‘All Of A Sudden, Prices Are Dropping’ In California
The Contra Costa Times in California. “Nicole Dalesio and her husband have been looking for a home in the Tri-Valley for more than a year. ‘You’d think we had a lot to choose from, but no,’ Dalesio of Pleasanton said. ‘And now, all of the sudden, the prices are dropping.’”
“With buyers and sellers refusing to budge, East Bay median home prices dropped or stayed put for the first time in years while sales continued to decline across the Bay Area in August. Alameda County reported a 28.2 percent drop in year-over-year sales, DataQuick reported. In Contra Costa County, sales toppled 23.5 percent. Solano County sales also dropped 34.3 percent.”
The San Francisco Chronicle. “Real estate agent Barbara Hendrickson can sense a different attitude among home buyers these days. For four weeks, she held open houses on two one-bedroom condominiums in Oakland’s Temescal neighborhood without receiving a single bid. Data released Wednesday show that her feeling has a basis in reality, as home sales in the Bay Area are slowing and prices are softening.”
“‘In Berkeley, it seems some are coming down (in price) a little bit and staying on the market a little longer,’ Oakland resident Forrest Bell said.”
“The hardest-hit real-estate market segment was new homes, whose median price fell 11.6 percent to $574,000 last month, down from $649,000 a year ago. Pulte Homes is offering a week’s free vacation and up to $99,000 in incentives to buyers at its 17 Bay Area developments.”
“‘The sales pace dropped off and our production didn’t drop off as quickly , so we found we had some inventory we didn’t want to have at the end of the year,’ said Merry Sedlak, of Pulte at its Bay Area headquarters in Pleasanton.”
The San Mateo County Times. “The housing slump continues. Bay Area home sales last month dipped to the lowest level in nine years. ‘We can say, with some certainty, price appreciation is zero and may even be slightly retracting. The market is flat and the bubble has popped,’ said economist Chris Thornberg.”
“Still, Tuesday’s move by the Fed to leave a key interest rate unchanged is an encouraging sign when it comes to the outlook for the housing market, (realtor) Earl Rozran said. That’s not the case if you ask Thornberg. ‘This is way beyond the Fed,’ he said. ‘It’s just so out of whack, it’s going to take a long time to clear out.’”
“In Santa Clara County, twenty-seven percent fewer houses changed hands in the county last month than during August last year. The trend was the same in condominiums, with sales down 31.7 percent compared with a year earlier.”
“Jeremy and Tracey Kemp toured more than a dozen homes for sale in San Jose and Santa Clara. Afterward their real estate agent heard from two of the agents listing homes they’d visited, asking about the Kemps’ interest level and letting them know the list price was negotiable.”
“‘We’re seeing more strength in our role as a buyer,’ he said. ‘They were aggressively courting people who had just been walking through.’”
The Marin Independent Journal. “Marin’s home sales volume fell from a year earlier. Total home sales, including condominiums, were down 13 percent from last year, mirroring a trend throughout the Bay Area where sales were down about 47 percent in Napa County, according to DataQuick. Marin condo sales were down 36.4 percent from August 2005. Broker Barry Crotty said condo prices fell because many first-time homebuyers are priced out of the market.”
“The Marin median condo price dropped to $546,500 last month, down from $575,000 last year and down from $555,000 in July.”
“‘So far the major trend is the sharp decrease in sales activity but I expect that prices, which are leveling off now, will decline over the next year,’ said Stephen Levy, director of the Center for the Continuing Study of the California Economy. ‘The reason is that it usually takes several months before sellers realize they are going to need to cut the price to sell,’ Levy said. ‘Over time what starts out as leveling in price can turn into a decline in price.’”
“There are more sellers than buyers lately, Levy noted. ‘Buyers see stories in the news which are correct about the market slowing so they feel they can be more selective and aggressive,’ Levy said.”
The Santa Cruz Sentinel. “Suzanne and George DeLeon found they had to drop the price on their Central Valley home and acre of land from $650,000 to less than $550,000 to lure buyers.”
“Consider the Blaine Street condos in Santa Cruz, where the city’s program helps turn renters into homeowners. The newly built complex of studio and one-bedroom units went on the market in April, with prices from $399,000 to $525,000. Five months later, six of the 13 condos have been sold, and the advertised prices are lower, from $365,000 to $499,000.”
The Daily Bulletin. “In August, the number of new and existing homes sold in San Bernardino County decreased 20.1 percent from August 2005. Ginger Jacobson, owner of High Desert Construction in Victorville, is one of builders lowering prices. She recently knocked $10,000 off a Victorville house and is slowing production of new houses.”
“She acknowledged that the phone isn’t ringing like it was last year. ‘We were getting four calls a day about houses last year. Now it’s more like four calls a week,’ she said.”
“Real-estate investor Enrique Balcazar knew a housing downturn was coming. Although the numbers don’t show decreasing home values in San Bernardino County, Balcazar said he believes they are. DataQuick’s number look back to what happened, not what is happening now, he said.”
“‘It is my general gut feeling..that come around December, you’ll see exactly what I am telling you,’ he said.”
“Broker Jason Bennecke said there is almost no recovery from asking too much when the house comes onto the market. ‘It’s like a dog chasing its tail,’ he said.”
Expectations matter greatly when it comes to future purchase demand. Don’t these California newspapers realize that, by honestly reporting on falling prices, they are contributing to the information avalanche which will strike fear into the hearts of prospective future CA buyers, and result in even larger price reductions down the road?
In a way, it’s similar to setting up stop losses in the stock market. If a stock drop will execute many stop losses, even more volume will want to be sold than normal. Think of the individual stop losses as the mentalities of weary home owners. This is not the whole market, but it’s still significant.
I agree. I think of investers and FBs who are deep underwater and cash-flow-negative, for whom holding on only will work out if drastic price inflation resumes, as the stop loss orders which are about to flood the housing market.
despite all the talk, you still have to be pretty dumb to buy now. haha.
very nice can clean way to put it! CA is on the edge of one huge stop loss!
“CA is on the edge of one huge stop loss!” Unlike stocks though, the loss cannot be stopped. No one in their right mind is buying in California now.
Not true, My coworker just bought a house this month. Just moved in yesterday. Not very bright. There are few dummies still out there. Holding tight tell 2008. Central Coast, CA
Second that - Coworker of mine was bragging yesterday that he had just sold his house and was upgrading to a 1.2M McMansion. BTW - He works in facilities. Probably makes 40K/yr
Yeah, my crazy neighbor (glad to get rid of them) just sold theirs for $1.7m and bought a McMansion for $2.4m. I’m sure they’re petitioning the county now to have their property taxes reduced…
I’m not sure who’s crazier - my neighbor or the people that bought my neighbor’s house.
Ditto- My friends and I are bubbleheads, but a good friend of ours who we haven’t been talking about the bubble with just bought spontaneously. He had to move out of his apartment in Santa Monica and he was looking for places. He never even mentioned thinking about buying. We saw him after a few days and he told us he had just bought a condo in Santa Maonica. He said he couldn’t see why not. He is paying insane rents and he could spend the same to buy as to rent. He’s used to San Francisco rents so the high rents he has been paying don’t seem strange to him. He said that the condo he bought is $80k less than the same thing sold 2 months before- such a deal! Of course we told him that that’s because the market’s going down, and was just starting to do so. Still, we had to bite our tongues because we all know what happens if you push such things to hard! Oh well…
“by honestly reporting on falling prices, they are contributing to the information avalanche which will strike fear into the hearts of prospective future CA buyers”
I know it’s just a rhetorical question, but I’d like to comment that by reporting the trends, the media struck “greed” and “fear of being priced out” on the way up as well. It’s not the media’s “fault”…it’s the people who used the information to make buying decisions’ “fault”. More power to them.
I’d dread having a closed market RE system (like some have claimed in the Manhattan condo market).
absolutely expectations matter greatly. This guy in Rancho Bernardo is the perfect example. He bought in July 2006 a 1.6 million 5000 sqft mcmansion he wanted to flip for almost 2 mil. He placed it on the market for 2 weeks and the price is already reduced to 1.7 mil.
But why would he go thru with the purchase in July when in June SD saw its first ever median price decline y-o-y in years? because the expectation was still high. because the media was still showing him quotes from Leslie Appleton-Young telling him things are going to be just fine.
In august we now have 3 months of negative median price decline. no bull can fight that there is an obvious trend now. there is no more expectation. had this home finished in September, seeing 3 months of negative median prices, do you think this guy would have gone thru with the purchase or just walked away from his deposit money?
“There are more sellers than buyers lately, Levy noted. ‘Buyers see stories in the news which are correct about the market slowing so they feel they can be more selective and aggressive,’ Levy said.”
Or better yet, buyers can just watch and wait, and let some other GFs catch the falling knives. What’s the hurry when you can save a year’s worth of income by waiting?
It is more than that. I pay 22000 per year rent on a 465K home. a 10% reduction in one year will more than pay for my rent in the year.
Now you’ve got my competitiveness stoked…
I’ll see you and raise you $22,800 yearly rent for a $600,000 house (and it was ‘worth’ even more 6 months ago).
And on top of that there is no way the industry can get a rally going next year so all the more reason to wait to purchase . No urgency , no time is of the essence .
Depends on interest rates. If they drop down close to 5% again, it will kick-start sales.
I’m hoping for 30 year rates to drop to something like 3%. My house payment would drop to $200 a month.
This would be a good move, the economy will boom.
Refinancing for everyone!
Gee, I don’t know about 3% in our lifetime . But I can 5% again IF the fed wants to bail out the fb’s.
“Gee, I don’t know about 3% in our lifetime . But I can 5% again IF the fed wants to bail out the fb’s.”
And the US dollar?
You can’t reflate a bubble once it bursts. Money just flows to the next speculative investment; real estate bubble was the post-stock bubble reflation attempt. And a big interest rate cut would hammer the dollar. I wonder how much a gallon of imported gas would cost.
Mortgage rates will not drop, following the Treasury notes. They will decouple from all benchmarks, and stay high in real terms, because the crashing RE market will call for higher risk premiums.
I agree. 5% mortgage rates will not resurrect the housing market. Most of the FB’s are in interest-only or pay-option ARMs. These mortgages will reset to principal-paying no matter what happens to interest rates and the FB’s payments will increase. There are also the “other” carrying costs of overpriced homes primarily property tax, insurance, and maintenance. The only way the FB model made sense was in a rapid price appreciation environment. There’s no way to turn around the Titanic.
arroyogrande,
Not so much a point of competition but for every dollar you DON’T borrow that’s 3 to 4 you don’t have to pay back!
Early on when people were debating wether or not there was a bubble, would it be a hard/soft landing we bears were doggedly attempting to educate would be buyers. Most of it in vain. But now that prices are actually falling we needn’t be near as vocal. It now becomes tangible in their minds and at this point it appeals to more “base” emotions. I’ve been told that there are 3 basic human motivations, greed, fear (and sex). Since greed and sex are now totally out of the picture it kind of narrows it down a bit. From this point forward raw emotion takes over, and it’s name is fear!
Never forget! You NEVER have to pay taxes on money you DON’T spend!
Which is why pre-paying a mortgage saves you interest AND income taxes!
I think what you mean is you never have to take a deduction on interest you don’t pay, which only saves you interest, not income tax.
Greed, fear, and sex are linked. When a guy’s greed causes him to lose his house and most of his assests, his wife will no longer have sex with him. This will trigger in the guy the fear that he will never have sex again.
I’ll play: We rent a house that sold for $475,000 last year (peak of market). Our rent is $1,500/month or $18,000 per year.
Kick your feet up and stay awhile!
It’s readily apparent that these overpriced domiciles ain’t goin’ nowhere for a while, ‘cept a few .
Pass the popcorn, will ya!
I’d like to know where you people live that has $600K houses renting for $1900/month! I rent a POS 900 sq ft condo for $1550… Of course the same floor plan was selling for $439K in the summer of 2005 here in Westlake Village, CA, but I sure miss having a yard.
You’re overpaying. We pay $1600 for twice as much space and a terrace in San Mateo.
A yard would be nice, but I dont miss all the extra work either.
We pay $2,100 for a house that was selling for around $735K in summer 2004 (our peak) in South Carlsbad (San Diego). We even have a nice yard!
We pay $1500 for 1/2 of a $1.8M house in in the Cedros district of Solana Beach. We have ~1500 sq. ft., 3 bedrooms, a big yard with a garden, and are 2 blocks to the beach and 5 minute walk to the Belly Up (woo hoo!)… Landlords are a great young couple who bought the property in 2004. I hope they come out of all this OK…
The Young Dubliners are playing the Belly Up on Oct. 6th. Great show if you can catch it.
$20400 rent a year on a $560,000 home here. Tell me again why I should buy?
Still a lot more to drop if you look at buy/rent ratios. Look out below.
Our rent is $15,600 on a house that is on the market for $530,000.
How is that supposed to make sense?
“Our rent is $15,600 on a house that is on the market for $530,000. How is that supposed to make sense?”
It makes great sense for you. At that price, it is unlikely to sell and you’ll continue to reap the reward. Why even think of owning when you can live like that, at the cost? “1 day” could appropriately be far off.
~ 2400 on a 600K townhouse.
$8400/yr for a 3 bed/2 bath town home theoretically worth at least $250k on the market.
I beat all of you.
A house in 92648 (Downtown Huntington Beach) $1.3M value (wide lot with 2 big yards) for annual rent of $23,400.
That is a deal and a half. And not a fake — you mentioned this one a long time ago, as I recall.
My friend’s brother lives in Newport Beach. In the summer of 2005 I was visiting and the estimate for the 2 BR was in the 700 thousands. He had bought it in the late 1990s for like 250k. I suggested something about time to cash out. I was declared insane. I suggested that he could probably rent affordably in the same complex; oh no, that would cost “three or four thousand” and he couldn’t afford that.
So then I walked down to the beach and on my way back noticed a for rent sign for a 3BR with ocean view. I called the agent: $2500 and claimed that it had been renovated. I asked how much would it sell for. “Way over a million”…..
Personally I pay $1500 for a house with assessment value close to 600k. However, some house in Northern Virginia are selling below assessment. Remember the article in Fall Church NP that Ben posted about houses selling below assessment already back in May.
$24,000/yr for a house listed at $1.2M. Top that.
Okay, I’ll top that. $1250/mo for a house appraised at $1million in Venice, CA 3 blocks from the beach.
I feel the same way!! My husband and I pay $30k a year to rent a house. Why in the world would I buy when sellers are already reducing their prices by this much if not more??
We’re renting a house in the East Bay for $25k per year. It is listed as $680k (was $700+k weeks ago) on zillow and similar for sale houses are $700 to $800k in the neighborhood. Have not seen one looker on any of their open house days in many months…compared to summer 05 when many lookers would descend upon the neighborhood on Sunday afternoons.
“‘This is way beyond the Fed,’ he said.”
Yeah no kidding, I just wish the remaing 99.9% of the public could wake up and comprehend what the Fed is doing in watering down the purchasing power of our money. It’s not even money, it’s IOUs. Backed by nothing. Simply air. What a concept.
That’s what happened when the Fed was created. technically, it is unconstitutional, but sell that to the Supremem Court. Congress has the authority, granted by the constitution to coin money. Neat concept, but how many people know that. Most people don’t realize the near the end of Wilson’s life he admitted that he seriously harmed the US by allowing the Fed. This from the guy who also brought us the income tax. This guy should have been tried for high crimes and treason against the US. Isn’t the president supposed to uphold the consitution or something like that. Oh well, to late for all of that. So many in debt up to their eyeballs there is no time for a real bloodless revolution by picketing and asking for a redress of grievances.
Article I, section 8 of the Constitution authorizes the Congress “To coin money [and] regulate the value thereof.” Section 8 also contains a provision that Congress may “make all laws which shall be necessary and proper for carrying into execution the foregoing powers.” The concept that Congress has the power to charter banks, as a “necessary and proper” means of carrying out its mission of regulating the value of money, has been accepted since the Adams administration. In other words, it’s almost as old as the Republic itself.
Like the Fed or not, it’s not unconstitutional.
“…the Fed is doing in watering down the purchasing power of our money. ”
Since it is “way beyond the Fed,” the Fed wouldn’t be able to “water down money” for long. Get ready for Deflationary Depression, folks. Cash will be King and your money will become thicker (as when you evaporate water from milk).
The Fed WILL become impotent and beyond any help from Viagara or Cialis. That will be savers’ real revenge on the stupid people who are borrowing and spending, including on homes.
Jas Jain
I agree totally with the deflationary depression scenario. Just watch out that the cash the saver has in the bank is not locked away from him when a “banking emergency” is declared. I read that after the banks reopened in the 30’s, people paid a premium to withdraw cash, ie. you got 90 cents for every dollar you withdrew. Essentially, money hijacking.
There is no other place in the nation than Silicon Valley where you will find deflationary economy.
Next years goods and services are better at lower and lower retain price. Its no wonder a PC would have cost a user nearly $10,000 and now its 10x better and nearly under 1/10 of price. Not to mention near market saturation and stiff competition makes high cost employees difficult to maintain. Its no wonder many employers are now employing cheaper engineers from other states if not India/China.
Globalization has added 1.5-billion “low-cost” laborers to the factories that produce goods for the western world making the rich even richer while the hourly, and now salaried, employees are losing ground. It’s not a good time to have a stick built home with a $600k+ balance due!
not an attack…
but during depressions, isn’t money worth very little, which means you need a lot of it to buy even a loaf of bread (not the Panera kind)..isn’t that just like inflation?
No. During a depression money is very dear. During inflationary times, especially run-away inflation, the value of money drops. Sometimes even hourly like it did in Brazil.
In America we have fed and hence money is harder to come by. In other countries where the governments print money they have inflation.
Wheatie — wasn’t that when we were still on a gold standard? I think that we probably don[t have to worry much about the amount of “cash” we can withdraw — today it is all a sort of funny money anyway. You might call it “relative money.”
Agreed……….
Housing is in free fall.
I wonder how the Dow will look at 8,000.
Stay tuned………coming to a computer screen near you very shortly.
We’re now in the last part of September. Anyone care to hazard a guess as to the stock market next month? I’m a thinking that it could get bloody pretty fast.
The stock market isn’t as badly in the bubble as housing, but it will be hit. A Dow of 8,000 by Thanksgiving wouldn’t suprise me in the least. That would drive a flight to T-bills, gold, and other “tangibles.”
Add my voice to the deflationary crowd. I think we’ll have a spike in inflation (due to risking import costs) and then… the deflation.
As to a penalty to withdrawl money? I doubt it. More like a penalty *not to spend*. That’s how they’ll get this economy going!
Neil
I am surprised at the deflation talk. I believe we are currently in a period of disinflation, to be followed shortly by sharp inflation. The Fed is done raising rates, and will be cutting them in a few months, at the outside.
Why have deflation and a stock market crash when we can have another war. The rumblings from DC are deafening. Always good for the economy. Plus the draft will boost employment.
WAG THE DOG - Part 2.
Not going to happen. The “rumblings” from DC are mostly over the fact that we sent another little gray boat to the Gulf. (OK, a billion-dollar Aegis-armed boat, but still.) Oil prices are down to $60. The smart money has decided that the Bush administration has thrown up its hands and will let Iran get a nuke.
If you are convinced that this conventional wisdom is wrong, you’ve got a great opportunity to buy oil futures contracts.
China is going to be happy to hear that the trillion they hold is going up in purchasing power! It’ll be interesting to watch the gov’t try to service debt and entitlements as well as resuscitate the economy in a declining revenue environment without printing the heck out of the money supply. Hmmm.
Who out there is left to buy?
Young couples or singles don’t have the incomes to get into this market. Families that were priced out 2 or 3 years ago are still priced out. Without the expectation of housing values shooting to the the moon, purchasing with an exotic loan is even more riskier than it was 2 or 3 years ago. The only people that would qualify financially on a tradtional loan needs to sell their own home to either move up or down grade. Everyone is stranded. The only option I see available is to lower the asking price in line with incomes. This will be the only way to stimulate the real estate market again. Houses have to be affordable. I know it is just common sense but why won’t anyone listen. I’m hoping for 350k-450k for a single family starting home in the Orange County area ( Fountain Valley ). Think we will ever be there?
“The only option I see available is to lower the asking price in line with incomes.”
The government could use various means to respike the punchbowl (lower FF rates, backdoor policies to prop up demand, etc) but all of these have the undesirable side effect of adding to an inventory glut that is already approaching 5 million homes. I guess it gets down to how big a mess our current policymakers want to leave behind for future policymakers (not to mention taxpayers) to clean up.
I think they are all stalling until after the election — then watch interest rates rise, oil prices will go back up, and the 10-year bond won’t be getting propped up by foreign investment (officially).
You are the policy maker, dude. Who did YOU vote for?
I think Getstucco has it pegged — if nothing else, the available unsold inventory of uninhabited housing will screw the market regardless of what anyone does. The government will note that it did not create the bubble and that it rightly must protect the dollar relative to our debt. There is no way but down for the housing market. None.
Shannon,
That is the million dollar question, no pun intended. I live in Rancho Santa Margarita and a few homes are just begining to come down into the 500K’s. However, even if they reach 350K, even at a flat 6%, you will pay $600 for every 100K borrowed. Therefore, you arelooking $2100/month, plus say 500 more for tax and insurance and if there are HOAs, who knows what, for a total of $2600-$3000/month. Still way too much unless you are taking home 7500 a month or put down a sizeable down payment, def. more than even a traitional 20%. On top of that who would want to pay 350K for a home that cost only 65K to build 20 years ago?
Th ehome I rent sold for 180k in 1998. I pay 2000 a month in rent.
The comps for these homes are in the high 600 - low 700k range today.
A 50% haircut gets the prices back into the range you are talking about. As OCDan added total PITI comes out between $2600-$3000/month. Still too high even if you take the MID into account as that would be between 650 - 750 a month depending on your tax bracket. Plus the AMT nullifies the MID (Mortgage Interest Deduction) for many high earners. I say sit back and watch because this correction may overshoot. Keep track of what you can afford at the current rates, save as much as you can for a down payment and keep tabs on what is on the market. When something you absolutely LOVE is close to your affordable target, make em a lowball offer and don’t look back. But for heavens sake wait for at least a 40% correction so you are not catching a falling knife. IMHO. If you can afford it with a fixed 30 yr then even if you buy slightly early you will have saved a ton from todays prices and will have something you want to live in and CAN afford.
Bubble T sez: “I PITI the greater fool!”
oc-ed,
True. That’s why a lot of truly wealthy people don’t see the need to have a ridiculous house like our “debt wealth” friends. My guess is that it would be more helpful to get rid of the cap gains exemption or move it waaaaaaay out. 5 years maybe even 10 before you can feed at the tax free trough.
For the longest time I couldn’t wait to see this market collapse over the weekend. A lot of RE bulls are glad it hasn’t. What I HAVE come to appreciate is the longer it takes the less likely you’ll have people being able to stay current on their primary home then (defaulting or some form of short sale) and re-asserting themselves in the same neighborhood/town w/ a significantly reduced cost basis. All of this at while int. rates are still more than tolerable. Even if the outright freefall started Monday they’d be locked out! This is going to look like people trying to “time their leap” from the Titanic.
“If you can afford it with a fixed 30 yr then even if you buy slightly early you will have saved a ton from todays prices and will have something you want to live in and CAN afford.”
That’s good advice from OC-ed, Shannon. Don’t try to find the bottom of the market as it falls. Just wait until things fall far enought that it’s basically as cheap to buy as rent, get a mortgage that you can afford and, then, enjoy your home.
I don’t see why not! That’s expensive for Portland, OR -
you will see 75K to 150K sooner then you think
Shannon, my wife and I are still trying to buy (although, we’re going to wait till this thing hits near-bottom), and we’ve moved out of the Los Angeles area to look for cheaper real estate, only to find that other places have also increased in price. I have since lived in the Central Valley and now Lancaster, CA. I make 60K a year and my wife is still in school (we are in our late 20s), but we can’t reasonably afford anything over 240K - and even at that price, it would be four times my annual income. Even in that desert wasteland, homes in decent neighborhoods are in the 300-400K range. Anyway, the response to your question… there is still a serious affordability issue here - and I mean affordability with conventional financing. I’m sure there are other young couples just like my wife and I who don’t have money to borrow from their parents’ equity that still want to get into a home.
“I’m sure there are other young couples just like my wife and I who don’t have money to borrow from their parents’ equity that still want to get into a home.”
Don’t you have a home now? Or are you homeless?
My point being: A rental is a home, too. Anywhere you live is a “home.” Now if you want to *buy* a house or a condo or a townhouse or whatever, then perhaps you should use that language — not emotion-laden real estate lingo.
My parents couldn’t afford to buy until they were in their 30’s and he was a scientist.
I just closed on my house in SLO County (I am now a renter). Don’t let the CAR fool you (as if) - prices here are down 10-15% in nominal terms.
I had a real estate agent in my office today try to tell me that they are still appreciating - its like talking to a brick wall.
ask her how much she’s buying-shuts em up
The person that bought my house for $900K is an engineer at PG&E. He put $400K down and financed the rest with a traditional 30 year fixed at 6.25%.
He thought he was getting a good deal because the house would have gone for a little over $1000K a year ago. It would rest for about $2500 a month.
This guy can kiss his $400K goodbye!
rest=rent
He put how much down. My goodness with that 400K earning even 5% annually, he could have made 25K a year. Even renting at 2500 a month he would have had only 2 months of rent to come up with. WOW! How bad do you have to own? At 900K, he will have to hope the house appreciates really quick because if he lives there for 30 yrsd., he will have to sell at 3 million to make up all the principal, interest, taxes, insurance, upkeep, etc. Good luck. Been better off using that 400K down payment to give his family enough interest to live rent free for at least 10 months per year. And he’s an engineer. What kind of math are they teaching these guys. On top of that even if he got a 6% loand for 500K, he is paying $3,000 for int. and prin. Add fire insurance and property tax, I won’t include a HOA, and he is near $3,500-$3,700. Now multiply that by 3 and he is making some serious money. Should have lived off the interest of the down payment, saved another chunk of his salary and bought that same home outright in 2-3 years for half the price. Some engineer.
SLOBear don’t take this the wrong way at all. You are a dirty dog and I mean that in fun. You must have taken this guy to the cleaners, but you know what, good for you. You def. must have gotten out at the top floor with more bags of cash than you now what to do with. Maybe you could start a bank for all of us who can’t get into a house. Just kidding on that one, but really, a great job by you. WELL DONE!
I actually priced my home at the lowest $/sqft in the neighborhood - the buyer thought he was getting a great deal and paid full asking price (but was a little bit of a pain during the escrow process).
All of my neighbors think I am crazy for selling out. Maybe I’ll buy a house next door for 50% off in 2 years.
Let them neighbors think what they want. Better to be land poor and cash rich than cash poor and land rich. Last I looked the grocery store still takes green backs, not title deeds.
The guy who bought your house is a moron. I’m an engineer and I’m amazed at how dumb many engineers are. Sure they’re good at their jobs but when it comes to common sense or anything outside of work they’re often clueless. Doesn’t surprise me a bit. 400K down in a market where prices are falling… what an IDIOT.
Doctors are even worse
That’s why after medical school I went and got my MBA - the best money I ever spent. HehHehHeh.
I have a stepson who is a doctor. He is interested in buying some lakeshore property in Wisconsin. He was visiting several months ago and when I said prices were going to go down, he thought now is the time to buy! I persuaded him to wait several years.
“Let them neighbors think what they want. Better to be land poor and cash rich than cash poor and land rich. Last I looked the grocery store still takes green backs, not title deeds.”
Apparently my great-grandfather owned a grocery store in PA during the great depression. He became one of the biggest land owners in the area because people were trading their titles for groceries.
I don’t know where all the land/money went (I sure didn’t get any of it) but it’s a pretty scary thought.
Utility Engineers are some of the dumbest and laziest engineers around, much more so than government employed engineers.
“All of my neighbors think I am crazy for selling out. Maybe I’ll buy a house next door for 50% off in 2 years.”
What part of town, SLOBear?
That’s why after medical school I went and got my MBA - the best money I ever spent. HehHehHeh
That’s why I married one after medical school. She is more frugal than I and keeps us in the pink.
What part of town, SLOBear?
Golf course community between Arroyo Grande and Nipomo.
Trust me - I am flabbergasted (?sp) as well. Alocal credit union has a 5.5% 6 month CD - that’s where I will be parking a large portion of the money in the short term.
Congrats on the sale! And thanks for the market perspective. My impression has sure been that prices are dropping, but most folks I know don’t seem to believe it yet, so it is good to get info from the ‘trenches’.
Welcome to renting, BTW. I have done it all my life. I had hoped to own by now, but what can I say? Bubbles happen. Anyway, the more things unfold, the happier I feel about sitting this thing out. Glad to have your company
You probably know this but split your $900K (or whatever) into $100K chunks to get FDIC insurance protection. I don’t know what Alocal Credit Union is investing your money in but it’s probably mortgages.
Actually, it’s probably better to just put it in T-bills. You take a little hit on interest, but the gummint can’t go bankrupt.
“The person that bought my house for $900K is an engineer…It would rent for about $2500 a month.”
Hee hee hee, my rent vs. own calculation (including tax deduction, and interest forfeited on 20% down) would, in my situation price it at $561K. Yup, $400K loss is about right (assuming that we don’t overshoot on the downside). Good shoot’n, SLO!
$900K is some serious jack. And it would rent for $2500? I know it’s kind of comparing apples to organges but I can’t help but think of how many $80/night hotel rooms you could build for $900K - at least a dozen. Yep, his 400K deposit is gone, currently being amortized at the rate of about $500/day.
do you guys realize that with your money in CDs and in the bank you’re financing this lunacy? banks loan out the money. better hope you don’t lose all if your bank fails.
unprecedented credit boom+unprecedented mortgage lending+fractional reserve lending+fiat currences may=disaster.
Wow, I’m frightened. If I heat my house your half-brother in West Virginia might get killed in a coal mine.
Normal CDs are federally insured, aren’t they? You will get your paper dollars back and, according to the deflationary scenario, they will buy as much American goods as they do now.
peter- normally, yes. but:
unprecedented credit boom+unprecedented mortgage lending+fractional reserve lending+fiat currences may=disaster.
The FDIC is going to fail. The FSLIC failed in the S&L crisis.
The question is, do you want to count on Congress to bail out your crappy bank, or do you just want to go straight to the source: TreasuryDirect.gov?
prices have been dropping since march - liars
“‘We’re seeing more strength in our role as a buyer,’ he said. ‘They were aggressively courting people who had just been walking through.’”
Funny thing but to any people with even a marginal memory or old enough to have one, this observation isn’t that strange. It was normal to be contacted by sellers 5 years ago. That IS a normal market.
Wait until the defaults start to hit hard. No one will be selling anything. Asking prices will be set by LENDERS and SALES prices will be set by buyers. It’s going to come down to lenders swamped by REOs & clearing assets, by necessity. Now, that’s what I call a real estate market.
“Asking prices will be set by LENDERS and SALES prices will be set by buyers”
I just thought that was well worth repeating!
You know, the defaults don’t even have to be that profound to have an impact. I hear a lot of blather about comps this and deep equity owners that but just the pure psychological impact will be severe. Just the (gasp) notion that it’s occuring will act like a millstone.
What I LOVE about these reports is that the Bay Area is finally starting to see some of the same numbers that Sacremento saw 6 months ago. The same snooty attitude exsisted right up until the very end, which was that San Francisco was bomb-proof in terms of complying with the rest if the state or country, that prices would at the very least level off, and that the neverending supply of rich people would keep prices high forever. Well.. as we now see.. just like Sydney, Austrailia, where the same snooty attitude is highly prevelant, the Bay Area isn’t at all bomb proof, and in fact is probably more vulnerable than any other area in the country. The reason is mainly due again- to that same arrogant attitude: that the BA is the best place to live, and due to it’s supposed progressive stance, is worth terrific sacrifice to stay and buy a home in paradise. Well.. as we’ve all known for years, a lot of people did more than just buy. They borrowed, took out insanely risky loans, and in hindsight helped kick the market up way, way beyond the peak and into the stratosphere. The price levels have a very long way to come down, which I feel confident they will.
The biggest challenge is to get potential buyers to see things this way, and hold off for a few more years. Otherwise the cycle could start again prematurely. Then again, there are probably enough people out there who got burned and will have to sell to provide oversupply for years to come. So much for paradise.
Hey, we have been depending on a neverending supply of you rich Bay Area buyers to buy our houses down here! How dare you allow price declines . . . .
Yeah - if I have to hear that “everyone in the Bay Area and SoCal wants to retire here” mantra again - I’m going to vomit. Yes, the Central Coast is a great place to live, but THERE ARE VERY FEW HIGH PAYING JOBS HERE!
I predict 60% declines and we are nearly a quarter of the way there.
But but but…”we are the next Santa Barbara…it’s different here”.
No, wait - they’re supposed to all move to Bend, Oregon… in fact, you - there in SLO - you’re supposed to do that, too!
Mac Attack,
How you doin’ btw? Good point. Ben is fond to point out that damn near every place off the beaten path with half a view figured on getting the lion’s share of the retiring boomer’s dollar! Phoenix, Las Vegas, Tucson, Reno and yes…..Bend! They certainly BUILT like they were going to get all of that retiree dollar!
“….figured on getting the lion’s share of the retiring boomer’s dollar! Phoenix, Las Vegas, Tucson, Reno and yes…..Bend! They certainly BUILT like they were going to get all of that retiree dollar!”
Some thoughts (musings) that many people may be missing about the “Boomers”..
1 - many of them need to keep working to fund their retirement and payoff debt
2 - if they sell in one area to move to another aream then it is sort of a zero sum game…if they are left with excess equity, they will probalbly view it as windfall and “bank it”
3 - the oldest of the Boomers is only 60 yrs old, still a decade from collecting social security and medicare, which means they can’t afford to retire and/or are not quite ready to start paying for healthcare out-of-pocket
4 - the oldest of the Boomers’ children are starting to have their own kids, which means the Boomer grandparents aren’t quite ready to give up the homestead, uproot and move away
5 - the youn gest of the Boomers are no way near retirement and are still in in the career building, family building, wealth building, etc. phases of their lives
6 - the Boomers in the middle…still too young to retire and are in with the the folks in #5
7 - many of the Boomers are elderly parents that the Boomers aren’t about to leave behind, similar to point #4
8 - IMO..even in light of my above points, the whole Boomer impact is very over-rated. The Boomer births spanned about 20 years, so it will take many more decades for all of the Boomers to retire, move, die, etc. Also, despite the limited research that I have done on the whole Boomer generation birthrate thing, it appears that birthrates in the years following the last of the Boomer births really are not all that much less then the Boomer years. Yes, there were fewer births, but it truly isn’t as though people stopped being born. If anything, I think there will be a bigger impact (someday) as a result of the x’ers and y’ers having much fewer children than the Boomers. Of course, the immigration thing is a real wild-card.
Anyway, I wouldn’t let the Boomer thing be my guide.
Don’t forget Bozeman, everyone wants to retire or have a “second home” here. And Flagstaff, Santa Fe, Northern CA, Boise, Walla Walla, Iowa City, S. Florida…
Hear hear. “Boomer” is a media myth, nurtured by the internet. Originally meaning kids born within a couple years following the returns of millions of military men from WWII, it grew in timespan to include, not only those born say in 1947, but in some cases the children of those born in ‘47! As long as you were born between 46 and somehow up to a generation later, you were in the category, as though being overseas for a couple years compeled the soldiers to unendingly beget children for the next couple decades.
So here is the real estate definiton of a ‘boomer:’ Those people who are waiting in desperation to move [fill in wherever it is in the nation the real estate professional is trying to sell property.] And note that there are an unending supply of boomers that are rich and want nothing more than the chance to come to that very spot, and all the other very spots.
A regular, and surprisingly heated, argument that we have in my office revolves around the absurdity of labeling a ~20 year cohort a “generation.” It’s not like there is some sort of official, generation naming office of the government.
“What I LOVE about these reports is that the Bay Area is finally starting to see some of the same numbers that Sacremento saw 6 months ago. The same snooty attitude exsisted right up until the very end,”
I hope you are right, believe me, but in San Francisco it is too early to declare victory. Prices have flattened, sales a down some, inventory a little up, but hardly a crash. I believe a crash will be the final result, but the scratch-your-head funny money that has been propping up San Francisco real estate still seems to be around. Maybe by autumn’s end we’ll be seeing evidence of better news.
This really boiled my blood. In “helping” former renters become owners, the City succeeded in putting at least six people under water. Gee, thanks! Here’s a thought for the City government: Fix the potholes, police the streets, and stay the hell out of the marketplace! There is nothing wrong with renting! What a bunch of incompetent a$$es.
From the Santa Cruz article:
Consider the Blaine Street condos in Santa Cruz, where the city’s First-Time Homebuyer program helps turn renters into homeowners. The newly built complex of studio and one-bedroom units went on the market in April, with prices from $399,000 to $525,000.
Five months later, six of the 13 condos have been sold, and the advertised prices are lower, from $365,000 to $499,000. One is pending.
The buyers have been mostly younger and single, some local and some from over the hill, according to real estate agent Monique Watkins.
Yeah, you would think that would be on page one. ‘City Program Puts Low Income, First-Time Buyers Underwater.’
I would have to buy a copy of that edition and frame it for my living room. This is the first story I’ve read and actually felt sympathy for the FBs. In all likelihood they are hard-working, honest people that just wanted to improve their station in life.
Please. People who depend on government to advise them what to do deserve extra sympathy?
two sets of bomers:both own primary homes for over 20 years:
one group refi’s and buys vactions home, 2nd home to flip etc. Now completely leveraged in all homes and borrowing from 401K to make payments.
group two: never borrowed on the house but spent every penny they made because they HAD THE HOUSE TO RETIRE ON, well they are damn worried that their big house will be worth nothing when they retire.
Everybody losses in this deal.
That’s what I can’t figure out about San Bernardino’s support of the non-profit “gift” assistance programs. The IRS calls them scams but San Bernardino county passes a resolution to support programs that put people underwater from the get-go. Wonder how well these non down payment loans are doing now that prices in So Cal are dropping?
See San Bernardino, CA Passes Resolution Supporting DPA
http://www.supportdownpaymentassistance.org/Documents/SanBern-CA-Resolution.pdf
Pure idiocy. Must be the idea of those braindead ex-hippy types that infest Santa Cruz, along with the usual crooks who just want to rip people off. At any rate, the word “homeowner” is a load of BS these days. It should be replaced with “borrower of an insane amount of money that will likely never be paid off”.
I think people here have been calling them “homedebtors”. I like that.
Five months later, six of the 13 condos have been sold, and the advertised prices are lower, from $365,000 to $499,000. One is pending.
The buyers have been mostly younger and single, some local and some from over the hill, according to real estate agent Monique Watkins.
“In spite of the slowing market, Blaine Street Condos still are very competitive,” she said.
The prices have come down $25,000 to $30,000 in five months and less than half have been sold in spite of the city program. I would hate to see the uncompetitive or sort-of competitive homes.
Typical homes in Santa Cruz went around $125-150K… and were much better then the condos in question. The $400/500K makes no sense since there is no high paying jobs in the county. The peak of the local economy is summer. After thats its pretty dead.
Santa Cruz used to be cheap until a few drought years showed folks that the Hwy.17 commute to Silicon Valley wasn’t that bad. People were already making long commutes in from the Central Valley, Livermore, etc. where prices were affordable. Folks decided they could live near the ocean for the same price and drive as the Central Valley, so prices exploded. There are some rich hippies in/around Santa Cruz, believe me. They were in the right place at the right time.
ad
“…That’s not the case if you ask Thornberg. ‘This is way beyond the Fed,’ he said. ‘It’s just so out of whack, it’s going to take a long time to clear out.’ ”
Did you notuce that after leaving UCLA the (Prof.) Thornberg’s comments are sounding much more direct and point blank.
(If I get it right he joined Beacon Economics in Bay Area, Cal. )
Good he has not left california, we will get to hear him often. In absolute $$ Value terms, california is likely to see highest bubble $$ vanishing.
“way beyond Fed..” that is pretty strong!
Painful days ahead and Tylenol won’t work.
I don’t agree with “way beyond the fed” in that the Federal government created this whole mess by buying loans. That way, lenders would give 500K or 1M to any bum who walked in off the street since they can just package the worthless thing up and sell it to the gov’t. I’ve said this many times but it’s a scam and the taxpayer will end up bailing people out and the lenders (and gov’t) - in other words the fat cats - will make out like bandits. How much more abuse like this can our country take before something snaps economically? The dollar is becoming trash currency and this sort of thing only worsens the situation.
CirclingVulture I couldn’t adree more. The government and the banksters come up with more schemes than you or I could ever think of to keep the circus going. Sad thing is this economy and the dollar are not really valuable anymore since inflation does its job and the whole house of cards is financed with debt, not real investment into a product that is worthwhile. All these hedge funds and derivatives are a joke. At some point this whole game is going to come to a screeching halt. Look, I work for Orange County. Don’t tell me that people didn’t think it could ever happen, but it did, a government went broke. A precedent has been set, it is only a matter of time before the US goes “fourth world country” with its currency.
I understood “way beyond the fed” not so that the FED didn’t help to generate the bubble, but I think he meant that the FED cannot rescue the housing bubble from busting. Yes, they could decrease rates again, but they would risk a inflationary wage-price spiral, which would be the end of the FED’s power.
Just spoke with a HVAC contractor I’ve worked with for several years. He says the distance between Folsom CA and El Dorado Hills is a sea of overdevlopment with 25,000 home jammed in. Also notes a lot of empty commercial space was built with the expectation that if they build it business will be quick to follow. No dice.
Well… the office space went up all around Hillsboro (Intel) Oregon too, in 2000. In 2002, 80% - no, that’s not a typo, eighty percent - was empty.
If you want a real hoot check out the Portland Business Alliance and all of the vacant sq. footage available on their web-site. After a certain mutual company folded and left town (along with Meier and Frank) I see a whole lot than can be converted to lofts! I just wonder where all these people will work?
“Ginger Jacobson, owner of High Desert Construction in Victorville, is one of builders lowering prices. She recently knocked $10,000 off a Victorville house and is slowing production of new houses.”
Victor Valley is/was WAY overbuilt (”if you build it, they will come”). Many people came, but many more were built. There is currently negative pressure on rents due to all of the “investment” purchases.
once went out to victorville in summer 2005. It was baking at 110 % in the shade. Went to the center of old victorville near D street off the 15 fwy/18 intersection and honest i saw nothing but low-income social service gov’t handout agencies with poor folks flocking all around.
I think that frontier Homes was one of the big developers out there: The largest amt of new hb develoment was west of the 15 along bear valley rd/18 hwy.
Victorville and entire area will be really hit hard by the RE dwtnturn. Expect to see ave large SFH’s homes drop to less than $100,000 over next 2 yrs.
i drove through el dorado hills last month,and was horrified by the insane numbers of very poorly built mcmansions…either someone will do the right thing and burn this crap down,or it will be one of the worst slum areas in the history of california within a few years.it is unbelievable unless you have seen it.
“I think that any buyer who decides to wait until next spring is rolling the dice,” said Ron Atkins, an agent with REMAX Accord in Pleasanton. “I’ve told my own buyers that. I would be looking between now and January to get into a house.”
Ron Atkins a real stand up guy.
I’ll be looking for a house in the spring… of 2009.
“Broker Jason Bennecke said there is almost no recovery from asking too much when the house comes onto the market. ‘It’s like a dog chasing its tail,’ he said.”
Nothing could be simpler — go for the Dutch auction strategy: drop the price by $10K / week until the day when you spark a bid war.
Let’s not forget all the foreclosure activity to come that will further pressure prices downward. A co-worker of mine here in SoCal has a 2nd job as a “loan doc notary,” the lady who shows up at your house so you can sign your life away when you refinance. She told me that lately she has been ridiculously busy with refi activity but that things have changed. Instead of happy couples counting their riches she says her typical client now is a 20-something couple, high maintenance wife, Benz and Hummer in the driveway, the husband is usually some dumb cop or plumber who has no idea what he is signing, and the couple bickers through tthe whole process, saying “this is your fault we are in this mess!” Bottom line, they are in WAY over their heads and actually taking out more cash to cover the bills they already can’t pay. She sees serious trouble on the horizon and there are thousands of these couples in SoCal.
Nice tidbit.
Anecdotal evidence like this is very interesting.
The question is, when does the bulk of those couples hit capitialation?
Soon bond buyers will stop buying option ARMs (I cannot understand why they buy those bonds on the secondary market, but they still are.)
Then those couples won’t be arguing in front of your friend…
Five months later, as the foreclosure waves passes through, we finally see capitualation.
But that is a long way off… sigh…
Neil
what a way to go! taking another refi to pay for mounting CC’s, car debts, that summer vacation, that remodel job,ect. That’s more money into the pockets of the refi lenders. Lots of potential business for BK lawyers, credit counselors, shrinks, RE foreclosure industry down the road.
Don’t forget divorce lawyers.
Don’t forget divorce lawyers.
““Still, Tuesday’s move by the Fed to leave a key interest rate unchanged is an encouraging sign when it comes to the outlook for the housing market, (realtor) Earl Rozran said.”
Is this the same Mr. Rozran who said, time after time, that Fed’s rasing rates are a discouraging sign for the housing market?
Just curious.
Jas Jain
According to the San Francisco Chronicle, “The hardest-hit real-estate market segment was new homes, whose median price fell 11.6 percent to $574,000 last month, down from $649,000 a year ago.”
Wow! I wonder how and when that’s going to affect the median price of existing home sales…
National City released new data sets today for 2006 Q2, in case anyone wants to see whats going on in their market over time:
http://tinyurl.com/pl7u4
At some point this whole game is going to come to a screeching halt. Look, I work for Orange County. Don’t tell me that people didn’t think it could ever happen, but it did, a government went broke. A precedent has been set, it is only a matter of time before the US goes “fourth world country” with its currency
AND THIS IS A “RICH” COUNTY.
I wish we had more real life stories of such f&cked up homedebtors. Don’t know whether they are sad or hilarious. Sad someone has screwed their lives up. Hilarious that they are so stupid. Love the vanishing 400K (401K)? for the PG&E engineer. A whole lifetime of earnings waved away in a moment. LOL
OT (slightly), and way funny:
You’ve got to check out Jim the Realtor’s latest blog entry:
http://www.bubbleinfo.com/
Look for the entry titled “View Restrictions”…
That was way funny. I’m still laughing about the design of the vents.
Help!can’t decide.Could use some help here.I have a house that has a balance of 124,000,with a 15yr.loan,with 9yrs left.I make an extra payment at the end of every year.I should have it payed off in 6yrs.Also more than half of the payment goes towards the principal every month.Payment is pretty comfortable.The house is worth about 800,000.I’m torn whether to keep it and get it paid off and than buy another. Than let the first one pay for the second one or take the profit and rent.Confused in O.C.
You should extract all the equity now and invest all of it in property in Arizona before prices take off like crazy again. There are not making any more land in Arizona!
You could have enough for downpayment on 50 houses. In a few years you will have at least $100 million in equity!
If you can sell it for 800K, then do so. Put the proceeds in a safe, boring investment. Rent for about 3 or 4 years and buy it back (or something similiar) for about 500K.
Don’t sell, keep your house. No one knows for sure where this market’s going, and you’re in a good position right now, why mess around.
That’s been my plan. (13 years left on a 15 yr fixed) I THINK prices in my neighborhood are likely to drop 40-50%. I KNOW that I can afford my mortgage. One question is how bad you’ll hate missing the train if you don’t sell. I’m wistfully thinking that I could have cashed out and rented last year, but If you’re going to be pulling your hair out because you missed out on your chance to be rich…. Look at the upside and downside of various possibilities and decide how YOU feel about about it, because YOU’RE the one who has to be satisified with your decision.
What is so wrong with keeping the house, paying it off, and then owning it free and clear? Why do people have to get so cute about their homes. If it’s a POS or in a dodgy neighborhood, then by all means sell it. If you like the house, visualize how good you’ll feel when you own it free and clear.
You’ve given no indication as to why you would consider selling other than the fact you “might” be able to pocket what it’s worth and do something with that money.
Bottom line: do you like the home you are (relatively) close to owning? If so, leave everything alone (although it would be more effective if you divided that extra payment you make annually by 12 and paid that amount extra each month).
If it is a good decently well-kept up area, a clean safe area with good city government services, clean well-kept up parks, lots of greenbelts, which a large part of the south OC is, i would hang on to the house. I may run contrary to most opinions but i do not believe that the south OC will have such a steep decline in RE home prices as compared to other regions. Too many hi-end companies locating in the SOC.
North OC areas which i like are Brea, East Anaheim hills, Yorba Linda, placentia. Fullerton looks pretty decent as well, though it has a few frayed pockets toward the south.
If I had a house in any residential area of of the OC south of the 55 frwy which will be payed off in six yrs i would keep that sucker.
“‘It is my general gut feeling..that come around December, you’ll see exactly what I am telling you,’ he said.”
Gonna be a harsh Xmas, then ‘07 will be blinding.