‘It’s Common To See Price Reduced Signs’ In California
Some housing bubble reports from California. The LA Daily News, “At this point in the San Fernando Valley’s real estate downturn, the market is rolling elevens. Sales of previously owned, single-family homes have fallen from their year-ago level for 11 consecutive months. This down-market started in October 2005 with sales under that month’s number ever since. Sales will probably be under the 1,000 level every month this year, the first time that’s happened in, yep, 11 years.”
“Potential buyers, knowing that sales are weak, are hammering away at price reductions. ‘They (buyers) won’t get back in until numbers are considered reasonable,’ said Jim Link, executive VP of the Southland Regional Association of Realtors..”
“It’s common now to drive around the Valley and see ‘price reduced’ signs on lots of for-sale signs, so buyer reticence is exerting downward pressure.”
“New home sales are down and Lancaster and Palmdale are issuing home-building permits at a slower rate, leading some officials to say that the Antelope Valley is experiencing a real-estate slowdown. Lancaster issued 63 permits in July and 94 in August, officials said.”
“Between January and July, 1,447 new homes were sold, down 46 percent from the 2,687 sold in the same period in 2005. Home builders sold 4,195 new homes in the Antelope Valley last year.”
“By comparison, when the 1980s boom peaked in 1989, about 4,900 homes were sold, a number that plummeted to 2,700 the following year. The drop signaled the start of a deep housing slump that lasted through the decade and during which home prices fell 50 percent.”
“Antelope Valley Union High School District officials are forecasting that its collection of developer fees will drop by almost half from $18 million to $10 million this school year because of a slowdown in Antelope Valley home building.”
“‘Developers come in here and pull permits. We talk to them and find out how the housing market is going,’ said Mat Havens, director of facilities, acquisition and development. ‘From what you read, houses are not selling as much. You can see that the building market and housing development is going to slow down. It’s happening already.’”
The Bakersfield Californian. “The housing market’s slowdown, and the resulting loss in jobs, could mean a painful adjustment is in store for Kern County’s economy, experts say. The construction industry has led the way in job creation over the past five years, said Cal State Bakersfield economics professor Abbas Grammy.”
“‘If you see layoffs in construction, all other industries could be affected,’ Grammy said.”
“Bakersfield home prices seem to be holding steady for now, though a correction is inevitable, said local appraiser Gary Crabtree. In the last four months, local home values have declined for three months and appreciated for one, Crabtree said.”
“If prices remain flat and interest rates go up again, some homeowners could find themselves in trouble, Crabtree said. Some 530 Kern households entered a stage of foreclosure in the first three months of 2006, a 15 percent jump from the same time last year.”
“The thousands of homebuyers who took out adjustable-rate mortgages had better be prepared to pay higher monthly payments when teaser rates end, Crabtree said. People will have to start making some hard choices about how they live their lives, he said. ‘The last time I checked, the dollar only goes so far.’”
“The Bakersfield market ground to a halt last fall. And house sales didn’t pick up as much as many had hoped in the spring. That’s when the layoffs started.”
“At its peak, Stewart Title had around 70 employees. Now, it has closer to 50. ‘It’s almost like it slowed down so fast, you just didn’t have a chance,’ MaryAnn Froehlich said.”
“Sales have been dragging for both national builders and local ones like Barbara Smith, whose custom and semicustom homes typically sell for $600,000 or more. Anything priced above $400,000. has been really, really slow to sell, Smith said.”
“An estimated 150 or more people have already dropped out of the Bakersfield Association of Realtors. Some agents are definitely struggling out there, said Scott Tobias, general manager at Watson Realty.”
The Tri Valley Herald. “There may not be a housing bubble ready to burst, but the real estate market sure appears to be venting steam in both the new home sales and resales. Home builders are offering buyers $100,000 in incentives to buy into their new subdivisions.”
“Larry Rumbeck, president of the Central Valley Association of Realtors, said the market has slowed down and it’s taking time for the median home prices to go down. He said the combination of a spike in gas prices, the disaster in Louisiana last year and the glut of houses on the market has scared investors.”
“So far this year, 799 previously owned homes have sold in the French Camp, Manteca and Lathrop area, according to numbers provided by the association. At the same time last year, 1,357 homes had sold, a drop-off of more than 41 percent.”
“In Tracy, Banta and Mountain House, the number of homes sold dropped more than 39 percent, from 2,097 last year to only 1,272 this year.”
“With older homes in establishedneighborhoods sitting on the market for upwards of a year, new home builders are getting creative. Pulte Homes, with subdivisions in Brentwood, Oakley, Mountain House and Tracy, is offering $99,000 in incentives, from a free pool to no payments for six months to free upgrades, to entice buyers. They’re even offering each home buyer a vacation for two with a destination of choice for closing before Christmas this year.”
“Ryland Homes is offering 40 percent off mortgage payments for the first year (to commemorate it’s 40th anniversary), while another developer had been offering a free Mercedes-Benz with the purchase of a home.”
“Ryland Homes is offering 40 percent off mortgage payments for the first year (to commemorate it’s 40th anniversary).”
Even if it was Ryland’s 100th anniversary this would not be a compelling deal.
RYLAND homes will probably be a stong BUY on CNBC and Crammer telling the sheep it’s a great buying opportunity for all the homebuilders. If there a dollar left on the table for Wall Street to rip off , they will be all over it with their payaloa to the talking heads. It’s time the Attorney Generals from all the states start traking the graft thats make up the current industry.
Letting the big fish, Quattrone, off the hook was like waving a red cape in front of a bull for the likes of slimy market analysts…
attorneys general.
Sorry.
“Ryland Homes is offering 40 percent off mortgage payments for the first year (to commemorate it’s 40th anniversary), while another developer had been offering a free Mercedes-Benz with the purchase of a home.”
These so called sweetners smell of desperation.
The only way to deal with this situation is to offer 40% off asking price and leave your contact phone number should they wish to call.
They need your money more than you need their house.
Next…………
And what are you going to do if they accept? Even 40% might be too much at some point.
“If prices remain flat and interest rates go up again, some homeowners could find themselves in trouble, Crabtree said.”
No, sorry, you’re wrong Mr. Crabtree. I don’t know you, so I won’t attack your character, but your opinion is a little out of whack. The only way to keep this Ponzi scheme going is by price appreciation. Therefore, if prices stay flat and interest rates stay flat (or even go down), many, not some, homeowners will be up to their eyeballs in deep sh-t.
- “There may not be a housing bubble ready to burst, …..
but Home builders are offering buyers $100,000 in incentives to buy into their new subdivisions.”
Ok, I interupt this as;
No housing bubble ready to burst = $100k incentives???? WTF!
Tell me does many and sh-tload mean the same thing. Because if not you and Mr. Crabtree are understating it. I’m starting to get calls from some very stressed out folks.
Anecdotes, please
I’ll bet if the active market participants like mrincomestream and nnvmtgbrkr got together with SoCalMtgGuy on a shared blog, the rest of us would be glued to our monitors 24×7 basking in the schadenfreude. As if this blog were not already sufficiently addictive.
For myself, I’ve locked in my positions for the next few years to watch this play out. All I can contribute now is some color. See you at the bottom
Alright then, here’s something I’ve seen on a regular basis, but I’ll use the example of a friend of mine:
The other day i go up to my friends kid and ask him how the new house was (they bought a year ago against my advice. I think it was due to my negative outlook on housing they chose to use another broker) The kids reply was “I hate it, it sucks!” Now why would this kid react this way? Because a childs mind sees things for what they are. The fact is some many first time home buyers had to reduce their standard of living to become homeowners. Before, they rented a very nice 4 bed, 2.5 bath, 3-car garage in a great neighborhood for 1500 bucks. Now. a 3 bed, 2 bath(sort of), 1 car garage POS built in 1971 and never maintained. Oh, and the neighborhood is a drug lord’s paradise. Their payment I/O-TI? $2,400! Now the dad knows and knew the place was a POS when he bought it, but he was willing to sacrifice standard of living on pure speculation. His thing was to give it 12 months, sell it, and then start climbing the property ladder to the American dream. How’s he doing? Bought the place for 410K last summer. He might be able to move it, and I really mean maybe, for 350K today. So now he’s upside down in a place he and his kids hate. He asked me the other day if it’ll all be a bad dream and 2007 will turn the equity spigot back on. I didn’t have the have the fortitude at the time to tell him that these cycles take about 10 years to play out and told him instead “Let’s hope so.”
Like I said, even in my relatively small neck of the woods, these are not an isolated cases. I’ve seen it over and over again.
“He asked me the other day if it’ll all be a bad dream and 2007 will turn the equity spigot back” What he really was asking you is “will you loan me money to make my payments thru 2007?”. Better think about making this your ex-friend unless your willing to support him.
hey mri… back in feb, on the AFB forum (remember them?) You replied to a question I asked thusly…
“Patience, the westside is going to be hit hard. there are just too many signs popping up. When people can’t refinace out and get a payment they can afford they are goingto start dropping those properties like hotcakes. By this summer your going to see a dramatic change in the market.”
Well… the market sure is different
, but prices (with some exceptions of course..) are still stupid. When do you think prices here will start to reflect reality, if at all?
Reality is probably about 6 months out. When the coming spring season fizzles and those foreclosures have stacked and started applying pressure. There will be a whole new attitude on the Westside. The fat lady is just now warming her throat.
Flat rates and still in trouble. Why?
People may be unhappy that they aren’t getting rich but if their payments are not increasing, and the house has kept its value then what is the problem?
The areas Tracy, Lathrop and Mantec, are commuter cities for the Bay Area. Folks are commuting long distances and face high gas prices with little alternative infrastructure.
More expensive places like MountainView, CA, with light rail, and home for Google, Microsoft, Yahoo, campuses (and etc) are seeing no weaking in home prices.
Because the only hope for people who can barely make a non-amortizing payment is to refi or sell out later at a higher value. If they can’t, the day comes when the payment resets, and then they’re toast. And there are many, many such folks, even though they represent a small percentage “homeowners”.
Yep. I bet we see a return of the “subject to” sales where
people deeded over the home in escrow and the new buyers just kept paying the payments under the previous owners name. I saw a lot of that in the downturn of 80-83.
What if the new owners stopped paying, or fell behind? Wouldn’t the lender go after the original owner (the one whose name is still on the loan docs)?
“Flat rates and still in trouble. Why?”
There’s no short answer for that one. Just keep reading this blog, and maybe do some research on Ponzi schemes and look for the parallel. This house of cards is built on and complete reliant upon price appreciation. Oh, the area you describe already has depreciation in place, but don’t look for it to become apparent for another month or two…..and get ready for a hell of a ride in ‘07.
…maybe do some research on Ponzi schemes and look for the parallel…
if it walks like a duck and talks like a duck…
grammy (gov parasite) will keep his job
especially w those brave insights
any foreclosure comparisons to 1990 -95 ?
Pulte Homes, with subdivisions in Brentwood, Oakley, Mountain House and Tracy, is offering $99,000 in incentives.
Holy wow. $100,000 in incentives mean recent buyers lost $100,00i in value on similar houses. That has got to really hurt.
Not only that but the buyers are paying taxes and insurance on an artificially higher valuation - 100 g’s - who would want to do this deal?
The number of people who’ve never seen $10,000 in their lives who have just lost a quick $100,000 is mind-boggling. How many people in the dotcom speculation were in such a similar upside-down situation? Very few. True, I know people who lost most of their savings or retirement, but it was almost always money they HAD, and most had pretty OK jobs.
But think of all the intellectually-challenged FBs who are just now - this weekend, perhaps, or even over dinner as we’re reading this blog - suddenly waking up to the idea (no, fact) that all their pie-in-the-sky plans are over, that they are now indentured servants to their mortgages and their only choices are bankruptcy, life-long slavery, or crime?
The velocity of their loss of 100 g’s is going to sober up alot of people when they get their water from the water coolers at work. They are not going to be talking much. This loss of valuation happened so fast, soon the people who are buying now are going to have a 100 g loss and the people who bought a year ago are going to have a 200 g loss.
I would hate to be the one caught in this mouse trap. It is so sad…
Obvious choice is foreclosure or bkt, whichever one gives them minimal residual pain. The $100-200k loss is going to be eaten by others.
Does anyone feel sorry for the person that is going to make 200K instead of 400K ? I don’t .Alot of seller are acting like they lost money when they didn’t . Its the nice family with the kids that were buying a house to live in last year and suddenly the guy get’s laid off . This family has to sell in a bad market and they already put all their savings down to buy the overpriced POS.This family wasn’t flipping or anything, but they did have some fears that they could be priced out forever and never get a home for the family . To me a family like that might deserve a break of a short sale verses the flipper who had one of the house investments go bad .
What about job loss, divorce or illness, say a child with cancer?
How may people here have 6 months cash set aside for an emergency? Not in an IRA or 401K. 6 months of cash in a easy to access account — like all the experts advise?
What fraction of us are capable of paying for a major illness and also keep our home? Not me and I’m fully insured with a “top-drawer” employer and plan.
You know when I was in the lending business (many years ago ,Im retired ),we always made a point of giving a underwriting break to a family that had a medical emergency that might of messed up some of their bill paying in the past .The underwriters back in those days knew the difference between a flake and a good excuse .
Also the underwriters wanted to see some reserves in the bank if they were going to put someone into a property .
These days I think lenders would of put a ape on a loan if they could of got a social security number on the ape.
I’m afraid the good will go down with the bad this time. The avalanche will make it impossible to give breaks to folks with good reasons for financial problems, such as medical emergencies. This is a good time to check your insurance policies and consider purchasing extras such as cancer riders and long-term disability.
Good advice sm landlord
I would hazard a guess that way less than 10% have 6+ mos of expenses CASH - set aside. Probably less than 5%
I could never loose a house (for whatever reason) because I have always rented. I never liked the idea of having the “mortgage albatross” hovering over my head, nor the idea of paying more than 6% every time these albatrosses changed their flying shifts.
I paid off a car loan last year on an accelerated payment schedule and let me tell you just getting rid of a $15K debt and paying two and sometimes three payments a month was hard work. I cannot even begin to imagine the pain of being in close to a million dollars. When I was little dad was stationed in Hong Kong, and I can remember a gut took a small boat out into the harbor, weighted himself and jumped into the ocean. I asked why he would do this and was told he was a million HK dollars in debt ( probably to the triad ) Debt is bad unless for the right reasons.
“How many people in the dotcom speculation were in such a similar upside-down situation? Very few.”
Bingo!!! Many dot com investors lost a substantial share of their life’s *savings*. Now the crowd who thought that real estate was a much better (safer?) investment than stocks gets to learn that when you gamble with other people’s money on an asset whose value is many times your annual income, then the magic of leverage can quickly translate a moderate percentage loss in the asset’s value into a negative net worth position.
Most people understand that high margin borrowing in the stock market is highly leveraged and very risky, but these same people do not feel the same way about borrowing 100’s of g’s for a house.
This disconnect people have between these two different asset classes has always boggled my mind.
PULTE Homes (PHM) must be a strong BUY from the brokerage houses on this sort of discounting.
LOL
Just spoke with my sister. They relisted the townhouse after firing old agent for being lazy and obnoxious. The new Realtor was very gung-ho and left the price at where it was ~$740K saying she could sell it very quickly. The agent brought in a professional photographer to document the features and put together a brochure you could download from the MLS listings. Strategy is open house both days every weekend until it sells. Yesterday was 1st open house. Agent was flabbergasted that only three couples came through, asked “Is there something going on this weekend ?”. For me the problem is obvious, no one with San Jose median income ($70K) can afford to buy anything now and everything is priced like we are all Google Millionares.
99% of the agents are idiots. Lower the price and use a MLS direct listing.
Duplex on my street (95118; south San Jose) put on the market and listed at $865K in February. (Keep in mind this place only brings in $2400 a month in rental income… not much of an “investment property.”) In July the price was reduced to $815K. It’s now mid-September and it still hasn’t sold. I haven’t seen ANY property sit for 7 months since I moved here in 1999. Be patient, my Bay Area friends. The next few years are only going to get more interesting.
More 95118 anecdotes:
Last year at this time there were 76 properties on the market according to realtor.com.
This year there are 121.
I don’t know where that townhouse for $740K is in San Jose (maybe up on the north side where they built a bazillion condos in ‘01-’02?) but that wouldn’t fly down here. The highest-priced condo I see on realtor.com in 95118 is $639K. You can buy a decent SFH here for $740K. Of course, I am not buying until prices become more reasonable.
Which two are total bs:
He said the combination of a spike in gas prices, the disaster in Louisiana last year and the glut of houses on the market
Yeah that guy is an idiot. WTF does Katrina have to do with anything this year with regard to RE in the central CA valley? Just another clown talking out his ass…
“By comparison, when the 1980s boom peaked in 1989, about 4,900 homes were sold, a number that plummeted to 2,700 the following year. The drop signaled the start of a deep housing slump that lasted through the decade and during which home prices fell 50 percent.”
A 50% drop in prices back then, and that was without all of this crazy lending that allows a manager at Taco Bell to have more than 10 properties with over $3 million in loans. But at least his properties are spread out all over the NA continent, and it is different in all those other markets.
It is going to be very interesting…
Happy Renter posts ” manager at Taco Bell to have more than 10 properties with over $3 million in loans.”
Tell me you are kidding? If this is so the lenders should be made to keep all of the loans they OKed. Then ride this puppy out with the RE Pro/ Taco Bell guy.
It’s okay - according to him. He used “other people’s money” to buy the houses, so it’s as if he has no risk. The houses are “diversified” in different markets (to include ground zero - Florida), so he doesn’t need to worry.
Oh, he’s no longer a taco bell manager - they fired him.
- a taco bell manager
As you can clearly see, being a Taco Bell manager can be a great career step. Don’t they have ‘Taco Tuesdays?’
nah, that’s Del Taco!
Okay, your stretching a little.
During the last CA downturn the UT market took off. Also, the last run up we had like the current run up was in the 40s, and guess what there was no correction. It went sideways for many years before increasing again. I am not saying price will continue to increasde (I beleive they won’t) but you do not know that they will decrease 50%, no one knows what will happen.
Oh man, you’re comparing this bubble to the post-war boom? From 1929 to 1945 almost no housing was built in the US. Couple of problems called the Great Depression and WW2. Then after the war you had the greatest increase in purchasing power in US history and a generation of pent-up demand. Of course RE prices went up and stayed up.
Talk about clutching at straws.
Sorry if this is a repost, but it looks like KB Homes may be in a bit of trouble with HUD for their underwriting activities. Taxpayers could be left holding the bag.
How can this stock continue to increase?
KB Homes, another strong BUY, from the Wall Street gang. Would somebody call Crammer on CNBC and ask him how any stock can be recommended when all the news and all the financial reports suck, and therefor the stock is a buying opportunity?
The NY Attorney General should be all over this.
Could all of the ’shorts’ be covering? It’s pretty common for a stock to spike when the fundamentals and technicals are weak and the stock is slow to drop. The weak hands and day traders will have to exit prematurely when the stock won’t drop.
the san fernando valley is going to fall fast and hard,when a 1650 sq ft home in north hollywood costs 650k,who can perdict where the bottom will be 300k is fair…..for these pleasant homes on nice streets,but when u leave your driveway thats when the action begins,u realize youre in the san fernando valley,a true shit hole at 650k noose….
Posted BY Sold the san fernando valley is going to fall fast and hard,when a 1650 sq ft home in north hollywood costs 650k,who can perdict where the bottom will be 300k is fair…..for these pleasant homes on nice streets,but when u leave your driveway thats when the action begins,u realize youre in the san fernando valley,a true shit hole at 650k noose….
Not to mention the 900 sq foot boxes bulit during and after the war. A bulldozer would be needed to “fix” No Ho Pure dump.
I still receive emails from a realtor in the SF Valley, and 2,000 SF in a remodelled 1950s ranch home is easily 1 million dollars now, in the Valley Village area (which is basically a slightly gentrified part of N. Hollywood). This slide has a long, long way to go.
I still receive emails from a realtor in the SF Valley, and 2,000 SF in a remodelled 1950s ranch home is easily 1 million dollars now, in the Valley Village area (which is basically a slightly gentrified part of N. Hollywood). This slide has a long, long way to go.
“Bakersfield home prices seem to be holding steady for now, though a correction is inevitable, said local appraiser Gary Crabtree. In the last four months, local home values have declined for three months and appreciated for one, Crabtree said.”
Finally, something that makes perfect sense.
Wait a minute!………..
Went for a drive in the country today 40 miles north of Fresno. Suddenly there is a lot of land for sale. From 2 to 2000 acre parcels.
Hmm…Thank for the post. You must be talking about Coarsegold or Raymond. Prices were relatively cheap (on land) in the Oakhurst / Bass Lake / North Fork area until (Bam!) 2004. That’s when I noticed something out of kilter. I’m interested in land prices there. My father first rode horseback there at age 16 in 1937 and was a land developer in the 1960s. My family has strong connections and great memories of living in the Oakhurst area in the 1950s and 1960s. I’m hoping for RE prices to fall and oil to get to $150 per barrel (yes folks, oil is a FINITE resource, no matter how much you deny it).
Bill, and now with the casino up there you can get the buffet,and catch a show. My friend just sold his place in Northfork ,cashed out ,and renting until the dust settles…
What few people seem to be asking is what on earth compelled people to think that $50K boxes of cheap pine, plywood and stucco, in a hot, dusty, dry region, that is slowly turing into the third world, should ever be worth $400K+.
Most people, even those with high incoms, $100K+ a year, used to think of $100K as a great deal of money. Even if you earned 100K, you would be lucky to keep $70K after taxes, once you took out living expenses, you would be lucky to have 20-30K, even if you scrimped and saved. So it would take 5 or more years, for a $100K+ income family to save 100K, yet when prices were going up, people overbid and overbid, not noticing that prices went up by $300, $400, and even $500K in just a few short years. Using that formula, it would take a LIFETIME of savings to catch up to the increase in cost. Throw on interest for borrowing and it would be a debt that you would never realistically pay off, a landless serf, for all your life. What a change in just less than 5 years.
Tack on Globalization, the comming global deflation, and we may not see home prices see a gain for 20 or more years. I say prices may be equal to today, in real terms not nominal, by the year 2025-2030.
$100,000 did used to be a lot of money. Not any more. Even at apparantly low inflation rates, people seem to forget that the “magic of compounding” applies to inflation as well as interest. It won’t be that much longer before $100,000 is the median income if we don’t have deflation or an outright revaluation of the dollar.
I think prices will be lower in real terms 20 years from now. In fact, much lower.
OCMetro, I often wonder why more people don’t comment on the essential value of a house based on it’s components. After all it’s just a box of wood and pipe and concrete and wire and so forth. People act as if a house is a mystical place that can somehow be “worth” vast sums for no good reason.
But if you can go down the road, buy an empty lot, buy the wood and wire and other materials, hire the labor and build the same house for $100,000 how can you claim it’s “worth” $400,000? Only in areas of high demand and limited space like Manhatten or downtown SF can a box of wood be valued so much higher than it’s basic cost of construction.
Another good point you made concerns globilization. It’s not slowing down. Our corporate masters continue to export manufacturing. Soon the only middle class jobs in this country will be in health care and government. Ford is dismantling itself to please Wall Street and Daimler-Chrysler is looking for a partner in China to build small cars because “it can’t be done cheap enough in North America”.
I see no positive end to the trends that are in motion. Maybe a decade of declining values will have the people ready for a new revolution. Maybe a newly impoverished former-middle class will figure out that American businesses need to serve the need of the american people not those of a global financial elite.
Great post Binko.
When this scenario plays itself out completely then by the end of the NEXT decade Ford’s, GM’s, and Chrysler’s production footprint in North America is going to be a small fraction of what it is now. You are right that the only middle class left is going to be in Gov’t and services. The very little manufacturing jobs that will be left will not be wanted by Americans.
I can see this happening in my local area. The major manufacturing plants around here are not places where most people would want to work unless, of course, you are an illegal. The english only speaking locals tell me about this one plant that when you go to the bathroom you roll your pants down - they are so wet with sweat. Ten bux an hour and you roll your pants down. RE_ONLY_GOES_UP I respectfully ask to you this question: How is a working couple with total household earnings of $40k or $50k a year expected to run up the prices of these homes to 1/2 million?
There is a plant that manufactures the cheap particle board furniture that is being sold by the big box retailers. The owner likes to parade around town in his collection of fancy sports cars. This owner also has a penchant for hiring illegals from Central America. ALL of his factory grunt labor is from Central America. I KNOW this for a fact because I speak spanish and I talk with these people. Some of these people are missing bits and pieces of their fingers.
Wake up America and start sobering up.
Without a large increasing middle class with increasing income then who is going to bid up the price of houses? The specuvestors can not be expected to do this year after year after year since this would be nothing more than an unsustainable Ponzi scheme (as we are now witnessing.) In other words, RE as an investment equity class for the masses will be no more.
BTW, where is Gary “in the bag” Watts. After he assured us that 15% was “in the bag” for Orange county, he later adjusted saying that “soft landing…OC isn’t even in the approach pattern…if we get a good tailwind, we’ll be up by 12-15% by the end of the year”. He said this in late July I believe.
Doesn’t “in the bag” usually mean someone is completely drunk? Maybe we should check the local for G. Watts.
“Pulte Homes, with subdivisions in Brentwood, Oakley, Mountain House and Tracy, is offering $99,000 in incentives”
One of the builders in San Fernando Valley, CA (in the Porter Ranch megopolis) is offering $50,000 in upgrade credit, and $100,000 in landscaping credit (they will cut a check for whomever you have do your landscaping). The houses ar listed for $1.5M-$1.9M, so that’s only about a 8% discount…but it’s something.
in west sonoma county i am seeing ads “$200k under appraisal” and “no payments for a year on your new home” the latter from standard pacific.huge variations in pricing for very similar homes.oh,and no buyers,not even lookylous at open houses.
tom stone I wonder how a FB who purchased a year ago at or over appraisal must be feeling right now. These fancy million dollar plus homes must feel more like mouse traps to these FB’s by now.
“Potential buyers, knowing that sales are weak, are hammering away at price reductions. ‘They (buyers) won’t get back in until numbers are considered reasonable,’ said Jim Link, executive VP of the Southland Regional Association of Realtors..”
It seems strange to characterize risk averse buyers with a case of cold feet as “hammering” away at price reductions. A more accurate description would be to say that builders are hammering away at prices with massive price reductions disguised as incentives, while many prospective buyers have decided to wait out the crash, rather than catch themselves falling knives.
I have an idea - how about offering some houses that cost less than 600k? I don’t care if you throw in a free pool and a free butler, I still can’t afford a 600k house.
Just cross your fingers and hope that the builders keep building for a while longer. Massive oversupply will get you your price correction eventually - in fact it should speed up the overall correction quite nicely, thank you
Also, once builders can no longer sell McMansions for a profit look for them to get religion about “affordable housing”. They should be able to build and sell a bunch of 1000sqft craftsman’s for 150K a pop. Even in Cali.
No finger-crossing needed. Massive oversupply is here.
(1) Six million new houses built for the last 3 million new households formed - this is already on the market.
(2) Large pipeline of construction continuing to come on market for at least the next 6 months.
(3) Household formation slowing - more sharing of residences, later marriage trend continuing, immigration likely to slow.
And finally, credit contraction is coming. Once this gets well-set in motion, it is not easy to turn around, even with aggressive monetary and fiscal policy - the proverbial “pushing on a string.”
Take a look around - this is it, or rather that was it - the highest real house prices any baby-boomer will ever see in his or her lifetime.
Paul — Your comments offer hope to us priced-out renters that someday we will be able to afford to become homeowners. I don’t believe this was the kind of affordable housing program Fannie and Freddie had in mind, but I am glad that Adam Smith’s invisible hand is helping to indirectly provide what these government programs were unable to provide directly.
Yeah, the “invisible hand” is starting to look like the “fickle finger of fate” if you remember Rowen and Martin’s Laugh-In.
For GenX-ers, it’s most similar to the Land Shark of SNL fame.
GenY and GenZ will have to come up with their own equivalents. No doubt they will develop something equally humorous, if they have not already.
I’m sure that Joseph Campbell has a classification for this elemental force in storytelling, but I find it humorous that Adam Smith incorporated it into his philosophy, because that’s what it is: storytelling through metaphor. Adam Smith’s Invisible Hand is just a metaphor for the forces of rationality whacking you up-side the head, to abuse another cultural description.
Anyone want to wager that we get a whole new metaphor out of the coming collapse? Spanking is already taken, sorry.
“Anyone want to wager that we get a whole new metaphor out of the coming collapse? Spanking is already taken, sorry. ”
Auger, do you have something that you’d like to share with the rest of the class?
sm_landlord,
Joe Campbell would take exception to you adding “rational” to his invisible hand.
Yep , its moving into a dead market . No matter what concessions anybody offers it isn’t going to be good enough for a buyer who thinks they might overpay in a falling market . At this point buyers are thinking real estate always goes down .
I don’t think this NAR prediction of a uptick for 2007 after a 2-4 month correction convinced very many buyers .I do think alot of sellers have started to rent their properties waiting for the 2007 real estate comeback.
Bakersfield ever getting to these prices in the first place should have alerted the average home buyer that this is an unsustainable RE market. California is nuts, now more than ever (if that’s possible). A dump in North Hollywood for $650,000, which is mostly neighborhoods that you wouldn’t take your children for a walk in, should have alerted CA homebuyers. A bigger dump in Compton for $400,000 should have alerted CA homebuyers, that things are nuttier than a fruitcake here.
We’re still working on our move out of the state. Counting the days….
This is getting surreal. Prices in the third-world pockets of SCentral LA as well as such Garden spots as Compton, Sgate,Huntington park, lynwood, wilmington,Bell Gardens and Cudahy are averaging close to $400,000. Someone is buying into these areas and paying top dollar for units in basically slum Barrios, and it is not middle class hi-end white collar folks.
Some dumb schmuck(s) just paid $410,000 for a 700 sq ft 2 bd/1bt on 2500 lot with no garage. This is in a subprime area of Long Beach. Date of purchase:july 7, 2006.
Too many idiot’s in the innor LA burgs being taken to the cleaners.
I can’t comprehend, how these people can go home at night, and feel happy with where they are. I guess it’s just me. $410,000 for a less than desireable place to house your family (a place that some would call scary). I wouldn’t be able to sleep at night.
“Someone is buying into these areas and paying top dollar for units in basically slum Barrios, and it is not middle class hi-end white collar folks.”
Here’s a clue maybe… A couple of months ago our maid (illegally in the US) told us she planned to quit being a maid as she was getting into real estate. She asked why we were still renting a house when everybody else has bought.
I heard recently from her aunt that she just bought at 4 bedroom house in south central and is renting to other immigrants, essentially running a boarding house. How she got a loan is beyond me.
you just confirmed my worst suspicions. Yes it is recent Hispanic immigrants(including illegals) who are buying scental LA homes, via the use of suicide loans.
case closed.
I watched one of the house flipping shows and the property was located in south central LA. I could not believe what the flipper paid for the thing, let alone what he intended to sell it for. They dolled it up with the hispanic buyer in mind, pink carpet and all.
Counting the days? Lucky you, I’m counting by the month…
Yeah. We’re out at the end of this month. Funny thing is, someone told me, “once you leave the SoCal coast, you can never get back”. I reminded him that I’m not looking to “get back”. It’s typical realtor-speak, conveniently forgetting the frequent RE price crashes of, for instance, just ten years ago.
Well, there is some truth to that. RE appreciation will never carry you back to the coast. You’ll have to pay up for that privilige by earning excess wealth to buy your way back. Of course, if you’re not ever looking to get back, you would not care. But if you care about living near the coast, you have to ride the wave and pay dearly. They really are not making any more coastline, and the competition is fierce for frontage. It just has more value and draws more bids. Not to say the prices won’t go up and down, but a thousand acres of rangeland in Texas isn’t worth thirty feet of beachfront in Malibu. Never has been, never will be.
It isn’t so hard to “buy your way back” to the coast.
many places have comparable salaries, and much lower COL. so if you chose,you could move elsewhere, save up, then move back.
Thing is, once you move away, it’s highly likely you will realize it’s not worth moving back.
This is why so many Native Californians (including me) are leaving, and why we don’t come back.
Coastal CA is highly valued, but it’s mainly by non-coastal Californians who still believe in the TV programs they see
I’ll go back to Coastal CA one day maybe… but only if it comes down considerably in price compared to where I am now. I get enough beach time from here anyway.
clouseau
There’s beaches everywhere around the USA, and we don’t have to live a block from them anymore, like we’ve been doing here. I don’t mind a car ride from inland. But inland CA is just as stupidly priced as the coast, so that’s why we’re leaving CA, among other reasons. If it was just about a beach, then CA is not the only one in the country. RE agents want to convince you that there’s something more here to justify the prices. What is here that is so wonderful? Nothing. That’s what we who have lived here so long, know is the truth.
HIC said…
“This is why so many Native Californians (including me) are leaving, and why we don’t come back.
Coastal CA is highly valued, but it’s mainly by non-coastal Californians who still believe in the TV programs they see”
——————————
As a native, myself, I long for the days in So Cal pre-early 80s. It was a very nice place to live then, IMHO. Since that time, things have changed tremendously, definitely for the worse (except the air quality which has actually gotten better, BTW).
We are also seriously considering leaving CA as we feel more and more boxed in by neighborhoods which change overnight from clean, friendly, well-maintained areas to gang-infested slums. Definitely not the “LA” people see on TV.
Oh, you can come back. A friend of mines 60yo father (at the time) retired to SoCal in 1995!! He moved to Texas many years earlier and knew 1995 was the time to “get back” to California. The friend is no longer close, I’d love to find out if he’s sold again.
“Is it enough to create price decreases equal to the increases of several year ago? Probably not, said Daniel Blake, director of the Economic Research Center at California State University, Northridge. Housing-price declines are more a function a bad economy.”
Why is this man allowed to speak? By now it should be clear to a piece of particle board that the health of our economy can’t be separated from housing.
Duh, I just had a epiphany. Since the flippers have sort of vanished and the everybody who wanted to buy had done so (over 70% home ownership according to government stats). Nevertheless, it seems that the only potential buyers may be the RE bears like us on Ben’s blog. And none of us want to catch a falling knife.
Wow, this market is really going down like Debbie does Dallas. Now, I am dating myself. LOL
“The drop signaled the start of a deep housing slump that lasted through the decade and during which home prices [in Antelope Valley] fell 50 percent.””
Antelope Valley is where there is truly a “limited supply of land.” There is room only for 5 million more homes. One better get in now before there is room for only 4.99 million homes.
As I was driving on 14 North thru Rosamond yesterday. The passenger (brother of a friend I gave ride to) commented, “big homes and no backyards,” as we saw many unfinished homes right by the freeway. These were two story homes and an area where it is HOT in summer and COLD in winter lot of energy is going to be consumed. Big homes were in fashion in Rosamond for some reason. And why not, because at less than half a mil they are bargains. And what better time to build big homes than when the prices of materials were going thru the roof?
Jas Jain
Went thru that area recently and saw 10 homes being constructed right off the 14 fwy just south of Mohave, right smack in middle of the desert scrub, with no other structures around for miles.
Lancaster is toast! lots of properties(large SFH’s on ample lots) listed In the $250,000’s or so.
Have the speculators paid attention to Baker yet?
I wouldn’t doubt that the land speculators have…from what I remember, they bid up Barstow land prices quite a bit over the last two years.
And Baker has BunBoy and The Mad Greek going for it!
(come to think of it, the above statement sounds vaguely obscene)
Mad Greek is a great entrepreneral stroke: It is the brainchild of, you guessed it, a Greek businessman who took the concept of the Charbroiler-burger/full Menu diner and Brought it out to the desolate nowhere spot of Baker, and gets all the Las vegas travelers.
There is the other well-known Greek-operated Burger/diner in Mohave, it is situated right where the 14 makes a sharp curve and becomes the 395. Can’t think of the name but it should be familiar to all Mohave desert travelers.
Easily marketable as the best location for a family with one commuter to Las Vegas, the other to L.A. area. Not to mention the thermometer.
“Sales have been dragging for both national builders and local ones like Barbara Smith, whose custom and semicustom homes typically sell for $600,000 or more. Anything priced above $400,000. has been really, really slow to sell, Smith said.”
Why would someone want a $600,000 home in Bakersfield when, for the same price, they can get an ocean view home in Cambria, with clean air and in the vicinity of Cal Poly? I love the San Joaquin Valley and its people (minus the illegals and the dirty air), but $600,000 is about four times too much to pay for a house there.
That’s the funny thing about this bubble. At first, it was mostly the major metropolitan and desirable areas which were bid up…almost believable. Then, we saw all these ‘hoods in the sticks go up to the same prices. That’s how you could tell it was a bubble. No reason for a standard home in either the desert or Central Valley to be more than $150K, tops. Lots of pain coming there, IMHO.
Does anybody think that the builders might be stretching it a little saying that the incentives are worth 99K . Should they be allowed to claim 99k in upgrades when it might only cost them 30K to include them ,worst yet ,they were going to include the upgrades anyways in the price of the home .
See if I was a buyer and I saw that the builder was giving 99k in upgrades or incentives I would think the market had crashed by 99k.
Than if I went over and looked at used homes I would be expecting a 99k discount off the price .Than again if I was a buyer I would be afraid that the next buyers might get 150K in upgrades .
Do you think buyers might think that way ?
I’ve been around for a while. Except for the last 5 years improvements only recovered between 30% and 80% of their costs. There were a few exceptions like replacing aluminum wiring or siding, ancient kitchens, and a few others that returned a little more. Paint always seemed to pay off but IMHO this is because “paint” meant moving out crap and patching holes and about two dozen “not paint” things that don’t get counted.
Soon “$60k in household upgrades” will be as much a NEGATIVE as an automobile ad stating “Honda original seats and exaust and stereo ripped out for better components.”
I agree paint always pays off .I painted ever square inch inside and out of the last house I sold . I saved myself a bundle ,but I almost fell off the ladder a number of times .
Robert,
This is very true. Flippers thought it was their “improvements” which made the house more valuable. Truth is, they could have just sat on them (many did) and net even more money, IMHO.
Other than paint, I think adding a bath to a one-bath house is a good bet. Perhaps adding a fourth bedroom (well done), but not really sure if you’d get ALL your money back on that one.
It’s fun to watch all these recent flippers who added **their version** of upgrades (GCTs, SS appliances and tile everywhere) getting stuck trying to rent their alligators out. I would actually discout for these upgrades when buying, as we’d have to tear it all out and remake it into a home instead of a cold, hard, industrial prison.
Yes, there are probably many people that got in over their heads in 2005 and now the curtain is being pulled back on the great “Wizard of Oz” California housing market.
“Pay no attention to that man behind the curtain…”
Understatement. I haven’t seen anything resembling a good deal for 4 or more years. That means a good deal for a long term ownership either occupancy or rental. People got in and out over that period but if you are still “in” you are stuck or screwed. “Stuck” can work out if you can afford to wait but this time is different. People with low downs or teasers or such are not invested, they are betting on significant appreciation. Anything less and their bet is at best worthless, at worst, a margin call.
When you have a 110% loan with no down or closing costs, you risk nothing except bad credit.
If this blog was being written 50 years ago, you would not make such a comment!
That is exactly the problem! People have no pride (not to mention brains).
People used to care about their reputations and would rather die than BK or ruin their good name.
For the people who have purchased into this madness in the past four years they will do real good to get out for what they paid for these properties. But even then, they still have the 6% wealth transfer tax to pay. And why not? These FB’s have so much wealth to transfer. So if they did financing at 7X income, Their wealth transfer tax amounts to 42% of one year’s income. At 8X income it is 48%. At 9X income it is 54%. At 10X income it is 60%. And the wealth transfer tax collecting Realtor(TM) does not even allow any deductions. Imagine that.
That is the best case scenario. Worst case scenario is the future 1099’s with the IRS for 100’s of g’s.
“Pay no attention to that man behind the curtain…”
David L?????
DL is the scarecrow, not Oz
“By comparison, when the 1980s boom peaked in 1989, about 4,900 homes were sold, a number that plummeted to 2,700 the following year. The drop signaled the start of a deep housing slump that lasted through the decade and during which home prices fell 50 percent.”
Don’t worry — this time is different. Prices will only fall until next year, then resume their steep ascent. The NAR told me so, in one of their press releases. (I choose to ignore the man behind the curtain, David Lereah, whose August 2006 powerpoint presentation called “Reality Check” tells quite a different story.)
Jump the Ship or Get a Pink Slip:
http://news.yahoo.com/s/nm/20060918/bs_nm/economy_brokers_dc
Max posts Jump the Ship or Get a Pink Slip:
Another, “I wasn’t good, just lucky” story
Pulte Homes, with subdivisions in Brentwood, Oakley, Mountain House and Tracy, is offering $99,000 in incentives.
I think we should drop a million leaflets with this info on it so all of the former buyers know they were screwed when they over paid.
People in this blog and others, please BUY!!! BUY!!! BUY!!! Buyers, please come back!! We miss you!!!!!!!!
I’m a buyer. Whatcha got? 80x rentals? Waterfront with low taxes? Best school district in the state?
Truth be told there is a dearth of sellers. Think about it. In a sellers market there are buyers standing around not doing deals. A seller stands up and they will swarm him. The disconnect is all the wishers who think they are sellers.
LOELZ. I’ll come back when the premium to buy vs rent is slight!
I’ll come back when it’s cheaper to buy. Happened on our last purchase, it’ll happen again, IMO.
In my area in Ventura County, I’ve been collecting flyers at for sale signs for a year or so because I wanted a visual record of the beginning of the crash. What I’ve noticed in the past month and a half is that most realtors have stopped printing flyers. I guess that color toner gets expensive after a while!
The crash is about to accelerate because Wall Street is quickly coming around and will be acknowledging the magnitude of the crash by the end of the year. This video shows one of the more prescient analysts talking about “all the equity gains of the past five or six years being erased” and the recession resulting from consumer spending falling off a cliff lasting years and not months: http://tinyurl.com/mhvfz
What area? Me, Camarillo.
I already made my escape out of CA. More realistic pricing. Now, I have been saying for years that Baker is what I picture HELL to be (HOT, HOT, HOT, HOT - 109 at 10:30 at night, dry, dusty, etc). Why in hell would anybody even remotely think that this vast expanse of worthless land would ever be desireable. If Baker is bid up, this is a bubble of massive proportions. Even worse than Newberry Springs (another almost worthless expanse of land). I just drove through there coming back to CA for a week visit. Hope to see some dying new home communities in San Bernadino, and then next week in Bay area. LOL
My fear is that borrowers/sellers are going to flip out when they realize real estate isn’t going to go up for a extended period of time . Your going to get alot of depressed and nervous people running around .These people could get in a car accident because of the stress of their financial situations . Some of these FB people will project their anger on other people . Some people might jump out of a window at the prospect of financial ruin .
Its pretty clear that a correction of the bubble is starting to happen in a big way . I’m willing to admit that it’s a scary thing because nobody knows just how bad it might get .
Wiz,
That’s why we’re anonymous on Ben’s blog!
No doubt, there will be some VERY angry FBs out there.
Here’s a topic. Which areas of LA/Sbernardino and riverside counties will end up at the bottom of the barrel as far as declining RE prices? Already see significant price reductions in the outland fringe boonie regions of Lancaster, Adelanto,victorville,Canyon country, saugus,San Jacnto,coachella, palm desert,la quinta, menifee, hemet, banning,lake elsinore,Sab Jacinti, Hesperia,yucaipa,ect. Lots of homes in the mid $200,000’s range in many of these far-flung exurbs which might as well be on the fringes of civilization.
The real shocker is that the innor city LA burbs, yes, those third-world hovels where english is a foreign tongue, are still priced in the mid $300,000’s to over $400,000, and are faring better, price wise, than the IE boonies. WTF!
I would guess that sept figures for LA county will show over half of all zips in negative YOY, though we won’t know that till mid-october.( Data quick figures have a 1-2 month time lag(august yoy for LA not available yet on their website: only San diego county has august yoy displayed). We may even see neg yoy for entire county in sept.
The reason i pick sept is that folks hunker down in sept-oct and concentrate on their jobs,and getting their kids situated in school. And retail spending traditionally grinds to a halt. Likewise, people are not actively hunting for homes for the same reasons. Remember, property taxes come due in october/nov. Also, Many males spend more time watching football/basketball/baseball playoffs in the fall, another reason house-hunting is put off.
All this will slow sales volume even more in the fall, thus exerting downward pull on sales/sold prices.
Those inner city houses are being bought up left and right by Mexican immigrants. Easy credit has driven the prices of those houses up from around 80,000 dollars (in year 1999-2000) to their present prices of 400,000 or more. A Mexican family with the lead breadwinners working for cash under the table, as nannies or construction workers, thinks nothing of getting an “80/20″ loan. They even know the lingo “interest only” “ARM” etc. The past few years have been a major land grab by them, as investors can no longer purchase houses over there to rent out at a profit.
I think this is a pattern we’re seeing all over So Cal (maybe other parts as well). It seems that in San Diego, most of the recent buyers are Latin immigrants living with multiple families in SFHs. Another reason you don’t want to rush into buying. You never know what the neighborhood is going to do in a downturn (more people could be moving in together, creating denser populations, as well as foreclosures and all that entails). Best to stay flexible (rent, stay out of debt) and just watch from a distance for a while.
Actually the new investors/flippers of these SCentral LA properties might be immigrant hispanic’s themselves. I encountered a blogger on another site who titles himself “Rich Mexican” and brags about owning multiple apts and homes in S LA which he of course rents out to other immigrant tenents. (SCcentral LA Slumlord).
OK, I’ve been lurking and reading and posting and watching the inventory rise and fall in my chosen city (Huntington Beach, CA), and it occurred to me: Is it different here? What I mean is, how susceptible to a market crash is an established city?
HB is pretty much built out. We’re almost completely out of buildable land, unless they expand into the wetlands and the oilfields. So most of the housing, particularly where we rent now, was built in the 60s and 70s. I can understand that in areas like Corona or the IE, where housing was built and then snatched up by speculators, prices/appraised values have been forced up. The “rising tide” had an effect on even established areas, causing prices to triple since 1997.
My question is, if people have purchased housing here to LIVE IN, and not as a speculative investment, will a market crash really have a big effect on inventory? I suppose a certain number of people will want to sell in order to cash in on their houses’ higher values, but what reason would there be for a mass exodus? Sheer panic and mob mentality?
I want to believe that at the bottom of the market I’ll have my pick of a wide variety of houses at severely reduced prices, but is that even feasible? In a non-speculative area, will there be large inventories and low prices?
OC isn’t going to suffer an inventory lead crash. It will be a national credit crunch crash that takes OC down along with the rest of the nation. You’ll have to wait for the implosion in San Diego, Las Vegas, IE, Phoenix, Texas and Florida to thoroughly distress the finanicial system and pop the credit bubble first.
Curtis, if you look back to the late 80’s and early 90’s SoCal RE dropped 25-35% in established area like HB. I expect the same this time around.
Go on Loopnet.com and do a search under the state California, and look for key words “motivated” or “reduced”. Amazing. Just a few months ago, that search would turn up practically nothing. Now, there are pages and pages of inventory. I’m surprised at how brazen some of the listings are with regards to disclosing the seller’s financial distress. One in Sacramento actually reads something like this: “seller’s other real estate investments turned south, must sell…” Beautiful.
HHmmm…. well if I ever buy a house then I am gonna make sure the front entrance is facing North, and I’m gonna make sure the silly thing is well anchored to the ground too
I remember talking to a RE agent in HB and commiserating about prices dropping in the mid 90’s. She said she had the same experience and was upside down in her condo at that time. I said I didn’t want to pay these high prices (early ‘04) because I expected a correction and she said “prices never go down here.” This was all in the span of 5 minutes.