‘New Lower Prices’ In California
The Record.net reports from California. “The red and white banner hanging outside the entrance to Lathrop’s Mossdale Landing housing development can be seen from the freeway advertising ‘new lower prices.’”
“In one of the neighborhoods featured on that sign, development company Beck Properties Inc. has slashed prices on some new homes as much as 11 percent, and about a dozen of their houses are still available.”
“It is likely just another indication that the ballooning housing market is slowly deflating, experts say. But growing San Joaquin County cities such as Lathrop and Manteca, where local governments depend on the varieties of revenue that growth produces, could face significant consequences if home sales dip low enough that developers scale back their massive projects.”
“City payroll costs would keep rising as revenues stagnate, raising the likelihood of staffing cuts, (and) reducing the money available to provide day-to-day city services such as police protection. ‘The housing market is what it is. There’s nothing we can do whether it’s hot or cold,’ said Manteca City Manager Bob Adams.”
“The signs of slowdown are present in San Joaquin County. Even though prices rose, second-quarter sales of new homes in the county were down by 40 percent from a year ago, according to a July report.”
“A report from University of the Pacific’s Business Forecasting Center predicted developers might cut back on building. So far, officials in Lathrop and Manteca say they have not seen any signs of cutbacks because the cities are still issuing residential building permits at a steady rate.”
“In Lathrop, for example, the city issued 682 single-family home building permits from July 2005 to June 2006, up 4.3 percent from 654 permits the year before. In the past two months, the city already is on pace to see another increase, issuing 187 permits since July.”
“Lathrop has as many as 20,000 new homes planned for west of Interstate 5 in the next two decades and charges thousands per home in fees. If housing slowed down, the city may find it difficult to fund those projects.”
“‘If developers start to slow down in the region, obviously (cities) are going to see a decrease in revenues,’ said economist Sean Snaith. But, he said, ‘I think this is a short-term situation.’”
“That is because demand in markets such as Manteca and Lathrop is not likely to fall too sharply, he said. Thank the Bay Area’s expensive homes, which continue to make south San Joaquin County attractive to home buyers.”
The Porterville Recorder. “As Tulare County enjoys a bustling economy and housing market, officials at the County Administrative Office said Thursday they are keeping their spending in check.”
“Assistant County Administrative Officer Jean Rousseau said they have learned from the state’s mistakes. ‘We have more money that we have had in the past,’ said Rousseau, who compared the counties upswing in assessed property value to the dot-com boom in the early 1990s. ‘We don’t want to put that growth into program spending.’”
“Just like when the bubble burst on the technology industry, the county is preparing for an eventual downturn in the housing market. Rousseau said that means basing their budgets on historically normal revenues as opposed to the inflated numbers in recent years.”
“‘We want long-term fiscal stability,’ Rousseau said. ‘What’s the point in spending when you will have to come back the next year and cut it?’”
The Long Beach Press Telegram:
‘There are some signs that the housing slowdown is taking a toll on jobs,” said Challenger CEO, John A. Challenger. ‘Job cutting in real estate this year is nearly double last year’s pace. However, we have not as yet seen a major uptick in job cuts in the sectors we might expect during a significant slowdown,’ he said. ‘The housing slowdown has not had a major impact on the job market, yet,’ said Challenger.’
“yet” = keyword used twice
Right — this Freudian slip makes it seem as though Challenger believes a major impact of the deflating housing bubble on the job market is baked into the cake.
Just some observations on jobs in the OC real estate sector -in random conversation found out that one co-workers girlfriend was laid off by Centex Homes due to slowing, another associate laid off from construction services specializing in residential development, and a former co-worker in a previous consulting company that is almost 100% dependant on residential development is seeing requests for proposals go from 15 to 20 a week to 3 to 4. This is a company that continues to go bankrupt every time the housing market tanks - idiot owner.
Unless he strikes it rich everytime RE soars and banks the money.
Then all you can say is idiot employees.
This is due to the Pipeline Effect. There are too many homes in various stages — from permits to fully framed but months away from completion — that will keep the employment level. The employment drop should become very noticeable in 2007Q1-Q2.
Jas Jain
Jas,
really enjoy your articles on Financial Sense. Keep up the great work.
Ditto.
The normal winter slowdown will simply remain into spring and summer.
I have wanted to ask this question for awhile, but what do you guys think is going to happen in markets that are typically fall/winter buying seasons (FL in particular)?
Do you think we feel the brunt of the slowdown (definately not the price drops though) this year, or more next year? I think as we move into the slower months, there is going to be a real panic as people realize if they do not sell now, they are going to be holding for another 6 months.
Anyway, just wondered if anyone had any insight?
Michael — I think that in Florida, the former Fall/Winter buying season for condos will be a bust this year (and for a while to come). The reason: available rental units are far greater in number than in prior years, most likely because flippers are renting rather than selling for less than they want, so they are competing with year-round regular investors/landlords. The cold-season buyers were predominantly snowbirds who gauged the relative values of renting and buying. When prices were rising at 20-30% per year, many got off the fence and bought. The bubble bust has got them back to seeking winter shelter, not investments, IMO.
Personally, I have a hard time imagining what most of these people “pretending” to sell but not lowering expectations are thinking. The fall and winter will bring fewer sales for sure. There are houses which have now been on the market over a year, whose owners are apparently happy to ride the bubble up through the top and right on down to the bottom. My poor hopeless ex-neighbor is one of them. Delusional with greed, his fixer (to put it mildly) was easily $50k overpriced if not much more, and he missed the boat. Inventory is now exploding and nobody wants to buy a fixer anymore. I would feel sorry for him, but when I gently tried to talk about his price he got red faced and angry and told me I sold too cheap and the market would hit his price! He also talked about the new truck he would buy when he sold. Now greedboy is gonna get hosed. I would suppose that most of the people who really need to sell, but won’t budge on their price, are in denial. I am anxious to see if there is a substantial drop in inventory come fall and winter.
substantial drop in inventory?
Maybe, but I dont think inventory will drop substantially. I had drinks with a friend and his RE agent girlfriend two days ago. She covers the Mission Viejo area (here in OC). She had two new listings going up this Wedsnesday. Both listings were long time empty nest baby boomer owners looking to bail and according to her, the plan is they are going to be pricing competitively and dropping their prices quickly until they sell. They want to downsize and bank the rest of the cash for retirement. She said the word is out that the market is shaky and prices are coming down. If you are a seller and want out you need to be lower than last years comps (here in OC there were comps at the beginning of this year higher than last).
Maybe I should have used “noticeable” instead of substantial. I am really curious as to how many people really want/need to sell vs. the dreamers looking for nothing more than to get rich off their house.
Here in CA there are many empty nest baby boomers that want to sell their homes and then rent until retiring. Many have homes out of state and it’s just a matter of packing up and moving when the time comes. They just want to get the most from their home sale, but are being realistic that they will have to drop their sale price. CA has fast turned into an unaffordable retirement area and many many people have purchased homes out of state that they will be retiring to. CA house prices are out of control and besides, the immigration situation is making matters worse — along with heavy traffic, crowds — CA is not a dream to live in.
Jas, if you model this, the lag is about 2-3 quarters, so it may start earlier than you think.
Bla, bla, bla.
“That is because demand in markets such as Manteca and Lathrop is not likely to fall too sharply, he said. Thank the Bay Area’s expensive homes, which continue to make south San Joaquin County attractive to home buyers.”
How will they attract buyers when prices in the SF Bay Area start to fall? I know a few people living in the valley and they complain about long commutes and high gas prices.
This is similar to those living in the IE commuting to LA and OC. Prices are starting to fall in the Bay Area too now.
Indeed. If anything, I expect “fringe” places like Lathrop to be hit considerably harder than the Bay Area in a downturn. Firstly, as you point point, any decline in prices in the Bay Area makes it less attractive given its distance/commute time from the Bay Area. But there are two other factors: firstl, there is a massive amount of new development in that area, which almost certainly means the speculators are there in hordes and will now be dumping. And secondly, people who buy in places such as Lathrop often are those that have been “priced out” of the Bay Area and are stretching to the limit to afford a house. This likely means a higher percentage of FB’s there, which can only portend trouble for that locality down the road.
“‘If developers start to slow down in the region, obviously (cities) are going to see a decrease in revenues,’ said economist Sean Snaith. But, he said, ‘I think this is a short-term situation.’”
I am not sure how much this translates into a decrease in revenue. If builders slow down in building, the city would see a decrease in permit fees, but wouldnt they still realize an increase in property tax revenue?
Perhaps the correct way to put it, is that cities would see a decreased growth rate in revenue?
Housing developments don’t pay their own way ANYWAY, usually - industry and retail are needed, too. I don’t understand why payrolls would keep rising. Someone didn’t do their homework here… did a Realtor do the research for it?
Exactly.
Fees for permits, licenses, tickets, reviews, etc. should be “fee-for-service’ not a bucket pouring into the general coffers. And when these unusual, one-off events happen, local governments should ONLY fund one-off projects.
It never happens. They fund long-term programs with short-term money.
A recession removes business and personal malinvestment from the economy. Perhaps we need to find some way to have a recession that cleans malinvestment from government.
“City payroll costs would keep rising as revenues stagnate, raising the likelihood of staffing cuts, (and) reducing the money available to provide day-to-day city services such as police protection.”
Dah, city administrators may have to come to the realization that as home prices go down so does the cost of living and they just might have to lower, aheeeeeem, loooower wages and keep staffing at current levels. Bottom line, you don’t like it then go somewhere else and find a job; oh, but don’t hold your breath, others maybe in the same plight.
Poser: Why does the government always have to inflate wages when they experience short time cash windfalls?
Very good points. I’m setting the stage for a layoff or reduction in staff in my city department while other departments are still on a hiring and spending binge. I’ve been ringing the alarm bell since May 05, but they all still think I’m nuts.
Local government officals always push the voters buttons by cutting or saying they are going to cut police and fire first instead of things like cutting back on landscaping and office upgrades.
This is long but not linkable. Worth the read.
Jeff Saut Presents: Point/Counterpoint
MV Respect
Sep 11, 2006 11:30 am
Real estate’s price decline in individual “bubble areas” has been quite severe…
“Any time you subsidize something you get more of it.”
. . . Anonymous
I heard the above quote early in my career on the “Street of dreams” and cannot remember if it was from one of Wall Street’s icons like Larry Tisch, one of my mentors (like Lucien Hooper), or the floor traders I used to drink with after the 3:30 p.m. market close at “Harry’s at the AMEX.” However, it was one of those market “saws” that stuck with me over the years, just like “Shorting stocks is a trading operation, because you can only make 100% on your money, unlike going ‘long’ where your upside is unlimited!” Yet, to reiterate, “Any time you subsidize something you get more of it” . . . be that subsidized farm crops, alternative energy, welfare, or in this most recent case, real estate.
Verily, the “housing subsidy” was brought about by nearly zero percent “real” interest rates, fancy financing vehicles, no money down schemes, unrealistic appraisals, loose lending standards, generational house price appreciation, a belief that housing prices could never go down, and the list goes on, causing one savvy seer to exclaim, “Can you spell bubble?!” Statistically, however, the new millennium’s housing subsidy made sense, for as the National Association of Realtors’ (NAR) Walter Molony stated in Grant’s Interest Rate Observer, “It (real estate) has never gone nationally.” Yale University’s Robert Shiller agrees, but points out that, “residential real estate prices, in real terms, rose by all of 66% between 1890 and 2004, or by just 0.4% a year.” Grant’s, however, takes exception with Molony’s “never” by noting, “For ‘never’ we would substitute ‘infrequently’ or not since the NAR began keeping score.” Grant’s further expounds, “In fact, average national house prices posted modest declines in 1964 and 1959, as well as horrific drops in both the early 1930s and early 1940s”
More importantly, real estate’s price decline in individual “bubble areas” has been quite severe, as witnessed by Houston’s 23% price decline, and California’s 21% decline in the early 1990s. From a personal perspective, we experienced a HUGE real estate price decline during the 1973 to 1975 Atlanta “condo crash.” While back then, real estate’s woes were more of an economic effect than a cause and more recently arguably 30% of the job creation since late 2001 has been driven by real estate (1.4 million of the 4.4 million new jobs), we are concerned about the economic fallout of the current real estate debacle.
Nevertheless, we can also see the bright side of the equation, for as the good folks at GaveKal opine:
“With the slowdown in U.S. housing, the U.S. current account deficit will most likely improve considerably. So much so that ‘net trade’ will add quite a few percentage points to the U.S. GDP, a development which would make a U.S. recession very unlikely. For years, the perma-bears have warned us that the U.S. current account deficit, and the U.S. real estate ‘bubble’ were two side of the same coin. To be fair, there does seem to be a nice correlation. And an unsurprising one at that: a housing boom usually leads to a large increase in imports (furniture, cars, white products, etc. . . .), especially in a country moving increasingly toward services.
But if the perma-bears are right, then the current slowdown in the U.S. property market should lead to a large improvement in the current account deficit. We thus need to prepare for a sharp drop in U.S. imports in the next few months…Let us take for granted that the U.S. current account deficit will be ‘improving’ over the coming months. Some might welcome this news; we see it as a serious source of concern. Indeed, as we have shown time and again, the U.S. current account deficit is the primary source of liquidity for world trade.
Because the U.S.$ is still the reserve currency of the world, and because most trade
exchanges are still priced in U.S.$, a reduction in the U.S. deficit is equivalent to a liquidity squeeze. When the U.S. deficit improves, all of a sudden, outside the U.S., there are less U.S.$ around to grease the wheels of global trade. Money becomes scarcer. Which is why, with each improvement in the U.S. current account deficit, someone who is in debt and/or negative cash, goes bust. From painful, and expensive experience, we have learned that, when the U.S. current account deficit improves, one wants to own little but debt-free assets that generate U.S.$ cash-flows.”
Under GaveKal’s scenario, U.S. investors would likely want to go from being over-weight foreign investments and commodities, to underweighted; and, over-weighted “platform companies” with little debt and strong free cash flows. While my firm is intrigued by GaveKal’s insights into the housing situation, and its favorable impact on the current account deficit, we have a difficult time embracing their views on the concurrent impact on foreign markets, and commodities, even though we continue to think the correction in those arenas is not complete. In our view, a collapse in housing prices is a bad “bet” because houses “vote!” Therefore, the powers that be will do ANYTHING to prevent a housing crash. Consequently, our views are more aligned with our economist, Scott J. Brown, Ph.D. (The following are his condensed comments, his full remarks can be found at the bottom of this article.) To wit:
“There is widespread confusion about the role of housing in the business cycle. While housing slowdowns have coincided with broad economic downturns in the past, housing sector weakness has been more of an effect than a cause of recession. Building permits are one of ten components in the leading economic indicators, but housing is not, by itself, ‘predictive’ of general economic health. Residential construction accounts for about 6% of GDP – a 30% correction would not, by itself, send the economy into a recession. Of course, there are a number of important secondary effects – the impact of the loss of housing wealth on consumer spending, adjustable rate mortgage resets, and a slowing in the net extraction of home equity. Home prices will be sluggish to decline – so we are unlikely to see a sharp unraveling of the price increases of the last few years. More likely, prices will flatten or rise slowly for an extended period.
About $1.2 trillion in adjustable rate mortgages (first lien, second mortgages, and home equity lines of credit) will reset both this year and next. While this seems large, many will convert to fixed rate mortgages (still relatively low by historical standards). For those with resetting mortgages, the impact will be significant, but the aggregate impact on the consumer sector will be moderate. The net extraction of home equity has been a significant force supporting consumer spending growth (amid a lack of job growth in the first two years of the recovery and then in the face of higher energy costs in the last two years). However, while net home equity extraction is likely to slow, it should not disappear completely (again, mortgage rates remain relatively low). As the impact of net home equity extraction fades, job and wage growth should work to support consumer spending growth. In addition, a flattening in oil prices would lead to lower inflation and higher real wage gains, more than offsetting the secondary effects from the housing slowdown.”
The call for this week: My firm remains in the camp that says no recession (a view embraced for nearly five years), although admittedly the odds of a recession are rising. We also are in the camp that thinks the equity markets are in a topping process even while averring the DJIA could “tag” a new all-time high in the process. Additionally, as stated previously, if forced to make a trading bet right here it would be that volatility is going to rise and therefore believe trading accounts should consider going long the Volatility Index (VIX). Moreover, while “shorting” is a trading operation, for investment accounts a prudent hedge to your long positions would clearly be some short positions. In past missives recommendations have been made on a number of long/short mutual funds to achieve this goal. There are also a number of new “short” ETFs (Exchange Traded Funds) for the various indices (call our Closed-End Fund Research Department). As for me, I think The Prudent Bear Fund (BEARX) makes a lot of sense since David Tice & Associates do research on individual stocks to “short” in an attempt to add value over and above just the shorting of indexes. And, to the 16 friends I lost five years ago . . . I still miss you!
Full comments from Scott J. Brown, Ph.D., Senior Economist –
“There is a widespread confusion about the role of housing in the business cycle. While housing slowdowns have coincided with broad economic downturns in the past, housing sector weakness has been more of an effect than a cause of recession. Building permits are one of ten components in the leading economic indicators, but housing is not, by itself, “predictive” of general economic health.
Residential construction accounts for about 6% of GDP — a 30% correction would not, by itself, send the economy into a recession. The decline in residential construction subtracted 0.6 percentage point from 2Q06 GDP growth and may subtract a full percentage point from 3Q06 GDP growth. Moreover, the 2Q drop in residential construction was offset by a pickup in nonresidential construction. Multi-family construction appears to be improving as well, offsetting some of the weakness in single-family activity. So the direct impact will be limited.
Of course, there are a number of important secondary effects — the impact of the loss of housing wealth on consumer spending, adjustable rate mortgage resets, and a slowing in the net extraction of home equity.
Home prices will be sluggish to decline — so we are unlikely to see a sharp unraveling of the price increases of the last few years. More likely, prices will flatten or rise slowly for an extended period. Large price declines should be apparent in areas of the country that experienced sharp price increases in the last few years. For those who have been in their homes for a number of years, even a 20% price drop would still leave them well ahead in the game. Those who have bought homes within the last year or two will be the ones to suffer. The sluggish nature of home price corrections means that it may take some time for the housing market to recover fully.
About $1.2 trillion in adjustable rate mortgages (first lien, second mortgages, and home equity lines of credit) will reset both this year and next. While this seems large, many will convert to fixed rate mortgages (still relatively low by historical standards). For those with resetting mortgages, the impact will be significant, but the aggregate impact on the consumer sector will be moderate.
The net extraction of home equity has been a significant force supporting consumer spending growth (amid a lack of job growth in the first two years of the recovery and then in the face of higher energy costs in the last two years). In 1994, net home equity extraction amounted to about 6% of disposable income (vs. about 1% 10 years earlier). However, while net home equity extraction is likely to slow, it should not disappear completely (again, mortgage rates remain relatively low). Those who have been in there homes for several years are sitting on significant capital gains that they can tap into if needed. As the impact of net home equity extraction fades, job and wage growth should work to support consumer spending growth.
In addition, a flattening in oil prices would lead to lower inflation and higher real wage gains, more than offsetting the secondary effects from the housing slowdown.”
put down the crack pipe, guys……
That is the “All Knowing” saying please don’t panic or there will be panic. An important piece he glosses over is that “most will just get a fixed loan”. Oh really? If prices got bid up because people making 30k were able to buy 500k with a fixed loan, then yup, I suppose he’s right. If not, he is about as wrong as you can get.
These people were buying houses they couldn’t afford on borrowed money. That borrowed money in a fractional reserve lending system like we have works great as long as there isn’t wide spread covering of losses. Does this sound like we won’t have widespread losses? I highly doubt it. This will be a run on the banks in a classic sense.
Unfortunately, since so much of this debt was packaged up and sold on the market, that will tank too. Good thing the “big boys” are war-gaming financial catastrophies. They best step up their planning, because I just don’t think we’ve got much time left before A-Day.
A-day???
Like D-Day, but different reference in the timeline for war
“These people were buying houses they couldn’t afford on borrowed money”.
Amen, any area (like my hometown Santa Barbara, CA) where people have been factoring future appreciation into making the affordability equation work at all will get burned hard. It’s worked out pretty well for the risk-takers over the last decade, but when median prices are 15x the median income, there is ample room to fall.
In our view, a collapse in housing prices is a bad “bet” because houses “vote!” Therefore, the powers that be will do ANYTHING to prevent a housing crash.
Well, I guess that alleviates my concerns. I didn’t realize that houses voted and that politicians were omnipotent. Glad I got clued in.
So let’s recap here. Consumers rein in spending, trade deficit contracts, liquidity contracts, debt kills and politicians get voted out of office by pissed off homeowners (former?). But, this won’t happen because the FED is in control of all economic forces and won’t allow it. Is this guy calling in BB’s helicopters or what are they saying here?
They’ve kept it alive long enough to get them past November - I don’t think they care now.
The FED has strict orders NOT to raise rates again before the election.
However, they will raise rates after the election to prevent a collapsing dollar from scaring present and future foreign investors.
Lowering rates is “pushing on a string” because the housing bubble is doomed no matter what the FED does. May as well save the dollar.
The new “lever” that can be manipulated (remember “record profits” by big oil this summer) to the FEDs advantage is the price of oil. This will fall from until the election and thereafter to get housing refugees back into the stock market.
Regardless, housing is doomed. In the end it all boils down to the infestors leaving the market and the inability of a “regular person” to be able to afford a house.
The return of gravity……
FED does not take orders. Check out what AG “did” before GHW’s run in 1992 for some evidence on this.
Politicans take orders from the Fed/Commercial Banks.
Interest rates and dollar value are NOT correlated. Interests rates were dropping from 1982 on for a few years as the dollar peaked in buying power in 1985. But then, interest rates drop from 2001 on for a few years as the dollar value dropped also. So, two major dollar/interest rate move time periods and no correlation…
“FED does not take orders”…
Actually the FED and the current Bushco Junta are just different fingers of the same hand. They are all big money boys and only give the illusions of being seperate entities.
You probably believe the U.S. is a “democracy” too….
Bushco is the middle finger, the one most visible to the public.
Yes, and 911 was an inside job, too. The WTC was destroyed by remote control aircraft. The warm and fuzzy Mooslimes had nothing to do with it, rather they are the victims!
And I heard Elvis is wrapped up in it all too.
There ya go! It’s true!
So home extraction for consumption should continue merrily on because that is the the new paradigm? The only part I think they got right was the effect of an oil price drop, but my dog could figure that one out.
“Residential construction accounts for about 6% of GDP — a 30% correction would not, by itself, send the economy into a recession.”
These numbers seem too low. What are included in these numbers? Do they also include the resale market? Countless number of realtors, loan brokers, contractors will be unemployed.
“About $1.2 trillion in adjustable rate mortgages (first lien, second mortgages, and home equity lines of credit) will reset both this year and next. While this seems large, many will convert to fixed rate mortgages (still relatively low by historical standards).”
Wrong, many won’t be able to convert. Many could not qualify for lower fix rates then, so they can’t qualify for higher fix rates now. In addition, there many loan frauds, investors were buying 5, 10 houses at a time.
“About $1.2 trillion in adjustable rate mortgages (first lien, second mortgages, and home equity lines of credit) will reset both this year and next. While this seems large, many will convert to fixed rate mortgages (still relatively low by historical standards).”
The stupidest thing I’ve read yet, including the transcript of my infant’s babbling. (Which was actually pretty smart-sounding, for a ten-month-old.) If you’re stretching to afford even the teaser rate — which everyone in California buying a $700,000 house on an $80,000 income is — even a low fixed rate will kill you quite dead.
Indeed. Let’s also not forget about stiff pre-payment penalities many of these ‘toxic loans’ people will want to refi out of carry…
“As the impact of net home equity extraction fades, job and wage growth should work to support consumer spending growth.”
Really? Where is this job growth going to occur? What industries are going to do well as the housing industry tanks, and will they have enough new jobs (paying as much as RE) to offset the RE job losses? People have a negative savings rate, how much more can they spend? ARMs are resetting, this will take away from consumer spending. Even if they are able to refinance into a fixed loan, it will be with a higher payment, thus crimping consumer spending.
And, finally, don’t economists understand that in housing prices are set only by those that actually sell? So, the fact that a large number of people do not have to sell and will not sell does not mean that they won’t see the price of their homes decrease as new comps are set lower by those forced to sell or forced into foreclosure?
‘don’t economists understand that in housing prices are set only by those that actually sell? So, the fact that a large number of people do not have to sell and will not sell does not mean that they won’t see the price of their homes decrease as new comps are set lower by those forced to sell or forced into foreclosure? ‘
This is a great point. Inventory might drop a bit now as people who are not forced to sell pull their houses off the market until spring, leaving those who need to sell. Price drops could be quite rapid now that the big “sales season” has left us in its astounding wake!
Yale University’s Robert Shiller agrees, but points out that, “residential real estate prices, in real terms, rose by all of 66% between 1890 and 2004, or by just 0.4% a year.” Grant’s, however, takes exception with Molony’s “never” by noting, “For ‘never’ we would substitute ‘infrequently’ or not since the NAR began keeping score.” Grant’s further expounds, “In fact, average national house prices posted modest declines in 1964 and 1959, as well as horrific drops in both the early 1930s and early 1940s”
Most housing eventually burns down, decays, or is otherwise destroyed. How is this captured in the numbers? The natural tendency of real estate is to depreciate, not appreciate.
Most people don’t realize that a house is a long-term consumable. In real economic terms, a house does nothing to create value (or money). It just is bidded up and down like a collector car, but with a much longer time frame.
The land underneath it, however, should retain its intrinsic value forever… in theory. And that’s if you own the actual dirt… Condos and other more exotic “mineral rights” agreements and similar things render that moot.
I see you’ve been paid off to be quiet.
another reduction on this one.
39 Ranchview Road, Rolling Hills Estates, 90274 $1,499,800*
Status: ACT Orig Price: $1,698,800
Price Reduced: 08/22/06 — $1,698,800 to $1,598,800
Price Reduced: 09/07/06 — $1,598,800 to $1,568,800
Price Reduced: 09/11/06 — $1,568,800 to $1,499,800
Only 40% more to go!!
Stanley,
What, no reference to the hill you see when you approach LAX??? What was your story again, you grew up in the South Bay but had to move?? Grew up in PV and had to move? I forget. I’m assuming you want to move back cuz you keep posting regarding same property.
Could be wrong but I think Scott J. Brown, “Ph.D., Senior Economist –” is missing the fact that this bust is unprecedented. It is all new ground for people who have grown up with near ever rising real estate prices. I don’t think this can be calculated in the same manner as previous recessions. Too much debt accumulated much too quickly on the back of an asset presumed to be impregnable.
The change in that reality is going to shock a lot of people.
“But growing San Joaquin County cities such as Lathrop and Manteca, where local governments depend on the varieties of revenue that growth produces, could face significant consequences if home sales dip low enough that developers scale back their massive projects.”
What is the implication of negative home equity gains in San Diego, whose financial difficulties are widely known, and whose economy seems as real-estate-dependent as they come?
No more $150K per year pensions for firefighters would be a good start.
Say it ain’t so…
It ain’t so…
That would be California.
Housing developments don’t pay their own way ANYWAY, usually - industry and retail are needed, too. I don’t understand why payrolls would keep rising. Someone didn’t do their homework here… did a Realtor do the research for it?
!!!!! Suzanne did this FINE research !!!!
Lathrop and Manteca are “toilet communities” basically restroom stops on the I-5 and on the way to Yosemite (respectively). The Bay Area housing bubble has little bearing on these Central Valley townships. The fact that the bubble expanded to these towns is in and of itself a miracle. But I guess that is to be expected when money is dropped from B-52s.
I finally am beginning to see Bay Area RE Perma-Bulls beginning to get worried about Housing. It is beginning to dawn on them that it doesn’t take an external trigger to burst a bubble, once it grows to a point of insanity (interest rates are still quite low, but prices have grown to price out all but a very small %age of the populace). The very fact that future 15% YoY appreciation is under attack is enough to drive away the option-arm and interest-only crowd, which is probably over 90% in the “toilet towns” of the Central Valley (and over 70% in the SF Bay Area).
Time to pour yourself a nice tall glass of beer, find a comfy easy chair and watch the proceedings from a safe distance. The unwashed masses are in for a very nice bath
Imagine this scenario:
Joe Borrower has an ARM.
ARM resets, Joe Borrower misses a few payments and bank forecloses.
At this point, Joe’s credit rating has tanked along with the value of his home.
Credit counseler/lender looks a Joe, tells him his credit and house value means he does not qualify for a 30 year fixed mortgage.
Joe begs for help.
Lender goes, “Well, since you are special, I think I can get you into an option ARM with a teaser rate that will help you get on your feet and your credit up”, little or no explanation of prepayment penalties, late penalties and the ARM resetting in 3 years.
Joe at this point is just grateful he gets to keep his house.
In another 3 years, this downward spiral continues, next time he has to get a loan that covers both his debt, late fees, as well as the prepayment penalty. Of course he will again be grateful just to keep his home.
Of course this cycle stops. Joe Borrower dies, bank takes house, sells to Joe Borrower Jr. Restart cycle
Yes, but Joe and Joe Jr got spnner hubcaps for their Escalades so it’s all fair.
It has nothing to do with fair. The cycle of debt are the chains that will bind many to a life of serfdom. Its one bad decision have far reaching implications. Many that can be affected by this scenario are the ones that simply stretched to buy the home in the first place. Its a financial bait and switch trap that will be much much worse than that ever concieved by the credit card industry.
Something needs to be done to protect all of these “adults” who were conned by this impossible-to-understand scheme called negative amortization loans. No one could possibly understand them, so the fact they signed an acknowledgement stating that they did in fact understand the terms is immaterial.
“Neither a borrower or lender be.” Plain and simple. How sad that some will go through life with so much debt. Several months ago my wife and I talked to a life insurance rep from our credit union and he relayed how he thought it was great we had no debt. What was sad though, was how he mentioned a guy who had a sizeable portfolio, but refused to pay off just 12K, just 12K, because he didn’t want give up a meager amount of cash. He was willing to pay 15% just to get 5% back. This is the kind of thinking that is eroding this country right into oblivion.
Oh, bull. I understood the terms more than well enough not to get a loan like that. And if you sign a paper that says you understand something, when you don’t, you have lied, and I have no sympathy for you. Because you lied. You are a liar. See? Easy concept.
Hmmm, well not exactly. The MBS investors want their money at some point so if the bank continues to do this I would imagine the secondary market would (has) picked up on this and would no longer buy the loans from the bank. Or worse, still those non performing loans may have to be bought back by the bank.
In some cases, that may very well be the case. I wonder how credit card companies do it. They essential lend out mountains of money, encourage the lowest possible payment, and incentivize their marks into a lifetime of debt.
In the above scenario, the lenders will make much much more money then they would off the traditional 30 year mortgage that Joe Borrower should have gotten in the first place. This is one of the main reasons I think Merrill-Lynch bought First Franklin.
Once you sucker the mark into a loan with prepayment and harsh late payment fees, you have them for life. They wont be able to go to another lender, only the holder of the loan will be able to “help” the borrower out by waiving some of the penalties to get him into another even more predatory loan.
This is a neverending stream of money for the lender. It doesnt end at 30 years. Its a great deal for the lender, how they sell it to investors will be easy once the investor does the math.
OCRenter you couldn’t be more right. I know we’ve heard all those stories about 50% of the homes in America are paid off. Even if that is the case, what about the other 50% and what about those with no or neg. equity? Those people are never going to pay off the loan and who will buy their overpriced crackerbox?
When your borrower gets into a lot of debt (whether it’s credit cards, auto loans, mortgages, or what have you), you’re right — it isn’t necessarily a problem for you as a lender. As long as that borrower can SERVICE the debt (make the monthly payments), who cares if he owes $10,000 or $100,000? Indeed, American debt levels have (sadly) been rising for decades.
The problem occurs when your borrower no longer has enough money coming in to service his debt. An increase in unemployment (say, as a consequence of a bursting housing bubble) would certainly drive delinquencies and defaults higher. That’s one problem out there right now.
In THIS cycle, there are two other unique problems I see — many borrower debt loads are either 1) remaining static over time (due to the fact debtors flocked to interest-only mortgages) or 2) going UP due to Frankenstein Financing … those neg am option ARMs. Even that is not a problem when home values are going up. Your borrowers still have an incentive to do everything they can to keep making payments. After all, walking away would mean forfeiting a property that’s throwing off 10% a year in appreciation/free equity. But when values or stagnant or falling, and you’ve got a bunch of borrowers who started out with 100% financing, you’re in deep you know what. Instead of MAKING 10% a year, they’re losing a couple percent … and paying 4%, 5%, or 6% in interest for the privilege. Result: Those keys start getting mailed in. Losses surge. And suddenly your investors are dumping your stock … MBS buyers are giving your loans the cold shoulder … and if things get bad enough, the friendly neighborhood OCC/OTS/Fed examiner is knocking on your door, asking if he can have a word with you about your lending practices.
yes, regulation will be the key to preventing this from happening.
AFA defaults and “mailing in the keys”, that will also happen. But what about people who are able to refinance once or twice, getting HELOCs, erasing the ability to just mail them it. The alternative will be to get a bankruptcy decision. However, when faced with the decision of a bankruptcy, losing your house or keeping your house with another predatory loan, which will people choose?This, I believe, can be a key difference.
One think that I really do not understand is exactly how the credit card industry does it. They make a ton of money, their stock reflects a very vibrant industry and if they can make it work, I dont see why the mortgage industry cannot do the same. The mortgage industy even has an advantage over the credit card industry. Their customers have an asset they can take, the credit card industry has no such recourse.
I certainly do not believe that the above scenario will affect everybody. But it can affect a significant portion.
One think that I really do not understand is exactly how the credit card industry does it.
I worked for a credit card company many years ago and it was basically a numbers game. The vast majority of customers make at least the minimum payment. The percentage who make no payments at all is really very small.
We had our own internal collection department to deal with defaults but once they reached a certain level they were sold off to debt collection agencies. Tier 1. debt was sold for around 65 cents on the dollar tier 2. 50 cents and tier 3. 35 cents. The tiers were determined by size of debt, length of time since last contact, whether they were still at the same address etc.
The benefit for the credit card company was that losses were capped. Given the high interest rates charged and the relatively small number of defaulters it was a very lucrative business. New customers were signing up all the time to replace the old so it was just constant churning.
The collection agencies had the benefit of buying debt at cents on the dollar yet receiving interest on the full amount.
If they bought $1000 of debt with an interest rate of 15% for $350 the customer was still liable for $1000 plus $150pa interest giving a return of 42.8% plus the potential to make $650 profit on the capital. There was also a rumor at the time that they sold debt they couldn’t recover for around 12 cents on the dollar to loan sharks who had more effective collection systems.
Over the next few years you will probably see considerable growth in collection agencies, loan sharks, private investigators and the like.
“yes, regulation will be the key to preventing this from happening.”
No it won’t: we have many regulations in place already and look at the mess we have now, probably worse than the S&L crisis. Regulations protect the few in power [congress persons and choice lobbiests] and the risks are managed by the taxpayers, you and I. That is, we’ll get taxed more and get less protection when new regulations are put in place.
So why bother?
The only thing that might prevent the same sort of thing happening in the future is accountability, in all of its forms.
Criminal Trials
Civil Trials
Good old fashioned community shame
Probably some others too.
Shortly after the American Revolution, there was a credit crisis which was getting people foreclosed on right and left in western Massachusetts. A Revolutionary veteran named Daniel Shays led a rebellion whose first objective was to burn down the courthouse with the title records. The rebellion was eventually put down, but I wonder how many FBs will be pondering the Shays Solution in the days ahead.
“So, you say you have a trust deed to my house? Prove it’s not forged. And oh, say hello to Paddy the Pit Bull here…”
Got any good stats on San Francisco population? I believe it has been declining but would like to be able to quote some exact figures to a few non-believers.
It has been declining. As I said previously, this wasnt about fundamentals.
This is for SF City - same holds for county.
July 1, 2005 739,426
July 1, 2004 743,193
July 1, 2003 751,960
July 1, 2002 761,988
July 1, 2001 774,374
July 1, 2000 776,677
Don’t forget - Lathrop, and especially the area where they want to put the NEW homes, is at a level lower than the DELTA. If the very weak levees blow, kiss this sad ass town goodbye. While I lived in Castro Valley, one of my neighbors decided to buy a house out there. I told him that the commute would be hell, and he was justifying it. Saw him two months later, and he was moving back because he couldn’t take the drive (1.5 each way without traffic, forget it in traffic). He was also the only earner. Stay at home wife and 4 kids. Felt really sorry for them. They were better off in the apartment having a good dad around instead of him gone 15 hrs.
I have been tracking listings since last year in Sonoma County, Calif. Listings with my criteria have doubled, however, I don’t see any reductions in listing prices even for properties that have been listed for 6-7 months.
Also, for some reason, Zip Realty does not show listing date on my search criteria.
Although we have a housing bubble, the bubble is only now beginning to burst. I just had an idiot friend quit his tenured position at a community college to become a mortgage broker. There are still plenty of idiots out there. The momentum of prices rising is only now leveling. Now the momentum is beginning to increase the for prices falling. Don’t expect much price decreases in the next three months. Prices will fall a little. Then come six months prices will begin to fall faster. Still, the prices will probably fall very slowly. It may take twelve or more years for the prices to reach their lowest.
However, so long as inventory is sky high, there will be massive downward pressure on home prices. It is only a matter of time before these sellers break. They have no negotiating power. Just be patient. Unless our economy booms and we have major inflation, home prices will drop! Be patient!
PS. Don’t worry about zip, their predictions are based on past performance.
I got this tidbit from Zip Realty in an email today -
“A new loan program from E-Loan called the Flex 100 allows borrowers to have as little as $500 of their own funds. Debt to income ratios can be as high as 64.99 percent and FICO scores can be 560 or greater. ”
Is that insane or what?
The slower business gets, the more desperate these lenders become, and the looser their standards get. This is just nonsense. My new phone number was supposed to be private but I have a sneaking suspicion it belonged to someone else in the not too distant past. The reason being, I have been receiving at least one, sometimes two to three automated messages each day from lenders peddling toxic mortgage loans.
Wow. That is scary. Some people just don’t want this party to end.
Is anybody else wondering who is buying all this debt, especially now that the housing bubble is well-known to anyone willing to do a little research?
I hear you. A nondescript 2-bedroom on the street I grew up on in East Costa Mesa just sold for the $900,000 asking price. To a broker. It will doubtless have $50K in cosmetic improvements slapped on and listed in six months for $1.3 million or so — which would undercut similar fixed-up 1950s ranchers, in the same neighborhood, by a good $200K.
Good suffering grief — the realtor-speculator complex is still trying to pull stuff like this. As long as the lending is available, they’ll keep it up.
Any updates on how Arnold is doing on fixing the levees? I thought they might give out this summer and flood large parts of the Central Valley.
There was an article about that very subject in this Sunday’s Sac Bee buried back on the “Forum” page (sect E). The article is entitled “Leadership on Flood control in short supply”. It basically said that “special interests” defeated the following bills/proposals:
*requirement for flood insurance
*proposal to have state and local govt share resposibility
*have local govt certify safety of levees to accomodate urbanization
*flood mapping
The only thing accomplished was to put a bond before the voters (good luck with that) and an agreement between the state and feds to “fast-track” processing plans and permits for levee repairs before Nov
Basically, not much was done. I was here last winter and can tell you the flood waters got very close to flood levels. I took some pictures of riverfront homes with their lower levels underwater. They’re still building like crazy in the flood planes here in Sac with 100 yr old levees seperating the river from lots of new housing.
Time to pour yourself a nice tall glass of beer, find a comfy easy chair and watch the proceedings from a safe distance. The unwashed masses are in for a very nice bath
Watching this with glee and a sense of vindication from a great distance (escaped to Albuquerque) and will really love to hear a lot of blood bath stories about the stupid. My one big example is a couple making about $30K getting an $850K loan in the Bay area on terms they were completely clueless on. Unfortunately, soon to be FBers (and they are nice people).
Nice but stupid…top of the bell curve in this country.
The best lessons in life are usually the hardest ones.
There is gonna be a whole lot of “learning” going on in the next couple of years.
WHAT. San Diego retired firefighters won’t be getting a $150K pension. I am shocked. They really earned that for all of that time spent watching TV and eating donuts while on the public dole.
I forsee a huge public pension crisis for the entire United States, as government workers typically receive enormous pension and health benefits, paid by plans that are often underfunded. Imagine the taxpayer revolt when their taxes go up to pay for pensions much greater than they could ever hope for themselves.
As a county employee I am one of those on the dole. I do agree however. I have always how in the world, if I stay 35 years and collect 100% pension, will the county be able to afford my salary, basically, and another. Then imagine, in those rare instances, of someone living to be 100. I know it is 60 years away, but the thought of me and my “replacement” both earning 100% pensions and the third guy getting paid, is truly mind boggling. Now multiply this by thousands, if not tens of thousands, country wide and the situation does not look good.
“I forsee a huge public pension crisis for the entire United States…”
I agree…the pension fund crisis will dwarf the savings and loan crisis.
Some of the best full compensation packages for a regular worker is working for the governement.
“WHAT. San Diego retired firefighters won’t be getting a $150K pension. I am shocked. They really earned that for all of that time spent watching TV and eating donuts while on the public dole.”
way to be an idiot on the day that 5 years ago hundreds of firefighters died.
> way to be an idiot on the day that 5 years ago hundreds of firefighters died.
They weren’t San Diego firefighters.
He didn’t say they were.
IL_NC_IN_CA,
He didn’t say that he said that they were. See how that is irrelevant?
And there weren’t hundreds of them either. And what about the others that died? Do I get a 150k pension because some IT guys died in the conflagration?
I bet they scarfed a donut or two…I know I have.
Seriously…using deaths to justify simply ANYTHING is becoming tiresome. Lets switch back to the “It’s for the children” justification for a while eh?
Today of all days, you have the nerve to question whether firefighters earn the money they get? That’s pretty low.
Yes, some days the alarm bells don’t ring and they eat doughnuts. Other days, they run into a building that looks like hell on earth and try to stop the flames. Sometimes, they die instead. And in many areas, they don’t even get paid enough to live in the cities that they put their lives on the line for.
Show a little respect for the people who have the guts to do a job like that.
Considering that’s much more than a retired Marine general makes, let alone an enlisted man, he has a valid point.
Um, Marines are in action for a few years, not their entire life.
Um, Marines are in action for a few years, not their entire life. I think that is a statistically invalid claim.
“Yes, some days the alarm bells don’t ring and they eat doughnuts. Other days, they run into a building that looks like hell on earth and try to stop the flames. Sometimes, they die instead. And in many areas, they don’t even get paid enough to live in the cities that they put their lives on the line for.”
Well put. I should think that the brazen folks pointing and yammering at fire and safety workers would cry like little girls if they had to run into a burning building hauling a 150lb+ hose. My Father died of emphysema from breathing in chemicals and other interesting particulates–as he was a fireman before good respirators. Couldn’t even enjoy his retirement–but he never whined. I’ll always admire him for that.
DOC
“They weren’t San Diego firefighters.”
you’re a moron.
> you’re a moron.
Thanks, but it still doesn’t mean that firefighters are worth $100K a year for eternity. I know lots of guys that are firefighters in Chicago. Heck, a buddy of mine carried a half dozen burned bodies out of a hotel fire back when he was a volunteer firefighter for the city. We drank a lot that night. Another buddy (one of three Irish brothers that are CFD) got a big award for carrying some passed out women down 15 flights of stairs in a hi-rise fire. Another one of them is now a Captain. All big strong guys with families in the prime of their lives.
But the thing is, these guys would be doing the job even without the great pay. It’s a rush, you get lots of time off, and you get to flash your badge around to get out of tickets and such. All in all a good gig.
But it ain’t worth 100K a year. I tell them to their faces, and they agree (in private).
For real life and death stuff, compare firefighters to the pay of enlisted soldiers in the Army. They take _real_ risks. Myself, way back when, I was a M-1 tanker and my heart goes out to the enlisted guys putting their butts on the line today.
But firefighter? Puh-leaze. It’s just a good gig.
Sincerely,
A Moron
So if your job is a big enough deal we throw out all cost/benefit analysis? Give me a break. Firefighters get high marks for bravery. Trying to intimidate the people who pay their salaries for questioning their pay mitigates their claim to bravery. San Diego firefighters are sickeningly overpaid.
So get rid of the Fire Department and see how well you do.
IL_NC_IN_CA,
That is a non squitur.
sequitur
How about doing what he suggested instead - pay them less, and see how well we do? Hint: We’ll do just fine. Especially if we give them less pension. Same as say, marines get.
Keep in mind that if we paid people according to the danger of their occupations, inner-city 7/11 clerks and taxi drivers would get paid far more than firefighters or cops. Firefighters’ jobs look intense, but if you look at the statistics, they’re not anywhere near the most risky occupations.
See http://www.forbes.com/2002/09/03/0903worksafe.html.
In Texas, being a fireman or policeman is a very safe profession. Far more construction workers are killed on the job.
The 10 most dangerous jobs
Occupation Fatalities per 100,000
Timber cutters 117.8
Fishers 71.1
Pilots and navigators 69.8
Structural metal workers 58.2
Drivers-sales workers 37.9
Roofers 37
Electrical power installers32.5
Farm occupations 28
Construction laborers 27.7
Truck drivers 25
Source: Bureau of Labor Statistics; survey of occupations with minimum 30 fatalities and 45,000 workers in 2002
Illegal Alien farm workers are at risk for very low pay. Drowning in a cattle waste lagoon, yuck. Pay verus risk is not a correlation, pay verus responsiblity is how it works.
All I know is that when firefighting jobs come available, there are often literally hundreds of people vying for the same job, any number of whom are more than adequately qualified. That alone suggests to me the compensation is higher than it needs to be.
True, a Newport Beach firefighter can’t afford to buy in Newport Beach. So what? Neither can a Newport Beach doctor, lawyer, Indian chief (well, maybe not him; that casino profit-sharing can be pretty nice), teacher, accountant, or anyone else making less than 250% the median Newport Beach income. All the buyers are either (a) pirates (mortgage brokers, Realtor/flippers) caught up in the bubble; (b) getting lots of help from Mom & Dad; or (c) in hock up to their eyeballs with toxic loans.
The firefighters and police should get their pensions. These people run into danger when the rest of us are running out. They deserve their pensions as far as I’m concerned. Its the life long admin, paperpusher, file clerks kind of people working for the government that have never been accountable for anything a day in their lives that I want to face a “pension crisis.”
The lack of efficiency and effectiveness in other government taking up space kind of jobs irks me to no end. Their mistakes cost us all plenty, and they are never even held to task for it…
at least firefighters and police have an internal accountability mechanism… the purpose of their job is to put themselves on the line for people they’ve never met and will likely never see again.
150k/yr PENSION??? - sign me up - I can use a hose!!!!
Maybe you CAN, but I doubt many here would have the courage to step up and DO IT when the shit’s on the line.
there is a huge waiting list of people wanting to be a firefighter. Same for community college firefighter programs. So to answer your question, many do have the courage to step up and DO IT. If fighter fighters were paid market value, it would be far below what they get paid now. But instead, they get paid emotional value.
I am willing to pay taxes for a danger premium on any government job that does have risks . I just don’t know how much that amount should be .
Most of us can’t appreciate exactly what firefighters do (much less police officers — the most dangerous, underpaid, underappreciated job, IMHO).
I know quite a few firefighters and used to think like many here (eat doughnuts and watch TV). They do rest from time to time, but earn every penny on fires. Try being on a brush fire for weeks on end (as many San Diego FFs are). Very dangerous and miserable job. Try pulling 100s of pounds of hose uphill in the blazing desert heat with that hot yellow uniform on — not to mention being mere feet away from flames which tower over you.
Anyone willing to step up, please do so.
BTW, as to the “waiting lists” of folks wanting to get on fire depts. I know there have been many openings in good departments which took months to fill, so not sure where you’re getting your info from.
As to the military personnel being underpaid — that is the understatement of the century. Those guys and gals deserve so much more, financially and otherwise, than what they get. God bless them all!
OT: I’d like to agree with you about paying military personel more, but I can’t.
Being ex-army infantry, I can say for a fact that the pay is miserable, but I wasn’t there for the pay… I enlisted for the chance to prove my mettle in a dangerous profession, to harden myself physically and mentally, and lastly, for the education benefits. Firing a 25mm autocannon from the turret of a Bradley or humping 100lbs of equipment up and down the hills of the Cali/Nevada desert was just a bonus.
Seriously though, the reality of our all-volunteer military (at least for now) is that it is populated by mostly high-school educated 18-21yo’s and 22yo officers w/ bachelor’s degrees and not much more. What economic value should we put on these kids who:
1. volunteered
2. have little/no experience in military tactics and strategy
3. are considered cannon fodder for the military- industrial complex which uses them to enforce political will. And they are cannon fodder, case in point:
Standard army doctrin in case of chemical attack where no chemical detectors are available… to discover the presence of chemicals, have the lowest ranking private remove gas mask and watch for signs of exposure (like twitching/convulsing). This was SOP at least as far back as 2002…
that might be true, but I earm 150k/yr and my pension will not even be 15k a year. How is THAT? It MUST be emotional something….
Maybe you CAN, but I doubt many here would have the courage to step up and DO IT when the shit’s on the line.
Uh, fire, violence, oxygen tanks, destruction, powerful hoses… what’s not to love? Salaries should be commensurate with what it takes to fill the position, not the degree to which city budgets can be bloated.
And with your time off you can buy , fix-up and flip RE.
A few observations from the field:
Know a Realtor who is getting listing, but worried that nothing is selling. (This is near Ventura Blvd in the San Fernando Valley). Realtor, top producer in the valley, is not clued into the housing bubble and is really surprised that things are so slow.
The Realtor has a client in Toulca Lake (Pricey area) area that has lowered the price on their flip by over 240K in two months (Original price 1.3 million). House has to sell by Sept. 23. I asked why the house “has to sell” and the Realtor did not know. Asked when the house was sold: 1 year ago. Speculated, that the flippers had a 1 year ARM that was going to reset. Realtor checked back and now thinks I am a mind reader for knowing that the client has a 1 year ARM! Seller very motivated to sell; monthly payment goes from $1,800/month to $6,500/month. Flippers are in their early 30s and have two houses and not great jobs.
Coworker of mine is trying to give his house back to the GM Financial. Lender is not working with him. Lender told him to stop making payment for 3 months and call back after his credit is wrecked and he has received notice of default. He is really mad and wines all the time about how the lender is stupid for not working with him. I have to laugh he treats his house like a bad dinner that you can just send back! He is about 30K upside down on the house that he paid $460K three years ago with 100K HELOC. Total owed $580K. Best offer $540K. I told him his best bet was to join the Marines (his is 26 year old) and call his lender from Iraq and said he will be busy for a few years. He and his other investor have another house as well.
Will try and keep you posted.
I love these people. They want no consequences. I’ll bet they wouldn’t have shared the “gain” with the lender though.
“They want no consequences.”
The bane of our society. Personal responsibility for actions taken was not noticed, discussed or emphasized, to my knowledge, after the dot-com bust. Hopefully it will be after this one. Maybe someday, the ethic of responsibility will find its way back into the teachings of government schools.
Personal accountability…seems to be a forgotten concept.
People just want to walk away after helping create a huge mess. Oh well, not my problem….ta ta.
I am glad the bankruptcy laws were tightened in late 2005. But it still remains to see how much “bite” they will have in actual practice.
My loser brother in law was in that situation. Did a short sale, the bank went along with it. Maybe your friend should look into that.
This might be off topic but your post raises questions. Do we all have at least one “loser” for a brother-in-law? I don’t think I’m unique.
>– Do we all have at least one “loser” for a brother-in-law?
Mine is not. He’s unfortunately in the auto industry, which isn’t great for his long term career prospects, but at least he has zero credit card debt and a fixed-rate sub-6% mortgage.
Yes - I can confirm that I am the designated loser brother-in-law in my wife’s family.
That was delicious. Keep ‘em coming.
Yes. These tidbits are like snacks I can’t get enough of!!!
Seller very motivated to sell; monthly payment goes from $1,800/month to $6,500/month. Flippers are in their early 30s and have two houses and not great jobs.
Can we say, “ONE FUCKED FLIPPER”. I hope the water is really red for them. That is the epitome of stupidity.
Huh? I thought you could live in a million dollar policy for about 1500 a month! Says that on all the signs all over Palm Beach.
Oh, its different here, I forgot.
On a serious note, how f’n stupid do you need to be. I wish people would go back to the conservative numbers. That’s why I am using to figure out how much home I can afford. 1% of purchase price = approx total monthly costs (includes everything, HOA, insurance, etc). Anyway, that’s 10K a month on a million dollar home. NOT 1,800 you moron!
As I’ve mentioned, my SF Valley realtor friend, continues to complain about slow sales and price reductions (albeit modest) in the SF Valley. But here in Santa Monica/Venice, there is no conception whatsoever of any downturn. I see a little more inventory than I used to, just driving around, but prices are still extremely high, as in 1.3M for a tiny 100 year old shack. Whether this area is “too good to fall” remains to be seen. My two cents.
Prices are high but they’re dropping. What you aren’t seeing is that the 1.3M 100-year-old shack was selling last year for 1.6M. Santa Monica and Venice will fall just as hard.
work has me in Santa Monica and I have to agree with LAInvestor girl… it seems tinkerbell lives here and sprinkles pixie dust out over the beach at night. I have seen all sorts of inventory, and flags and balloons and open house signs, but there is a willful obliviousness to the market changing here.
Don’t get me wrong I would love for it reality to grab hold of Santa Monica, but so far it seems to be clinging to a reality all its own. I LOVE my condo and would love to buy it… but it is so unreasonable of a price it is almost vomit inducing. Don’t even know how they figure that price being the rent I pay is half the mortgage payment… but go figure, people say the most ridiculous things about real estate here with straight faces.
LaInvestor Girl–
I have lived in Santa Monica (90402) most of my life, and I am constantly debating (with others and myself) what is going to happen here in the downturn. My take is that above $5 M, buyers are senior executives, partners at law firms, etc. and are not as leveraged. This true “upper end” may, and I repeat may, decouple from the overall market and remain strong as these buyers are truly wealthy and/or have jobs that will not be hurt in a recession. As many economists have pointed out, over the last decade the rich are getting richer, at an accelerating pace.
However, the $1-3 Million range seems quite vulnerable to me. If young two-income professional couples (making say, $350 K combined) have bought houses at 10X their gross income with risky mortgages, then this market is vulnerable.
I recall reading an article in the LA Times about the super-desirable “flats” north of Montana: the article stated that in 1990, the median home price in the flats was $1,000,000. In 1996 it had fallen to $650,000. In 2005 it had increased to $2,400,000.
If homes in the flats of SM could fall 35% last time, it seems they could fall again, given that they have increased four-fold since then.
I’d love to hear your thoughts
That is exactly what has happened in the major East Coast cities in Australia, and especially in Sydney.
Median prices falling, while new record prices are recorded almost every week in the truely exclusive areas.
Hard to say. It seems like everyone wants to live here. FOr example, at my husband’s law firm, young associates who join the firm immediately look for a place in SM. But, as you said, it did fall before and it can happen again. I think even the wealthy are averse to losing money, so if they see prices actually going down, they’ll sit on the sidelines a little longer to see if they can get a better deal. That’s how declines start.
I can’t believe I just read this….
“the smart investor buys during the bubble” unreal…
http://reno.craigslist.org/rfs/205893544.html
That “investment” is priced $150K+ less than here in Va Beach VA. And the average annual wage in VA compares to the Mis Delta. Even though 20% of the population is making decent/good salaries not many have the ability to do a 15/30 fixed with 20% down. Up until about March 06 it did not not seem to make any difference what SFR were priced at. Does now though. New construction is at an absolute standstill with anything priced at $400K sitting, sitting, sitting…..
All these valley stories and none from bubble city - What is my local newpaper afraid of:
http://bakersfieldbubble.blogspot.com
They’re off in their happy place and are too busy trying to fluff up the idea of affordability to be bothered with inconsequential stuff like price drops and record inventory.
http://www.bakersfield.com/137/story/68679.html
Manufactured Homes Make an Affordable Option
Some quotes -
‘Howdy Miller, who tracks building permits for a local title company, said he started noticing an uptick in manufactured houses being placed locally late last year.
Of 550 building permits issued in June, 30 were for manufactured homes that were 1,650 square feet or larger, according to a study by Miller.
“It’s all about affordability,” he said.
Bakersfield’s median home price is hovering near $300,000, while a manufactured home may cost half that, Miller said.
‘Local company Rimer Homes does much of its business in outlying Kern communities like Tehachapi, Rosamond and Twin Oaks, said general manager David Donahue.
Despite the appeal of affordability, however, Donahue said business is slowing along with the real estate market.
“This is the first time I’ve ever had to think of marketing,” he said.’
“the smart investor buys during the bubble” unreal…
http://reno.craigslist.org/rfs/205893544.html
If I were to guess, that gem is overvalued by about 200K
35K under comps!! And 1K negative cash flow a month!!
Looks like someone needs a tutorial on what constitutes an investment.
and the smart Reno investor lives in or around Las Vegas, hence the 702 area code phone number. easy property to manage from 400 miles (or so) away. What an idiot.
I’m not surprised that the lender doesn’t want to short sale this guy .
It’s probable that he has other assets and they want him to bring money to the table . Usually a lender reserves short sales for people who have lost their job and have no other assets . To bail out a flipper on one house who has other houses with equity and assets is not the usual intent of a short sale with banks .
Greater SD zip has 200+ 4br homes listed since 9/6/06, and 200+ 4br homes priced under $450K. Methinks the 4br market is tanking.
I read a motorcycle forum every so often in the bay area, you guys should check this thread out….pretty funny!
http://www.southbayriders.com/forums/showthread.php?t=32346
LOL. It’s different here!
Glad to see other bears taking up the fight against blind faith purchases of homes.
Involved but interesting
http://www.itulip.com/forums/showthread.php?t=417
Yessirree, Dallas is the place to invest!
http://dallas.craigslist.org/rfs/206029648.html
(FB in D.C.)
http://dallas.craigslist.org/rfs/205989537.html
(FB in Riverside CA)
Dunno where this loser is
http://dallas.craigslist.org/rfs/205813080.html
My brother used to live on Rifleman Trail!!
The third listing for the house on rifleman trail is interesting in that they also include a few sentences in spanish. Translated, it reads like this:
“We sell and finance our own houses. We are not a bank. Papers or good credit are not required.”
Also, these sellers may not be FBs. They could also be scamsters who illicitly got the deed holder to sign the deed over to them, or they could have forged a new deed.
Really good article from The Economist last June predicting all of this:
http://www.economist.com/finance/displayStory.cfm?story_id=4079027
PS: Note the chart near the bottom of the article comparing the US housing market climb with Japan’s over the same amount of time. Check out where the US currently is compared to Japan’s peak.
I think it is a great article, but the graph is misleading. It is a pretty arbitrary point to start the “index” given the economies move in different cycles.
Real estate in Japan was expensive for a long time, and still is in comparison to most places due to the population, size of the economy and the fact that the Tokyo Metropolitan Area is the largest in the world.
Regards,
Loafer
Interestingly enough, it seems to me that the Economist is less bearish about homes lately. They think we have a chance of coming out of this safely and totally ignore the toxic loan situation.
What makes you say that? Just last month they had another article about the bursting US bubble.
I’ve heard that local (SD) cities are truly spending like their current tax revenues will continue forever. Many very expensive projects in the works, so I just e-mailed our local mayor and city council members with a note about the credit bubble and how they ought to refrain from moving forward with any capital projects or wage increases until they fully understand the credit/housing bubble and its effects on their revenue. Linked this blog and a few others.
Anyone else do the same? Shouldn’t we all, if we really care about our cities and the potential effects of this bubble bursting?
They already know, it is a big open secret that no one dares naming explicitly.
I think in Cali they just sell Bonds to pay for Government salaries, retirment etc. Screw the kids we want the money now. Going to have to open the immigrant floods gates to pay this off.
So, how much are the Giants willing to take for Bonds to the government? How is he going to help them pay for Arnold and Co. salaries, or the fools running San Diego (can be replaced by any other CA city)?
Arnold doesn’t draw a salary.