Sellers ‘Cut And Run’ In Sacramento
The Sacramento bee has this update from California. “State Assembly candidate Kevin Jeffries of Riverside County could have bought a Sacramento-area condominium last month in anticipation of winning his election in November. The would-be legislator was smart to wait.”
“‘Some of the places we were looking at a month ago have already been discounted $10,000,’ said Jeffries. ‘We don’t want to lose equity overnight as soon as we start escrow on it.’”
“As buyers wait out a slumping market and sellers increasingly show a willingness to cut and run, Sacramento County saw California’s steepest year-over-year fall in median home prices during July, according to DataQuick. Median sales prices for new and resale homes and condominiums in Sacramento County fell 5 percent below July 2005 levels. For existing single-family homes, prices fell 3.2 percent below July 2005.”
“The drops weren’t limited to Sacramento County. Median sales prices for all homes and condos fell below the same time last year for a second straight month in Placer and Amador counties and for the first time in Sutter and Yolo counties.”
“‘It seems pretty clear to me that buyers in Sacramento are more or less on strike,’ said economist G.U. Krueger.”
“Others blamed sellers for clinging to unreasonable boom-era price expectations in a market where thousands of unsold homes are piling up. ‘If you don’t need to sell, get it off the market. If you do need to sell, don’t wait until winter because it’s going to get worse,’ said (broker) Mike Lyon. ‘I can see us dropping 5 or 10 percent if we don’t get this inventory down.’”
“July represented the second straight month that sales prices in Sacramento County fell below last year’s levels. Among urban areas, Sacramento joins San Diego and San Mateo counties and San Francisco with median home prices now below where they were a year ago.”
“July also saw the biggest drop yet in year-over-year sales of existing homes in El Dorado, Placer, Sacramento and Yolo counties. Sales were down 41 percent from July 2005. July marked the 16th straight month in the four counties that sales of existing homes were down from the same month a year earlier, according to DataQuick.”
“The newest statistics, gathered from county property records, again showed the mounting advantage to buyers in a market once ruled by sellers. The number of homes to choose from in El Dorado, Placer, Sacramento and Yolo counties climbed to a record 15,474, more than twice the inventory in July 2005.”
“Though sale prices of most existing homes are falling, most new-home builders have yet to join the price cutting, said industry consultant John Schleimer. Instead, they’re offering up to $120,000 in freebies, everything from landscaped backyards to financing incentives.”
“Buyers who once felt pressured to take any home they could afford before prices climbed higher now say they’re willing to wait. ‘In terms of time we don’t feel rushed any more,’ said buyer Mark Aizenberg.”
“Aizenberg, seeking a capital-area home in the $500,000 to $600,000 range, calls himself thankful that he didn’t buy during the past eight months. ‘We’re basically now not compromising on layouts and getting 800 square feet more house for the money,’ Aizenberg said. ‘I feel prices are going to come down significantly more.’”
Sorry San Diego - Sacramento is now in 1st place. Also, SF now has YOY declines. I am surprised how quickly this has turned!
DC now has YoY declines too. Don’t count the east coast out.
Agree. However, some of David’s bloggers don’t want to accept it though (I won’t name names). LOL.
You pretty much can’t name names…they’re all ‘anonymous’. I’m assuming that it’s “they” and not “he” or “she.”
MA was the first with statewide YOY decreases! YEY!!
“I am surprised how quickly this has turned!”
That will be one dollar please. As an alternative go to patrick.net and patiently try to explain to them why prices cannot be sticky this time.
Robert Cote’
While a patrick regular I’ve always been squarely in the “you’ll have to strap a board to your a$$” crowd!
I want to believe Robert, I really do. But take a look at the “buyer” quotes we keep getting — even in this story posted by Ben. There still seems to be some greater fools out there, buyers who are just gettting “lucky” that prices are down a little. They aren’t “rushed” not because of wisdom, but because of too many choices and no bidding wars.
I think we might drop quickly a few percentage point — down to the pent up demand of the last of the fools, but I think there are plenty of few points lower.
No, Suzanne, this is just the beginning of the decline.
There are still millions of people who bought in the last few years and hope to sell soon and reap big profits. These people are tapped out on credit and can’t refinance. They have probably chewed through most of their equity. They are counting on selling in order to maintain their lifestyle.
There are millions of other buyers are will be hit with huge rate increases as their suicide loans come out of the teaser rate and adjust massively upward. Many of these people will have to sell or be foreclosed.
There are millions of speculators sitting on empty homes waiting in vain for the market to turn. Once they bleed enough cash they will bail.
Never forget that we are on the cutting edge of awareness of the housing bubble here on this blog. When it finally sinks into the consciousness of the masses that housing is in an actual decline it will be like a tsumami hitting.
The real estate rats will scurry like you have never seen rats scurry before. Inventory will continue to climb. Prices will slide down and down for many years.
Agreed. There is a substantial amount of latency built into the RE market relating to ARM resets and the reset amount limits for each reset date. They have already begun but won’t reach critical mass for another year at least, when the lifeboats have already left the area, and FBs will be stranded to sink.
plus, the reset itself won’t lead to selling, people dumb enough to buy based on teaser rates are too dumb to realize they can’t afford the payment until their cash flow goes negative for 3-6 months and their credit card debt starts piling up and there is no home equity to borrow against to consolidate
the credit card companies are going to be unsecured home lenders and I suspect they will be more willing to do it because of the bankruptcy reform act’s additional protection
and, unlike stocks where people are free to bail or where margin calls force the sale, people won’t be able to sell their houses. They will be upside down and have no reason not to wait for the default/foreclosure process to play out.
This will take years to play out.
What changed is the mass psychology of buy now or.. replaced with some serious fear of buy now and regret it. I think this fear has paralyzed many potential buyers. Hence sales down dramatically and inventory up dramatically.
I have pegged 0-5% up for Ca this year (Looks like I will be wrong) and 5-10% down next year. My guess is there will be 50 sucker rallies in the next 5 year all of which will simply reinforce the buy now and regret mentaility.
You may see your sucker rallies in the major metor areas, but in areas like the one I’m in I doubt it. The periphery bubble areas are done, end of story.
I meant “metro”. What the heck is metor area?
I couldn’t agree with you more. I think the outlying areas with nothing to offer other than, at one time, cheaper housing, are cooked. Places like Fernley, NV, Queen Creek, AZ, Medford, Oregon, Boise, Idaho and the list goes on and on. It is goodnight sweetheart for them. I think the speculation was the most rampant in those areas since the rookies could get in cheap with none of their own cash.
I couldn’t agree with you more. I think the outlying areas with nothing to offer other than, at one time, cheaper housing, are cooked. Places like Fernley, NV, Queen Creek, AZ, Medford, Oregon, Boise, Idaho and the list goes on and on. It is goodnight sweetheart for them. I think the speculation was the most rampant in those areas where the rookies could get in cheap with none of their own cash.
Sorry for the double post, not sure how that happened.
I also think that without the expectation of mass appreciation, the buying decision becomes about cost of shelter and quality of life, not a way to make easy money.
And once people do the math on cost of shelter, they see why many of us are quite content to be renting.
Yeah, it turned really quickly! Entire Southern California had a price decline last month, compared to June, but not many articles have been written on it. However, there is an article at http://www.homepricebubble.com
“Though sale prices of most existing homes are falling, most new-home builders have yet to join the price cutting, said industry consultant John Schleimer. Instead, they’re offering up to $120,000 in freebies, everything from landscaped backyards to financing incentives.”
___________________________________________
Are these guys blind!?!!? This is a “hidden” price cut! The YOY would be even worse if this was factored in!
True…. and it affects the reporting sales price that the media reports. These discounts are hidden. What will it be like when the tide has turned so convincingly that the media reports will finally reflect the truth that has been evident for the last 8 months - that the peak was reached?
“….most new-home builders have yet to join the price cutting, said industry consultant John Schleimer…”. Yes these guys are blind. Did they miss the FULL PAGE colored adds by JTS last Thurs, Fri, & Sat? Up to $200,000 off the sale price. They add even implied “up to $1 million dollar homes, now starting at $500,000….”. You want to know how many they sold last weekend? They might have reserved FIVE. With 50 to sell, they have a 20 week supply. Let’s see, 5 months from August… You want a deal? Wait till they still have all 50 left in December, because they are cutting prices so fast and deep, no one will confidently close escrow on anything. You buy a JTS home now and it will be worth 20% less in 20 weeks. Just ask all the poor Flippers who closed escrow 20 weeks ago and now have a negative $200,000 in equity. Brutal.
I think this is the shift that has caused the market to turn so dramatically. Buy now and be priced out forever, has been replaced with Buy now and Be Underwater!
Ouch! Prices are still more sticky than stocks in this downturn, but it seems these builders have toolboxes full of knives they are letting fall. With builders leading the way like this and taking on resale homes prices will have to head aggressively downward.
Buyers need to start telling the builders to give them the 120K discount on the price, and wait to get their granite countertops and such a year or two from now at 50 cents on the dollar.
Where I am looking in Tampa, I currently have a builder down 80K on a 360K (2650 sq. ft cooled, so its down to abt $106) house on premium lot, 3 car garage, 18″ tile everywhere, quartz countertops, radiant barrier roof, all kinds of other xtras & I they are paying my closing costs & buying my rate dwon to 6.00% on a 30 year fix. This kills anything any speculators or investors have to offer around here.
I guess I fail to understand the logic of how 100k in “incentives” is not a price cut, unless they are not real incentives at all?
here is a amazong graph for the big bubbelcities (sacramento, san diego…) about the percentage of price reduced since august.
unbelivable
http://immobilienblasen.blogspot.com/2006/08/price-reduced-billiger.html
“Those are just sellers who priced their homes 20% too high and who came back down to a more realistic 10% appreciation rate, which I expect to continue for the next 100 years.”
David L.
Do you think Mr. Aizenberg will wait? If he thinks that more severe cuts are ahead, then he should have no plans on buying. I can’t understand why anybody would buy in California right now, unless they have been on a deserted island the past few months. Of course I didn’t understand why people were buying in California during the bubble. That was crazy.
Can anyone help enlighten me as to exactly when the bubble started? Summer ‘04?
When we removed the gold standard and and handed the steering wheel to the FED.
Thanks for that comment. Please repeat when necessary. Nobody seems to understand what the underlying problem is (FED).
Bonner throws some nice comments at this problem
http://www.lewrockwell.com/bonner/bonner280.html
It’s hard to pinpoint this exactly, but I’ll do it anyhow:
The real estate bubble began March 17, 2000 at 4:00pm E.S.T.
That’s the day the Nasdaq broke down and it was clear that the tech bubble was over.
Other events, 9/11 and the Fed slashing interests rates to keep the economy going after the tech bust was over, and the psychology of real estate as the can’t lose asset class, kept it going.
Tulips,
That may be true but the “seeds” were planted in 1997 when we allowed married home sellers to have 500K in cap free gains! That set the backdrop for the RE run-up and was also responsible for the unbelievably long bear equity market! Most bear markets last 13 months (on avg.). This one lasted from March 2000 until basically March 2003! Almost three times as long as the average!
I realized that the bubble had started at the end of 2003. My wife and I have been on teh sidelines ever since, waiting for the crash so we can “clean up”…I expect REo pricing to be 25 to 50 cents on the dollar for most stuff by the end of this thing.
I think it started mostly in the SF Bay Area during the 1990s with all of the new tech money. That was the first place I remember RE going crazy, long before it did in other major markets. During the late ’90s the tech bubble started temporarily putting more cash in other peoples’ pockets in other parts of the country, such that by the time the stock market went south, RE was appreciating enough everywhere that it attracted the speculators. If RE had been flat at that time, I’m not sure the current bubble would have gone as far as it did–heck, it might have deflated along with the stock market after so many people in the tech biz no longer had it so fat.
Just a theory, though.
You’re describing a sympton of a much larger problem. I’ll post this link again:
http://www.lewrockwell.com/bonner/bonner280.html
Good read.
You’re right - RE in the SF Bay Area (especially SF, peninsula and south bay) started going up in the late 90’s due to the internet mania. There was an influx of people and new jobs and some people were even paying cash from stock options for houses. A lot of those jobs evaporated in 2000 and 2001 - and the Bay Area probably would have had a RE decline. But, the nationwide boom (low interest rates, toxic loans, decreased lending standards) came along just in time to start a second boom here. So, imo, we have twice as far to fall as everyone else because we really had two booms that ran together.
Mr. Aizenberg is going to need stitches, if he has any hands left at all as he reaches out and catches the falling razor-sharp knife. Maybe if he’s anxious enough, he’ll jump out ahead on this one and buy a new place even before he sells his existing one, doubling his pain on the way down, cutting off his hands and feet with the falling knife. Most don’t understand how to respond to a sharply declining market.
It’s obvious. Mr Aizenberg is toast.
Of course I didn’t understand why people were buying in California during the bubble. That was crazy.
Because people become emotional, they actually beleive that there ‘is no more land available’, and that they may be priced out of the market if they wait to long.
If we were all immortal, some of those facts could be true.
Psychology.
-Richie
The families across the street from me (Oceanside, CA) abandoned their house two weeks ago. Packed up their stuff and moved back to their original homes in Vista. The house is standing vacant with the once nice pool a green slimy, mosquito breeding mess. They couldn’t afford the payments on the $650,000 second home they bought about one year ago.
Does anyone know how areas north of Sacramento like Oroville, Chico, Marysville, and Yuba City are doing? I used to live in Oroville as a kid back in the 80s. The place was so dead back then that there were was virtually no new home construction. when we moved in ‘88, may parents had the worst time trying to sell our house for 60k. Now the area prices 230k and up! I also recall when Yuba City was voted the “worst city” to live in the US.
I know it and follow the market there….If Sacramento catches a cold, this area catches the asian flue…If the bay area catches a cold, this area is terminal….There is no soft landing for this area…In fact, there isn’t any landing….
I talked about the peripheral bubble areas earlier. Bubble hubs may show a little resistance here and there, but areas like the ones you mention are already falling back to earth in a fireball.
Plumas Lakes, an new master planned community, south of Yuba City was a big hit in 2004-05. 30-minute commute to Roseville & Sacramento. Now, I see lots of builder adds for price reductions, 6 months payments free, and 100% financing. As I once read on this blog, it is the “marginal” properties that take the first and biggest hit downward. Yuba, Marysville, Oroville….all tertiary markets who will suffer more downturn than the primary (Sacramento) and secondary (Lincoln) areas.
I know a person who bought one of those homes south of Yuba for $275K two years ago. I told her she is going to kill herself with commute to Sacramento. She told me that this is their last chance to buy a house in Sacramento area. She bought it and one later she moved to Oregon, becuase her husband found a better job. Guess what she can’t sell her house and cannot buy a new one in Oregon because she has to make the debt payment. She moved back in with her parents. This scenario is just another domino that will come falling down. Not only did this scenario add more inventory, but it took another buyer right out of the market. She probably gets the shakes when she thinks about purchasing another home. I want to see the NAR try to convince her to buy another house now.
I don’t know about Yuba County, but Placer County is the worst performing county that I track in terms of investor performance:
Placer Flippers In Trouble
Placer Flipper Performance
BTW, I think we are reaching a point where the sales rate drops so low that the median sales price becomes much more erratic. This is when the foreclosure statistics become the leading indicators of market health. For example:
Stockton Makes the Top 10 Foreclosure List
I was driving around in the foothills in Placer and El Dorado counties and amazed at all the mailbox clusters that had multiple for sale signs in front of them. I have never seen anything like it. I can only imagine that these are folks that don’t need to sell, but are gambling/fishing with their house by trying to cash in and move on. These are the folks that Mike Lyon is begging to get their homes off the market so that prices don’t really go off a cliff.
Awesome post Max, thanks for the links. I wonder how DL would explain away people selling at a loss already. Do the realtors in Placer County still use the line “real estate always goes up”?
Max — the Flipper Market Share graphs are great.
Nice post MAX…
Great information, Max.
Very well done!
Butte County Stats as of 8/17/06:
Chico
Listing inventory: 745 (compared to 395 on 1/1/06.
PHS: 166 (22%)
Oroville
533 listings, (compared to 303 on 1/1/6)
PHS 85 (16%)
This is an accurate volume on the MLS. Additionally, IMO, there is a larger than typical percentage of FSBO because of the nature of the resident here …. “I don’t need no damn RE agent to sell my home (spits tobacco goes here)”. FSBO should be a constant though. A realtor friend of mine says the normal inventory is about 150, so while a small market, swelling to 750 is off the chart. Last March, my wife and I looked at a small development built in 2004-2005…. About 30 homes. There were 2 left for sale at that time. Now, 9 on the MLS! Can you say specuvestor …..
Sold my Chico home in June 2005, and am renting – pending retirement next year. I watch the market here daily. 30-60 homes come on the MLS weekly, and about 15-25 sell. The market above 800K is my favorite. 12 homes on MLS in January, 34 today.
I count 42 total price reductions for this group since January, the largest being -246K, and you could count the number sold on one hand. So glad I sold, because the price tag in this range means nothing here anymore. Minimum wage is the typical income, so if you investors and retirees quit coming, prices in this town are toast.
Anyone remember the couple, I think she might have been a realtor who bought some ungodly expensive home, something like 695 or 795K in Sacramento? Then she was trying to sell it and the builders were undercutting her. I think it was in the SacBee. I bet she is in deep SH#T now…
I love it. Battling the builder in this situation is like having one bullet left when your opponent has an ammunition depot.
I can see us dropping 5 or 10 percent if we don’t get this inventory down.
I am getting so tired of this. Some people are now willing to admit prices are coming down but they want to name for themselves by how much, or really, by how little. It wouldn’t bother me so much but it is always the same stupid 5-10% figure that they just pulled out of their a$$. Frustrating watching these retards and their inverted learning curve try to stay ahead of the facts. They actually belive they can talk the market into a soft landing. Also, why is it every article ever written about real estate by the msm contains a quote from the NAR mouthpiece David Lereah? Is he on everyone’s speed-dial or something? Sickening. (rant off)
‘I can see us dropping 5 or 10 percent if we don’t get this inventory down.’”
Mike and most others will just follow the market down. That is what is going on in my small town in the Pacific Northwest. Prices down a “big deal” 5+% and nothing much moving.
Indeed. All the gains from 2002 to 2005 are resting squarely on the shoulders of the ARM holders of 2001, who can still get out with a tidy profit if the monthly nut grows too burdensome.
Three comps is all it takes to bring down a neighborhood. Why shouldn’t we expect to see a quick return to 2001 prices?
Don’t expect anything quick, unless you think 2+ years is quick. That’s a long way down to 2001 levels and we need a lot of REOs before that happens. The lenders will be in trouble before then and we’ll have another RTC firedrill.
Expect a protracted downturn that lasts 5 years, at least, with knife-catcher comps as signposts along the way.
Two years is a reasonable bet, but I dunno. That would mean that the median price drops 2% per month for the next 24 months, more or less. We are already seeing 1-2% price drops, and we are still at the tippy-top of the rollercoaster.
I guess I’m just expecting something a bit more…splattery.
The cycle between a first NoD and an REO sale could be in excess of a year, depending on state law. ARM resets also introduce latency, as they stairstep up each reset date. This will drag on. I expect early next year will confirm the downturn with double digit declines and larger declines will occur with the tidal wave of REO sales.
In Tampa it will happen much quicker then two years.
Here’s why
3.00 gas took everyone by suprise as the abundance of new homes built were built 20-30 miles outside of downtown Tampa that adds up quickly.
Constrution and real estate jobs made up a large amount of the jobs around here. The ex workers will not find replacement jobs that pay the same.
Homeowners insurance was the last straw. HO insurance in most cases doubled. There is so much new housing availibilty that the HB will slash prices to save what remains of 06
In Tampa it will happen much quicker then two years.
Here’s why
3.00 gas took everyone by suprise as the abundance of new homes built were built 20-30 miles outside of downtown Tampa that adds up quickly.
Constrution and real estate jobs made up a large amount of the jobs around here. The ex workers will not find replacement jobs that pay the same.
Homeowners insurance was the last straw. HO insurance in most cases doubled. There is so much new housing availibilty that the HB will slash prices to save what remains of 06
“They actually belive they can talk the market into a soft landing.”
the plane may indeed land safely, after a few years of “down 5%-10%”. but when they open the doors, all the passengers will be DEAD!
This plane had what could be called a “soft landing”. Too bad none of those on board survived.
http://www.planecrashinfo.com/w800819.htm
And they will find out that Kareem Abdul-Jabar had been the pilot of the plane. “Do you like gladiator movies?” “Have you ever seen a grown man naked?” “Have you ever seen a soft landing after so much madness?”
I think that was Peter Graves.
“I picked a bad day to stop sniffing glue!”
I agree Mort! If this guy was really trying to be helpful he would be counseling his sellers to get out ahead of this waterfall to a 20% cut as fast as possible to beat the crowd (and to stay 10% below comps)! He is directing comments to the wrong crowd. Buyers could give a rat’s ass about what he thinks. We are waiting for 97′ prices and not a dollar earlier. He needs to get his mind wrapped around THAT number instead.
auger inn,
So true. Someone here said it’s this kind of sound bite that is actually more of a disservice to sellers than anything!
YES! 1997 (the year things started getting off kilter). The only reason I don’t say it more often is out of fear of being labled a housing bubble extremist. In truth, I believe though that is exactly where we are headed. Start liking it.
1997 was the year of the bottom of the last housing slide. I don’t think things started getting out of control until investors/speculators went from a bursting market bubble to starting the housing bubble in 2000.
And get used to: “it’s been xyz years since the peak and we still haven’t hit bottom last year but this year is different” [so they've said in Japan for the past 16 years, since the 2000 peak].
DinOr, You were right. We just got labeled “extremists” (see below). Sorry for giving everyone a “bad name” but this country is in for a hugh financial ass-pounding and this RE bubble is just part of bigger issues. No one is going to give a sh*t about RE by the time this is over. Folks are just going to be worrying about Maslow’s (sp?) hierarchy of needs and a friggin McMansion isn’t on the list. My guess is 20% off by 1/1/07 in the big bubble areas (you know who you are) then a leveling for a couple of months then another big drop. Rinse, repeat to below the mean. 97 prices in some areas by late 11/early 12. By this time in 08 everyone will be talking about how to get enough energy to heat and cool as well as putting food on the table, not about gaming the housing market. But, one step at a time, for now it is the RE market we are going to comment about so I thought I’d just include my long range $.02.
You’re scaring me.
huge
“…and friggin McMansion isn’t on the list”–I love it. Keep it coming.
You extremist out there like auger are the ones who give us all bad names….everybit as bad as the shill realtor who says “RE never goes down”
Do you understand 1997 was the bottom of the early 90s decline?
Do you understand that RE was way oversold from 94-97?
A big chunk of this run-up will be “permanent reality”…back down to 97 prices??? LOL..We won’t even fall back down to 2002 prices. MAYBE 2003 and that is a BIG maybe.
“…back down to 97 prices??? LOL..We won’t even fall back down to 2002 prices.”
a drop to 2002 prices would mean a 50% drop in my building in manhattan. that’s quite a drop, though not impossible. but 1997??? no way.
i agree. on the uws of manhattan, 1997 prices would mean about a 70% drop.
the jdog,
Well there ya go. That’s why I’m careful about using that date. However, my point has always been we NEED to go back to 1997 (almost 10 years) to get back to reality! Go back to before the tax code changes and simply factor in NORMAL appreciation! I grudge no man a reasonable profit, really I don’t. I’m not saying we’ll ever see ‘97 prices again but that’s where our starting point should be! People keep telling homes don’t trade like stocks but just look at some of the transaction history in flipper prone areas. Homes being bought and re-sold 3 times within a year? What’s up?
Well, if you take into consideration RE appreciates 1% above inflation and the inflation rate is a conservative 2% more than what they report…that’s a 6% app. rate.
Using a home in Sacramento that was new in 87 and sold for $87,500 here are some interesting #’s
1990 right before crash home was “worth” $140,000 - using the 6% it’s actually $104,000
1997 at the bottom I bought home for $92,000 - again using 6% it shoulkd have been valued at $157,000
I sold said home in Aug of 2005 for $370,000 - should have been worth $250,000
Incidentley home was last “worth” $250,000 June of 2003 - So there ya’ go…
I agree with the way you figure it jdog . My feeling is that in some areas it will fall to 2002 prices . But who knows some areas can crash more than others .
We should differentiate between nominal and real house prices. Nominal prices won’t be back to 1997 levels, I agree.
The engine of this madness is the mortgage backed security.
If there is a world run on the dollar and mortgage backed securities, interest rates will go through the roof. This will not be a 91-95 realestate correction nor is it an 81-83. It is not wild to view this situation as extremely deflationary because of the mountain of debt to be defaulted on.
The engine of this madness is the mortgage backed security.
If there is a world run on the dollar and mortgage backed securities, interest rates will go through the roof. This will not be a 91-95 realestate correction nor is it an 81-83. It is not wild to view this situation as extremely deflationary because of the mountain of debt to be defaulted on.
It’s different this time. I am thinking 2000-2001 levels within 3-4 years and then flat for another few years at least. If there’s another terrorist event and the government tightens up immigration, could be a lot longer before we get any improvements. The only future demand will be immigrants with money. Cut those out and we will be in an oversupply condition for decades.
It is strange how close to the market attitude of FB’s realtors are. Same kind of head-in-sand, same following the drop. Is this greed, blindness or just the self-selection of easily deluded people into the same game? A self-reinforcing economic death spiral. Makes me think that the average realtor is massively invested in this bubble, and has much, much to lose in a downturn.
I think a realtor’s likelihood of saying “now is a good time to buy” is directly proportional to his belly saying “today is a good day to eat.”
But seriously, the new line I am starting to hear is: “Wow, this house started on the market at $900k, and now it’s down to $825. That’s a $75k discount!”
Watch for variations on this theme.
In case you haven’t noticed, most realtors aren’t that smart. The barrier to entry to become a “RE Professional” is an exam a 7 yr old could easily pass and an 8 hour ethics class.
The realtors I know all drank the kool-aid and leveraged out to load up on SFR investment properties that they rent out at -ve cash flow, even at introductory ARM rates. That doesn’t sound like something an intelligent “professional” would sign up to do, at least to themselves.
Cut and run! That would be handing a victory to the buyers! Unpatriotic! Your equity is non-negotiable.
Hold your ground sellers, reinforce the right flank. Get some cannon fire on that ridge. Where is the calvary, I must know what the buyers are up to. Bring up bugle boy Lereah, prepare to advance. Captain, the enemy has left the battlefield, they are down at Outback Steakhouse eating steak and drinking dark ale, what shall we do? Fire the cannons!
nice.
Specially the part about the calvary. It must be a calvary to have an overpriced shack in the ghetto and being underwater on it!!!
Sir,
Lt.: The Calvalry reporting sir. Outback sales are down. The &*%#ing cheapskates have taken position at a dive with good burgers near the water. Some even took their own BBQ. Sigh… won’t they ever learn. They’re trapped. We can take them sir!
Field Marshall Lereah: Colonel Suzzane, can you marshall your troops?
Suzzane: That’s easy, but we’re not going down there. Our horses just don’t go down into that mud. We’ll hold the high ground and taunt them from here. I recommend we make more noise and flush them out. We will advance 5% in order to force them to engage.
Field Marshall Lereah: Good point, Call forth the drummers! I want as much noise as possible. Let’s hear you chant “now is the time to buy!” (There is a defening roar.) Buy Buy Buy!
Suzzane: Those immature bastards have ordered desert! We’re facing more desertions than they are. Immature bastards! Call out the LA times. 6 inches of ads will pummel them.
Lereah: Grow up buyers! Now is the time to buy! Troops, hold your ground. I say hold your ground! Colonel Suzzane, prepare to shoot deserters. Make sure they also stand tall. Cowing in “prices reduced” foxholes will not be tolerated!
Suzzane: Sir, the Florida, San Diego, Sacramento, and Boston fronts are collapsing.
Lereah: Its ok. This is the soft landing we predicted. We’re in this for the long haul! The ever appreciating army has never been defeated!
Mort: damn funny idea! Forgive my long addition.
That is damn good! LOL.
Sir, there are reports that the enemy are taking no prisoners, we must stand and fight. Bwahaha!!!
Mort & Neil — very funny & well-written.
To get a better understanding of actual price changes YOY, wouldn’t it be better to track price per square foot vs. median price? Any thoughts?
i thought about this, but doubt it. price per square foot will vary depending on location, beauty of house, interior and a million other factors
So how about including all three?
1) Median Price
2) Average Price
3) Price Per Square Foot
This is how they do it in most other countries, because median price doesn’t really tell you anything really. It can be a vacant lot with a tent for all we know.
Seems like I hear calls for better measurements a lot. $/sq. ft. would be pretty good. Still skewed, though, because not all square feet are the same! But you do all know about the House Price Index (HPI), don’t you? It tracks the *exact same* houses over a period of time. That should be the ultimate measurement. Go to OFHEO.gov and download the spreadsheet to get precise quarterly measurements. New figures come out September 1! My area had already slowed to 2% annualized when the last ones came out in June. That’s a real price decline.
I suspect the September report (for the quarter ending 6/30) is going to paint a less rosy picture than the June report (for the quarter ending 3/31).
Thanks for the link.
or check out:
http://www.housedata.info
Biggest thing from that article… Peoples psychological outlook on the market has taken a 180…
Last few years it was buy now no matter the price, it will keep going up…
Now it is, wait a bit and see how far things come down… Which will turn into even more declines and a longer timeframe to reach bottom.
This shift of psychology is what will drive the market down further than just the fundamentals…
“Sellers “Torch and Run”"
I wonder if there will be a lot of “mysterious” fires where FB’s try to collect the insurance on their albatross (er, I mean their house)?
If they do burn down their place do they collect at the peak inflated price?
It would be an incentive if you could walk away with insurance money vs nothing.
Listening for sirens…
How long before we will start to see people just drive to the bank and drop off the keys to the house and take off? My guess is real soon…
A reader posted
this from the Sacramento Business Journal:
‘Generally, resales are priced $50,000 to $100,000 above what the market will bear and that is turning sellers away, said (broker) Mike Lyon. Homes might not sell, he added, unless sellers realize buyers are no longer paying the boomtime prices of the past few years.’
‘Sellers are still in denial,’ he said. ‘But if you’re not serious about selling, if you’re just fishing, this is the dumbest time to gamble on the market. If you have to sell, sell. If you don’t have to sell, don’t.’
From the article:
Realtors are apparently zeroing on a scapegoat for the busting real estate bubble! It’s not the crazy home prices, it’s “that other stuff over there, look, see it?”
We should keep track of all the absurd excuses realtors come up with to explain away that home prices are simply unaffordable.
Exactly my thoughts. Does Mike Lyon think the Iraqi War just started….how unpatriotic….how un-real…estate…
Don’t get me started on what your average student/citizen considers to be “evidence” these days (I teach logic and reasoning). Sometimes I wonder if the Enlightenment just bypassed this country.
Shut up! The world is flat! It’s flat!!!!!! My bishop said so and this “round” theory is just heresy!
Whoa. I’m with you that the average citizen is a dipsh*t but let’s not get into the USA bashing. I look at Europe, Russia, China, South America and the Arab world and I don’t see vast surpluses of logic and reason. Unless blowing yourself up in a pizza parlor is a sign of enlightenment. And praising the guys is a sign of reason.
Mike Lyon said something to the effect this past spring that homes priced less than 600k will hold there value and homes priced higher will be harder to sell. He said that the market in Sacramento cannot support 600k plus houses. He might have to come out and say that the area cannot support 350k plus houses.
“I also recall when Yuba City was voted the “worst city” to live in the US. ”
Don’t you worry- still is.
Take that Shelbyville.
I love when things come out of left field and make me laugh out loud.
The orgional name for Yuba City was Timbuktoo. About 100 years ago the orgional town officals changed the name to Yuba City because Timbuktoo was to depressing.
I see now that the “fear psychology” is as good for bust as boom. “Sell now. You’re house isn’t getting any younger. There’s always more land, somewhere. If you don’t get the price down now, you’ll go upside down and you’ll never be able to sell.”
Still watching a Calif home listing following the market down - my husband is one of a bunch of heirs. Still wondering if it’s possible to do anything to motivate trustees (who are also co-beneficiaries) to price agressively, or if it’s more prudent to let them “crash and burn” without giving them potential cover to blame us if things turn out badly …trustees of the estate stalled inventory/distribution of the house’s contents and listing of the house for six months while trying to set it up so they themselves could buy (and presumably flip) the property; now not so keen on the idea…
Memphis;….Just 1 heir can cause a Aneurysm….If you have the capacity along with other heirs, look up “partition sale” under California law….We have successfully solved problem estate sales with this approach…Good Luck…
Thanks SC dave. Unfortunately, don’t think partition applies. Under terms of the trust (not will), the house *is* up for sale and the only option for any heir is to offer on it his/herself - the selling itself can’t be challenged. What rankles is that the trustees overseeing this process have quite a bit of power and discretion without the kind of mandated court supervision that comes with a will - that’s the one drawback of trusts. The trust also indemnifies them against certain things that would fall under the general “being stupid” header, so recovering for their actions would be a matter of proving deliberate wrongdoing. (I.e., Was it “self-dealing” and a matter of deliberately stalling a sale, putting their interests ahead of the other heirs, that has now resulted in a loss of value to the trust?) Not that I’m sympathetic after their shenanigans, but they’ll piss off someone no matter how they go - chase the market down and be accused of failing in their fiduciary duty, take a low ball offer and probably be accused of failing again.
I bet this scenario plays over thousands of times in California and other bubble markets over the next few years.
Memphis;….I am not a lawyer and do not intend to give legal advise but, I believe a action for a “partition sale” can be done unless it is specifically “waived” in the trust agreement….I think its California Law’s way of stopping some disgruntled minority heir living in BF Egypt from holding the majority hostage….Maybe LALAW or some other RE Lawyer could ad comment…
Touring one of the new KB home developments in Natomas, they were asking $360K for a 1800sqft 3/2 home. Last year, these would go for around $430K, ouch.
That is still $200/sf. My prediction: Under $150/sf by 1/1/07.
What do you think the $/sf cost is to the builder? $100/sf for a low trim level? If so, they’re still making some good coin at $150/sf.
Wow, that is a huge drop in a few months. Does this assume a recession will begin soon?
a 25% drop in less than 6 months???? - LMFAO!!
Plumas Lakes, an new master planned community, south of Yuba City was a big hit in 2004-05. 30-minute commute to Roseville & Sacramento. Now, I see lots of builder adds for price reductions, 6 months payments free, and 100% financing. As I once read on this blog, it is the “marginal” properties that take the first and biggest hit downward. Yuba, Marysville, Oroville….all tertiary markets who will suffer more downturn than the primary (Sacramento) and secondary (Lincoln) areas.
While I agree with your overall statement, I would maintain that Sacramento itself IS a secondary market to the Bay Area and LA. Sacramento was always known as a good place that a family could get a start with inexpensive housing and I don’t believe that anything has changed fundamentally over the years (cries of “it’s different here!!” notwithstanding.) As far as major employers you’ve basically got the State of Ca, Intel, and HP. Median income is MUCH less here than in the Bay Area, although housing in Folsom, El Dorado Hills, Rocklin, etc. has become nearly as expensive (outrageous!) Also, I know a lot of people that have moved out here from one of those two major metros and a lot of them don’t like the heat or other quality of life issues. JMHO.
Darth;…Both Intel buildings are for sale in Folsom…
Darth, HP is cutting more staff in Roseville.
I owned a 4 bedroom home in Elk Grove, a suburb south of Sacramento. I purchased it in 1997 for $179K. In July of 2005 I listed it for $519K. However, I noticed the market was slowing, and every two weeks I lowed the listing price by around $20K or so. The house finally sold in September for $460K. My timing was 100% serendipity, because I had planned to move out of Sacramento in the summer (I can’t take any credit for good timing!). Anyway, my real estate agent and I discussed the demand situation in Sacramento last summer and he said (anecdotally) that buyers completely vanished in July of 2005. I am confident that without aggressive price-cutting the house would still be in the market.
Last year, Sacramento’s claim for immunity to the housing bubble was:
• The concentration of state workers put a floor on housing prices due to stable, recession-proof salaries
• Bay Area residents would buy our properties at any price, since they could get twice the house in Sacramento for half the price
It’s odd that Sacramento would be so vulnerable to the bubble fallout, since most residents consider it a “cow town” but I guess the assertion “there ain’t no bubble here” creates a moral hazard for even the most banal of cities…
‘If you don’t need to sell, get it off the market. If you do need to sell, don’t wait until winter because it’s going to get worse,’ said (broker) Mike Lyon. ‘I can see us dropping 5 or 10 percent if we don’t get this inventory down.’”
Is this guy getting frustrated, or what? After all, realtors need to eat and gas up the buggy, too. He knows if prices aren’t dropped, he can’t sell squat. Well, too bad. The realtor cheerleaders are now victims of their own line about “Real estate only goes up”. Congratulations! The sellers are convinced and realtors have run out of great fools to feed the beast.
‘I can see us dropping 5 or 10 percent if we don’t get this inventory down.’
This broker has put the cart before the horse. He thinks that persuading people to ‘get it off the market’ (as he puts it) could bring inventory down, so that prices would not fall.
That view is denying the obvious economics. If unsold inventory of apples, copper, oil, houses or bricks is piling up, it shows that the market is not in a demand/supply equilibrium. It shows that the market is not clearing. So, what needs to adjust? Price, obviously.
‘Price, price, price’ - this is the new RE mantra, and so it will be for several years.
I live in Davis (Yolo County) and we are headed into uncharted waters here. The market is stagnent. Some homes are selling, but there is loads of inventory (by historical standards) and many homes are just sitting. Million plus homes have been on the market for over a year. Usually by the time school starts and the University kids arrive, buying season has ended and one has to wait until the spring for another chance to buy. Now we are headed into the slow season with a glutted market and no end in sight. Since this is a University town, sellers can usually rent, but is they have bought recently and rent they bleed money. The general feeling is Davis in immune from real estate declines. Now with Sacramento and surrounding areas crashing and soon to be burning, I would not count on Davis being immune.
Davis real prices are down about 5% Y-O-Y July. Sacramento is down 10%.
Davis is certainly no immune but as one of the most desirable and nicest places to live in Sacramento Valley as well as the best schools I do not see it dropping as much, on a percentage basis, as say Elk Grove or Natomas.
jdog;….When you say best schools do you mean UC Davis or “ALL” schools ???
The entire school district….in fact not only are they the best schools easily in the CV, they are top 10 in the entire state.
Thanks….
I object to 120K in freebies without a adjustment to sales price . IMHO this is a violation of “truth in lending” because they are keeping the higher sales price and making the financing based on the higher price . That means you are giving someone over 100% financing . A proper underwriter would strip the freebie 120K credits from the price and make the loan accordingly . IMHO ,allowing these kind of kick backs would be fraud to the secondary market , it would be inflating property values for property tax purposes etc. etc. etc.
If you need 120K in incentives to sell that the property is not worth the inflated sales price they are charging . How long are the builders going to get away with this ,rather than lowering the price .
When the question becomes ,” could builders of sold that property at the inflated price without the incentives, and the answer is no” ,than it’s a reduction in sales price . Secondary market beware .
…and the 120k in freebies probably only cost the builder 30k with discount bulk pricing and illegal immigrant labor…
OK fine ,so the sales price should be 30k lower .
“Though sale prices of most existing homes are falling, most new-home builders have yet to join the price cutting, said industry consultant John Schleimer. Instead, they’re offering up to $120,000 in freebies, everything from landscaped backyards to financing incentives.”
Sure. And why not?
If you were running a huge right wing jobs program whose continuance depended on building houses nobody needs and nobody can afford, you’d keep building your ass off, too, decorating the scene of the disaster with “upgrades” while the market tanked around you.
It’s hardly a secret that the American economy can create fewer and fewer middle class jobs. The building craze (and the refi craze and the flipping craze and the remodeling craze) served as a short-term way around the problems of a post-industrial and increasingly post-technological outsourced economy.
There’s no way to run the non-stop consumer racket that is the foundation of our GDP without large piles of cash. The housing bubble coughed up such piles through debt that nobody expected to repay or ever run out. What junkie ever thinks the needle will empty?
There are lots of interesting surprises to come but I am most interested in one in particular: the effect on the “middle class” suburban American psyche when it can no longer hit the crack pipe of the Home ATM. Addicts hate interruptions to their fix. Take away a man’s 30-year-financed meal at the Olive Garden and, well, criminy! Expect, as they say, repercussions.
There’s no way to run the non-stop consumer racket that is the foundation of our GDP without large piles of cash. The housing bubble coughed up such piles through debt that nobody expected to repay or ever run out.
Your comment is dead on. A similar opinion is covered in detailed at the Messy Greenspan site. A great read on interest rates, credit expansion, and how it fuels the current GDP growth.
http://themessthatgreenspanmade.blogspot.com/2006/08/interest-rates-and-credit-expansions.html
According to the radio this morning, the median price for Sacramento has dropped to $353,000. Whee. Only about $150K above what the median wage (~ $55K) can support!
You know, there’s a simple answer to “If you don’t buy now, you’ll be priced out forever.” And that answer is, “If that’s the way it has to be…” Once you’ve short-circuited the emotional drive to own a home, you can look at the real estate market with something approaching sanity.