A ‘More Forceful Slowdown’ For San Diego
The Union Tribune follows up on the Dataquick numbers. “San Diego County’s housing market weathered its second straight month of price declines in July, when overall prices dropped 1.8 percent from a year ago to $487,000, DataQuick reported. Taken together, the two summer months showed the first back-to-back downturn in prices here since May and June of 1995.”
“Last month’s figure put the county’s median housing price 6 percent below the all-time peak of $518,000 set in November. Prices for newly built houses, resale condominiums and condo conversions all were down, as they had been in June.”
“Even more telling of the market’s pronounced shift was the rapid slowdown in sales. There were 3,370 closed escrows last month, down 29.3 percent from year-ago levels, and off 21.7 percent from June, the biggest retreat from any June to July since DataQuick began keeping records in 1988.”
“‘We need to watch the sales pace closely because that was an unusually sharp decline between June and July,’ said DataQuick analyst Andrew LePage. ‘Maybe it’s a one-month deal or it’s the beginning of a more forceful slowdown; we don’t know.’”
“San Diego is not alone. LePage said the market slowdown is evident in Sacramento and is spreading to other areas. ‘The sense of urgency is gone. The sense that buying a house is the fast road to riches is gone. There are fewer people out there buying a house, and a good chunk of people who sense the cooling are going to wait for a deal,’ LePage said.”
“The role reversal shocked some sellers. Heidi and Wade Shields put their 1,410-square-foot San Diego townhouse in Murphy Canyon on the market five months ago. After dropping the price on the home once, they still have received no offers. The house on West Canyon Avenue hasn’t interested buyers at its $619,000 price. They bought the home two years ago for $480,000.”
“‘I’ve been really surprised at how dead it’s gotten,’ said Heidi Shields. ‘We’ve hardly had any lookers at all.’ The Shields are in a tough spot. With 18 homes listed, their street appears to have more single-family resale homes on the market than any other in the county.”
“Their agent, Tim Skoglin, said he confronts a growing feeling of negativity toward home buying outside the realty community. ‘It’s kind of spread like fire,’ he said. ‘All your buddies you work with are not feeling good. It creates a wave opposite from when people said, ‘Get out of the stock market and get into real estate.’”
More from that realtors conference:
‘For the last few years, it has been almost impossible to overstate exactly how good the Inland Empire economy has been. ‘We are the center of the universe,’ Husing told an upbeat crowd at Thursday’s RealShare Inland Empire Conference at the Ontario Convention Center.’
‘We are the center of the universe,’
Add that one to the list of most idiotic things said. Oh, it’s the center of something alright!…just like my sphincter is the center of my ass! Imagine the worlds worst natural smog trap, some of the most overcrowded freeways you can find, a heat/humidity combo that will melt your sack, and you’ve just touched on some of the problems with the IE. The OC folks consider the IE folk outcasts, kind of like a huge inland leper colony, and for good reason.
Yes, but OC people consider everyone outcasts:
Lake Forest
Los Angeles
Anaheim
Just to mention a few
Inland Empire / San Bernadion are a piece of S*it. They have more hispanics per household than mexico. There are no high paying jobs except for the falling construction jobs.
“On the floor laughing”…..
just like my sphincter is the center of my ass!
Brilliant analogy. Also there are more trailer parks that I’ve ever seen! Even those who don’t live in trailers…have trailer park mentality.
Isn’t it called the ‘Valley of the Dirt People’?
Have you ever seen the recent Queen of the Valley of the Dirt People. When you look at her you have to use a mirror like Ulysses did or you will turn to stone or melt.But I digress;the Shields should drop the price 65k and they might get a bite with owner financing on a 2nd. Oh, I fogot , they HELOCd it and they owe 600k, but they have his and hers baby Hummers and flat screens in all the rooms, and jet skis ect ect. Oh Well !!
I have traveled all over the IE delivering industrial materials and supplies and i know exactly what is driving the IE economy. Construction and building of urban Infrastructures is the main driver of the IE economy: It accounts for a disporportionate percentage of the high-paying jobs. The other driver is warehousing and shipping.
There is a point where all this construction activity has to slow down and decline, and it will happen when the economy goes into a recession. Lots of projects get halted, leaving abandoned, half-completed commercial bldgs strewn all over the landscape. And for lease signs will pop up all over. You can notice this happening right now throughout the IE: vacated commercial bldgs, lots , abandoned projects, Commercial/industrial parks only half occupied(tenanted).
The slowdown of the IE building boom will spike up unemployment and foreclosure rates, and lead to inevitable declines in homes prices. As many as 50,000 new homes will come online this year in the iE( this may be a conservative estimate),further putting pressure on home prices. Many recent homebuyers here will mass-emigrate out of the IE and flee back to the cooler coasts, even if they have to rent apts or buy affordable condos. If Gas oil prices remain high, the process will accelerate.
This will occur over next several years.
Here are a few representative samples of large ” industrial” establishments you will find in the IE:
1 Cardinal Healthcare/allegience Healthcare-Ontario
stores and ships out medical specimens and other medical supplies to Hospitals all over SCal. Uses freeze-dried ship-packs. Majority of the jobs in this company are for warehouse packers, truckers, minimum-skilled assemblers/packagers.
2 US foodservice-ontario.
3-block-long Warehouse/distribution bldg. Same type of workers needed as Cardinal Health.
3. Western water-Chino
Receives, stores and ships large industrial pipes and valves to construction sites, All materials imported from Overseas.
4, SunDance Spas-Chino
Receives Spa Components from overseas , assembles them and ships them out. 90% of workforce low-skilled hispanic assemblers/packagers/forklifter’s.
5. Sylvania Lighting-Ontario
Block-long Warehouse which received all types of lighting products from overseas and re-ships them out throughout Cal/US. Warehouse personnel kept to a minimum thru use of State of art Forklift equipment-10 workers per 8.hr shift can move supplies in a 100,000-250,000 sq ft warehouse from shelves to trucks at average load/unload time of 45 min per freight load.
All these Warehousing operations employ min-skilled mostly recent Hispanic workers,at least in the distribution end. This type of business operations is a very typical representative sample of the so-called IE industrial boom. Average Wage paid in Warehousing/light manufacturing/asembly/packaging in the IE is around $9.00-$11.00/hr. 95 % of all workers in these industries are recent Hispanic immigrants or their ist generation offspring.
-What eactly are you trying to say amigo?
To put it concisely, there are no high-paying hi-tech industries at all in the IE. No High-paying unionized factory jobs. No Aero-industry at all. IE is not silicon valley. If there is any basis to the claim that IE is an “industrial powerhouse, as was stated in the IE Conference, it would be low-paying small scale sweatshop work such as metals fabrication,light assembly workshops, such as found in Van Nuys region. This economic snapshop of IE is a very thin veneer to justify the $400,000 median IE RE home prices.
“The other driver is warehousing and shipping.”
Correct. The Long Beach Harbor off-loads the Container Ships on to Rail Cars that roll inland to Ontario where the containers are loaded on to Freight Trucks. It’s the largest distribution center on the west coast. More commerce activity there than many countries combined.
Ok from the Los Angeles Times EDITORIAL pages:
http://www.latimes.com/news/opinion/la-ed-economy12aug12,0,7985138.story?coll=la-opinion-leftrail
“More evidence of a housing slowdown arrived in the days after the Fed’s announcement, including reports of prices flattening in San Diego and Los Angeles. The bubble may not be popping, but the steam may be seeping out of it, which would make Bernanke happy. So long, that is, as a flat real estate market doesn’t trigger a recession throughout the economy.”
I concur with the editorial writer — continued high rates of housing price appreciation (inflation) are not part of Ben Bernanke’s game plan. And I also agree that so far, BB’s hopes have been realized — the air is gradually seeping out of the balloon, instead of exploding in a violent pop. But it will be quite interesting to see how the market collectively adjusts to the realization that the Realtors (TM) were all lying when they said, “Real estate prices always go up. Real estate prices will not ever go down in Southern California, because everyone wants to live there. Renting is just throwing money down the drain. You can’t go wrong buying a home, because of the tax advantages. Real estate prices have never gone down in the USA since WWII. Blah, blah, blah…”
All of the above Realtor (TM) sales lines will be repudiated in the next twelve months. Given that Fed Funds rate increases exert their influence on the economy with a long and variable lag (approximately 6-18 months), there will be little scope for Ben & the gang to steer the USS Enterprise away from the rocks if the morning-after effect of waking up from the housing bubble nightmare proves more severe than anticipated.
It”l take another 2 years at this current interst rate for the FBs that took out ARMs in early ‘05 to see their mortgage payment increases level off. Many of them won’t even make it that long. Without a couple of quick 50bpt drops the housing market is headed for disaster. If BB drops, the dollar is toast and inflation will run since our consumer economy is import based.
Energy prices alone may push us into a recession. A lot to worry about for BB. In a corner 100000 ways.
I admire him for holding it together as well as he has so far considering the hand he was dealt…
Bernanke’s been in as Fed Chair less than a year. Let’s see where the economy is next year this time. If it’s doing well, maybe he’ll deserve laurel wreaths then.
I wonder if this will engender violence. When the stock market melted down, most of the burned used discount brokerages without a face they could bludgeon. In the case of real estate, they know exactly where to find the realtor who they want to lynch.
You can hear the air slowly hissing out of the LA County RE bubble! The slow leak could become a large gaping hole real soon.
The Realtor’s propagandist spin during the recent(and past) RE bubble runup is worse than the blather put out by politicians during an election campaine!
“it has been almost impossible to overstate exactly how good the Inland Empire economy has been. ‘We are the center of the universe,”
Which one is worse, having morons talking OR people listening to morons.
Is it just me or does this make anyone else want to hurl?
In San Marcos, Jason and Halé Richardson, both 32, have reserved a $1.2 million, 4,200-square-foot new home in San Elijo Hills while hoping they can sell their nearby home of 3,031 square feet for $799,000.
He’s a professional BMX bike rider and she’s a marketing director for a land-development firm. They have a 17-month-old son, Greyson, and her parents live with them.
32 years old and in a $1.2 million house? Do they have a book on the NY Times bestseller list? Did he just sign a contract with the San Diego Chargers?
Gad, someone take these people and dump them in the ocean. Please!
You like to hurl a lot
errr well maybe you don’t LIKE IT, but you do 
I just hurled my breakfast reading that.
He’s a professional BMX bike rider!
Wonder if he is able to get income insurance re career-threatening injuries.
I was talking to a friend the other day who is in to bike racing. He mentioned that some of the successful bike racers are pulling in seven and eight figure incomes. It’s the same crazy dynamic that results in basketball players living in mansions on Balboa Island.
We are truly a bizarre society.
In-friggin’-deed!! You know, I dig golf, a lot. But when I here our most popular sports star (Tiger recently took out Michael as #1) is about to become a billionaire, it does make me want to hurl (seems to be our word of the day) IT’S A GAME, for Gods sake! It’s not like these guys are splitting the atom or curing polio. Yeah, it’s safe to say our society is truly whacked!
I’ve noticed I have a problem differentiating here and hear. Sorry……
Well, yeah, I agree, but I’m happy that the highest paid is a golfer, as opposed to anybody else.
nnvmtgbrkr, I here ya. I make that same mistake hear on this blog to.
Actually, the guys splitting the atom and curing polio probably get paid about $30K/year. Unlike the past, a science career in the US pays poorly. The effects are beginning to come home to roost. In a few years, the US will lose the incredible lead it has held in innovation.
As an AIDS researcher for the past twenty years, I can affirm that all of us in biomedical research have taken substantial pay cuts to continue with our work. Even in the highest rated-laboratories (top 5%), you can easily see three years of funding and one-two years without.
It is very difficult for US researchers to compete with international laboratories without these support ‘gaps’.
txchick57 “hurls” on a daily basis according to her comments. Bulimia, perhaps? In any event, professional help is needed.
Oh, you made bail?
Bwwwwwwaaaaahhhhhhaaaaaa
Back over here now. Looks like No VA has lost some serious steam!
Yes!! Bring on the bulls! Fresh meat!
va_investor,
I am curious — do you see that the bubble has popped, but continue to post assertions to the contrary in order to identify greater fools to buy your investment properties, or are you a true believer in denial?
we’re waiting… (Jeopardy music playing in background)……
stucco,
What assertions to the contrary?
Assertions like “Bubble, what bubble?”
We should have a World Series of Hurling. You know, distance, volume, noise, spilling, color categories. Eh?
a professional BMX bike rider…. WTF??????
Stop slaming Jason. After all he’s 32 yr old and has been through a lot……….of bullshit fantasy.
I don’t think this guy is pulling all that much $ down. Hes a racer, and he did get wrecked earlier this year:
http://www.fatbmx.com/modules/news/article.php?storyid=1232
If he was a vert/street pro in the xgames, then maybe 7 figures a year if there’s lots of endorsements for sodas, clothing, mainstream products. You can only make so much endorsing gear within the bmx industry.
Probably another believer in the theory that RE never goes down.
her income will be 0 soon
First get an EPA excemption for dumping fecal matter into the ocean.
She’s about to lose her job due to the RE collapse. He’ll be too old very soon for “professional BMX bike riding.” The silver lining is her parents live with them. With their $20k/year in Social Security income, they should be able to swing the note for that $1.2 million house.
must have a bunch of old people here. these bmx/skateboarders/x-games people make a lot of money now. they probably make more than most people here with contest winnings, video games and a whole bunch of other sponsors. anything they use or wear they probably have a sponsor paying them to use it. even out of retirement they probably still will make lots of money off endorsements.
If you’re making 8 figures, why would you care about selling a property in six figures? Why would your wife be working with a young child? And why would you be buying a house for only a little over a million?
Because he’s a thoughtful cautious BMX rider, as opposed to the impulsive reckless ones.
One injury away from total disaster.
Put me down for a hurl.
Let’s see. Parents living with them means we have two families living in one property to be able to afford the mortgage. The bigger house will give them more personal space in which to vent. Parents will be the live in baby sitters for the couple to free them up for the social life that they’ll feel they are entitled to. In the end parents will probably be dipping into their savings to keep things afloat. Wow, think about the mess should a divorce occur with the comingling of funds.A lawyer’s dream.
“Let’s see. Parents living with them means we have two families living in one property to be able to afford the mortgage.”
you don’t know that. it could just be they want someone around with the young child they have. maybe the BMX guy travels a lots.
look at this:
Ultra: Who are your sponsors?
JR: I ride for Mosh and my co sponsors are: Sonic, ATI, Answer, Vans, Spy, Sun Ringle, Profile, Champion Nutrition, Powerbar, and SDG.
Ultra: how much input did you have to the design of the Mosh bike?
JR: I had most of the Input on the design of the Mosh bike everything from geometry to the tubing.
Ultra: what are you studying at the moment?
JR: I am currently getting my Masters in Business
Uh…what happens when mommy and daddy don’t have the Heloc money anymore to buy JR that $1000 BMX that JR “designed”? Come on, who are you kidding? All that crap is consumer driven spending and we all know what’s been funding that.
The MBA is no good without the accompanying experience.
Is ‘BMX’ two cycle or ‘2 legged’?
2 legged…yes they have become that expensive.
” Come on, who are you kidding? All that crap is consumer driven spending and we all know what’s been funding that.”
and all the sponsors he has are going to be gone too?
John
I am 34 and live in Carlsbad. I know several “professional” bmx/skateboard/motocross riders. Most of those sponsors pay them in free product, not MONEY. The others give them a stipend and pay for travel/contest expenses. Unless they are one of the “elite” riders i.e. Tony Hawk, Travis Pastrana, Bucky Lasik, Dave Mirra, etc. you don’t get 7 or 8 figures a year in sponsorship deals. This guy is AA Pro NOT an X Games athlete, and he just broke his femur in a race, hope he has good insurance…..
No they won’t be, but their sponsorship budgets will be cut back if they generate the sales from them. It’s that simple.
he obviously makes enough money to afford to carry two houses at the same time.
Are you really sure about that?
I can never tell with Showley’s anecdotes whether he is deliberately describing absurd situations, or if he is just so thoroughly wrapped in bubble psychology that he cannot recognize the absurdity?
….I’m trying to talk my husband into emigrating….to almost anywhere short of the Congo or the inner regions of Colombia… Culture wars? Wouldn’t you have to have a culture first?
The SDCIA message board has now locked everyone out unless you are a member. I guess this means it is really getting bad when they have to hide how bad everything is!
I’m a member. Too bad. LOL
TxChick — interesting — you are our window into that murky world of pain, suffering, anguish — think they might try to expel you?
Doesn’t matter. I’ll join again under a different name. One thing I don’t mind spending money on is entertainment. And that’s entertainment!
I see our friend VA Investor has returned. No doubt from overseeing her vast land empire in various Bubbletowns, USA. Of course, NONE of her properties have depreciated in value, they are ALL cash flowing to the max, none are empty and all have retained full bubble value.
And then she woke up.
Thanks for your concern tx!
txchick, you and my wife and her sister should get together. You guys just love to put the stick in the hornets nest and stiring it up when it comes to these poor bulls.
think they might try to expel you?
Looks like they already did
Let’s try that again.
think they might try to expel you?
Looks like they already did
MjM
THAT post got you kicked out?!!! They’d probably kick out Ben Franklin!
PS:Greg is a “moderator” on SDCIA.
MjM
They need txchick over on SDCIA (Stupid Delusional California Investers Anonymous) to inject a dose of reality into their fantasy world.
I’m not a member and I’m able to read posts currently.
Now who is the greatest fool?
-Dog gone it…Hedi and Wade just need to hang in there. They have only dropped the price once in 5 months and there are only 17 other houses nearby for sale. The other 17 sellers are not nearly as smart as Hedi.
- Hedi and Wade simply need to get a pep talk with Jason the BMX Rider on ‘Possibility Thinsking”
Anybody wanna buy a four hundred eighty thousand dollar house for $619K ? Step right up! Win a cupie doll!
Anyone want to buy a 200k house for 480k, that’s what they did.
They are looking for a buyer with biggers buckets of money and a much bigger box of stupid. (Thx Robert Cote).
That is my new bubble-locked joke, I should wear it out in a week or so, but damn it makes me laugh for now.
Heidi and Wade are dangerously close to entering the “We’re not going to just give it away” mindset.
“‘We need to watch the sales pace closely because that was an unusually sharp decline between June and July,’ said DataQuick analyst Andrew LePage. ‘Maybe it’s a one-month deal or it’s the beginning of a more forceful slowdown; we don’t know.’”
Well, let me clear that up for you Andy. YES, it is going to be a “forceful slowdown”. Lots of folks out where I live would call that a “Crash” but you call it what you will. Now, don’t you feel better that you know what is coming?
Next time you have a question just hop on over to the bubble blog and we’ll clear things up for you, spread the word.
I don’t understand why Dataquick doesn’t simply report the stats and shut the %^% up with their pathetic predictions, since the predictions they do make are always wrong and then they have to say something like “We don’t really know what’s going on, things are much different than we had predicted, we’ll just have to wait and see what develops.” Hey Dataquick “experts”, why not give up while you’re behind!?
But they’ve had a 100% accuracy rate on their “past” predictions.
They are not predictions. It’s coerced wishful thinking. They have a lot more interests (PAYING CUSTOMERS) from the RE complex side than they have that just want to get the straight facts. Don’t expect them to call this is severe downturn until 2 years after it’s over.
wow some early 90’s comparisons
keep in mind the ride up was faster so the ride down will be too
AND the midwest and oil patch wern’t in the game at all last time.
So when is this going to start happening in LA enmass?? I can’t wait! I have a guy I work with who is going to “broker” classes and he says his instructor (who has 10 yrs. experience with a top firm) says prices will be flat for 10 years. When I challenged this notion he said this guy has an interest in seeing prices go up so he definately wouldn’t lie! What a bunch of crap! He looked at me like I was nuts when I said prices will probably go down 20 - 40% (if not more)in the next couple of years. This is a guy who owns “investment” property in Watts and has told me what a “great” investment real estate is! It will never go down! He also told me I was born at the wrong time since I am a gen-xer who has gotten screwed by the baby boomers. What nerve!! I hope he loses his as*s!!!
“…he said this guy has an interest in seeing prices go up so he definately wouldn’t lie!”
Your work acquaintance is a moron.
…a guy I work with who is going to “broker” classes and he says…
That should tell you something right there. He is going to “broker” classes now? Talk about bad timing. Clueless.
So should I give up on my day trading courses, too?
Is it to late to sell my pets.com stock?
he says his instructor (who has 10 yrs. experience with a top firm) says prices will be flat for 10 years.
I think the experienced instructor meant to say the market will fall for the next 4-5 year by roughly 40% then slowly pick up where 10-15 years from now the market will be flat compared to today. If you have the financial means, keep your house because in 20 years it will be worth more. However, get ready for a pounding in the next 5 years because your house will be worth about half of what it is today.
Signed, the real instructor.
If you have the financial means, keep your house because in 20 years it will be worth more.
Possibly, but adjusted for inflation, it will still be worth less than today. I guarantee it
FutureVulture’s Investing Rule #17: Don’t listen to anyone talking about “the long run” unless they can explain to you what “real return” means.
According to the Times, Watts wnt UP 25%.
Even if prices stay flat year over year, it’s actualy a price decline when you factor in inflation. If prices stay flat for 10-years and inflation is on average 3.5%, the house value is actually decreasing by 35% over the next 10 years.
“Get out of the stock market and get into real estate.”
- For the time being, I think cash is king.
Emeigrant Direct is paying 5.35% right now I believe for a savings account. No minimums, no fees etc…
Emigrant
number still going up, though this last 5K took a while. one million by 11/23/06 still a posibility.
mid may was 799,000
6/10/06 was 836,471
6/14/06 was 840,935
6/17/06 was 846,120
6/20/06 was 850,317
6/22/06 was 855,892
6/24/06 was 860,647
6/29/06 was 866,037
7/01/06 was 858,675
7/09/06 was 870,854
7/11/06 was 882,239
7/13/06 was 886,055
7/14/06 was 890,896
7/18/06 was 895,022
7/21/06 was 900,000
7/25/06 was 905,170
7/28/06 was 910,001
8/01/06 was 903,718
8/12/06 today 915,336
http://www.ziprealty.com/maps/index.jsp?usage=search&cKey=74rbwvlk
We are at the point now where equilibrium adjustment is clearly underway, as the formerly rapid pace of upward inventory adjustment has recently been tempered by falling prices. Falling prices have a dampening effect on both sides of the market, as sellers are disappointed they cannot get that extra 10% gain over last year’s comp price which they believed was their due, and buyers are not interested in purchasing a costly asset whose price is falling.
However, there will be more shoes to drop on the inventory side going forward. Many of those who have recently delisted their homes in hopes for near-term renewed high rates of housing price inflation are likely to be disappointed to discover that this is not part of Ben Bernanke’s game plan. And a substantial number of owners who recently bought using unsustainable financing will find themselves in positions where they need to sell into a market where there is a severe shortage of buyers without very cold feet. Finally, there is still a fairly large number of partially-built housing units (esp. high rise condos) which will add to near-term inventory. It ain’t over till it’s over.
“Their agent, Tim Skoglin, said he confronts a growing feeling of negativity blah blah. ‘It’s kind of spread like fire,’ he said. ‘All your buddies you work with are not feeling good.
- Note to Tim Skoglin… you keep hanging in there and confronting those bad feelings and negativity!
When this is all over and media starts looking for the reasons behind the drop they will say : “Ben Jones did it!”
Hey enron, good to have you posting again.
OT, but do you have any comments on the Kroll Report? We could bring the discussion on-topic by asking whether the report has reduced the likelihood that SD will go BK, and whether that in turn has any implications for the housing market.
I myself am amused at the public outrage over spending $20m on the report, when the SD city budget is getting crushed under the weight of a $1400m+ pension deficit. As va_infester would say, “BFD”…
http://www.signonsandiego.com/news/metro/pension/20060808-1326-bn08kroll5.html
San Diego County’s housing market weathered its second straight month of price declines in July.
Or as the Realtor® who fell out of the 45th floor said as he passed the 43rd; “So far, so good! I’m weathering this nicely.”
“second straight month a price declines…” BFD.
Let’s put the numbers into perspective before we decide if it is a BFD.
SD Median Home Price
11/05 $518K
7/06 $487K
Average annual wage for all occupations in the San Diego-Carlsbad-San Marcos MSA for Q1 2006 = $42,220
(Sounds unbelievable? Check it out for yourself!
http://www.edd.ca.gov/eddquickstats.asp )
Decrease in median home sale price over eight month period = $31,000
Decrease in median home price as a share of Q1 2006 average annual wage in Greater SD MSA =
31,000 / 42,220 X 100% = 73%
Annualized rate of median home price decline =
[1 - (487/518)^(12/8)] X 100% = -8.8%
In dollar terms, that is annualized rate of decline to the tune of $45K since last November, more than the average San Diego annual pre-tax income.
BFD? You decide.
Of course, I realize that nobody much depends on their day job to pay the bills these days, as everyone has turned into a genius real estate invester…
Getstucco,
Compared to the “run-up”, this is nothing. Normal cycle is occurring. Again, BFD. When, and if, rents crater (50%), I’ll become concerned. Of course, at that point, we will be in a full-blown depression. I have plenty of cash to see me through it. Do you believe stocks, bonds, and jobs will be saved in your scenario?
“Do you believe stocks, bonds, and jobs will be saved in your scenario?”
In short, no.
For the long answer, go here and scroll down a little…
http://thehousingbubbleblog.com/?p=1232#comments
In Indonesia, everyday, the tide goes in and out.
But one day the tide went out a little farther, and came roaring back in.
Tsunami.
Historically this was only 1 day out many.
That one day was NOT a BFD to many people.
“When, and if, rents crater (50%), I’ll become concerned…” Huh?? Rents are at 50 to 60% of average mortgage payment. Which one is more likely to crater? The one based on WAGES or the one based on appreciation expectation?? Unless wages go up 2 fold in very short order (couple of years), then the rents will not be the one to “crater”. If you’re counting on inflation to do that, then I can think of a lot of asian bondholders and certain person named Bernanke (you might have heard of him recently) that might rain on you housing parade.
I am a landlord. I only care about rents. So you confirm that I should have no concerns.
Not if your properties aren’t cashflow positive. If they are cashflow positive, then I would be suspicious of your position on housing prices.
to what “position” on housing prices do you refer? I’ve owned properties since the 80’s - of course I’m positive. Some are free and clear.
She is cashflow positive. She purchased way back in the day. Now if she knew prices would fall, then the smart thing to do would have been to sell and buy back in at much lower prices, but she didn’t do that.
So even if she only cares about rents, the fact that the price of houses ae falling should be a concern; however, she says otherwise.
Tom,
I am not a “day trader”. There are real costs to exit and re-enter the market. Real estate commissions, transaction costs, capital gains plus depreciation recapture, lost rents, lost low interest fixed rate financing, loss of years into an amortization schedule, ETC.
I don’t plan on ever exiting the market - perhaps some trading via 1031’s, but no exit. So I treat the rents like dividends - with the “kicker” that tenants are paying for the “stock” (rental property).
If you bought way back in the 80’s then you are definitely cash flow positive and appreciation positive as well. More power to you…you’re not a flipper or of their ilk. My only confusion stems from your position on housing prices at their present valuations. Someone in your position (renting cashflow positive properties) ought to realize better than anyone else on this blog how overvalued residential real estate currently is in the bubble areas.
How much higher would the monthly mortgage (assume 10% down and 30 year fixed) be versus the rent you’re charging on one of your properties? Could the current tenant afford to buy the property from you at the current “market value”? More importantly, would they be willing to buy it at the current market valuation?
So “what” exactly is my “position” on housing prices that you were referring to? I am still clueless as to what you were/are talking about vis a vis “my position”.
Let’s quote from your earlier post on this thread to which Getstucco responded:
““second straight month a price declines…” BFD.”
Call me crazy, but I would infer from that comment that you don’t think that housing prices are going to decline much over the next several years. If that’s not true, then please enlighten us as to your real position on housing prices at their current valuation.
the silence is deafening…
va_investor,
You say that the house is the stock and the rent is the dividend. Well good analogy, but it is flawed. So what happens when your house aka stock declines in value? Does that make it ok because it is throwing off a dividend?
This isn’t algebra but more like calculus. The instantaneous rate of change or the derivative is to the down side. Are you perhaps upset that you missed the peak and now you have to hold on to these “stocks”?
I was sleeping. Two months goes not a crash (or trend) make. I have stated my opinions on real estate cycles many times. If you want my opinion, just study the last cycle.
Actually Tom, I’m not sure that’s a good analogy. Relative to the original investment(s) values in the 80’s, she’s probably quite well over the past 15 to 20 years regardless of the appreciation in the past 5 years or so. It’s those buying at today’s prices in anticipation of rental returns that are in the most trouble. The recent investors have locked in to high debt loads and the market rents don’t generally cover that debt service if it’s 30 yr fixed loans.
Tom,
Short-term, the house may very well decline in value but the tenants have bought it for me. So, I really don’t care unless the dividend (rent) is cut substantially. In my mind, both house and net rent are free “gifts” from my tenants. I have, at this point, none of my own money at stake unless you count equity. Most bubbleheads don’t count equity as an asset (although they consider their 401’s, stocks, etc. to be assets).
You see, I am playing with the “house’s” money (no pun intended). I don’t plan to exit the market, so I don’t care about house prices as much as rents. In the end, the houses have cost me nothing.
It’s not 2 months of declines. It’s 7 months of declines and 2 months in negative YoY territory. Have you heard about supply and demend. I expect you’re aware that properties are not a liquid asset. They don’t move fast enough to crater overnight. This will be a protracted accelerating downturn helped along by the coming tidal wave of defaults.
Holding multiple investment properties for this ride down is the absolute dumbest financial move you could have possibly made. You’ll be feeding these properties maintenance, taxes and insurance as they decline in value. Your net worth will get crushed.
AZ,
I weathered the 90’s and will weather this cycle as well. I have plenty of other investments and cash.
I reiterate my comments on the costs of exit and re-entry into the market. In many cases I’ve had the same tenant for 10 years. Not much effort involved.
My net worth took a hit in the early 90’s and probably will again (temporarily). Again, I don’t care as long as the rents keep flowing. People have to live somewhere. These rents will pay a portion of my retirement expenses and then the properties will go to my son. So I don’t have a 10 or 20 or 30 year time frame.
The rents don’t always flow in. Tenants may get financial
problem, don’t pay rent, refuse to leave, trash the place. Eviction, clean up,
repair, loss of income .. can lead to foreclosures or heart attack.
Ken Best,
I have never had to evict anyone in over 20 years of owning rentals. I have properties in very desireable locations and charge below-market rents to get a wide pool of applicants. I look for “life-time” renters and have been pretty good at it. Very little turnover and usually the tenant has been there at least 3 or 4 yrs (in some cases more than 10yrs). In other words, time to paint and carpet anyway.
In any event, a few vacancies (which I have NEVER had) won’t put a dent in my finances; let alone lead to bankruptcy. The thought of that non-possibility makes me laugh.
Comforting, except that we’ve also never had a real estate bubble the size of this one.
It is just like futures trading. Except you are gambling with where your kids sleep. Once you buy the trade wild swings don’t matter until you cash out the position. Your example is still 1 year in on his 30 year time purchase. He didn’t lose that much because he didn’t put that much in and he didn’t close the position.
Thanks for a great laugh Robert.
There’s a lot of Dead Realtors® walking (and squawking). I FAct, thanks. Todays acronym:
DRs. These are the real estate professionals who don’t know they are out of a job or the pros who don’t know the days of 6% are gone forever. Even though they are dead they still walk and talk, frozen in time. “Dead Realtors.”
Thank you for that image from the Sixth Sense: Lots of realtors walking around, pretending to be interacting with people, but the truth is that nobody is listening because they’re already dead.
“I see Dead Realtors (TM)”
DRT - Dead Realtor Talking
ZR - Zombie Realtor
MjM
ZH = zombie homeowner
I am still partial to…
“I see Debt people.”
Goddamnit! Partially chewed hot dog all over my keyboard.
He’s a professional BMX bike rider and she’s a marketing director for a land-development firm. They have a 17-month-old son, Greyson, and her parents live with them.
——————————————————————————–
Ok so that is the type of job that pays enough to live in San Diego…
I guess I wasted my 5 years in college to graduate with an accounting degree become a CPA, get a masters degree work in global manufacturing corps and learn how to make investment decisions for tens of millions of dollars…when I could have learned how to ride a quarter pipe when I was 15. I shouldn’t be surprised that this kind of nonsense happens here SoCal.
oh, you can try learning to ride a bmx bike like a pro, but without the talent and skills, you probably will not pull a 6 to 8 figure income
Does a bike rider clear the average San Diego MSA income of $42K?
The real question is;..What is the shelf life of a BMX rider and, what skill set does he take to the market place after the 10th orthopedic surgery ????
Depending on his endorsements most likely pulling in some decent cash ($150k+). Anybody watch the just completed X-Games?? These guys do quite well regardless of how it might make your stomach feel! If you really want to change your perspective (and you live in SoCal )stop by Quiksilver’s world headquarters in Huntington Beach and grab a seat on one of the coaches in the lobby. The amount of money that walks through that shrine attached to individuals who do nothing more than have fun for a living is inspiring!
Honestly, I don’t doubt that this guy takes home some decent money. However, I suspect that once the Heloc money that seems to have been driving this “arrested development” subculture in SoCal for the past decade or so starts to dry from credit tightening, some of these big sponsorships will begin to dry up.
I think SCDave’s comment is correct, how long is the shelf life on these types of careers? Specifically when the the economy starts to turn south. Say all you want about companies like Quicksilve and Oakley etc, but on the whole, they don’t drive the economy…not even close. It’s companies that actually deliver real products/services used in widespread applications for industrial and business purposes.
The big issue is that even if he has a 30 year fixed mortgage, that’s not a 30 year fixed kind of job.
The Delusion Is Deep
This is a good example of how pervasive the delusional sense of entitlement in house price appreciation ingrained in the minds of the homeowners and speculators out there. They will learn it the painful way from the school of hard knocks. Many of them will be wiped out waiting for the frenzy of bubble days to return when they can make hundreds of thousands just by flipping houses. Fundamentals are deteriorating more swiftly than expected. Most of us bears are aware that the homebuilders have been taken out for a brutal spanking over the past few months (and there is more to come, but they may have a dead-cat bounce from here). And this week, we witnessed the home-lenders (CFC, LEND, FED, NEW, etc.) receiving their turn, and I think this is just the beginning of their punishment. I expected the whole RE complex to celebrate when the Fed made their pause, but that rally lasted for about 5 minutes before the spanking resumed. LEND is the first to confess that it is having a hard timing unloading its sub-prime portfolios to Wall Street. Now that they are stuck with the risk of losing their own money to these sub-prime borrowers (IO, Neg-ARMs, Option-ARMs), let’s see how much longer they can stay creative in reckless lending. Wall Street asserted its verdict loud and clear this week. Things will only get worse for RE bulls in the coming months. Now that the marginal lenders are in trouble, the foolish marginal buyers will have a hard time coming to the rescue for these trapped speculators, who are truly clueless about the severity of the financial demolition that is swinging their way.
I said this before, the Fed is not God! No one can create trillion of dollars out of thin air without massive negative distortion to the economy and the lives of its citizens. It is a zero-sum game in this RE bubble. Someone has to go into great debt and financial slavery to manifest the lottery jackpot that is their house. The minority smart and lucky few escape with massive overnight wealth, the majority will be losers, including as tax-payers. I don’t like it, but it’s the reality.
“Someone has to go into great debt and financial slavery to manifest the lottery jackpot that is their house. The minority smart and lucky few escape with massive overnight wealth, the majority will be losers, including as tax-payers. I don’t like it, but it’s the reality.”
Very well put…I believe that is the essence of a Ponzi Scheme.
The minority smart and lucky few escape with massive overnight wealth, the majority will be losers, including as tax-payers.
This has been true of the bubblicious U.S. economy for some time. Every time a financial bubble gets blown it only makes things worse. Every time liquidity gets pumped into the system it only serves to exacerbate the trade deficit. Oh well, if it first you don’t succeed…
“I said this before, the Fed is not God! No one can create trillion of dollars out of thin air without massive negative distortion to the economy and the lives of its citizens.”
My favorite quote on this, taken from a recent WSJ Op-ed piece: “If you could create wealth by printing money, then counterfeiting would be legal.”
P.S. I found this timely piece on the Mises Institute archives which is a satire, penned in 12/01, suggesting the govt should consider printing its way out of the slowdown in consumer spending. I wonder how the author feels upon realizing that his satirical suggestion was implemented?
http://www.mises.org/story/843
I think the biggest bubble in the history of the universe is the US dollar.
No, it is gold — biggest and longest-lasting bubble for worthless shiny yellow metal which is much more expensive to produce than green paper in terms of extraction cost and environmental destruction and, unlike a CD or money-market account, pays no return other than speculative gains.
Finding Gold in Discarded PCs
“The Austin, Texas-based private company said Tuesday that it had won $50 million in funding from private equity firm Catterton Partners to help it expand in the computer-recycling market — which founder and Chief Executive Jeff Zeigler says is a $1.5-billion business that’s growing 45% annually.”
There’s Gold in Them Thar Smelly Hills
“One ton of scrap from discarded PCs contains more gold than can be produced from 17 tons of gold ore–and humans throw away 20 million tons of electronic waste a year.”
You were kidding when you said that gold is worthless, right? The electronics industry would be in a world of hurt if they couldn’t get gold. And copper, silver, etc. The only commodity they use that is not in short supply is beach sand as feed stock for the production of silicon
LOL,
GS, If you wish to eat dirty paper with dead slave owners pictured I will not object. Money will always be paper but gold is still gold.
Um, you can’t eat gold, either.
Gold is a superb conductor, so it has utility in electronics, but still, I tend to agree. 80+ million ounces of gold are mined per year, so there’s not really a supply crunch.
The current gold bubble might be as overstretched as the current housing bubble.
“The current gold bubble might be as overstretched as the current housing bubble.”
See this Chart for the historical price of gold in constant dollars.
Also see this Chart for the historical CPI-adjusted price of Gold.
I don’t believe that Gold is currently in a bubble.
Hoz –
You probably realize by now that I enjoy giving goldbugs lots of flack
I myself am not very religious when it comes to financial dogmas.
(“It’s kind of spread like fire,” he said. “All your buddies you work with are not feeling good. It creates a wave opposite from when people said, “Get out of the stock market and get into real estate.’ ”)
the realtors must be quaking in their (prada?)boots.
Here’s my “guffaw of the day”
OK, its a nice house - in Sherman Oaks, L.A - 4b/2ba, 2K sqft house, 6.5K lot:
MLS# R2045845
First listed 196 days ago at $999K.
Five reductions later, its down to $799K.
Then - 12 - days ago - its taken of the market. Then - back on market under a new MLS#.
After day 11 at $799K, surprise, surprise - a price INCREASE!
Now $819K!!!
Because, it simply wasn’t priced ‘right’ for the first 6+ months on the market?
196 DOM removed from the statistic replaced with 12 DOM. Try this with any other product and the DA will throw your butt in the slammer.
http://exurbannation.blogspot.com/2006/04/fresh-fresh-fresh.html
This is nothing less than a material misrepresentation of the product.
Cote;….Our MLS gives the entire history of the property going back 10 years….No hiding DOM in our crib….
Keep your eye on this one - you know that they have the ‘pulse’ of the market now and that puppy will soon be sold…NOT!
Oh, I am! This one in particular I’m watching because its the first one I’ve seen on my “Inactive” list actually come back with an increase.
Funnily enough, its the wierd psychology behind relisting, then waiting 11 days, then increasing the price I find so baffling.
I hope the idea is that after say, 30 days at the new, relisted price they can “reduce” the price and make it look like more of a bargain. I fear that they REFI’s or HELOC’d to pay the mortgage and the new price represents their new debt level.
Probably a new agent with the “I can get you more” speech and then the “drop the price” two days after he gets the listing.
“Well Doris, we’ve tried dropping the price, and that didn’t work. Let’s try the opposite, and increase it this time.”
And Zillow shows the last sale as:
11/15/2005: $785,000
So we have a flipper. And with the agent’s commission and cost of inventory (IO? ARM?) we have an underwater flipper. Throw this guy a fish.
To clarify:
MLS# = R2045845
Address = 13328 N. Valleyheart Drive
Sherman Oaks, CA 91423
Permanent realtor.com link at:
http://realtor.com/Prop/1065556637
(still showing $799K for now)
yeah, at 32, he’s almost on his last season of X-games fame, and he’ll be out of the “money loop” aka sponsorship
so his house will be another casualty of stupidity and moronic spending habits
last week I put a 325k offer on a house in Talmadge that was listed for 500k. The seller is considering it! The housing market is that slow in San Diego. Nobody is offreing full/list price anymore.
Wow! A 35% lowball offer off the list price is under consideration? Maybe it is time for my wife and me to start looking for a home to purchase…
P.S. I should probably add that I was joking, as my sarcasm seems to be getting lost on some who read here. Even if some buyers are finding the rare realistic seller who realizes that the historically inflated Ponzi scheme prices are only temporary, most are still deluding themselves into believing that inflation can pick up again at high rates off an unaffordable base. It will be much easier to shop for homes in San Diego and other bubble zones after such delusions are dashed against the hard rocks of financial reality, and everyone is talking about what a stupid idea it is to invest in real estate.
Be careful of the neighborhood when you do buy (or if). I “moved up” in 1990 to a new tract in Valencia (CA) by the time the market cleaned itself up, we had 4-5 foreclosures on our street (17 houses total). The next door neighbor walked and then rented out the house for a few months to a bunch of lowlifes. Then when the houses were resold, the people who bought had no money, did cheap landscaping, poor maintenance, junk cars, etc. We put up with it until we sold 10/05. And this was in a new tract in an “Upscale area”. When we were finally driving down the street with the last load of furniture, my wife mentioned to me that “she always felt poor” living on that street. Never again.
p.s. My homesale was a record high for that tract which will probably never be beat!
I sold out of Valencia also in July of 2005 . I’m glad you got the exact market high when you sold in Oct. 2005 ,(because your a long term real estate holder ).You bring up a good point about what forclosures can do to a neighborhood .During the same time you speak of in the 90″s I witnessed 2 neighbors go down the tubes . The foreclosures were sold to really good people so I lucked out .From what I understand the higher range homes in Valencia are showing the greatest reductions ,while the mid-range is sitting .
I didn’t think you were being sarcastic either… and was abot to consider teh same tack with a condo downtown.
Ha! sad part, is you would still be overpaying, even at a 35% reduction…
That’s awesome. LEt us know what happens. Be sure to check prices for the same house back in 97 or 98 though. Make sure your offer is close to the non-bubble days.
Agreed.
Based on historical Ca real estate trends, we should wait until the depreciation slows down or flattens over a 6 month time frame. We should see month-over-month declines from here to the bottom, whenever and wherever that may be.
We should see month-over-month declines from here to the bottom, whenever and wherever that may be.
There will be a few sucker bounces (dead cat bounces) during this 5-10 year correction.
Isn’t San Diego where this whole bubble started and then it spread from there? I’ve read various reports on this blog of different parts of the country (like Florida) being ground zero, but my vote would be for San Diego. That being the case, wouldn’t San Diego be THE market to watch and the blueprint for what will happen everywhere else? If so, then SD’s May and June price decline, moderate as it may seem, looks like a good indicator to me. Darn, wish I’d been able to “short” SD.
SD is the proverbial “canary in the coalmine”
http://piggington.com/bubble
By my scale, which a lot of posters considered too gentle, San Diego County is right now suffering a hard landing.
If the median gets down to 462K by November, it’s market will have crashed and we’ll be hearing all about it in the local MSM.
If it keeps dropping below that number, we’re simply talking about a bigger and bigger crash (and bigger and bigger headlines).
I think San Diego is a good candidate for the epicenter of the bubble, because the flippers and equity locusts from SD seemed more interested in rolling their winnings into flips elsewhere than other locations did at first. Certainly true when compared to other locales on the west coast. I don’t know what Virginia and Florida early winners did, but on the west coast, the SD people were definitely the early adopters for going out of state. Bay Area people flooded the central valley and Tahoe with money, and also Southern Oregon and Minden, NV. I think they didn’t start blasting the other states in earnest until 2003, whereas SD land barons started in 2001 and 2002 in places like Las Vegas and Phoenix. I could be wrong…
I can testify to the southern oregon deluge… Nothing here to speak of beyond gorgeous country… Yet they came, they bought, they ran prices up beyond comprehension… and now we sit…. Jackson/Jo county combined area I’m watching went from 1312 listings in Jan to 2659 this week…. Incomprehension is the codeword of the summer….
GetStucco and incessant, thanks for the backup information. In 2004, we had an influx of SD investors in the part of FLA, though they were by no means the only ones. That’s another reason that I feel that “As San Diego goes, so goes the bubble”. Here in the US, anyway.
Had one close this week where the buyer’s agent/lender had his buyer finance 100% of the purchase, typical for the price range (around $500,000).
realtor comm $12,375
lender comm $10,890
junk fees 900
total fees $24,162.50
You know that had to be a ’suicide loan’, heavy with prepayment penalties.
As long as that keeps happening……………
SD is the ‘center of the universe!’
(I represented seller, and have a fiduciary duty to my client to close the deal. I’ve seen at least 10 of these same deals go down in the last year - agent/lender who tears the head off own client)