‘No Return To Normal’ In San Diego
Bob Schwartz at Realty Times has this report on San Diego. “Reviewing the recently released real estate sales data for San Diego, the lay person might conclude that the June home appreciation figures were down approximately 1 percent as compared to June 2005. The reality is the decline is probably much closer to three or five times the published figures.”
“The appreciation figures cited are the median sales prices. The sales of these upper-end luxury estates skew the median appreciation sales data.”
“The reported sales data does not take into consideration incentives used by not only major builders, but, in today’s market the majority of home sellers, to entice scarce buyers to purchase their properties. Just open up the Sunday real estate section of your local paper and the magnitude of these incentives becomes quite apparent.”
“You must understand that the builders are not being altruistic. No, they just want to move standing inventory, and move it now before any further declines!”
“It was just a little over a year ago that the majority of builders were not even co-operating with real estate agents. Now, the builder/agent cooperation has gone 180 degrees plus. Agents are being invited to catered brunches and offered co-op commissions up to 5 percent, as advertised in the July 23, 2006, Union-Tribune!”
“A $500,000 home sale with a $25,000 interest rate buy-down/closing costs package incentive will be recorded as a $500,000 sale. Yet, the $500,000 sale, in reality was only $475,000 or 5 percent below the reported sales data! So if the $500,000 sale was just 1 percent below the June 2005 median appreciation, you can see that the ‘real’ difference was 6 percent below last year!”
“In my opinion, this is no ‘return to normal’ or ’slight correction’ to the San Diego real estate market. By year’s end there will be no denying we will experience a double digit appreciation decline. A decline that will take years, not months, to work itself out.”
From Inman News. “What a difference a year makes. The San Diego real estate market is now experiencing a much slower sales pace, and home prices are retreating.”
“The San Diego Association of Realtors reported that the sales volume of attached, existing-home unit sales in San Diego County fell 38.9 percent in June 2006 compared to June 2005, while the average sales price dropped 4.6 percent and the median sales price dipped 5.2 percent in June 2006 compared to June 2005.”
“Deborah Sortino, a Realtor in Oceanside, Calif., said the last two months have been very slow in her market area. ‘It’s like someone switched off the light, (properties) are not moving one way or another. There are a lot of people looking but I don’t see a lot of sales pending.’”
“Rustin Rulenz, a Realtor in Pacific Beach, Calif., said,’You can drive down the street and see 15 yard signs in the first three blocks. There are a lot more open houses. It makes me laugh to see so many open house (signs) pointing in so many different directions,’ he said.”
“Real estate professionals are getting back to basics in this new market. ‘A lot of agents say they are going door-knocking again,’ he said.”
WOW!! The honesty from these guys is starting to scare me!!
If you want to see actual losses on specific properties in San Diego check out:
http://sandiegomarketmonitor.blogspot.com/
NOW we’re talking, baby. This is MY town!
Don’t you know that Craigslist in SD is going to be required reading or the schaudenfreude crowd. It’s already funny, and is about to get tragicomic.
Tragicomic? Talked with a guy yesterday who had contracted me to help him button up a modular spec house - his first - he was building this past winter. This was before the market officially turned but I knew what was coming and tried to subtly warn the guy about what I saw. Didn’t listen.
When the market turned I told him to drop his price to whatever he needed to keep his head on his body and get out. Didn’t listen.
Now, after chasing the market down, he is to his breakeven point and here comes the tragicomic part. He had no clue that people were using I/O loans to overreach for houses.
You should have seen his face when I told him the house he is trying to get 500k for is really only worth about 250k. If that.
Wow. What a difference a year makes…
It makes a big difference to the dumbstruck. But so far, almost point for point, SD has unraveled according to year-old predictions of housing bears on this sites and others. The last of the suckers are buying this year (and old suckers are doubling down). Price reductions aren’t going to help next year…it will be panic.
Agree (as a RE bear since 2001/2002). I was referring to the change in attitude by the RE press and MSM, in general. It went from “can’t possibly be a bubble/prices only go up/you’ll be priced out forever/we’re running out of land” to “holy sh@t! Prices are going down by double-digits and it will last for years!”
Two years ago (in SD), I was predicting a 35%-50% decline. I sounded like a lunatic at the time. Perhaps one or two people from the most bearish of blogs would accept this was even possible. These days, we are getting respected economists who are saying we could possibly see such declines.
That’s a big shift.
I thought there was a bubble in 1999. Was I just a bit too early? Hahahah
You were ahead of me. I thought things were getting nutso (in CA) in 2001 and into the red zone in 2002. I was begining to think that my new status as a optical stock bubble nut had turned me too cautious.
Yeah, any pessimist can predict a downturn and eventually be right. The hard part is calling the tops and bottoms. I got a lot of crap from friends and relatives in 2000 when, as a supposed “insider” in the internet world, I had only voiced vague concerns leading up to that correction. So to restore my credibility I wrote an email to about 40 people in March of 2005 saying, “I’m officially on record saying residential real estate is now at the top.” It’s looking like my timing was OK, but for several months afterward I took some teasing as the media kept hyping the run-up. Lately I’ve stopped receiving the wisecracks but I certainly haven’t gotten any thanks or pats on the back. In a way I regret sending that email because very few took my advice anyway, and now lots of them probably resent me for being Mr. Know-it-all.
Don’t feel bad; the most knowledgable experts readily admit the difficulty of calling a market top, and in fact, the more knowledgable the expert, the more likely they are to be early
(Robert Shiller, Ken Rosen, and Ed Leamer all come to mind!).
You need a critical mass of herd animals to “SEE THE LIGHT” before a mania can end, and it can take a long time before enough dumb bulls figure out what is going on and enough smart bulls acknowledge the herd is nearing the edge of the cliff for the market to turn irrevocably.
You weren’t early, txchick, unless you thought that 1999 was the top. There was definitely a bubble in 1999. Unfortunately, I don’t think any of us here could have imagined just how insane it would get.
I didn’t think it was the top but I saw things going on that made me not want to be anywhere near this RE market.
I called a bubble May 2, 1996. I clearly remember that day, I was eating a corn dog for lunch. I predicted it to top in the Summer of 2005.
Ramen for lunch now?
Let’s go back to September 2001. the stock market had been steadily collapsing for a year and a half; tech firms firing people left and right; Gray Davis had just sold 1 year of California’s economy to Enron in exchange for 1 hour of electricity; everyone knew we we already in a recession; then 9/11; and Real Estate had already nearly doubled from 1995. hell, I was hearing real estate guys on radio business shows talking about how real estate was due for a correction (that was before 9/11.) And I contend NO ONE has put down 10% since 1999, when I called the top.
“Two years ago (in SD), I was predicting a 35%-50% decline. I sounded like a lunatic at the time.”
Thats ok, im predicting the same in Santa Clara County. Im sure they thought i was loony 2-3 back… Not so loony today it seems. We (SCC) have yet to be hit with price reductions. Lots of I/O loans, rising inventory, shrinking local jobs not yet reflective in prices. Mania is still alive here.
CA Renter, my comment on ‘dumbstruck’ wasn’t addressed to you of course! You’ve been a bearish voice for awhile!!!
Thanks! I was wondering about that.
Has Leslie Appleton Young found that moniker yet?
She’s too busy sobbing in the corner
I believe she’s calling it a ‘bumpy landing’.
“bumpy [OUT OF CONTROL FLAMING CRASH] landing?
I will buy the year after the panic.
Yeah, didn’t we hear there was no end to this flipper parasise last summer? Oops.
I dunno, man. Rima says it’s all good.
And she should know, she’s roomies with Suzanne:
http://tinyurl.com/qmjaw
I see Rima finally got someone to proof-read her reports before publishing them. Although I’m sure English is her second language, there was no excuse for the way she slaughtered the language in her prior reports.
“A $500,000 home sale with a $25,000 interest rate buy-down/closing costs package incentive will be recorded as a $500,000 sale. Yet, the $500,000 sale, in reality was only $475,000 or 5 percent below the reported sales data! So if the $500,000 sale was just 1 percent below the June 2005 median appreciation, you can see that the ‘real’ difference was 6 percent below last year!”
We have discussed at length about how the builders’ incentives amount to camouflaged price reductions of far greater magnitude than officially reported. Can anyone foresee what factors will cause this deception to morph into incontrovertible evidence of outright price declines?
Probably not all of it (maybe not even most of it). For example, seller paying closing costs, buying down rate, etc. may be hard to ever really capture in the published figures. However, sellers of existing homes aren’t really going to be giving new granite countertops to buyers, like the homebuilders do, but these sellers must compete with the homebuilders on price, so they will need to lower their price in order to match the granite countertop, pools, etc. type of incentives. And, since there are vastly more sellers of existing homes than new homes, these types of cuts should be reflected in lower prices.
While prices were rising, sellers would redo the kitchen, a bath, put up some paint, because they would get the value back and more. That’s over now. So, not only are prices dropping, but you don’t get the granite countertops and stainless steel appliances.
Unless you’re buying from the bank
The builder can mount even more incentives, and this will cover up the real numbers until buyers take a real stand. They can start negociating for lower prices instead of add-ons. This is likely to happen when credit tightens and interest rates continue to climb.
Today’s inflationary report supports another rate increase which is a catalyst. I will admit I was surprised by today’s numbers. The further the expansion we see, the more consequences down the road.
It will take a few years for this to become apparent. The builders want to get rid of the crap they are selling, and still get outrageous prices that they know have nothign to do with market values. Eventually, these new home sales become part of the existing inventory, and the sucker buyers who are still purchasing now at near the top of the market with I/O loans will be screwed in two years when they are forced to sell and realize that the 5% they got off isnt nearly covering the 25% decline in price, and dropping…this is going to be a very long and very painful downturn, and it’s going to happen in slow motion… i weep for the future….
Disagree. I think it’s going to be a fast crash. If housing were liquid like the stock market, and prices determined by external forces based on immediate supply and demand, we would have seen a steady decline since Nov 2005. But no, prices have essentially flatlined. They are going to hold on as long as possible until they can hold on no longer and then kaboom. “Investors” are long gone. “Sucker buyers” willing to take suicide loans will be gone in a couple of months. If ordinary people can’t afford houses at 750k, then they still can’t afford them at 700k, or 650k, or 600k, or 550k, or 500k– well maybe a few can at 500k, but more like 400k or 450k is were we are going to see a leveling out of the drop.
To help answer my own question, I suspect that when all those ARM resets begin to hurt, we will see buyers dropping (or banks with REO) dropping the price to levels where homes will sell. I don’t expect used home sellers to use all the gimmicks to hide price declines that the builders are currently using, because there really is no need to do this unless you are in the business of building and selling homes and thus have a reason to keep alive the belief that prices have reached a permanently high plateau.
Good points, but the Federal Banking reulations proposed in January go into effect on Sept 1 and you can kiss most stated (refi’s, purchases, and neg ams) loans good bye. There was no dissent in congress and banking was silent.
hoz,
This means less loans beginning in Sept. just as the “big summer real estate season” is winding down? October won’t be pretty when the Sept. #s are reported.
More put options please
“but the Federal Banking reulations proposed in January go into effect on Sept 1 and you can kiss most stated (refi’s, purchases, and neg ams) loans good bye. ”
Could someone please post a reference to this, a link to some analysis or commentary?
Here is the memo that went out to loan officers at a major lender this week. FICO requirements are going up and I/O, ARM, and all that exotic garbage:
Comment by nnvmtgbrkr
2006-07-31 14:11:00
Just recieved this e-mail from one of my reps of a major player in the wholesale market. They’re bouncing the credit requirements 20 points on their 80/20’s. Not huge, but possibly the beginning of the credit tightening that will soon pick up momentum. I’ve taken out the names and numbers just in case.
“Hi Everyone,
As I feared, we just received notice from upper management that a pending change regarding our minimum FICO score requirements will be increased due to major changes taking place in the secondary market (ie: Wall Street).
WHO: All deserving SUBPRIME borrowers - Purchase and Refi’s.
WHAT: Upcoming changes to 100% financing (see WHERE).
WHEN: Within the next 24 to 120 hours. Don’t wait - get the loan in ASAP!
WHERE: XXXXXXXX SUBPRIME 100% (80/20 Combos) FICO bands:
(Full Doc = 600; Bank Statements = 620; Stated S/E & W2 = 640).
WHY: The Secondary Market has implemented these changes.
HOW: You can still get these loans done, but you MUST have the loan submitted prior to the official announcement being distributed to the XXXXXXXXX sales force and the loan MUST fund by Aug. 31st - no exceptions!
If you have borrower’s that are sitting on the fence, then please do whatever you can to help them “SEE THE LIGHT” and get their loan submitted to me ASAP!!! Do whatever you can to get this message out to the real estate agents you are working with in case they came across a borrower this past weekend that needs one of these programs!
I have attached a Loan Submission form for your use. Please feel free to call me at”
We have discussed at length about how the builders’ incentives amount to camouflaged price reductions of far greater magnitude than officially reported.
Plus you could argue that median prices were distorted DOWNwards as the bubble was inflating. Some of the crazy things people did, like forgo inspections, which wouldn’t be done in a normal market, essentially were hidden costs.
Both these types of distortions mask a peak that was actually much sharper than the stats suggest. I think if you added these things in, and looked at resulting adjusted prices on a historical time scale, you’d see a classic price spike. And the downside of a price spike tends to be very steep (and the high degree of leverage argues the same thing). My wild-arse guess: within 3 years, a 60% drop in bubble location prices, and 30% nationwide. I think it could ultimately get much worse, but probably won’t as the Feds will print money and bail like there’s no tomorrow (easy prediction, since that’s what they’ve been doing for a long time!).
Own gold and silver, unless you want to help with the bailout…
Both these types of distortions mask a peak that was actually much sharper than the stats suggest. I think if you added these things in, and looked at resulting adjusted prices on a historical time scale, you’d see a classic price spike.
Bingo! I’ve been thinking this for awhile!
I looked at median price increase in San Diego of 20% in 2004 and thought, that’s a lot, but not a Nasdaq type “alot”. Then I realized that a house in complete disrepair had sold for more than we had paid for ours a year earlier (yes I bought in 2003… ;). It was a 3/2 same as ours… but needed $150K in repairs. So the price spike I was looking for to see a top was masked! And similarly on the way down the plunge will be masked because people will pay less for top quality.
Lies, damn lies, and statistics.
What? No plateau? Is anyone liable for luring bagholders into the SHARP PEAK PLATEAU that lasted 1 month?
Can anyone foresee what factors will cause this deception to morph into incontrovertible evidence of outright price declines?
This incentive crap can only hide a few percent of decline.
Eventually, the realtor industry is going to converge on the same strategy used by CFO’s the world over when announcing a bad quarter: If you have a bad quarter, throw everything including the kitchen sink into it and get out all the bad news. Then, everything else looks positive.
They’ll converge on this once 10% declines start happening yoy?
I think they’re going to reach the limit where they can no longer hide price declines with incentives right about… now!
I like your moniker.
Maybe this newspaper should consider a name change to Reality Times…
———————————————————————————-
“Other factors not being mentioned in the press that are important to our market direction are:
Typically the period from late March through September is the strongest for real estate sales. What does both a huge and continuing month over month sales decline and now a home appreciation drop, during this ‘hot’ time, portend for the market as it enters the weaker Fall/Winter period?
Lastly, the bulk of the interest only, 100 percent loans used to prop up our market for the last few years, has two or three year time periods until the re-amortization (at the current prevailing interest rates) of the loan balances. The majority of these interest rate adjustments will occur in 2007 and 2008. ”
Ouch!
P.S. Nobody in their right mind who is not so wealthy they can afford to throw money away should consider buying in SD until the effect of these ARM resets washes through…
Funny thing is that we were considering pulling the trigger and then we started to notice that everything we’d bookmarked in ziprealty kept dropping 10K a week. That was starting in May! So we’ll just wait until they stop dropping.
Actually, you should wait until you start to see your first evidence of increases. The bottom is just as hard to call as the top.
I think buying before the bottom means a better selection. I’d rather be a bit before the bottom than a bit after.
“He who picks bottoms ends up with stinky fingers.” Anon
I’ll wait ’til they are going up.
Then you’ll buy with the dead cat bounce. I’ll be looking at fundamentals.
there may even be a point where prices are falling when fundamentals are screaming “BUY!” Let the market decide.
Well, bottoms can be almost as difficult to call as tops. And I’ve argued before that feepness is right. Selection is best when prices are still falling.
Saw this on Zip Realty, perhaps an example of chasing
a down market.
Gorgeous home in southport! This 3bd/2ba and den/office that can easily be converted to a 4th bd.Cozy master bd w/ walk in closet.Open floor plan,kitchen opens up to family room.Maple cabinetry and plantation shutters through out the house.Backyard has covered patio.
ZipRealty Price Track:
Days on Market: 253
Price Reduced: 01/24/06 — $485,000 to $475,000
Price Reduced: 03/24/06 — $475,000 to $469,000
Price Reduced: 05/16/06 — $469,000 to $459,000
Price Reduced: 06/12/06 — $459,000 to $449,000
GS,
Exactly. And that is why I think this will take many years, not months. All of the kamikaze borrowers have to be shaken from the market, and mortgages have to be available to only the most qualified buyers. THAT is when one should consider buying.
Agree 100%.
Possible fly in the ointment…what if the Fed loses its nerve and slashes rates to bail out the ARM reset fools? They could try and pump life into this mess. It is at that point that the US$ craters and gold/silver had better be part of your portfolio…
Massive rate cuts at the short end mean loss of faith in the US dollar and higher interest rates at the long end + inflationary depression. Doesn’t matter if you can refi if you’ve lost your job. Doesn’t matter if you keep your job if you can’t buy gas or eat.
Dukes, most 2yr, 3 yr and 5 yr ARM’s are tied to LIBOR - the Federal reserve cannot force the UK to lower their rates. And to refi at a good rate, the house has to appraise to be at least the same value as the outstanding loans. Aint gonna happen.
The other factor that people forget is that the Fed could slash away but rates on mortgages could keep going up as the secondary market realizes the risk and dumps mortgage-backed bonds.
Rate cut to 5%: I’ll keep watching, will let it ride.
Rate cut to 4.75%: I’m getting worried.
Rate cut to 4.5%: Uhhhhh….
Rate cut to 4.25%: Buying gold coins and burrying them in the back yard.
And anything below 4%: Investing in commodities– flour, gun powder, assault rifles, antibiotics, and whiskey…
Can you please explain why this is to me in lay terms?
“In my opinion, this is no ‘return to normal’ or ’slight correction’ to the San Diego real estate market. By year’s end there will be no denying we will experience a double digit appreciation decline. A decline that will take years, not months, to work itself out.”
Realtor rule #25 -always use the term appreciation, even if it is negative appreciation. Negative appreciation seems neutral, where as depreciation clearly states a direction for the market. Be as vague as possible!
True! Appreciation decline = depreciation. Let’s say it in the least communicative way possible and maybe the sheeple won’t notice.
Actually, not true. “Appreciation decline” means that there is a decline in the rate of appreciation, but appreciation is still happening.
Appreciation Decline and Depreciation are totally different. Somebody please correct me if I’m wrong.
When they’re saying ‘double digit appreciation decline’…I would assume this means….depreciation…
The term they should use is “appreciation reversal”, that would get the point across…
I agree with you Polo Bear. It appears they did mean “depreciation”. My point is that they either mis-spoke or intentionally said it wrong to deceive. I’m guessing they mis-spoke.
call it what it is: “equity evaporation” the FB’s would love to read that.
I hate newspeak
double plus un-appreciation
un-appreciation - when buyers do not appreciate the list price of the property.
Good point. Really, given that appreciation has been 15%+ in recent years, a ‘double digit appreciation decline’ would be 5% appreciation. ‘Appreciation’ is ‘going up’. These houses aren’t going up less.
Won’t be long before newspeak has further infiltrated our language. Some examples:
“Our company prospects remain strong as we recently entered a phase of robust negative profits.”
“Honey, I just met with my manager and I got a negative promotion!”
“Wow, that was a negatively delicious meal! Would you excuse me for a moment?” (runs to bathroom)
“Mom, I think I negatively repaired the back window with my baseball.”
What’s all this talk?
Has the appreciation curve flattened?
“Honey, you are negatively getting prettier by the day.”
“No love, your appreciation is simply declining.”
LOL!
We’re experiencing some negative appreciation.
Also only refer to falling prices as “decelerating” (BB)…
“Do you wish to use your negative equity for a down payment on your new house?” asked Suzanne.
This reminds me of Spinal Tap …. when asked if the band was becoming less popular, their manager said: “no - they’re appeal has just become more selective”
While I totally agree that prices are dropping in San Diego (and more than 1% y-o-y), I don’t agree that multimillion-$ properties have a huge influence on the median. They skew the average, but whether 500 properties sold for $100M or $0.8M doesn’t affect the calculation, as long as they sold for more than the median.
Example 1: 11 properties sold:
$100k, $110k, $120k, $130k, $140k, $150k, $160k, $170k, $180k, $190k, $200k.
Median (half sell for more, half for less): $150k
Example 2: 11 properties sold:
$100k, $110k, $120k, $130k, $140k, $150k, $160k, $1M, $2M, $4M, $8M.
Median (half sell for more, half for less): $150k
But the number of very expensive homes closing compared to lower end sure does pull the median up.
Yes, compared to years past, FEWER relatively low-priced houses (absolutely ANYTHING below the median) are selling. And, since the median value at hand only considers houses SOLD, you definitely can expect to see above-median homes having an effect - regardless of actual price.
But by definition 50% of the homes sold are below the median.
Hence the apparent increase.
My point is that it doesn’t matter what the “very expensive” homes sell for. Their prices don’t affect the median calculation as long as they are above the median. I’m aware that the entry level properties are sitting longer on the market and therefore have started to drop out of the equation. Bob Casagrand (the other honest realtor in San Diego) pointed that out many months ago.
What he’s saying is that, from your example, last year 500 multi-million $ properties sold, and this year 500 multi-million $ properties sold, whereas the cheaper home market has become incredibly weak and the volume has dropped mostly in that segment. Therefore the median is being skewed higher because of the number of expensive homes being sold relative to cheap homes.
I didn’t see deb’s comment before I posted.
thats why you need square ft … it was the norm to provide $ale price/SQ ft by category… SFH, TH, Condo… that was dropped around 2000-01 as I recall.
Even if you used price/sf, the prices could look like they were rising. Price per s/f tends to be higher in better locations, especially the really high-end areas. If sales are moving more toward the high end, would that not show increasing prices? Again, it would be the same problem as with median (shows how much you are paying, not what you are getting for it). No?
But example two looks more like this: 11 properties sold
$200k, $210k, $220k, $230k, $240k, $250k, $260k, $270k, $280k, 290k, $300k.
Median (half sell for more, half for less): $250k
Sales decline naturally because the first time buyer cannot afford a home. The only sales happening now are between move up buyers at higher prices. This is why it will be so ugly when prices correct. Home prices will eventually reflect fundamentals (about 3X median income, not the 5X we currently have.)
Bloomin’ Onions.
OT….please pardon if this has already been posted. A friend sent this to me yesterday.
GOODBYE, CONDO MANIA
http://realestate.msn.com/buying/Articlekip.aspx?cp-documentid=710370
“Condo owners, who had been cruising along propelled by double-digit price gains, are encountering cooler currents and the prospect of perilous waters ahead.
Buyers: Take the long view
In most markets, this is as good a time as any to buy. But in the riskiest ones, especially in the Southwest and Florida, it might be wise to wait a year to see how things shake out. Don’t worry too much about higher mortgage rates. The risk of falling prices, says Witten, is greater than the risk of higher rates. (Kiplinger’s expects rates to be slightly higher by year-end.) And forget about a quick flip. If you buy, plan to own the property for at least three to five years.”
BayQT~
“For my age group, there’s no way I can lose,” he said. “You can’t ask for more.” Kristian Cabuago talking about his decision to drop 550k on a 950sqft condo in a May article. Kristian thought he got a smokin’ deal by negotiating the price down from 591k.
For those that didn’t read this back in May on this blog here it is:
http://www.signonsandiego.com/news/business/20060511-9999-1b11housing.html
I’m wondering what Kristian is thinking now with a building that is likely a majority empty and with skyrocketing HOA fees?
Kristian, you are the weakest link. Kiss your hopes of getting out of that half million $ hole in the near future good bye.
BTW, a dentist getting schnookered? NO WAY.
Every time my wife comes back from seeing her dentist, he apparently has bought another “investment” property and goes on and on about how he’s found the greatest way to invest his money, and tells my wife that we really need to look into doing the same thing. He’s been buying properties for the last couple of years. I just laugh. He’s about 60, he’ll probably be cleaning my wife’s teeth for 30 more years.
Probably offer to wash your car as well! Add one more dolt to my list (which is getting damn long).
I would laugh if this wasn’t a common retirement strategy at my work. Good lord! I work with engineers, the world’s most fiscally conservative lot and if my work is *any* indication, the pain will be widespread.
I have one artistic friend (different industry) who owns 3 homes (I think I just convinced her to sell one; at that point she’s ok). One coworker with 5 “investments,” another with 4. Another coworker, a single mom, is going to take a bath on a San Diego Condo she invested in. Another coworker has gotten over his anger at me for talking him out of a San Diego condo and is not noting his flipper friends (my words, not his) are bailing out of their deposits. His neighbor had HELOC’d his house for the deposits on three San Diego McMansions (sorry, I don’t know which suburb). I guess nothing says “you idiot” like monthly HELOC payments for a failed investment…
And then there are at least a dozen of my coworkers whom are unintentionally speculating. How? They’ve already bought their retirement homes and haven’t yet sold their “working homes.”
Now, if they don’t get the money they expected, will they keep working (watching their retirement get hammered by two mortgages they cannot really afford) or will they sell one of the properties? Either way, some market gets flooded.
Ugly doesn’t even begin to describe this. That 70% home ownership and 40% 2nd home ownership statistic scares the *ell out of me when its combined with the *huge* standing inventory of complete homes (with CO’s!).
Do remember though, there will be an end to this. The time to buy, as others have noted, is while everyone else is capitualating.
Neil
There are three guys in my office who bought 2nd homes in Murrieta/San Jacinto area in mid 2005. They were insisting on me to buy too but I knew better. Now, their problems are that they used 100% Option ARM, and not only they paid top dollar for the over-priced houses, also they added each about $50K developers up-grades. The biggest problem is that they think prices are going up and will keep going up, not to mention the fact that they barely qualified for the loans to begin with, when the rates reset the they are fu
I live in Temecula and have a feel for the market in SW Riverside County. I’ve been tracking homes for sale and the inventory has more than doubled since the beginning of the year. Temecula has some industry, but Murrieta, San Jacinto, Menifee, Hemet, and Lake Elsinore are basically bedroom communities. In the last couple of years, what used to be a reasonable commute to outlying areas (SD&LA) has become gridlock. While prices have continued to go up, the quality of life has gone down. And who want to cool a poorly built 3,000+sq ft McMansion here when the average highs for these areas in July/August are close to 100 degrees?
Rents for SFH’s in my neighborhood are only slightly higher than apartment rents. Also, there are lots of houses for sale which are unoccupied.
Holy petunias! What kind of a place is this? Do you work in an asylum? Please don’t tell me this is representative of the mainstream.
With the comment above, I was attempting to reply to Neil, but would also like to hear from wawawa. Do you guys work in at the Flat Earth Society, Church of Scientology, White House Science Advisory Council, or some place like that?
Nope on the asylum,
Bubble rubble, I work at a responsible fortune 500 company.
Most of the people at work are fine (its a large office). But the shear number of people who own multiple properties is staggering. Since people know I’m interested in real estate, they come and talk to me (they falsely think I’m interested in buying soon).
And I restate, I’m in engineering. We tend to be a very conservative lot. Thus, if I’m seeing this… what’s it really like out there? Maybe we have a “tumor” of highly overeducated flippers… Or maybe this mania has gone crazy. The lady who cuts my hair doesn’t own a home, but her sister has three…
All I do is ask questions… see what people recommend I invest in (harmless enough lunch conversation)… and then I find out who has what. The group whom is retiring to Idaho and all own their lots around some lake (hey, they all purchased the lots cheap enough, good for them).
But then there are the couple of guys who have already bought their New Mexico retirement homes and are counting the “profit” off of their current house. Oh… I stay out of that conversation for my health’s sake!
This “mania” is as pervasive as the NASDAQ mania in the last bubble… Everyone: coworkers, casual aquantances, friends, and doubly so the “soon to be retired” all seem to be heavily invested in real estate… oh boy…
Thus why I think prices will drop and drop hard.
I hope I’m just one point of sanity in the asylum. Or maybe I’m the insane one…
It might be because engineers tend to be *great* at saving money and real estate is an investment that appeals to their “fundamental nature?” The why’s I haven’t figured out yet. But so many are investing and investing heavy into speculative homes/condos/lots. Some of the less responsible have HELOC’d themselves into an early BK (while dreaming of their early retirement).
Neil
A few years ago, whan I overheard a coworker say that she needed to “invest in her nails” I about lost it. Now that doesn’t seem so bad by comparison.
Although I first began to take notice of overpriced houses being sold in my neighborhood in early 2005, I really wasn’t that nervous about taking my unearned appreciation off the table until I heard my dental hygenist talking about her investment properties in June. Yikes! I sold Oct. 2005 in Chander, AZ.
A month ago, my maid (illegal) said she was tired of being a maid and is getting into real estate.
I’ve got a friend - a fellow college instructor - who has entered some RE cult. He is quiting his tenured job and starting his “own business.”
Hey it Zillows at $306,458 so he should be OK… AS long as he lives there until retirement.
From the update:
‘What a difference a year makes. The San Diego real estate market is now experiencing a much slower sales pace, and home prices are retreating.’
‘The San Diego Association of Realtors reported that the sales volume of attached, existing-home unit sales in San Diego County fell 38.9 percent in June 2006 compared to June 2005, while the average sales price dropped 4.6 percent and the median sales price dipped 5.2 percent in June 2006 compared to June 2005.’
‘Deborah Sortino, a Realtor in Oceanside, Calif., said the last two months have been very slow in her market area. ‘It’s like someone switched off the light, (properties) are not moving one way or another. There are a lot of people looking but I don’t see a lot of sales pending.’’
‘Rustin Rulenz, a Realtor in Pacific Beach, Calif., said,’You can drive down the street and see 15 yard signs in the first three blocks. There are a lot more open houses. It makes me laugh to see so many open house (signs) pointing in so many different directions,’ he said.’
‘Real estate professionals are getting back to basics in this new market. ‘A lot of agents say they are going door-knocking again,’ he said.’
‘Real estate professionals are getting back to basics in this new market. ‘A lot of agents say they are going door-knocking again,’ he said.’
I’d have to say at least 90% of these jokers have no clue what the “basics” are. Having only seen a market that goes up, up, up, there lost on what to do here. As far as going “door-knocking”, what the heck for? What they should have done is live within their means and saved some friggin’ money. At this point the only thing “door-knocking” will do is emphasize the fact that the RE industry is hosed!
“Rustin Rulenz” sounds a little bit like “Russian Roulette”
‘Rustin Rulenz, a Realtor in Pacific Beach, Calif., said,’You can drive down the street and see 15 yard signs in the first three blocks. There are a lot more open houses. It makes me laugh to see so many open house (signs) pointing in so many different directions,’ he said.’
I can back this up, my street is flooded with for sale signs in Pacific Beach, condo conversions that have been sitting for monthes, and even a bank owned foreclosure. On the main streets the “human directionals” are out in full force.
this is no ‘return to normal’ or ’slight correction’ to the San Diego real estate market.
True for California as a whole: admitted by a few experts already, and I expect a building consensus. Do most Californians even recognize a “normal” market? Home prices have pinched us for years before the bubble, when prices entered the realm of the surreal. New assumptions have stood on the shoulders of earlier assumptions, leading to a total cognitive disconnect between home prices and value. “What? You’re not happy with spending $1M on a c.1975 3/2 tract home? (that sold for $75K new) Dontcha know that’s the way it is? Everyone wants to live here, etc.”
Many Californians have no idea how far below our expectations “normal” actually is. For many, I suspect reality will come as a huge surprise.
Reality will come as a huge surprise for posters here if nhz’s predictions for a concerted US govt effort to inflate us up to a permanently high plateau level of housing prices come to pass. But I am still trying to reconcile this with the US govt’s need to stay on good terms with foreign creditors, who probably would not be too happy to keep lending us money if their $US bond investments severely tanked…
Ok, I’ll take this tongue-in-cheek. How would the govt. keep house prices at a permanently high plateau–and what good would it do them? Unless our wages triple, seems that would cut into consumer spending in a big way.
I don’t know how — that is why I don’t bet this way. But I do worry this way…
Ditto. There’s one possibility. If Bush gets his way, a flood of immigrants will cross the border to join their newly “amnesty granted” friends and relatives. This could really push housing, providing a brand new wave of millions of first-time buyers, freeing up those owners who previously couldn’t move up. Lord knows the mortgage money would be there for them. Fortunately for us, this “amnesty” issue seems to be extremely unpopular, across all political lines, so it doesn’t appear likely to become reality. But, it DOES worry me.
This could really push housing
I’m very doubtful, because credit is bound to tighten to protect lenders from further risk.
“and what good would it do them?’
If most people are doing really stupid things (like buying houses in order to tap out the home equity gains down to $0 on the assumption that housing prices always go up), then the government could help out the largest number of its constituents by rewarding stupidity and penalizing prudence.
Maybe so they can destroy the middle class and merge us with Mexico?
If that is the goal, then they are doing a fine job in CA!
Maybe the bankruptcy changes were a clue that this administration isn’t really interested in saving all the sinking boats. They will still be in power until late 2008, and their appointments well beyond that. How long can the FB’s tread water?
The yacht owners saw this coming in 2004 ……
oh, you still believe there will be a presidential election in 2008. keep dreaming.
Yeah, the election will be suspended until the war on terrorism is won.
that would take a constitutional amendment and flag burning and gay marriage is more important.
Hell, I’m not even convinced we’ll have one this Nov at this rate!
If you guys are serious, please promise me you’ll eat a pig’s rectum if your bong fantasies ever come close to materializing.
I think I hear black helicopters…
Oh, and by the way, I promise to do the same if you’re right.
Man, if you guys are serious you need to re-examine your ideas. Elections in 2006 and 2008 no matter what. Yes, some elements of the USA are going to hell. No, the “Gub-Ment” is not a monolithic entity that takes on the desires of the person at the top. Folks may hate GW, but a dictator he is not.
I think I hear someone who needs a life preserver …….
Come aboard my son, dinner is served.
Thomas,
I had a hot dog for dinner.
Guess what sausages are made of. Hint: nothing goes to waste.
It is definitely a risk that the Feds just start printing money. If the market totally melt down in late 2007 to early 2008, then there’s an election to worry about, and bankrupt homeowners are not a happy bunch. But the Feds are caught between a rock and a hard place. We barely produce anything in the US anymore, so we can print as much money as we want. The $ will just fall proportionally. At one point it would lose its reserve currency status.
Yep - Think Zimbabwe
I always appreciate/dread nhz’s remarks about Holland and the E.U. It would be nice to have other posters from there. I know we have some from Down Under, and I remember at least 1 guy from England. But to the point: how does E.U.’s numbers compare to U.S.? (budget deficit, trade deficit, savings rate, etc.)
from germany,
deficit around 3%-4%, tradesurplus, savingsrate around 7%-9%, real estate prices nearly flat sinnce the last 10 years
definitely no bubble here. seems to be the only place in europe……..
jmf
From Australia,
Current account a bit worse than US as % of GDP, trade deficit a bit better, savings rate about the same.
Federal Budget SURPLUS for last 5 years. 2005/06 surplus was 1.2% of GDP. Forecast surplus for 2006/07 (made in May) is 1% of GDP.
When I was a kid, I stuffed RE envelopes for a nearby housing development - in 1970, for a nickel a pop. This was in the Via Verde development in Ca - between Covina and Pomona. Houses ranged from $24,000 for a 1300 sq ft. to $32,000 for a 2000 sq ft. I remember that there was a fight over rezoning from a minimum lot size of 10,000 sq. ft. to 5,000 sq ft. They agreed on 7,500 sq ft minimum lot size. The houses built shortly therafter seemed crowded to me, at the time. I’ts hard to imagine McMansions built on a smaller lot, or 2000 sq ft houses of that era selling for $700,000 k - a 20x increase!
Agents are being invited to catered brunches and offered co-op commissions up to 5 percent
Hey, maybe I will go to RE school just go I can go to catered brunches for free.
That’s exactly what I was thinking. Would be a way to cut down on food expenses during the tough times.
Here’s an interesting article to read from a Realtor out in Atlanta (one of those “It’s different here!” types). It’s amazing to see how much the tune has changed in 6 months, documented neatly:
http://haloscan.com/tb/mishedlo/115404496296593956
That link doesn’t work, but you can get to it on Mish’s site. I believe it chronicles the polite months-long debate between Mish and an Atlanta broker for whom everything was peachy all the way until about May, when day turned to night. Now he’s singin’ the blues. The salient point was how quickly the market turned. Same thing happened here in my part of Florida, just different timing. Ours fell off a cliff last September. The secondary point, I believe, is that even the Atlanta market, which was never considered bubbly, has turned down very sharply. To me, that means that no market anywhere is immune. It can take just ARM re-sets and relatively-higher prices (now that the neighbor has fallen) and to do in a market, not just bubble prices.
Thank you so much Chip!
That is exactly the article I was referring to. I wasn’t sure whether or not that link would work, but there was no way to find out other than to try posting it. It did indeed come from Mish’s site, and your summary is outstanding.
Much appreciated!
Being an agent just for the free lunches just to experience the ‘gourmet’ for free. Kind of one way to stick it back to these bastards that helped push up the bubble.
Here is an example of a friend of mine that sold a home last month in SD. He thought he could have gotten aroud $500,000 last summer. This last months sale was for $450,000. 10% decline on what he felt was the top (I think he was right on his guess of $500,000).
What is hidden in the cost is a $35,000 kickback to the buyer which puts the sale of his home at $415,000 (17% decline). There are still apraisers out there that will approve anything.
So what you are suggesting here is that once we get rid of appraisal fraud, we might learn that SD home values have already fallen by more than 15% off last summer’s peak? This bit of hidden reality will lead to steeper subsequent price declines once it is common knowledge.
This must be a dumb question, but why would the seller (not builder) provide a kick back? Seller ponies up cash (and commish?) and buyer pays higher prop. taxes.
Never mind… keyword “fraud”.
I asked that recently. Same exact line of thinking as you. Answer: buyers are walking up with zero dollars in their pockets. Seller kickbacks pay for closing costs, maybe a point or two to reduce the buyers rate to make the thing “affordable.” Benefit to the seller? They get to sell their house. But more likely they were sold on the idea by their realtor.
Wasn’t going to muck up my example….but here is what happened. My Perma-Bull RE Mogul friend finally got scared after his home sat on the market 6 months (bought home for $200,000). He needs the profits on this house to continue forward with a remodel on another home that he is too far into to stop.
The buyer asked that the seller give $20,000 to a relative at closing. I figure they owed this relative this money. Not sure on all the specifics of this part, but it was in the offer to purchase and went through at closing.
Then, a couple weeks before their contigencies were finished, they threatened to walk and demanded a $5,000 kickback at closing to themselves. Then, you guessed it, a couple days before their contigencies were up, asked for another $5,000. Total of $35,000.
I guess they smelled the fear in my friend. He was very upset, but the fear of the house not selling was worse.
You and other sensible people know that the buyer will pay a higher mortgage, more interest, and higher property taxes. These RE Moguls only see the cash that will be quickly gained and the debt will be erased with future appreciation on the home. The seller needed the deal, and these were the terms regardless of the increased commisions.
I gave the example, to show that builders are not the only people giving incentives and the price that NAR will use in their statistics is 8-9% higher than the reality. Other things it showed me is the fear in some sellers and the ignorance still left in some buyers.
thanks. I think these “real world” examples are what makes this and other blogs so valuable.
It will be interesting (is the the right word?) to see in the end how widespread appraisal fraud is and what the repercussions are.
oh yeah, thanks, I knew there was another insight…..apraisal fraud.
Back when I bought in ‘99, everyone seemed surprised that I didn’t ask for “closing help” or “points” from the lender. Certainly at the lower end of the market at the tail end of a real estate slump that sort of thing was expected. I paid the sellers $5k less than they paid in ‘95. Although I did get an additional $450 knocked off for needed masonry work revealed by the inspection.
Looks like the stock market had a inflation scare today, Can the FED pause now?
The fed will tighten another quarter but the language will probably be more dovish this time, mentioning risk of a slowdown as approaching the risk of inflation (look at the dow transports as a leading indicator), and this will give markets a 2% boost for a whole 24-48 hours. This is the time to get OUT and buy more puts, because the housing reports for Sept-Oct-Nov are gonna send the housing equities into a tailspin and consumer discretionary is toast.
If the Feds goal is to persuade Wall Street after every meeting that there will be one more .25% raise and then no more they’re doing a very good job. ISTM that they may be “chasing” inflation up.
The downturn started a while ago, now the MSM is starting to report about it. While there is a well deserved round of self-congratulation going on in some posts, I am really worried that there is a growing undertone that assume a bunker mentality. True in any crowd there are folks who take joy out of seeing things go to hell in a hand basket, but ask yourself – where is the solid facts for some of this kook tinfoil hat talk that has been cropping up here?
Most times I laugh about it, because it seems like parody, but there are other times when I think some of you folks really do believe in crap like the “New World Order”, and I am worried. One reason this site is so good as the moderator (Ben) queues up the red meat and the community tends to augment, analyze and correlate very well. I truly hope this does not de-generate into some Y2K-esque site where folks are waiting for the end of western civilization as we know it.
How about some facts.
1) Housing implosion off to a reasonable start. This site saw it coming, and through the community predicted many of the aspects of it with remarkable accuracy.
2) US economy headed for a down turn. There are multiple factors making this happen, but to be honest so far it is not following a trajectory that is out of the median for a downturn.
3) Money supply getting tighter. To be honest, it would have been rather tough to loosen it more. Once the Bank of Japan turned off the free money supply it was bound to slow everything down. While some of you folks enjoy owning gold and other commodities that you perceive to be scarce, there is (as of yet) no solid evidence that such a move is required to “survive” the monetary contraction.
4) Stock market not following fundamentals. Well how-de-do! When was the last time really honestly no kidding saw it do that? Does anyone doubt that it’s currently just the largest, most liquid speculation medium there is? Maybe there is a bit of trading on actual company value, but lets be serious here, how can a company be worth $25.00 a share one day and $30.00 a share the next when the fundamentals have not changed. Speculation.
Yes we can all revel in the speculators in the markets taking it in the shorts, but does that mean that the government or the world is heading straight towards taking steps such as martial law? For heavens sake, recently someone suggested that our own government might light of a nuke to cause some panic for their own gains! Do these people honestly discount the fact that thousands of people have dedicated their careers to ensuring that what we think of as America continues, no matter what liar / crook / hero / philanderer / moron / saint / bumbler / Republican / Democrat is in office?
Sorry for the screed, I know I have been quiet of late. My cohorts and I are very busy engineering the next phase of the Tri-Lateral Commission’s “Centurion Plan” and I am so busy helping plan world domination that I have little time to post. Yes, that’s a joke.
I want the American people to know this: their President is not a crook…
sigalarm,
I think most of the “doom & gloom” posters are theorizing about “what if” scenarios. As many people who come from different parts of the world (and different generations) can attest, fairly significant negative outcomes can occur without much official warning. My mother lived through WWII in Vienna, and my father grew up during the Great Depression. If one is fortunate to have such resources of knowledge/perspective, it’s natual to consider what **might** happen (worst case) as well as what is likely to happen.
Considering what is going on in our world [IMHO, strong deflationary forces in Western countries, multiple wars which could easily end up drawing the backers (China, Russia, US, Japan, etc.) into the fray, tremendous debt (public & private), lack of **real** jobs which pay a living wage, elimination of pensions and healthcare benefits, SS crisis (at a time when Baby Boomers are starting to retire), etc.] — a major, global CREDIT BUBBLE…one would be remiss in discounting serious problems in the future. Just MHO.
“Plan for the worst, hope for the best.”