‘Patience Could Be Best Virtue’ In California
The Tribune reports from California. “Home builders in San Luis Obispo County are scrambling to lure buyers. Incentives are being offered at a pace not seen since the early 1990s when the housing market suffered a serious downturn. Home sales are down 35 percent year-to-date. Inventory levels are high, with 2,514 homes in the county for sale and an additional 342 in escrow.”
“On top of slow sales, skittish buyers are canceling already-signed contracts, a phenomenon not seen in recent years.”
“Homebuyers aren’t the only ones getting nervous. In July, home builder Trimark Pacific backed out of a deal to develop 132 condo units that were expected to be priced in the $400,000 range. ‘They walked away from a substantial deposit,’ said (developer) Peter Laughlin.”
“‘It’s not the hot market of recent years, but we think it’s normal,’ said Jerry Bunin, at the Home Builders Association of the Central Coast. ‘Home building in the county is still not enough to meet demand.’ Bunin added: ‘However, we now have homes that are waiting to be sold. Builders are offering incentives to keep sales going at a steady pace.’”
The Hollister Free Lance. “Some sellers who saw their neighbors’ homes sold within days are now becoming frustrated at the amount of time the process is taking. ‘They’re looking to the agents and saying, ‘Well, where are the buyers?’ said (realtor) Jack Kirk Jr.”
The Valley Voice. “Housing market is tough on builders and home sellers and now banks too are seeing dramatically fewer loan applications. ‘We used to make 20 to 25 loans a month and now we are down to 1 or 2,’ says Visalia Community Bank chair Tokkie Elliott.”
“Realtors and homeowners are blaming the home builders for building too many new homes. Inventory of existing homes in the Visalia MLS is approaching 2000, about four times what it was a year ago. ‘Our inventory here and in Fresno MLS is the highest it has ever been,’ says Brad Maaske, a local realtor. Maaske suggests competition with the builders by offering incentives.”
The Sacramento Bee. “With work already well under way on his twin 54-story condominium and hotel towers, developer John Saca is obtaining an $11 million subsidy from the city and closing on his construction loan.”
“A few months ago, Saca began negotiating with the city for a subsidy, something he said he had previously viewed as ‘a last resort.’ ‘We absolutely need it,’ he said.”
“With $100 million in construction contracts signed, there’s no turning back, Saca said. ‘It will get built; it’s getting built. The question is whether John Saca makes any money at the end of the day. I could go through all this and end up making less money than I would have building a little Walgreens on the corner,’ he said.”
The LA Downtown News. “Standard Pacific Corp. announced last week that it is backing out of the Axis at Union Station condominium project. ‘With delays to get buyers into the building and the softening market, we came to the conclusion that we would not go forward with this project,’ said Steven Ross (of) Standard Pacific.”
“Reg Delponte said that the project is already starting to lease units as rentals. Occupancy will begin within a month. ‘We always thought that Downtown needed more rental inventory,’ he said.”
The LA Times. “Sobered up from frenzied exuberance over last year’s housing gains by this year’s declining sales, price reductions and increased housing inventory, a growing segment of Southland buyers are waiting on the sidelines for a significant downshift in prices.”
“And they appear to have a reason to wait. DataQuick Information Systems reported that the Southern California median price slipped (and) the number of sales dropped. With an estimated one-third of Southland properties currently ‘wildly overpriced,’ according to John Karevoll at DataQuick, patience could be a home shopper’s best virtue.”
“‘If you’re a buyer, there’s no hurry at all,’ said Edward Leamer, of the UCLA Anderson Forecast. ‘Prices are going to be a little weaker a year from now, and there’ll be more listings and more choices.’”
“Karevoll said there are many sellers stuck in a get-rich-quick fantasy. ‘You’ve got all kinds of people trying to gain the peak of the market by putting properties on the market at fantasy prices.’”
It’s Sunday morning. I need some Bubbles.
Dear students, plus turn to chapter four: “Sunk Costs”
“”The question is whether John Saca makes any money at the end of the day.”"
NO–> the question is which BK attorney will you use. And the good BK attorneys want their money upfront.
Can’t be that stupid…He will lose some skin and more importantly for him, a lot of wasted time…Time is his most valuable asset….The pain is going to be felt by the pension fund or Insurance company that advanced that 100 Mil construction loan…
I have not been to Sac in a few years, but the last time I was there it is like the rest of the Valley - land for miles and miles. Do they really need the largest condo in the West?
This might sound crazy but…..If the builder hasn’t started building yet ,and he has the construction loan ,could he go back to the bank ,ask lender if builder can give back the money based on market condition change etc.? Why go forward in a down market ? The bank might agree to it with maybe some penalty costs or something .
This is the strange part. The builders and lenders can’t stop. It’s like some disease - nobody wants to blink first and lose face. Your average developer will take a $10 million forced hit before he’ll bail on his own and take a $1 million hit. Same thing happened to investors during the dotcom bust.
As a banker who has covered contractors, I can answer both questions. 1) depending on the structure of the loan, the developer should be able to give the money back to the bank at any time - this type of financing usually contains no prepayment penalties, although structures vary. 2) the psychology is, and I’ve heard experienced contractors say this, that construction gets in your blood. As Paul in Jax said, these guys need to be building something, and once a lender has financed it, they’d usually rather risk it and potentially lose money rather than scrap a project.
‘With home mortgage defaults rising across the Central Valley and the rest of California, an attorney who specializes in defaults says the problem lies not just with declining sales. ‘You would think mostly low income folks would be the victim’s of predatory mortgages, says Mr. Brady, ‘however recent studies show that three out of four loans were made to borrowers with middle and upper incomes.’
‘As analysts debate whether the real estate slowdown will result in a soft landing or a crash, investors are trolling for bargains — and a big score — in the middle of nowhere. ‘Real estate always goes up,’ said Ediga, a Carlsbad business analyst who bought property in Arizona, Washington state and his native India. Last year, Newberry Springs caught his attention.’
‘You would think mostly low income folks would be the victim’s of predatory mortgages, says Mr. Brady, ‘however recent studies show that three out of four loans were made to borrowers with middle and upper incomes.’
To this I say that ignorance and irrationality knows no age, economic class, race or culture. There is evidence all around us…people at work, friends, family members, flippers on Property Ladder, Flip This House, Flip That House, etc. And check out the guy in the second paragraph. He’s STILL repeating that old mantra?? Maybe he thinks that saying it will help convince him that he didn’t make any mistakes.
And contrary to popular belief, boomers cannot be fully blamed for the creation of this big real estate mess. Case in point (and there are many of them), I was watching a Property Ladder episode last night while a young (20s) real estate agent (of 2 years) bought and rehabbed a house to flip, but she had not applied for permits, had not applied for loans (she had a ton of credit cards), was using 3 family members to basically do all of the grunt work. In the end, she priced it too high for the area and market and the conclusion was that she would not make a profit. No offers before the show ended. She decided to rent it out.
purchase price: $158,000
budget: started at $30k; quickly went to $70k
time frame: started at 12 wks; quickly went to 20 or so weeks
Asking price: $360,000; Realtors gave it no more than a $295k value
And this was someone who should have known better having been on the “inside” as an agent. She said that she thought she’d try her hand at making some money and maybe shoot for becoming the “next Donald Trump”. I hope she remembers to file bankruptcy in her business name.
BayQT~
I had to leave before watching the end of this show, wondered how it turned out. But with those numbers she is only into it for $158,000+$70,000+10,000 in miscallaneous=$238,000 so she would still make money even at the reduced price of $295,000.
Seeing her on that show made me think of the Joe Kennedy line that said” I knew to get out of the 1929 stock market crash when the guy who shined my shoes was giving me stock tips”. Time to get out, although, I was never in, so what do I know.
Ignorance and irrationality are the effect - the cause is GREED. Greed for a house one can not afford, greed for unearned riches from real estate ‘investments.’ The entire country is infected with it.
The details of an option ARM are clearly spelled out in the rider - all one need do is read it. Anyone who signs something without reading it, particularly a 30-year contract for hundreds of thousands of dollars, deserves what they get.
The contracts were signed because of greed - the belief that one would unload the house at a handsome profit before the payments became unbearable.
San Diego home values dropped another $5,000 last month. Median condo prices are now $30K les than August 2005!
this is starting to get fun!
See article at http://www.homepricebubble.com
- With work already well under way on his twin 54-story condominium and hotel towers, developer John Saca is obtaining an $11 million subsidy from the city and closing on his construction loan.”
“A few months ago, Saca began negotiating with the city for a subsidy, something he said he had previously viewed as ‘a last resort.’ ‘We absolutely need it,’ he said.”
Just go to Sacramento…there is free money.
The government will spend as much of your money as is necessary to make this project go.
Here we go, don’t think that the tax payer won’t be on the hook to bail out this bubble crash. Here is a good example. Why does the govenment have to give this guy money? This is the camel’s nose in the tent.
‘Home building in the county is still not enough to meet demand.’ Bunin added: ‘However, we now have homes that are waiting to be sold. Builders are offering incentives to keep sales going at a steady pace.’
What is demand?
‘Home building in the county is still not enough to meet demand.’ Bunin added: ‘However, we now have homes that are waiting to be sold.
This translates to: We have houses for sale but they aren’t in demand.
Roger that.
What an asshole that guy is.
Demand ??? Oh, thats easy…..…Take out your calculator and extrapolate the birth rate and net immigration the expansion of Cal Poly and the Nuclear Plant and puff, bingo bango, there’s your demand….
- The word on the street is that Sacramento is going to set
up a ‘Little Cuba’. As soon as Fidel is toast, they are going to fly them in and of course give them aid and driver license.
I wonder why that is? Maybe because the asking prices are about double what they should be.
This is the key. Sure there is demand for all of these houses, at the right price. Even if they were way over-built they could sell them all if they were going for $100.
Why don’t builders/sellers get this? “Gee, I don’t know why no one wants to buy this 3br/2ba stucco box at 13x median income. What could we possibly do to get people to buy?” It’s the price asshole!!!
This is the key. Sure there is demand for all of these houses, at the right price. Even if they were way over-built they could sell them all if they were going for $100.
Why don’t builders/sellers get this? “Gee, I don’t know why no one wants to buy this 3br/2ba stucco box at 13x median income. What could we possibly do to get people to buy?” It’s the price a$$hole!!!
We currently have 6% affordability (second lowest in the state next to Santa Barbara) using the old (honest) method. Only 17% affordability with the “new” method. Wages here are really low compared to SF or LA, yet our median is close to 600K.
…and yet I rent one for $1100/month. What would my payment be…$5000?
Prices are still too damn high. The builders are trapped in the market themselves. boo-hoo
Inventory numbers are high (really high), sales are off big (really big), yet, they just can’t keep up with demand. White is black, hot is cold, short is tall, bright is dull……….God, I love watching people try everything in their power to keep the ponzi scheme going.
I had copied that already to ask the same question.
What f’ing demand number is he working off of? Demand if everyone in the country needs to buy another home in S. Fl, Arizona, and CA?
If the demand in there, why aren’t they selling? I think there may be enough Mc Mansions in my neighborhood (and certainly enough condos) to put every man, woman, and child in Palm Beach into their own unit.
Where does he get the “demand” number from? This is perhaps the stupidist thing I have heard in a long time.
I’ll bet Ben chuckles everytime he posts one of these numbskull comments. He knows we’re going to rip it up.
I could be snarky and say something like, “But I thought everyone wanted to live there.” But I won’t.
You would be wrong anyway.
Everyone wants a 800sq/ft condo in West Palm Beach for 300K. Every babyboomer is heading here with suitcases full of cash to buy condos at 400/sq/ft in an area where you cannot walk outside at night. Oh, forget that homes here were 75/sq/ft just 8 years ago! Minor details.
Sorry buddy, everyone wants to live in Palm Beach, not CA.
God, read the paper man, everyone knows that!
Michael — true. In 1999, you could buy a 900 s.f. 1BR *direct-ocean* condo, in a 20-yr-old complex, anywhere in Brevard County for about $90,000 — a friend bought one for $84K. In 2005, one sold for $340,000 - quadruple. There is a loooooong way down to go.
What do you guys think of this argument? I think we have had re crashes in the past without recession, but does this guy have a point:
Yes we have had realestate drops in the past but they were due to economic reasons, What we are in now is alot of sellers do not have to sell they are only selling because they think that they can cash out now and buy back in at a lower price.
Some sellers are doing this. We sold in January for that reason and I alot of other people on this blog have said the same thing. However, this group of sellers is small peanuts compared to the “I make $35k/year, drive a $40k truck to haul my $80k boat and just got an option ARM on a $650k McMansion. How do I do it? I’m in debt up to my eyeballs. Somebody help me.”‘ crowd.
If this guy is talking about the folks on this board, then yes, there are a FEW people that have already sold and will buy back at lower prices in a few years. But let’s be real, as bruin said this amounts to a very small number of financially prudent individuals with the foresight and wherewithal to identify this bubble and take appropriate defensive action.
In reality, most of the “demand” that we’ve seen the last several years has been nothing more than speculative fervor - people leveraging up and buying whatever at astronomical prices with the thought that prices would move ever higher (free money, trees growing to the sky and all that.) There is a huge difference between fundamental demand for housing and a financial mania. Now that’s it’s become clear that all of this was just a bubble after all, these specuvestors are rushing for the exits in order to avoid losing their asses. The situation is not at all as he describes it.
I have advocated this very thing to some people here in New York City. The response is universal. They act like I just called their mother a “whore”. They still don’t believe prices can go down here even though they already are and there is a ton of new supply just waiting to come on line. Ohhhh, it will be ugly.
“they are only selling because …”
i think you mean TRYING to sell.
‘Home building in the county is still not enough to meet demand.’ Bunin added.
If there was greater demand, more houses would have sold. So there really is a lack of demand. It’s amazing the twisted logic the shills use to spin the facts.
Vmaxer,
That is the most infuriating line of all. Repeated ad nauseum “builiding still doesn’t meet demand” blah blah blah. I hear this mantra added all the time, with references to all the angel investors who are going to purchase these overpriced homes as basis for this phantom demand- wealthy Saudi Princes, monied immigrants from Mexico, Guatemala, and El Salvador, baby boomers, their kids, their kids kids, Martians and Klingons.
This has become so absurd as to make you want to slap David Learah or Gary Watts in the face every time someone makes that ridiculous comment.
Just had to share this with you all, right now I’m visiting family in Marbella, Spain. I was talking to an a woman I know vaguely at a kids party yesterday and she asked if we had bought anything in San Diego yet. I said no as prices were too high and on the way down, (we sold our OC home in 04) to which she replied ‘oh our house in Florida just goes up every month’. Didn’t have the heart to disagree or direct her here for any facts. Also noticed on this weeks english language newspaper one of the biggest agencies here and now offering 2% listings, last year they were charging 7%. Costa del Sol is just another big bubble, over built, toxic loans and way over-priced.
“she asked if we had bought anything in San Diego yet.” … “Costa del Sol is just another big bubble, over built, toxic loans and way over-priced.”
according to nhz, the european housing bubble is even more serious than the u.s. bubble, with a strong gov’t cheerleading section that actively subsidizes housing prices with various supports, including automatic increased yearly valuations of +10-15%! thus it’s in even greater danger of a catastrophic drop once the plug is pulled here and word gets out that the u.s. hyperbubble is deflating — there’s obviously a lot of european denial in play. it will be interesting to see how the progression of the bust in the u.s. presages an international collapse. yikes. that kinda sounds like the great depression2. but it should provide plenty of material for discussion and informed commentary in this blog.
this epic bust is going to be rolling for at least the next decade.
and the above does not even consider the obvious international economic effects of the newly pinched american consumer on quenching international demand. but even without the knock-on effect of american drop in spending, just the forewarning of our housing crash — unstoppably — all by itself could be sufficient to collapse the european house of cards as well. double yikes.
From the Sacbee article:
“In the meantime, construction on the site is being funded by Saca and by the California Public Employees’ Retirement System, which earlier this year announced it would invest $100 million in the 804-unit project.”
Wonder what hair-brained schemes your pension plan is investing in?
Here’s what I don’t get. Sacramento is already so uniquely desirable that its property values and population have swollen. However, if the city does not get new twin towers condos and a downtown arena, then the city will be doomed. I liked this drama better the first time I saw it, when it was called “Los Angeles in the mid 90s”. L.A. lost the Raiders and Rams, didn’t do anything for developing downtown housing, and city revenues went up. I don’t think the remake with the different ending will be as good.
It was a political deal with CalPERS.
$100M is a fart in the wind for CalPERs.
CalPERs has $208 Billion under management.
http://www.calpers.ca.gov/index.jsp?bc=/investments/home.xml
From the LATIMES article, quote for John Karevoll at DataQuick “If you’re planning on living in the property for three to five years or more, you can make a good investment today,” he said. “It won’t be as good as if you bought three years ago, but it will be better than if you wait until interest rates go up.”
Obviously, still holding on to the belief of minor price drops, with no major correction. If we are relying on fundamentals how can you presume such minor drops in prices, especially in So. California? Still think in will be something much more painful.
Yeah, that LA Times article was seriously bullish. Filled with horror stories about people who sold their places in the past few years, thinking the market had hit the top, only to then be priced out of getting back in. The LA Times seems obsessed with this idea that there is an infinite amount of buyers out there just waiting for a great deal, and who will prop up the market indefinitely as prices make tiny downward slides. It’s the new myth that I’m sure will be circulating among bullish MSM RE sections.
“…it will be better than if you wait until interest rates go up.”
Completely ignores the reality that you well might be able to refi into a lower rate later, but you will never be able to re-fi into lower principal.
Karevoll is incorrect.
Right now, NAHB and Wells Fargo cites affordability statistics that 1.9% of all households can afford the median price home in Los Angeles. It’s slightly better for San Diego: 5.2%.
In the absence of higher wages (not likely when the recession hits in 3 to 6 months), higher interest rates will make CA housing even less affordable.
Who’s going to buy these median priced LA and SD homes?
The party’s over for this debt and greed driven upcycle folks. Welcome to the dark side.
chip, good comment pointing out the unforeseen gazillions of vertical sq. ft. in manhattan skewing longterm trend in favor of 1890 trend rather than sharper 1975 trend.
Exactly.
“With work already well under way on his twin 54-story condominium and hotel towers, developer John Saca is obtaining an $11 million subsidy from the city and closing on his construction loan.”
“A few months ago, Saca began negotiating with the city for a subsidy, something he said he had previously viewed as ‘a last resort.’ ‘We absolutely need it,’ he said.”
“With $100 million in construction contracts signed, there’s no turning back, Saca said. ‘It will get built; it’s getting built. The question is whether John Saca makes any money at the end of the day. I could go through all this and end up making less money than I would have building a little Walgreens on the corner,’ he said.”
Why should the taxpayers have to be bailing out businessmen and guaranteing them a profit when their projects go bust? Risk is always an inherent part of doing business; if these people do not understand this then they should stop pretending to be businessmen and simply go to work for somebody else for a salary.
The corollary to the taxpayers bailing out his sorry a$$ is this: if he stood to make a huge profit from this project, would he be giving $11 million of it to the city?
Welcome Back Bitter Renter!
“The corollary to the taxpayers bailing out his sorry a$$ is this: if he stood to make a huge profit from this project, would he be giving $11 million of it to the city?”
Corporate fascist kleptocracy rule #1: Privative the profits, socialize the losses.
‘Home building in the county is still not enough to meet demand.’ Bunin added.
Demand is in part coupled to the price of the commodity. If your demand has decreased then it is possible that your price is too high. But since folks on that side of the aisle have based all pricing on magick instead of reality, demand is something that should magically be everpresent even if the price is too high.
I wonder what they’ll do if this does not work…Mortgage Chain Gangs?
Lenders rally to stem foreclosures as interest rates increase
By Lew Sichelman, Inman News
September 10, 2006
http://www.latimes.com/business/la-re-lew10sep10,1,4288504.story?coll=la-headlines-business&ctrack=1&cset=true
Noticing small price reductions back in Moorpark Cali 93021.
Sacramento needs these 54 story “white elephant” towers like Arnold needs more muscles developed. Maybe the city will be left owning them when this idiot goes completely bellyup, as I am sure this $11M would only be the start of a needed subsidy. Then the city can house all of the folks that have lost their homes due to foreclosure as housing prices tank in Sac.
http://www.exploresouthgroup.com/press/062306_evo.htm
From the Sacbee article:
“In the meantime, construction on the site is being funded by Saca and by the California Public Employees’ Retirement System, which earlier this year announced it would invest $100 million in the 804-unit project”
There is a project named http://www.evo-south.com at 1155 s grand ave in the south park district of DWTN LA which is being constructed with union pension funds(not sure which union pension funds but may be from the construction trades unions. This project is halfway to completion and is advertised as state of the art Condo living when it gets completed(next year). A sister project across the street called ELLEVEN is i believe available for occupancy. This area at 11th and grand somewhat trashy and seedy, although 2-4 blocks from Staples center. The 91 unit http://www.librarycourtla.com at six and hope far superior location for dwtn LA condo living.