soon–demographics is at the base of this belief.
- Reluctance to sell at a loss
- Willing to take a chance that price will rebound…it’s not a loss until you sell
- Selling confirms your mistake, people don’t like to confirm failure
- Decision to buy is easy, decision to sell is hard
Behavioral finance points related to the stock market. But now that RE is the new investment frenzy, just replace “stock” with “RE”.
BTW, that’s 19.4%, but what’s a few percent among friends. Get a neg am mortgage with $0 payments the first year!
Agree, at least with respect to Cali. Cali will remain, despite the pessimism, a growth and jobs machine. There will probably be a decline in real estate prices here in California–along the lines you present–but no falling off the table.
I believe Thornberg has always been semi doom & gloom. He is however, cautious because he sounded the warning too early this time. They started worrying in 2002-2003. They were just too smart for their own good.
I think people who called the bubble early were right. We may just have co-joined bubbles…double bubble …back to back bubbles?
I agree, Thornberg is being cautious. Also realize he is government funded and is thus expected to post a rosy picture. That said, the normal state of the economy is growth, so being an optimistic economist is actually rational. So for him to declare we’re in a bubble and it won’t be until 2011 for us to did out… ouch. He’s seeing pain ahead.
And how will people react when the home ATM dries up?
Neil
The problem with calling a bubble is that Joe Sixpack thinks you’re telling him that it will pop the following day. UCLA was right in calling it a bubble in 02 (because it was a bubble). What consumers haven’t realized is it has been a bubble the whole time, and you only have a slightly better chance of predicting when it busts as you do predicting when a particular soap bubble will pop. You do still however know that in time, it will pop.
“The problem with calling a bubble is that Joe Sixpack thinks you’re telling him that it will pop the following day”
Do we remember the fundamentalists calling the tech bubble in the mid 90’s? They were jeered when their predictions didn’t come to fruition immediately. I think we all know how that one played out. The thing about asset bubbles is no one really knows how long it will take for them to play out. But that doesn’t make it any less a bubble.
In my opinion, Thornberg has been encouraged to toe the line. He may have been TOLD to tone it down so as not to cause any panic. He recently made an abrupt U-Turn in terms of how he views the market.
I doubt he believes any part of this zero-appreciation-for-5 years mantra he has adopted. It’s just the party line from the new career-preservation-mode version of Thornberg. Even he knows economists don’t have to be right.
Integrity! Putting UCLA in front of your research and then towing the line are not what PHD in economics are supposed to do. I call this flip-flop and it costs Keary the preisdency. UCLA should disaasociate themselves from this minor-league research.
The folks from UCLA have misplayed this thing. A truly academic response would have been more along the lines of “we believe homes are significantly overvalued, but we cannot predict when this overvaluation will be recognized by the market.”
That was basically Robert Shiller’s approach, and I guess it confirms that Yale is in fact superior to UCLA (kidding, mostly).
If you predict a little of everything, there is a 100% probability that one of your predictions will prove correct. This is the only one that you need ever mention again going forward.
Even a stopped clock is right twice a day!
Not to go over something that has already been beaten to death, but…..
If prices are now 40% overpriced, it would take 66% wage increase to make up the difference.
For example, if you made $60k, you would have to make $100k for the income/price ratio to be back in line with fundamentals. That’s a 66% increase!
Nope, ain’t happenin’ in the next 5 years.
You have to include the home price declines into equation. I will not give more than 10% wage increase in the next 5 years (recession / depression looming), but 40-50% home prices declines seem to be right.
Of course but the argument was about whether wages would “catch up” by 2011 if housing remained flat.
My point is exactly that houses won’t remain flat or it would take a heck of a lot longer than 2011.
Well hold on now, don’t you know that globalization and outsourcing will continue to put UPWARD pressue on American wages. How can you not see the logic here
yup. They forgot the refill on the lithium prescription.
Boy! That must be really painful ? Monkeys flying out your …..
I hope you have a lot of lubricant. Anyways if the governor of California Arnold can be pregnant in his films, maybe you can have monkeys flying out your …… Good luck anyways.
‘That’s the really weird thing right now, the uncertainty. Buyers are hesitant to buy because they think prices will drop.’
There is no need to worry about a price drop, as Thornberg has told us that prices will plateau for six years.
I love the view from this “permanently high plateau,” that’s for sure. It’s nice that housing is the one asset in the history of the entire world that only “flattens out” and never, ever, ever declines. Did I say “Ever?”
Florida home prices outstrip incomes
By Linda Rawls
Palm Beach Post Staff Writer
Wednesday, July 19, 2006
Incomes throughout Florida have failed to keep pace with runaway home prices, according to a study released Tuesday by the Florida Housing Coalition in Tallahassee.
Since 2003, median home prices in Florida have soared 77 percent as the real estate boom swept the state, but incomes grew a meager 1.4 percent, according to the study. It’s the first of what will become the coalition’s annual report on wages and the cost of housing in Florida.
Chart:Some professions shut out
A splitting market
How rising costs have divided the market between those who benefit from Save Our Homes and those who don’t.
The big winners
See 3,600+ properties with more than $500,000 in savings under the “Save Our Homes” law:
See owners, properties and benefits
Maps: North | Central
South central | South
Post reporters’ blog serves up latest updates and chat on South Florida real estate.
Chat about the maddening twists of homeowners insurance on our blog.
More business news
•Latest news, columnists
• Local stocks
• Market tools
• Mortgage rates
• Gas prices
“In 2002, the median income made by Florida’s families allowed those families to afford median-priced homes,” said Michael Davis, executive director of the nonprofit coalition. “Since 2002, each family needs significantly greater assistance compared to what that family needed four years ago to buy a home.”
One West Palm Beach man doesn’t have to read Tuesday’s report, called “Florida Priced Out” — he’s living it.
Jamie Dryer, a 48-year-old consultant for a financial public relations company, is also an experienced securities broker and a former budget adviser to President Ronald Reagan.
But even as someone who worked in the White House budget office, Dryer says he still can’t figure out how to afford a home in Palm Beach County. The median price of an existing home here shot up to a record $421,500 in November and now hovers around $390,000. That’s still out of reach for most Palm Beach County workers, even relatively high-paid professionals.
“I am surprised at the lack of outrage by the voting public, and especially businesses, which will suffer unless something is done,” Dryer said Tuesday. “It’s unacceptable.”
A Palm Beach Post study last year documented that between 2000 and 2005, the median price of an existing home in Palm Beach County rose 171 percent, but median family income rose only 9 percent.
Last week, the Housing Leadership Council of Palm Beach County, a new group formed by the Palm Beach County Economic Council, released its housing needs assessment, showing that 90 percent of the workforce in Palm Beach County could not afford to buy the median-priced home.
And shortly before that, the county commission released its own study of housing affordability, citing a severe lack of workforce housing.
The new Florida Housing Coalition report, however, is unique in that it offers an interactive Web site where you can calculate the affordability gap for more than 60 occupations in 18 metropolitan areas around the state, including West Palm Beach and Fort Pierce. No Martin County areas are included on the site, http://www.pricedoutreport.org.
The Web site also lets you determine the maximum mortgage that’s affordable for each occupation’s income, as well as the number of weekly work hours required to afford a two-bedroom, two-bath apartment at market rate. To afford West Palm Beach’s median-priced home in 2005 — $390,100 — a worker would need to earn $132,065, according to the report. The median wage in February 2005, however, was only $64,400, according to the report.
A worker earning the median income in West Palm Beach could qualify for a maximum mortgage of $190,150. That leaves an affordability gap of $199,950, which is the difference between the maximum mortgage and what the median-priced home costs, the report says.
Many local workers, however — such as Dryer, the former White House budget adviser — are forced to rent in Palm Beach County’s extravagant housing market. Local workers need to earn an hourly wage of $23.23 just to afford the city’s market-rate rent of $1,208.
As the Web site shows, though, many occupations don’t earn that much. A bank teller in West Palm Beach, for instance, would have to work 84 hours a week to afford a market-rate apartment on her annual income of $23,079. A bus driver would have to work 100 hours a week.
In Fort Pierce, where housing is more affordable than in Palm Beach County, that same bank teller would have to work 75 hours to afford the market-rate rent of $1,023, which requires an hourly wage of $19.67.
To afford the median priced home in Fort Pierce — $254,000 in 2005 — our bank teller would need to earn an annual income of $85,990, the report shows. There she earns $21,823, however, falling into the affordability gap and out of reach of home ownership.
Florida home prices outstrip incomes
By Linda Rawls
Palm Beach Post Staff Writer
Wednesday, July 19, 2006
Incomes throughout Florida have failed to keep pace with runaway home prices, according to a study released Tuesday by the Florida Housing Coalition in Tallahassee.
Since 2003, median home prices in Florida have soared 77 percent as the real estate boom swept the state, but incomes grew a meager 1.4 percent, according to the study. It’s the first of what will become the coalition’s annual report on wages and the cost of housing in Florida.
Chart:Some professions shut out
A splitting market
How rising costs have divided the market between those who benefit from Save Our Homes and those who don’t.
The big winners
See 3,600+ properties with more than $500,000 in savings under the “Save Our Homes” law:
See owners, properties and benefits
Maps: North | Central
South central | South
Post reporters’ blog serves up latest updates and chat on South Florida real estate.
Chat about the maddening twists of homeowners insurance on our blog.
More business news
•Latest news, columnists
• Local stocks
• Market tools
• Mortgage rates
• Gas prices
“In 2002, the median income made by Florida’s families allowed those families to afford median-priced homes,” said Michael Davis, executive director of the nonprofit coalition. “Since 2002, each family needs significantly greater assistance compared to what that family needed four years ago to buy a home.”
One West Palm Beach man doesn’t have to read Tuesday’s report, called “Florida Priced Out” — he’s living it.
Jamie Dryer, a 48-year-old consultant for a financial public relations company, is also an experienced securities broker and a former budget adviser to President Ronald Reagan.
But even as someone who worked in the White House budget office, Dryer says he still can’t figure out how to afford a home in Palm Beach County. The median price of an existing home here shot up to a record $421,500 in November and now hovers around $390,000. That’s still out of reach for most Palm Beach County workers, even relatively high-paid professionals.
“I am surprised at the lack of outrage by the voting public, and especially businesses, which will suffer unless something is done,” Dryer said Tuesday. “It’s unacceptable.”
A Palm Beach Post study last year documented that between 2000 and 2005, the median price of an existing home in Palm Beach County rose 171 percent, but median family income rose only 9 percent.
Last week, the Housing Leadership Council of Palm Beach County, a new group formed by the Palm Beach County Economic Council, released its housing needs assessment, showing that 90 percent of the workforce in Palm Beach County could not afford to buy the median-priced home.
And shortly before that, the county commission released its own study of housing affordability, citing a severe lack of workforce housing.
The new Florida Housing Coalition report, however, is unique in that it offers an interactive Web site where you can calculate the affordability gap for more than 60 occupations in 18 metropolitan areas around the state, including West Palm Beach and Fort Pierce. No Martin County areas are included on the site, http://www.pricedoutreport.org.
The Web site also lets you determine the maximum mortgage that’s affordable for each occupation’s income, as well as the number of weekly work hours required to afford a two-bedroom, two-bath apartment at market rate. To afford West Palm Beach’s median-priced home in 2005 — $390,100 — a worker would need to earn $132,065, according to the report. The median wage in February 2005, however, was only $64,400, according to the report.
A worker earning the median income in West Palm Beach could qualify for a maximum mortgage of $190,150. That leaves an affordability gap of $199,950, which is the difference between the maximum mortgage and what the median-priced home costs, the report says.
Many local workers, however — such as Dryer, the former White House budget adviser — are forced to rent in Palm Beach County’s extravagant housing market. Local workers need to earn an hourly wage of $23.23 just to afford the city’s market-rate rent of $1,208.
As the Web site shows, though, many occupations don’t earn that much. A bank teller in West Palm Beach, for instance, would have to work 84 hours a week to afford a market-rate apartment on her annual income of $23,079. A bus driver would have to work 100 hours a week.
In Fort Pierce, where housing is more affordable than in Palm Beach County, that same bank teller would have to work 75 hours to afford the market-rate rent of $1,023, which requires an hourly wage of $19.67.
To afford the median priced home in Fort Pierce — $254,000 in 2005 — our bank teller would need to earn an annual income of $85,990, the report shows. There she earns $21,823, however, falling into the affordability gap and out of reach of home ownership.
Oh, I get it. A 48 year old financial professional can’t buy a 400K house but a 25 year old twerp in SoCal “can.”
Really points up the utter lunacy of all of this.
The “twerp’s” best friends are a 20-something appraiser and a 20-something loan officer. The “zero down reverse appreciating wizzo deluxe” loan was “as easy as ordering a pizza”. And in this ponzi scheme this 20-something FB bought an overpriced POS which enabled an equity locust to take flight.
The CA equity locust landed in and overpaid for a home that enabled a non-CA equity locust to take flight who landed in and overpaid for a home and well, if you repeat this over and over again you can see that 20-something set off a chain reaction that continues to this day but is finally running out of steam.
Thank goodness they conducted a study, I never would’ve guessed it.
“I am surprised at the lack of outrage by the voting public, and especially businesses, which will suffer unless something is done,” Dryer said Tuesday. “It’s unacceptable.”
I’m with you Jamie. Where is the outrage? People don’t even bother to vote, never mind march or organize.
“Consultant Steve Johnson said a sales slowdown shows that consumers are confused about whether this is a good time to buy.”
Actually I don’t think they are confused at all. The GFs already bought so the “fence-sitters” like myself are waiting for prices to come down match the area’s fundementals. We want to buy a house to live in that makes financial sense. We have no intention on funding some boomers retirement for them by purchsing their over priced RE. I don’t understand why that is so hard for “RE consultants” and other shills to comprehend.
Exactly. I, unlike so many young-and dumb types around here, as well as those not-so-young, will not fund some boomer’s retirement just because they couldn’t save a dime during their whole life and are pinning everything on overpriced RE!
Roger that.
Ditto, -f- the boomers. Surfer-x rules.
Yeah
Surfer-X rules
Surfer-X is kinda funny, but some of his posts should get him on suicide watch in most places, unless they were imposters.
I enjoy very dark humor but sometimes he is a bit much.
Screw the bummers oh I mean bommers. They think the world owes them. They are still dillusional form their 60 hippies acid flash backs. The big brain drain is coming and boomers cannot work forever.
Boomers if they have not saved enough by now for their retirement then it is their own dame fault. I can’t stand hearing some boomer complain oh I can’t retire because I was screwd over. Then I found out that they were or still are addicted to drugs, been married and divorced five times and have six kids from three of their former five wives. Oh by the way they have a slight drinking problem. Screw them maybe they can get top dollar for their card board box condo conversion.
I agree with the above re boomers, but my own generation (30 something) is much worse. Sometimes when I talk with my CLOSE FRIENDS I feel like Will Ferrel in Zoolander: Am I eating crazy pills??? I shudder when I think of the 0 savings, beamer driving, plasma TV owning, Vegas-trip money dumping cohorts that I have. Add to that a hyperinflated sense of entitlement and it is scary to think how this group will react to lower standard of living.
Signed,
Premature Curmudgeon
its all evening out, the gen-xers pulled the wool over the eyes of the boomers with the dot com bubble, now they are getting revenge with the housing bubble.
I rmember seeing this boomer all teary eyed who just lost her entire life savings in the dot com implosion saying “well we trusted the young people, they always seem to know better…” Did you really think a van delivering your groceries to your home or some stupid sock puppet hawking doggie treats was “the next big thing”. The P/E ratios of these yet to turn a profit companies was a joke, so many parrallels to this housing run up.
hahahah…well that IS true. A number of my Gen-X friends got roasted in the stock market, and now the fools are about to get roasted worse with the real estate bust. All were looking for the quick and easy buck, and wondering why I wasn’t jumping on board the gravy train…
Boomers will be retiring, looking to down size and dieing for the next 30yrs. Meanwhile the builders will keep building inventory. It’s up to the illegals and the current generation of young people to keep the boomers retirement plan intact, with negative amortization I/O loans (basically renters that don’t mind paying twice as much to call themselves owners). The next generation faces little home equity and no social security when they retire.
Better get on the phone to the US Embassy and find out when my ship leaves!
I’m a 47 year old boomer. Rented the last 10 years. I have a lot of savings. And no, I’m not expecting to die anytime soon. I have been a fitness fanatic since I was 17 (weights and cardio, never smoked, never took drugs). No, I won’t finance another boomer’s retirement. I have many times more in savings than the typical boomer has in his 401k. Nor will I finance a gen-x or gen-y’s life. I never got caught in the tech bubble. I don’t conform to investing manias.
I think that saying all boomers are like [fill in the blanks] is kind of like saying all black people are like [fill in the blanks].
No, we will be funding their retirement through our higher taxes in years to come! Remember what Ben Franklin said basically that if we as a country ever get to the point where we can vote ourselves $$ we are in trouble!
“We have no intention on funding some boomers retirement for them by purchsing their over priced RE”
Perfect, thats a excellent observation. Most of the people I knew back in Cali said that’s what they planed to do, sell home and retire to another state. Most were in there mid-forties so they were planning on doing this in say 10 years… just think what they figured there homes would be worth by then. hahaha
It doesn’t work that way… everybody can’t retire rich……
So I am betting they will have to increase their savings and cut the spending to make up for the lost paper gains.
Even better I have had a RE perma-bull lecture me on the ultimate desirability of OC and then launch into her plan to sell her house and retire elsewhere.
In Thornburg’s defense, he did add a caveat:
Next year will be critical from the standpoint of how the consumer will react to not having “a house cash machine” that can be tapped for spending thanks to rapidly appreciating value.
“A major pullback in consumer spending could get ugly very quickly,” he said
as getstucco said, the guy is all over the place. “Soft landing is nonsense”, “prices will flatten for 5 years” (sounds like a soft landing prediction to me), things “could get ugly very quickly”. He’s all over the place, one of those will turn out correct, and he’ll point to that prediction. Luckily Ben’s blog will still be around to shove the other 10 predictions back in his face.
In Thornberg’s defense, have you ever heard him speak? Yes, he has to be a politician, but when he speaks and selectively emphasizes certain points of his presentation… he comes across as a housing bear. I think he knows a recession is comming but puts his job at risk not to slide the information out at odd times during his presentations.
I used to have a negative opinion of Thornberg until I *listened* to him rather than just read a press release of his words… He came across as someone begging to warn people “run for the hills” but constrained by his job position to be more moderate.
My two cents.
Neil
I did hear an interview with him about 9 months ago. He said and I quote “If you buy a house today for $700,000 it will be worth $700,000 in 4 years.” Doesn’t sound like someone warning people to run for the hills to me. Again, as I said before, he seems to be all over the place, and has certainly become less of a bear IMO.
“OC is going to get hammered” was the words I remember.
Neil
Problem is, a professional economist should be wise enough to not make such statements. There’s just too much uncertainty in the economy to make predictions.
Thornburg should know that, and the fact that he doesn’t, leads me to believe he’s a so-so housing economist. Contrast his statements with Shiller’s, for example.
Agreed.
…With Neil.
dwr - “less of a bear” ?
Did you hear his April speech in San Diego? Sounded quite negative.
“Did you hear his April speech in San Diego? Sounded quite negative.”
Did you read the article yesterday?
I never had a negative opinion of Thornburg. I think Neil is right and that many of you are trying to paint T-burg into a corner. If you pay attention over time, it’s rather obvious what he’s saying.
Thornburg is trying to be a housing bear - but at the same time not become a victim of a “kill the messenger” mentality as this whole things unwind.
I am sure that in private, he tells it like he did at that UCSD event during his presentation on the California economy (back in January or February of this year). He may regret that thing is all over the ‘Net now (if you haven’t seen it yet - you should find it and watch it).
Re: Orange County home prices and how residents believe their area “is different”.
“They are going to get creamed!”
[Or "crushed" - or whatever he said]
“hammered” was the quote.
He probably cringes everytime we post that quote.
The OC quote itself was worth watching the whole hour.
Thornburg for President!
When does economic research become opinion. Either he has data to back up his reports or he is just another BS artist trying to please his audience at the moment. Ifnyou have to read between the lines to understand what he is trying to say, its just BS. And UCLA funds this clown.
This is a function of our current media culture. Experts are only given the opportunity to provide sound bites preferably a comment that is at one extreme of a spectrum of opinions. Any recognition of nuance, complexity, or the need for “data” to back one’s claim doesn’t make for good news today.
As a UCLA graduate, I can assure you that they don’t have economists on staff who make up reports with no data. Faculty and researchers are widely published in peer reviewed journals and their work is openly scrutinized.
For a taste of Thornburg’s views outside of the sound bite world, check out the video that was previously mentioned.
Thornburg on housing
The last 5 years the economy was fueled by consumers taking on more debt to buy SUVs and other toys to fill their overpriced houses. $800 billion of the economy was financed by this debt. My buddy is a Bob Brinker cult follower and thinks that the stock market will zoom up if R.E. crashes. He says “the money” will go into stocks. I replied to his e-mail with a question: “what money?” But my buddy says “Bob Brinker says inflation is over, oil price hikes are over” and so on. So the economy will get better and interest rates will stop going up. Bob Brinker this and Bob Brinker that. I just laugh.
long island (nassau-suffolk) is easily 50% overvalued and at the top of many lists of areas at risk of price declines (see pmi group, for example), but we don’t have tons of apartments/condos like phoenix, sd, dc, etc. so what will that mean as this all plays out? i’ve wondered how that makes things different here (or anywhere like it) - a slower fall, or just more foreclosures/sfhomes for rent?
After 1989, it was foreclosure city on Long Island, and prices fell till the mid 90’s.
Same thing here in Baltimore metro area–lots of speculation on existing SFH’s as well, of course, as the new McMansions, of which most of our new building consisted. Our June prices went up only 3.1% YoY, less than inflation so a real price decline, and I expect nominal drops very soon. I think our downturn will be pretty nasty, because these SFH’s have (usually) been flipped once already, so the people who bought them last and are selling them now paid the most and can least afford to drop the price. At least those condos can be dropped to pre-con prices to get rid of them, if necessary. SFH’s just sit and sit and sit.
i’m inclined to think that the sfh areas will hurt more & longer than condo/rental areas too.
“Real estate agents attributed Placer County’s bigger drop to price cuts on higher-end homes and a rash of condo conversions in Rocklin and Roseville.”
…and the only thing keeping the comps up are the sales of high-end homes that make the market as a whole appear to remain stable.
That Stockton Record story has this:
Snaith, who coined the phrase “housing soufflé” to describe the cooling down of the market, now says that the housing market is more like a crepe - relatively flat.
What comes after crepe?
German Chocolate Upside Down Cake
HA HA. I just spit water on my keyboard.
i spit tequila
What comes after crepe?
Lose the ‘e’s, insert an ‘a’
Luckily, I had already finished the hefeweizen.
Snaith is trying to sell his own house at this time. He can test out his theory on his own house. Talk about eating your own cooking.
Souffle—> crepe—->CRAP.
Toasted road kill, perhaps?
It was said more recently today during Bernanke’s testimony that rents will increase due to fewer people able to purchase homes thus increasing the rent equivalent and this inflation would rise.
How wrong… with more apartment construction ahead in the bay area and dare say more undoing of conversion to rentals we may see flat and declining rental in the future.
Rents will match the local economy much better than houses since rents are paid out of current income, houses out of future income. If your local economy goes in the crapper, don’t worry about rent, worry about keeping your Yobe.
Exactly right. There will be more rentals and falling rents, imho.
“Brokerage firm Marcus & Millichap holds that in San Diego County, 25 percent to 40 percent of condos under development or apartments that were converted into condos will return to the rental marketplace over the next 18 months, spokeswoman Stacey Corso said. She said the forecast also applies to Las Vegas, Phoenix, Washington, D.C., and much of Florida. ‘It is already beginning to happen,’ said Kent Williams.”
“Real-estate consultant Gary London said the condo conversion market had made ‘a major shift.’ ‘It is froth, with distressed properties, with condo conversion maps with no chance of selling at the prices they need to sell to be made whole,’ he said.”
Not so sure… a friend of mine does work on converting apartments to upscale apartments so they could rent for much more, paints the bathtubs and sinks. Back in the early part of 2000 he had much less work because everyone was buying, and for good reason.. it was cheaper to buy than to rent and you didn’t have to pay 400 a month more because the bathtub got painted.
I’m afraid that now with no buyers and more renters the landlords can go back to there old tricks. Got a bad feeling here about this.
Crap………
Inventory has really taken a jump in the last 5 months in the SF Bay Area. Have seen Contra Costa, Santa Cruz, and Alameda counties inventory up +50% in some cities. Only sales lately are on homes with $30K to $50K price cuts or more. More and larger price cuts coming in the fall and winter. I think there are still people that want to buy but can’t afford the payments anymore with the higher interest rates and still near peak prices.
Any other observations out there?
yes,my father in law sold his place in rossmoor,on of the nicest units there,after a $100k price cut.there are still 165 listings,selling at the rate of one a month.last year 15 listings,15 sales.
Tom,
what was the original list price, this is in Walnut Creek right?
Simi Valley’s inventory has gone up over 150% since March (557 listings on March 1 to 1474 listings this morning according to zip realty).
Number of homes sold in May–186. I can’t wait to see the June numbers.
In Livermore, I heard the inventory is up 100% from last year. I believe it was in an article Ben quoted last month.
See initial numbers for July in San Diego market. The numbers are incredible made all the more amazing that a Realtor in San Diego is the one publishing the results.
“I did a rough check on July to date (July 9) to see where it stands, I debated about putting this in this writing because the numbers are scary and they will close somewhat by the end of the month. I decided to put it in so that we can see the mountain ahead to maintain some level of reasonable demand. The first 9 days of July have 303 homes sold for an average price of $559,577 and an average size of 1781 sq ft; the first 9 days of July 2005 had sales of 933 and an average price of $629,168 and an average size of 1749 sq ft. Last July’s 933 sales represented 25% of the month’s sales, if that were to hold this year, well suffice it to say that would be a disaster. I think this July will stay in the 30% to 35% down from last year region and that would put July sales at about 2,700 homes sold, keeping us a path to about 30,000 home sold for the year, down about 30% from last year.
Here is a trend to consider; sales in the fourth quarter of 2005 was down 10% from prior year, sales of the first quarter 2006 was down 20% from prior year and the second quarter of 2006 was down 30% from last year third quarter of 2006 ???, anybody’s guess.”
“The first 9 days of July have 303 homes sold for an average price of $559,577 and an average size of 1781 sq ft; the first 9 days of July 2005 had sales of 933 and an average price of $629,168 and an average size of 1749 sq ft.
I think this July will stay in the 30% to 35% down from last year region and that would put July sales at about 2,700 homes sold,…”
Screw the funny Realtor (TM) math. The straight story is that sales are off by (1 - 303/933) X 100% = 68% for the first nine days of July 2006 versus the same period last year, and the sale price is off by
(1 - 559,577/629,168) X 100% = 11%, before adjusting for the fact that the average size of homes selling this year is larger (the percentage drop in average price for comparable-sized homes would likely prove larger).
Though these statistics only reflect nine days worth of sales results, and the geographical scope is not clear from the post, nonetheless the sample sizes are well above the level of 30 which is the rule of thumb for statistically significant average calculations.
Conclusion: Significant YOY price declines appear to be in the pipeline for SD.
P.S. More on Realtor (TM) math: Assuming sales in July 2005 had continued their rate of 933 over nine days for the remainder of the month, that would have resulted in 3214 sales for the entire month. Thirty-five percent less than that would be about 2089 homes sold for the entire month of July, or 1786 more homes over the remaining 22 days after 303 already sold.
The first nine days, homes sold on average 303/9 = 34 / day, so the sales rate would have to pick up to 1786/22 = 81 / day (nearly three times the recent rate) in order to get up to the level of a 35% YOY drop in sales. I realize the July 4th holiday clouds the comparison somewhat, but nonetheless, how likely to happen does that seem?
I just went to Bob Casagrand’s web site. First, his last name means “big house” as someone mentioned before. Second, he works for a company called “Exit Pacific Realty”. Gotta love the irony!!
“The numbers are incredible made all the more amazing that a Realtor in San Diego is the one publishing the results.”
Not incredible.
They will do ANYTHING to make a sale and keep eating….
On the way up they scare buyers into jumping in at ever increasing prices (”priced out forever” and such….)
On the way down they scare sellers into lowering prices (you’ll be stuck forever, you’ll be upside down, rates are going up, nothing is moving, etc.)
At least on the way down they won’t have to lie to help initiate a sale.
Thornberg - Sept. 2005
“California’s housing market, one of the strongest and most closely watched in the United States and the engine of the state’s economic recovery, is heading toward a “soft landing” that will slow the state’s economy”
Thornberg -July 2006
‘”the soft-landing people are full of nonsense”
ummmmmmmmm
DOH! that first quote wasn’t from Thornberg, but rather an article discussing his “soft landing” scenario. You get the point.
Thornberg knows the landing will be hard but he can’t say that in public because he would get into trouble. It is like telling people that the high speed train they are on is going to crash but you are still not able to stop the train from crashing.
Did the UCLA guys get some/most of their credibility by calling the dot com bubble and predicting a crash? Wouldn’t they have even more credibility in five years if they called a housing crash? Wouldn’t a relatively young guy like Thornberg want lots of credibility that he could parlay into big $$$$ for the rest of his career? The answer to all of these questions is yes, which leads one to believe something sinister is going on.
Credibility? These guys! Even if they did get credibility it would be the same kind Casandra would have gotten had anyone believed her. Take ‘em out and shootem all.
Cassandra’s dilemma pretty much sums up the housing bear’s situation.
Why should he care about getting in trouble? What about academic freedom and integrity? Is everyone a spinmeister these days?
People are reading what they want to hear. The first report said that no hard landing had happened yet, but things were softening up. A bearish read of that report would see yet another prediction of a bubble. You folks are charging windmills and that isn’t helping anyone.
They got it wrong in 1990, why would they be any better now?
I remember.. I bought S. Cali in 1990. 10 years before I was back even on price. I remeber UCLA Anderson saying somthing like ” only 10% can afford a home right now but prices won’t go down and in the future the same 10% will be the only ones who can to buy” haha wrong for over 10 years on that one. Forget about those UCLA bozo’s. BTW I sold 2 months ago and moved to Phoenix and have many homes for sale signs all over my new street, just like it was in S. Cali in 1993.
And I really do remember that UCLA report although I heard it on the radio, no very informative Blogs like this one back then.
Fantasy banking:
http://www.xanga.com/russwinter
“‘It’s definitely a buyer’s market, but there are plenty of scared buyers too,’ said John Rygiol, a Seal Beach-based agent who works exclusively with home buyers.
John,John,John, It is definitely NOT a buyers market yet! I’ll be sure and let your DA know when it is though!
Notice it’s always the buyers that are purported to be messed up. The buyers are scared, the buyers think prices might come down, the buyers don’t have enough money. Yadda, yadda, yadda. How about the sellers are scared, the market is messed up, prices are to high. There always has to be a spin job to make it look like everything is normal except the unreasonably cautious buyers.
“Suzanne researched this. C’mon, we can do it!” Oh what I would give to see that commercial on TV!!
Here ya go dwr:
http://www.youtube.com/results?search=suzanne+researched+this&search_type=search_videos
It was fun watching it again.
BayQT~
“What!?” “What!?” The one where she flinches as if she’s gonna belt him is priceless.
Nice of you to post that link, QT.
Got to be the most condemning representation of guilt-ridden American consumerism ever created. The lighting, the look of disgust on the wife’s face, the hapless look of hopelessness of the pussy husband’s face, the caving in and then “I’ll get to work”. What work? Scratch a few numbers on a form? That’s work? Total bullshit.
That ad is kind of eery to watch at this point. You can’t help but think that they guy is dead right (”the kids are 1 and 3…”)
At least the dotcom ad with the towtruck driver who “owned an island” seemed like a joke even at the time. The “Suzanne researched this” ad probably depicts something close to the exact conversation that happened all around the country a year ago.
“What!?” “What!?” The one where she flinches as if she’s gonna belt him is priceless.
dwr…I caught that, too! Whoa…that was VERY interesting. I don’t even remember if I noticed that the first time I saw it on TV.
BayQT~
Have you noticed how many times white males are portrayed as soft, fat, spineless fools?
Hey wait, I resemble that remark!!
Have you noticed how many times white AMERICAN males are portrayed as soft, fat, spineless fools?
-There, that’s better!
Slate actually had an interesting piece talking specifically about this ad.
http://www.slate.com/id/2139572/.
Have you seen the alternate version?
Fade in on Husband and Wife arguing in their kitchen. Suzanne, their realtor, is listening in on their phone which for some unfathomable reason has been left off the hook.
Wife: Think of the kids!
Husband: The kids are one and three!
Wife: They’re going to grow up! What? WHAT?? (jerks head reflexively in Husband’s direction)
Husband: What? I’ll tell you what. The kids will need clothes, and food, and want to go on vacations and to summer camp and college, and I’m not sacrificing this family’s future for some stupid overpriced tacky house. We’re RENTING until this settles down, got it?!
Wife: Gosh honey, I never thought of it that way. You’re absolutely right. You’re so smart… guess that’s why I married you!
Voice of Suzanne: He’s right. This listing’s not that special—you shouldn’t do this. Wait for a couple of years and then come see me when prices are 50% lower. Because, you know, with me it’s not about the commission, it’s all about your future security.
Husband: Thanks Suzanne!
Wife: Thanks Suzanne!
(fade out…)
Note: This version played only in fantasyland.
No, impossible. Suzanne researched it completely and now she needs to get to work! You got it all wrong. Suzanne’s got the husband & wife’s back. She took an entire day of ethics training!!! You forgot this important consideration.
Picture that chump husband $100K upside down screaming at his wife, with the arguement ending in divorce and financial ruin. That picture will be repeated over and over in every bubble area while all the Suzannes gaze up on the wall admiring their Ethics Training Certificates…
For the people with a darker sense of humor (and it is absolutely wrong to hit a woman) but it would be funny to see the husband get up and backhand the wife and threaten Suzanne.
But I am kinda twisted in a Surfer-X kind of way.
Being an abused wife in the past… that is not funny
You’re right, It’s not funny. But you’ll have to admit, she is almost demanding a thumping.
How about the wife snaps out of her Prozac induced brain death and gets up to backhand Suzanne thus saving her family from certain doom?
Ok, allow me:
“‘It’s definitely [not yet] a buyer’s market, but there are plenty of scared
buyers[homedebtors] too,’ said John Rygiol, a Seal Beach-based agent who works exclusively with home buyers.”By the way,
Who in the hell is still buying houses right now in superheated markets??? Sales have plunged, but FB’s are still propping up the median at full price. I certainly wouldn’t risk losing a sizeable down payment at this time. Some people must be oblivious to what’s going on around them. Do sheep have bad eyesight?
I feel like I’m taking crazy pills.
Yes, sheep have very bad eyesight. There are still plenty of idiots out there who haven’t got the message — unfortunately many lenders have — and those poor, stupid sheep aren’t getting the free money they used to. If you read a few pro-bubble sites, you’ll see that many deals are falling apart because they can’t get financing. Sheeple want to buy more than they can afford, but they can’t get the financing for 30x stated income.
I think lemmings is more appropriate. They can watch one fall over the edge and keep on going. At least sheep can get spooked at a certain point and bolt in the other direction.
“I feel like I’m taking crazy pills.”
i cannot think of a more appropriate quote to describe how i feel about buyers right now.
Do not, I repeat-Do Not go to open houses! It has been confirmed that they are handing out retard sandwiches there in an attempt to convince the last suckers to buy into this ponzi scheme!
Retard sandwiches, bwahaha!
In any kind of market, volume drops before prices, as the last few suckers buy in. They’ll get to see immediate declines in values. They won’t even get a year or two of fantasizing about paper gains. These are the dumbest buyers, who run their whole lives on emotion, impulse and wishfull thinking.
“By the way,
Who in the hell is still buying houses right now in superheated markets??? Sales have plunged, but FB’s are still propping up the median at full price. I certainly wouldn’t risk losing a sizeable down payment at this time. Some people must be oblivious to what’s going on around them. Do sheep have bad eyesight?
I feel like I’m taking crazy pills.”
I’m stunned too, Damon.
“Overpriced builder’s home ($750k in upstate, not waterfront) just sold after only about 8 weeks. Obviously, there are some GFs still out there. Can’t wait to see what it went for. Probably close to full price if its like the rest. I wanted to post I have seen an uptick in sales around here. Seems some people are still feeling pressure to get in before school starts.
I surprised no one has jumped on this
Gee, you think? How many times in the past few years have us “doomers” been saying that?
I quoted a little too much, I meant to high light: ’stolen demand from the future’
Something all the bubble-deniers have refused to acknowledge, until now.
Posted this above for dwr…here it is again for those who don’t start over from the top. Extra funny watching it this time around.
Suzanne researched this……
http://www.youtube.com/results?search=suzanne+researched+this&search_type=search_videos
BayQT~
Don’t forget its companion piece…SNL’s “Don’t buy stuff you can not afford”:
http://tinyurl.com/s4gx9
Required viewing for all bubblistas (and, ok, EVERYONE).
“Alan Partch cut $40,000 off his asking price for a one-bedroom condo on Pacific Coast Highway in Huntington Beach. He still hasn’t found a buyer for the 719-square-foot unit, plus a closet and loft, at $457,777. If he doesn’t find a buyer by August, he listed the condo in February, Partch said he’ll take it off the market.”
Mr Partch must be getting tired of all that heavy summer traffic zooming along PCH. Those Condos started going up 1n the 80’s during the initial HB gentrification process. The beach is a short Hop across PCH. HB has attempted to build up it’s Beach community thru permitting extensive Condo/apt construction. Also putting up some recently-completed resort Hotels just south of the pier.
Not known as a particularly Glamourous, picturesque beachfront but with wide sandy Beachs, plenty of festivities near the pier, and a popular beach/boardwalk/pedestrian running path and excellent year-round balmy weather, HB get a 7-8 rating on a 1-10 scale for livability from this normally pessimistic, jaundiced observer.
Yes, there are a few local punks drifting aroung the pier area
and HB has had it’s problems with the local goonies in the past but ongoing gentrifcation may have already submerged the local punk element.
“In Riverside County, sales of 5,927 homes represented an 8.6 percent decline from June of 2005. In San Bernardino County, home sales of 3,998 were 14.9 percent fewer than a year ago….
Despite slowing sales, the median price of homes in Riverside County was 7.4 percent higher last month than in June, 2005. Last month’s median price of $367,000 in San Bernardino County fell short of the record $373,000 reported for February but was 14 percent higher than a year ago.”
I hate to beat a dead horse again and again but honestly folks it’s R.I.P for the Inland empire. We have here slowing sales combined with EXPLODING NEW HOME INVENTORY, MIXED WITH SHARPLY RISING FORECLOSURE RATES IN RIVERSIDE COUNTY. IMHO there will be an estimated 50,000+ new homes on the market this year in the IE. In the single tiny town of banning one vast tract alone is adding at least 500 new SFH’s. How many outlying communities like Banning are there in the inland empire which are experiencing similar explosive growth in new housing tracts. 20! 30 ? 50?
You can drive thru sections of the IE and see vast shiny vistas of red-tiled, cookie cutter new SFH tracts stretching as far as the eye can see. The HB’s are just rolling them out like autos’ on an assembly line.
The IE economy is as little diversified as the Central valley except that it does not even have agriculture. Construction is the main economic engine: the rest of the economy is low-paying service jobs or cottage-size factories and workshops employing low-wage immigrants.
By 2007 earliest the IE will start to see depression-like conditions in it’s economy and collapsing RE prices. Lots of abandoned weedy foreclosed properties will sprinkle the IE landscape in 2007-8.