‘The Higher Prices Go, The More Room To Fall’
The Voice of San Diego reports from California. “If you want to know how a home building company is holding up in an uncertain housing market, just peek in its break room. ‘We used to have amazing food in our break room for free,’ Lennar Corp intern Travis Carter said. ‘Starbucks every morning with choice of five different creamers.’ Now, he said, it’s pizza once a month and Folgers instant coffee.”
“After many in the industry saw years of double-digit revenue increases, some are now scaling back their land holdings and number of projects, which has often meant laying-off employees. Executives at San Diego homebuilder Hallmark Communities noticed an estimated 40 percent decrease in traffic between the second and fourth quarter 2005. They laid-off half their staff in two waves of cutbacks earlier this year.”
“The effects of the cooling market haven’t been felt only in the construction industry. Many analysts are concerned that the job growth in construction, real estate sales and mortgage brokering while the market was booming will mean corresponding job losses as the market cools further. ‘During this big boom, a lot of people went into real estate,’ economist Alan Gin said. ‘I think there’s likely to be a shakeout there.’”
The LA Daily News. “Scheduled sales of foreclosed properties increased 11 percent in Los Angeles County during the second quarter from the prior three months, with the distress concentrated in the Antelope Valley and South L.A.”
“‘The Antelope Valley and Norwalk would both be entry-level markets. Sometimes people have really stretched’ to buy a house, said Jack Kyser, chief economist at the Los Angeles County Economic Development Corp.”
The Ventura County Star. “It’s clear that the housing market is losing altitude, but debate continues about how everyone along for the ride is going to land. Ventura County’s real estate market is probably in a better position than many communities, economist Mark Schniepp said, because there was less investor speculation in the market.”
“His report shows that at the peak, less than 10 percent of purchases in Ventura County were pure investments, where the buyer had no intention of living in the house. In markets like Sacramento and San Luis Obispo, the rate was more like 18 percent.”
“‘The question is: Do we have enough momentum in all other sectors of the local economy to neutralize the severe weakness demonstrated by the residential real estate market?’ he said.”
The Union Tribune. “Each of the six economic indicators, residential building permits, unemployment filings, local stock prices, consumer confidence, help-wanted ads and national economic growth, has been in negative territory at least three of the four months from April through July. ‘What’s been frightening over the past four months is how negative all of the indicators have turned, reflecting general weakness in the economy as a whole,’ Alan Gin said. ‘In April and May, all six categories were negative.’”
Also from a San Jose paper:
‘I wouldn’t be surprised if we saw a drop in prices of 10 or 15 percent by the end of the year, from the peak,’ said Edwin Resuello, president of the Santa Clara County Association of Realtors, referring to home prices countywide.’
‘According to San Jose broker Richard Calhoun, the median price of single-family houses sold in August was $770,000, a drop of about $50,000 in two months. Given market conditions the downward trend may persist.’
‘I do expect the downward pressure to continue,’ said Calhoun. ‘So, yes, eventually we will have negative year-over-year appreciation.’ On the ‘tour sheet’ of Silicon Valley homes that were held open this week for agents and buyers to visit, several descriptions included phrases like ‘motivated seller,’ ‘priced low to sell,’ and ‘make us an offer.’
The logic of the cheerleaders is amazing!
Check out the ’small print’ on my latest post that I got up last night.
SoCalMtgGuy
http://www.housingbubblecasualty.com
SoCalMtgGuy …Good read ,great disclosure on the small print truth .You are helping the people understand and I thank you .
Amazing news out of California! San Benito county sees an $80,000 median home value drop in only 8 months! This thing is getting ugly folks!
Article at: http://www.realestatedecline.com
SoCalMtgGuy, I read it, too. You talked about this being just the beginning and things really becoming intense next year (my words, not yours). I just wonder if this Christmas will be the last good Christmas we’ll have in this country for a long time.
(I’m hung up on Christmas because last year I tried to convince family members about the housing situation. I thought I’d got through to my b-i-l when he said, “Maybe, but never here.)
Thanks everyone for this great blog! I am learning a lot through these posts.
KayLaw:
I’m with you on the Christmas hung up issue. Last Christmas I heard a family member who refinanced her home (she leaves in Northdridge, Ca) say that at the end of 2006 she would refi AGAIN because her home would be worth 600.000 by then. Go figure.
So, what is it worth now? (you can get a (high end) guestimate on zillow.com)
This whole thing about boasting how much your house is “worth” is odd, too.
Most people don’t go telling others (especially relatives!) how much money they have in the bank. Which means if people REALLY believed their house was making them rich and this was real value, they wouldn’t talk about it.
On the other hand, they’re *boasting* about it, as if it was some clear, savvy, wise investment move they made!
Something’s inconsistent here.
Of course, if you keep refi-ing to suck out value, your part of the reason house prices go higher. It’s because you’re paying appraisers to tell you that they are.
dreaming 08:
First of all, let me tell you I’m also “dreaming 08″!
As for that house…It was 530.000 when she last refinanced (November 05), ofcourse: to pay for the new SUV and credit card spending from a trip to Europe. It had gone up from 470 or something which was worth when she bought it in 04. I know she went in with the selling of a condo, so I don’t know why she opted for an “IO” loan. You would think with the selling of the condo she had SOME money down….
why do we still call them appraisers?
Aren’t they really only debt assessors now?
Seems to me they merely are the identifying how much debt the house ATM can hold…
I love the typos in the ad. They’re about as professional as the Enron accounting used to come up with that slick advertised monthly payment.
Nice job dissecting the nonsense in that one!
I live in San Diego and I got that same ad. I threw it away when I realized the units were in Golden Hill.
Well, kind of amazing to hear Edwin predict a decline. The RE brokers now need the sellers to drop prices to produce sales. They can’t convince buyers to pay full price or more anymore. It is all about making the sale happen and saying what it takes to make it happen.
It is all about making the sale happen and saying what it takes to make it happen.Bingo!
This is the thought process of all sales women, propagandists and religious fanatics (Philosophy experts): “What can I say at this particular moment to increase the likelihood of this person to doing what is beneficial tomy self or my cause? ”
““‘The market is not tanking, but it is reminiscent in many ways to the real estate market of the early 1990’s,’ said Edwin Resuello, president of the Santa Clara County (Silicon Valley) of Realtors.””
If this is not considered a tanking RE market then nothing would be.
David
http://bubblemeter.blogspot.com
Yeah - the market of the early 90’s was a tanking so this is classic double-speak - “the market is not tanking, but it is reminiscent in many ways to the last time it tanked” -
Well if it looks like a duck, and quacks like a duck, then just maybe it’s duck, Mr. Resuello
We had a Silicon Valley tech meltdown in 1988 that too was the peek of the prior RE bubble too. Prices dropped by 34-40%.
Reminiscent ? Buddy you havent seen anything yet.
I was thinking the same thing: that the market did tank in SoCal in the early 90’s.
when is it tanking
I’m off 10% in 12 months
does 20% qualify ?
Broderick Perkins wrote we are not in a bubble and SV home prices would not declinedue to : no job loss, high salaries, VC funding, stock options and great weather.
This was all before…
Intel, HP, Sun, Maxtor Layoffs some 50,000, consolidation/mergers among smaller companies.
Outsourcing high cost (yes highly paid) employees.
VC funding is going to Chaina/India and other states.
On going stock options scandels.
But yes the weather is nice!
He forgot to mention he came to the Bay Area in mid ninties and never saw first hand our prior recession and crash in housing prices. For many of us who been here for 2-3 decades know he is joke.
Well Broderick its time to learn first hand what boom and bust in Silicon Valley is all about. You will learn many CEO’s/Founders of local companies dislike the high prices of homes and have NO intentions of paying high salaries, which will ruin their business.
That is why there are less jobs today then 20 years ago. Those are the facts.
Expect a deep 50% in Silicon Valley.
Why!
Less then 10 years back a 2000 sq ft TH or SFH went for under $190,000. Kick in for inflation your looking at real cost about
$250K, up 30%. Current market is at $500-600K. If you were to rent said TH/SFR it would fetch $1500/month less than half of the mortgage payment.
Larry, good point about the CEOs. I attended a lunch last year and heard a speech by the head of the Silicon Valley Leadership Group which was founded by David Packard back in the 70s. Member companies provide something like one-fourth of all the private sector jobs in the region. Housing is a major concern as you mentioned. Companies cannot attract talented people because of the high prices. Basically, Silicon Valley is losing its place as the top tech ground. We still have less jobs now than six years ago, and a recent article in the Chronicle pointed out that wages have been stagnant for the past five years. So I say to Broderick Perkins, keep dreaming, Jackass.
I live in Silicon Valley (sunnyvale) and I can tell you that house prices, including the one I live in, will decline.
Now it’s possible that inherently desirable areas like Palo Alto and Los Altos will decline less than areas that people don’t really want to live in, like Fremont and the entire east bay. And fringe exhurb communities like (un)Pleasanton will probably lose half their value.
But everything’s overpriced everywhere, because of wacky financing.
You sound like a Pennisular bigot. Why would I want to live in Palo Alto? To make my commute a nightmare?
Actually, quite a few Silicon Valley jobs have moved out to the Tri-Valley area, and even if prices crash, they won’t move back. Fremont for sure is a bigger job center than Palo Alto.
That said, I do think the SF Penninsula will crash less than the East Bay, but it’ll be the true commuter towns (not areas with many good jobs such Fremont, Milpitas, Pleasanton, Dublin) that will crash really hard - think Tracy, Manteca, Modesto, Los Banos. But RE will crash everywhere.
BTW, get ready for Cisco Field and the Silicon Valley Athletics of Fremont!
In San Francisco, there was recently a city proposition that said something to the effect: “Shall the ball park that was Candlestick park be renamed Candlestick park and never be renamed anything else again.”
PacBell Park is now, of all the lamest things, “AT&T Park”.
I give PacHell/ATT Park a pass, because PacHell gave Magowan & co a lot of money, which allowed PacHell Park to be privately built, with no taxpayer money. It is a beautiful ballpark.
The Fremont ballpark is a possibility (Oakland A’s owner is talking to Cisco about building a ballpark on Cisco land at Pacific Commons (Cushing Parkway and Automall Parkway) - where Cisco once planned to build a 25,000 person office park - but if it’s real (there’s a chance, but I wouldn’t bet on it), it’ll have to be built without public help.
The A’s can’t move to San Jose (which is what they really want to do), because the Giants have territorial rights to Santa Clara County, but Pacific Commons to downtown SJ is only 12 miles.
Okay, good point, but still the name is lame.
los altos hills
OLD: 20-25MM NEW (future): 7MM - if lucky
still ridiculous…
Speaking about salaries in Silicon Valley. I was really hot on an Engineering job in San Jose. I had a telephone interview with the hiring manager. We hit it off very well, good match until we started talking money and the guy told me that not to expect much in terms of compensation. Then I was handed off to the HR person and she asked me what are the salary expectations. I said $120k (above average in the East where I live) but “modest” when considering housing prices in San Jose. This was the last I heard from them. The job is still being advertised after 5 months, I guess no takers.
But Gary promised a 15%in the bag guarantee? He is still preaching this. Has anyone hit this jackass over the head with a copy of these numbers?
I prefer Mr. Watts’ predictive quote from Forbes:
“It’s impossible for prices to go down this year.”
And a helpful link to that quote:
http://tinyurl.com/ro37u
“But Gary promised a 15%in the bag guarantee?”
fake multiple bids…oldest scam in town.
“If this is not considered a tanking RE market then nothing would be.”
As long as people are taking “incentives,” the market will look strong despite being weak.
If the housing market is as bad as everyone on this board say it is, then why isn’t the broader stock market reflecting this negative outlook. The stock market is acting like the housing downturn won’t push the economy into a recession and will barely slow down the consumer. Isn’t the stock market a future indicator? How far out does the stock market usually look?
You have to look under the surface. The HB stocks are all off 50% and many of the consumer-focused stocks have also gotten whacked.
Remember, the ANALysts are behind the curve, a few more earnings warnings by some major players and they’ll all reduce their estimates and the OPM crowd will start really selling.
I agree whole-heartedly with these comments. Analysts are always looking at trends with last month’s quarter being the end point. Many vaue stocks by P/E ratios and assume that homebuilders are worth about P/E = 8. The big assumption is that earnings are stabilizing. This P/E = 8 is the reason why Morningstar values most home building stocks at twice their current values. When a stock drops from $30 to $25, they often reduce their “target” from $60 to $50. Any who was around during the internet melt down knows how useful those “targets” are. Perhaps many analysts believe that NAR is credible, with their prediction of a short downturn and then a resumption of 5-15% home price growth next year.
I really think that keeping up on this and related blogs is almost like inside trading, although timing is definitely still an issue.
There will be a soft landing. Get with the program, dude…
Wathed CNBC this morning. Did a market report, and the commentary was -
“This pretty much is what a soft landing looks like…”
“Looks like a soft landing to me…”
I guess the pundits were right all along then, because a soft-landing has actually been achieved. Of course, they never said what would happen AFTER the soft-landing, or that the soft-landing would only last a few months.
MUAHAHAHAHAHAHA!!!!!!!
Soft landing?? What landing? Thought one had to touch down to land.
Getstucco,
Yesterday you inquired about the bad news bounce in HB stocks. I replied rather loosely that it might be short covering and it did’nt make sense. After some reflection, here is why it makes sense for HB stocks to rise on bad news.
As you know, to short a stock you borrow it from a broker and immediatly sell it in the open market at a high price. Sometime later in the future, you buy it at a low price and return it to the broker, profiting the difference.
Now, suppose 6 months ago you borrowed 100 HOV shares at $50 and today it trades at $25 a share and you want to realize a gain. In order to realize this gain, you have to go in the open market and purchase the 100 shares you borrowed to cover or close your position. To maximize your gain, you wait until sentiment is at its worse (like when HOV announces bad news) then you buy the 100 replacement shares, closing or covering your short position.
Now, suppose their are many other short sellers like you simultaneously trying to close or cover their short positions and there are’nt enough long sellers willing to bail on the stock. The result is temporary upward pressure on the stock’s price. As a result, you see a bounce in the stock’s price on bad news, “the bad news bounce.”
Does this happen on a daily basis? Maybe that explains why we often see a crash at the opening, then a bounce back up to the same level? Or maybe not. I don’t understand how this can happen day after day without a collective recognition of what the news is telling us — the housing market is toast — getting fully priced in.
The market is forward looking. This “news” you are talking about has been discounted. Let’s see some new news.
Ah, you are both right; the housing market is toast and and the bad news is constantly discounted. It’s no secret to short sellers who took positions (borrowed shares) at the top, however. As a result, to them good news is bad news and bad news is good news.
Did anyone else notice today’s poll on Yahoo Finance?
80:20 the builders are a “house of cards” just now.
That was the best description of this phenomena that Ive ever read. Thanks! And spot on, I might add. This should help you all time out when to put your next short on, which is after the cover bounce on really bad news.
What happens when you buy it back @ $25, but now no one will buy it for anything more than $10. That is the market crash. When people realize the dire predicament we are in, you won’t be shorting for fear you won’t be able to sell it after you’ve bought it back. Just selling outright.
When you buy it back at $25 you replace the 100 shares you borrowed from the broker at the begining of your short position and walk away from the market.
Trying to make money on the short side of the stock market is very difficult. You pay interest to borrow the stock, you pay any dividends that might accrue, and then you put up half the value of the stock as margin. The stock can be “called away” from you at any time - you may wake up one day and think you just banked a big down move only to discover that the person who lent you the stock wants it back - in reality, if you are low on the totem pole at the brokerage firm you are dealing with any callback of borrowed stock could result in you being the guy getting screwed.
Puts are also a stooge’s game for the most part. Commissions are too high. It only makes sense if you have a big account and are buying (or, better, selling) decent-sized positions near the money or slightly in-the-money. You’ve got to know the volatility history, the put/call ratios, understand Black-Scholes, have a feel of what is going on. I could go on and on, but it’s a bit off-topic.
I agree with Cramer on this one - best advice is to stay away from options completely.
The “broad” stock market is driven more by panic, hysteria and hype than by sound fundamentals. Stock prices are often not what they should be.
look at 10 and 30 year bonds
what are they telling you ?
They are telling me that the dollar is going up in value. Is that the right answer?
:) 
I think bond prices say (1) the economy is on the verge of being very weak, due to the housing market, and (2) the world trusts the Fed not to apply the gas in the near future. (2) is what is causing strength in the dollar.
Monetary base growth over the past 12 months is very low, on the order of 1%. There is absolutely no reason to expect inflation absent a move by the Fed. The CPI will almost definitely trend lower over the next 3-6 months. A Fed move will likely happen, raising inflation expectations and driving long-term rates higher, but it is a ways away.
your referring to the oracles of the stock market that though Pets.com was worth a billion dollars?
I’m also puzzled by that.
My theory is that, as in late ’20s, the stock fundamentals are not important any more: speculation took over the lead.
Which also means that the severe crash is coming.
Because the stock market does not accurately predict the future.
Isn’t the stock market a future indicator?
Using that logic, the high stock prices of the late 90s were predicting a great future for tech stocks.
That didn’t work out too well if you remember.
Yes, the tech stocks that had no revenues are definately gone. The late 90s were highly speculative just as you may say today’s housing market is (a lot of small new investors were trying to make a quick buck but got burned). However, there are a lot of smart people with a lot of money invested in the broader stock market (most are not like a clueless first-time home buyer in today’s housing market). I doubt they would risk their money if they thought housing would collapse the economy.
I believe housing will decline, I’m just trying to figure out how much of an affect it will have on the economy. History can be a guide but history never repeats itself exactly.
My bigger point was that the broader stock market is not a good predictor of macro events. As Prof Samuelson famously observed, “The stock market has predicted 9 of the last 5 recessions.”
I often see confusion between causation and correlation whenever people quote “what the market is telling us”.
We had a equity meltdown and pretty much survived the stock market is correctly priced…
However the high priced equities did not they declined.
The current correction will seperate the men from the boys.
The economy will survive but the housing market will take a real beating.
Yeah, I get a little tired of this notion that if housing takes a bath it’s going to take the rest of us down with it. The DJIA STILL hasn’t really recovered to it’s former highs so if you’re well diversified (and steer clear of sub-prime lenders, HB’s and the home “improvement” centers) we’ll get through this thing. Everyone has been so snake fascinated by RE over at least the last 8 years we’ve forgotten there are OTHER facets to our economy. Can we PLEASE move on now?
“Yeah, I get a little tired of this notion that if housing takes a bath it’s going to take the rest of us down with it.”
The ones saying its going to hurt the economy is the NAR—National Ass’s of Realtors, and their puppets. More of their fear mongoring. They are a biggest PAC in Washington DC.
Reminds me of recent movie I saw called “Vendetta…”
Part were the corupt goverment keeps saying…
“We must make people understand they need us”
Yea right buddy… Im will be glad when ..the NAR get kicked out Washington DC.
No we cannot PLEASE move on now, because too much of our economy is currently overinvested in real estate for us to just move on. First you need to have a cooling off period of 4+ years to unwind the excess, then you can move on.
Xactly! The reason I think bad news in RE is bad news for the general stock market is precisely because the savings rate is negative, HELOC’d consumers who put $800 billion in the economy the last few years are topped out and will spend less. When they spend less, it means less revenue for business. Less revenue for business will show up in later quarters with declining earnings, relative to a year ago. Financial news like that almost always is followed by the lower stock price. It’s not rocket science. What’s more, industrial nations interntionally will see declining stocks because they also have been RE bubblicious and their consumers are topped out too. This will be a world stock drop. if you want to read good news on what’s going up in place of stocks and real estate: money market yields. People should build up cash and short term T-bills like crazy.
And the reason this isnt baked into prices already, is because if you read what the corporate analysts are writing, they are poopooing the extent of spending that came from HELOC access and refi cashouts. Funny thing is, they underestimated the extent of speculative investment too. Think that’s a coincidence? Me thinks not.
But I thought the whole reason the economy has been booming is because of the tax-cuts for the ultra-rich ala voodoo economics, Regan style, Laffer curve, etc.
Do you mean to say that home equity extraction has also played some minor role in stimulating the economy over the past 5 or so years? I am SHOCKED!
Now if we could get that congress to pass the estate tax for the ultra-rich then our economy should get the shot in the arm it needs. Either that or privatize SS so we can hand over all our savings in the form of 401Ks so the ultra-rich can also drain those dollars too.
I love the economy in our Brave New World.
I meant to say “estate tax cuts”.
So you think that the massive cash-flow hit to many households (from ARM resets, loss of ability to use the housing ATM, loss of housing-related jobs, loss of confidence, loss of wealth-effect) will affect consumer spending in any way?
Don’t forget that the economy-at-large is roughly 1/3 driven by end-consumer spending. I don’t see how it can avoid being significantly affected.
Jon
Yeah, I get a little tired of this notion that if housing takes a bath it’s going to take the rest of us down with it.
The “rest of us” were going down already… until the Fed juiced housing. The entire economy since then has been nothing but housing. You’re welcome to try to prove otherwise.
agree - soft landing…
Do you really think Wall Street would tell you if a crash was coming? That’s like expecting realtors to tell you housing was going down — never happens, because they’d be cutting their own throats, income-wise. Motvations… gotta consider motives. Wall Street wants you to buy, and nobody puts cash into the markets when they expect a crash.
ahem, “motivations”.
‘Sellers want last year’s prices and buyers want next year’s prices’
The wishing price and the waiting price.
Don’t forget the fishing price…
some have to worry about the finishing price.
These Buyer’s are Fool’s, I want 2009 prices
‘Sellers want last year’s prices and buyers want next year’s prices,’ Boyd said.
So if you’re a buyer with the goal above, you simply wait until next year.
And if you’re a seller with the goal above, you simply go back in time?
Never trust realtors from Los Gatos. They are the biggest hype machine around in Silicon Valley. The biggest snotty *astards you ever met. Many infact are not from Northern California anyway.. I met more that are from LA or east coast.
The biggest snotty *astards you ever met
hehehe…Ain’t they always…and most are more numb-er than a pounded thumb.
Yep, they justify the very high prices by the “special location” and the premium people living there. This probably goes for some of the other high end places in SV and the Bay Area.
nothing special about los gatos/saratoga. prices took a deep plunge in 88-91…dropped by 40%.
Why you ask? many well paid people speculated and didnt see that jobs market would turn in a snap for the worse…many homeowners went bankrupt.
From the article…
“”In Willow Glen, Los Gatos, Cupertino, Los Altos and Palo Alto, for the last 10 months, many of my clients have had to pay over list to get their offer excepted. On refis, those values, per my appraiser, have also gone up by about 5 percent. Is the market tanking? Definitely, no. Flattening? Yes,” McCarthy said.”
Lots of stupid buyers being told by unethical realtors there are “Other Bids”… co worker in willow glen got a 5% over asking from one bidder. that was the only bid that was made. the sellers agent told the buyer agent there were other bids can you go over asking?
realtors are still cooking the bids with no direct proof that its real and sticking it the buyers..
Moron realwhore can’t spell either… “many of my clients have had to pay over list to get their offer excepted.” Accepted, perhaps? Also, what does that say about what a crap job you’re doing if you can’t close the deal at list or less?
“many of my clients have had to pay over list to get their offer excepted.”
It would have been best for the buyers if this was so… excepted means to be left out, vs. accepted which means they overpaid.
I used a realtor from Los Gatos to sell my house in Saratoga. He told me the market was “tanking” and I’d better sell it quick…back in Sept. ‘05 (house sold in Oct. ‘05).
jp, that is a hilarious comment! Sellers need to realize that they have zero bargaining power. If you want to sell, take what is being offered. If you can’t go any lower on price, well then, tough sh*t. I foresee lots of sob stories from FBs.
You don’t need to wait until next year or 2009. Just lowball your offers. If the ask $550k, just offer $325k. Inflict some pain. What is the worst think that can happen? You just got a 40% cut now!
“And if you’re a seller with the goal above, you simply go back in time?”
Don’t be silly. No need to go back in time. The seller just needs to hold out and not sacrifice their property. They’ll get their price. Granted it may be 10+ years. But they will get their price.
‘Sellers want last year’s prices and buyers want next year’s prices’
Good thing for us that time only moves in one direction.
“If you want to know how a home building company is holding up in an uncertain housing market, just peek in its break room. ‘We used to have amazing food in our break room for free,’ Lennar Corp intern Travis Carter said. ‘Starbucks every morning with choice of five different creamers.’ Now, he said, it’s pizza once a month and Folgers instant coffee.”
Brings to mind all those fabulous parties the dot com companies used to have while they burned through their IPO startup cash.
I was thinking the exact same thing..
Coming soon: Nothing but vending machines in the Lennar break room.
Coming soon: Nothing but vending machines in the Lennar break room
They had to take the “Honor” cookie box out, somebody stole the change.
“‘The Antelope Valley and Norwalk would both be entry-level markets. Sometimes people have really stretched’ to buy a house, said Jack Kyser, chief economist at the Los Angeles County Economic Development Corp.”
The understatement of the year. Norwalk is hardly an entry-level market anyway, unless you’re a member of a gang.
Graffiti and high crime getting worse and worse there. Anyone that paid an average $450,000 price tag for a two bedroom in Norwalk must have had holes in their head (other than the holes that are supposed to be there)
To get rid of gangs and grafitti, you need Giuliani as President of the United States of America. He did it for New York City, he can do it for America.
He turned New York City from a hellhole of crime into the SAFEST big city in America. Why would you live anywhere else?
:O 
Norwalk gets it’s 15 minites of fame. Another dull unpretentious LA burg mentioned on this blog. Norwalk is the place with the worst bottleneck along the 5 fwy. Oh. it does have the county recorders office on imperial ave.
Norwalk is the place where the 5, 605, 91, 105 fwys, and imperial hwy all converge, creating constant traffic congestion all over this undistingished burg. It is the place you have to pass thru to get somewhere else. Has to rank as the blandest, dullest burg in LA county. It is so bland even the urban Gangs go elsewhere for excitement.
“‘I heard a speaker at a broker’s tour breakfast sum it up perfectly: ‘Sellers want last year’s prices and buyers want next year’s prices,’ Boyd said.”
That’s a good way to put it. Buyers just need to wait a while to get what they want. Sellers would have to travel backwards in time to get what they want. Which one is more likely to happen?
One of the unintended consequences of this coming correction will be the subsequent increase in rental rates across the nation, as ex-homeowners turn to apartment living and sop up THAT inventory. I would expect to see, perhaps, some condos on the drawing board end up going “apartment” by the time they’re built (IF they’re built)
Don’t agree. The amount of excess housing stock will not allow a substantial runup in rents. Some local dislocations as living arraingments alter, but with nearly 3 million more units than we need, if anything rents in the future will fall.
Agree with turnout, for most places. Already seeing it here in Florida.
Yes, Fla. rental market seems soft, and it was already cheap relative to duplex, small apt. complex prices. Even if rents hold steady, rental unit sales prices have to come off a minimum 40% for equilibrium. Have noticed more and more FSBOs relative to total units for sale - is this because realtors don’t want ‘em, or sellers somehow think they are going to win the lottery all by/for themselves?
repartmentation. it’s already in the bubblexicon.
repartmentation = unsellable condos reverting to rental.
Chris,
There is no friggin way the excess houses built are going to be sopped up. The ex-homeowners are going to lose one house and move back into the house they couldn’t sell. Just happened to an older couple across the street. Buyer backed out of sale so they in turn had to back out of their purchase. The deposit they keep covers the deposit they lost with the net result being one house sitting vacant.
wahoo,
Can we call that “Contingency Collapse (TM)”? We are starting to see this up in Oregon. Yes Oregon. Making a lowball offer on one end and a “stick it to ‘em” asking price on the sell side. Way too early to try and play that game. In a way as a renter I feel like I can now just walk on to a car lot (without having to take a bath) on my “trade-in”. Good observation on your part as always!
Yeah, just talked to my neighbor on the other side who sold her house when getting was good, closed on the sale and then rented it back for the summer. Tells me the new buyer isn’t going to tear it down now and is looking for a buyer before comitting to building.
Another empty house added to the list.
Chris,
Don’t forget about the high probability of families re-combining in one residence, similar to what happened in housing busts in the past. In other words, if the RE bust leads to a full-blown recession (which is likely) and all of these FBs and GFs are financialy wrecked, unemployed or underemployed, then they’ll just move back in with the parents. This type of re-nesting will put tremendous downward pressure on rents.
or in my case my parents will be moving in with me!
When their $400,000 home hit $1.2 million last year I told them to sell. They wouldn’t listen. Now every week they keep saying, we are going to sell the home next month.
My rent just went up: My sister and I pay $957 per month. last year was $940 per month. Egads! A 1.8% increase for the next 12 months! I don’t know how I will handle that! Oh wait: My savings bonds yield well over 3%. My Muni bonds nearly 4%, my money market fund and t-bills 5%…
Yikes! There goes that pack of gum you were saving up for Bill.
Really, any rise in rent a landlord will be able to squeeze out of a tenant - in my case I’d gladly pay a little more just so i didn’t have to move - won’t even cover the higher energy / insurance costs that they will be hit with. These same costs will be felt by homeowners so the rent / own price ratio will stay constant.
well since your annual cost of living adjustment from your employer will cover that. Too bad employers don’t give cost of arm adjustments every year, OUCH.
Our new lease agreement needs to be signed by Oct 1. The monthly rent is up 10% from our current lease. We’re shopping around to see if we might consider moving. But, I don’t expect next years rent to increase so much. We live in a 2b/2b apartment with washer/dryer and detached garage. Rent will be $1725 (versus $1575) starting in November. My in-laws rent two blocks away and their rent went up the maximum allowed on their lease- 7%.
Sure, it sucks to see rent increase that fast, but I would hate to be in a situation with an Adjustable Rate mortgage jumping on an over-priced house.
Yesterday my CFP who manages my money said, “no way in California - everyone wants to live here.” And HE has my money under management!? I did not sleep well last night.
I think I need to reexamine my 401K fund distribution and make sure none of them has more than 5% in the RE industries.
You should ask him who wanted to live in California when priced declined 30-40% in early 90’s. They all moved to Utah, Washington and Oregon. Its not enough to say “everyone wants to live here” .
Fact is corporations dont want to open jobs here because of the high cost of doing business (Employees high mortgage payments) therefore they are moving jobs elsewhere.
And Taxes!
Yes, but not “everybody” has the six-figure income you need to even think about buying a condo in California.
Can’t these economically illiterate dillholes get it through their thick skulls that “demand” consists of desire PLUS ABILITY?
PLUS ABILITY = only way are toxic loans and thats exaclty what has been happening. Over 50% are using toxic loans.
Common Sense,
That’s been a bone of contention with me for years! The “Certified Financial Planner” crowd has always looked down their noses at the street smart traders! Diversification is fine but remember, it’s what you DON’T own that makes the difference. They made a BIG STINK about copywrite protection on the CFP designation (as have Realt-whores) with their Realt-whore (TM) logo. No offense, but check these guys credentials. Most of them have not come up through the ranks so in spite of what they claim do NOT know the industry inside out. Oh, btw let’s all make sure we give proper respect by noting the CFP (TM) shingle as well. Most (not all) people that go after CFP designation do so to conceal their overall lack of experience. IMHO.
I have a “CFP” designation. Frankly, in most cases, its a joke. Unless your cfp has experience in business, investments, finance, its simply a cute “credential”.
Most individuals can get the concepts in a CFP program pretty easily. Its not rocket science. The problem is, very few have a) meaningful business experience b) meaningful investment experience c) independence. Most work for an insurance company, broker or mutual fund family.
If you want to hire a CFP my advice would be to know his whole story, where he studied, what he studied, where he’s worked and what his “experience” really means. In most cases, you won’t be impressed. I’m sure, however, there are serious people with a broad enough background to reasonably help someone.
As a CFP I have to say I totally agree. Most people get the designation to sell crap at high commissions. To be fair I know a couple commissioned based planners who are excellent, but most just want to sell you annuities.
Check out their background, their compensation method, and their regulatory status. To show my own bias - most of the fee-pnly advisors I know have been negative on the housing market for awhile now. However, none as much as me.
Maybe you should pull out your money. Drinking this kind of cool-aid is a good indication that your CFP is a “professional misallocator”.
Sort of Chris, but Id say given the overbuilding in houses, condos, etc, and the fact that apartment building is already picking up ( i think ) you cant say that any price lift we have in the short term (going on now) will stick. What you are saying is that we will continue to have a very high housing vacancy rate while we have a low apartment vacancy rate, and I find that hard to imagine given the cash flow needs of the home “owners”. My bet is largely flat to down overall on apt rents, but variation across markets of course.
i agree. short-term increase in rents, but long-term lower rent in 2 or 3 years as all the bubble machine produces an increase in rental apts to meet demand.
It’s the regional agreements like this that drive the value of this blog. Who, after reading these opinions, would place a bet on rising rents?
manhattan has a .5% vacancy rate — a historical low. very, very tight market for renters right now.
Also, you can’t raise rents overnight. Any landlord who is just now getting the sense that he can raise rents is going to have to wait until his current lease expires. By that time FB’s will be deep upside down and desparate for any rent they can get to stop the bleeding.
I have been seeing a lot of houses in San Luis that are both for sale and for rent. Per property records, some of the owners are recent buyers but some have owned for a long time. I don’t remember seeing this last year. I wonder if it is due to a combination of the housing market slowdown combined with the anticipated building of the large student housing complex that is anticipated to have a negative impact on the local rental market, at least initially.
Has anybody else noticed this trend? Any opinions?
Many homes have the for sale and/or Lease to Own bull crap in the local paper. Also, seeing lots of front yards with For Sale and For rent in the same lawn. DESPERATION!!
How large is the student housing at Cal Poly? That should do wonders to the rental market.
The planned housing (Poly Canyon Village) will be completed in a couple of years and will house 2,700 students. It is supposed to be the largest on-campus housing project in the country. Eventually, CalPoly plans to adjust enrollment upwards, but this is scheduled to happen slowly, so the local rental market likely will take a hit. Traditionally, Poly students have also impacted local housing sales, as many Poly parents buy houses for their kids. I have no data for this, but I would imagine that more parents than usual have been buying in the past several years, both because they can (looser lending) and think it is a good idea (the lucky ones were able to put their kids through school on the equity from the purchase). So I think housing in San Luis will get a double wammy via decreased rental and sales demand from the University.
That is sooo last year here on Long Island. This year it’s 50 thousand dollars off this, eighty thousand dollars reduced off of that, and lots and lots and lots of houses under 400 thousand dollars. In the poorer neighborhods, it’s lots and lots of houses under 300 thousand dollars.
Point is, prices are going down, down, down.
Personally, I would only buy here if prices went down below my rent.
Yes , seeing this in Philadelphia burbs. Sellers can’t get their price and waiting out the market til it turns their way again.
All it’s doing is increasing the inventory of rental properties.
Just checked Zillow. The zip code I’m tracking depreciated 3% in six months.
How are the prices for rentals? The ‘rule of thumb’ here right now is $650 per bedroom as going rate, but I am seeing some people asking $800-1000 per room. Meanwhile, we were able to rent a place for LESS than we paid three years ago. Seems like quite a bit of variability and confusion right now as to what the local rental market will bear.
Kaylaw said:”I just wonder if this Christmas will be the last good Christmas we’ll have in this country for a long time”.
It might have been last Christmas…
Almost everyone I talked to is just now barely paying off CC debt from the flights/presents of last Christmas.
I believe home prices nationwide will revert to their 2001-2002 levels. Where the runup was significant in the last four years, the decline will also be significant. Where the runup wasn’t significant, the decline won’t be either. There will be declines everywhere, but I think it’s unreasonable to expect the same percentage decline for every part of the country.
I agree the declines will be different ,in fact there might be some areas that won’t decline at all . Can anybody think of a area that wont decline in price ,(except for their own house ).
I nominate Anchorage, AK. Kind of like a slightly colder, more isolated, but actually hipper version of SLC, without the Mormons and smog.
Addendum: also would throw in what I think might lead the next wave of ex-pat places: Panama City, Medellin.
I nominate San Diego. Everybody wants to live here!
Ha ha ha
“His report shows that at the peak, less than 10 percent of purchases in Ventura County were pure investments, where the buyer had no intention of living in the house. In markets like Sacramento and San Luis Obispo, the rate was more like 18 percent.”
The investors percentage should be much higher than 18%, perhaps higher than 40%. Most investors/flippers lied to get cheaper owner-occupied loans, insurances.
Just saw this on finance.yahoo.com.
“Washington Mutual Inc. announced this week at an investors’ conference that it plans to close 80 branches, including 34 underperforming offices in metro Atlanta, by the end of the year.
“The Seattle-based banking company (NYSE: WM - News) also said it plans to close stores in Chicago, Dallas, Houston and Denver.”
Does anyone know how many stores (stores?) they have nationwide?
81. LOL
How many employees?
60K employees and 2600 branches…revenue of 14 billion and 18 billion in cash. They will weather this fine. They have sold off most of their high risk stuff.
Is anyone else suspicious of a bank that feels the need to speak pig-latin to their customers? WaMoolah, what the hell?
OT, but I spoke with a woman from Ireland last night and she told me that with the huge increase in home values in Ireland, many people are taking equity out of their homes and buying vacation or investment property in eastern europe where property prices are cheaper. This is driving some of the locals out of these markets because they can’t afford the higher prices. This speculative bubble is even bigger than I thought!
is is the biggest in europe
http://immobilienblasen.blogspot.com/2006/09/irland-ireland-usa-reloaded-20042005.html
Did anyone catch what Greespan said last summer about the housing market? Sweet quote:
“‘history had not dealt kindly’ with investors who kept ignoring risks.”
Florida - Paradise Lost”
That is sweet. Got a link to the original article/speech?
You know you would of thought the main media would of picked up on that statement by Greenspan a little more and ran with it .
Funny that the warning is coming from the guy who let the interest rates stay to low to long .
Is this the same Greenspan that recommended ARMs for everybody?
The quote was:
…history has not dealt kindly with the aftermath of protracted periods of low risk premiums.
‘What’s been frightening over the past four months is how negative all of the indicators have turned, reflecting general weakness in the economy as a whole,’ Alan Gin said. ‘In April and May, all six categories were negative.’
But this is exactly what those of us who have posted on this blog since last year have been predicting for San Diego. You cannot build a local economy on the basis of trading houses with each other to make everyone get rich from ever-increasing market values.
I heard this guy speak some time ago at an FPA meeting. All I could do was sit there and listen in shock as he outlined all the reasons the San Diego housing market was just fine. This was long before I found the blog and long after I determined the prices were unsubstainable. Like most economists he’s just coming around. Of course, at the meeting he was drinking some bright pink drink now that I think about it.
Goleta said:”I think I need to reexamine my 401K fund distribution and make sure none of them has more than 5% in the RE industries”.
Yes, and don’t forget retail stock holdings
There’s a house whose price has dropped $400K (from 1.1 to 699K) in the SFV. It’s been sitting for 80+ days. I drove past it and spoke to one of the neighbors. She was so snarly. Couldn’t believe that the owner would list it at that price. because… of course that would mean her house is worth less than the Million dollars she and her husband were banking on for their retirement!!!!! (Boomers close to retirement)
Appears that the owner is an upside down builder/flipper.
I suspect that this is just the beginning of the painful price adjustments. What was everyone thinking, 20% annual appreviation until the cows come home!
I was just in North Lake Tahoe a few weeks ago. On a walk around the block, there were 5 houses for sale, all reduced and one was reduced from $1.99M to $1.2 M.
Then there’s the house down my street in San Diego that was listed as $995K, and is now ‘re’listed as $795k. It’s been on the market for about 2 months. Not even a single looker. 20% off already!
I cant wait for that to happen here in the OC. Glad to hear it is happening.
History repeats itself?:
http://www.financialsense.com/fsu/editorials/2006/0909.html
A cautionary tale if ever I heard one. Here’s the meat in the middle, about what happened to this family of Japanese renters years AFTER housing prices started to fall:
By 1994, housing prices continued to drift lower until some units started to become, with considerable stretching and creative financing, affordable. So that year, by taking out a two generation, 60-year mortgage — with his 16-year old son on the hook for the remaining years that he might not be able to pay — my uncle bought his first home. The family had to scrimp, and both he and my aunt had to work more hours, but they were finally, proud homeowners. And it was a nice house - larger than their old house (but not much), in a nicer neighborhood, and on a higher floor with a view of the treetops. I even helped them move in. It was a happy day. I don’t recall the exact price he paid, but I remember thinking that it sure was a lot! Somewhere north of half a million dollars. Those were the kinds of details were lost on me at that age.
I left Japan in 1994, and didn’t return again for a visit until late 1998. In the intervening 4 years, housing prices had continued to fall, and fall, and fall to the point where my uncle’s house was worth only half of what he had paid for it four years earlier: A couple hundred thousand, up in smoke, just as Japan’s economy was mired in a 13-year slump. But he stuck with his loan, hoping the value will come back. And one day, it just might. So he makes his payments each month faithfully, and when he can no longer make them, his son will take over and pay off the remaining balance. And sometime, in the remaining 48 years on the mortgage, the house may once again be worth more than what is owed on it.
But the vast majority of financial whores in this country have absolutely no intention of keeping their promises.
There will be a lot of defaults and handwringing.
A promise to pay back their debts?
You mean Democrats on the coasts? Keep dreaming!
Bwahhahhahahaha!
Yes, a few years ago the Japanese economics magazine Toyo Keizai published an article with extensive tables on condominium price declines. Nearly all areas were down 70-80% from bubble peak. And by that time they’d been declining without letup for over ten years.
Centex is now running radio ads for homes for sale here in LA/S. Cal. Last week, it was KB Homes.
How much off are the sales offering?
They don’t say in the ad, but it’s worth noting that they’re running these ads, because I listen to the radio a lot and never heard any of this even 2 months ago. Now, they’re pretty common.