‘Buyers Will Wait Until Sellers Are Desperate’: California
The Associated Press reports on California. “Greg Sterbens thought his 3-bedroom, 2.5-bath home on a cul-de-sac in wine country was a great deal when he hung up a ‘For Sale’ sign two months ago. List price: $685,000. After a month without offers, Sterbens lowered the price to $660,000. Earlier this month, he reduced the price to $639,000, making it the cheapest house per square foot in his Sonoma County neighborhood.”
“‘We have to be competitive, and we can’t be greedy,’ said Sterbens, who is having a home built in Redding. ‘It seems like people are afraid to buy now. They don’t know where the bottom is.’ Real estate agents and economists say Sterbens, and thousands of other sellers, may have to consider further reductions.”
“Fresh data show that California’s market is not immune, and may be on the cusp of a long-feared correction. ‘I could see some continuing declines at least over the next 12 months,’ said economist Stephen Levy,. ‘Typically sellers begin to lower their prices, and that’s when you worry that the bottom could drop out. We still haven’t reached that point, but I don’t see how the economy can continue with these prices.’”
“The median price last month in San Mateo County was $721,000, down from $773,000 a year ago. The median home price in Marin County last month was $803,000, down from $822,000 in August 2005. San Diego and Alameda counties also saw prices decline.”
“‘We’ve got sellers out there who have not adjusted to the new reality,’ said (realtor) Carla Giustino. Giustino urges clients with homes worth $1 million or more to drop prices by $50,000 to $100,000.”
“Broker David Schubb persuaded a client last week to lower the price on a home in the San Francisco suburb of Walnut Creek. ‘We were exploring interest rate buy-downs, making the buyers’ payments, even throwing in a new car,’ said Schubb, who has been selling real estate for 37 years. Schubb said he’s offering incentives he hasn’t used since the stagnant 1970s. ‘I’m not a genius who invented this stuff, it’s what we used to have to do all the time,’ Schubb said.”
“The only upside is that many California towns have turned from unaffordable hamlets to buyers’ markets.”
The Fresno Bee. “A large supply of properties for sale continued to put pressure on prices, according to figures released Thursday. A total of 1,265 new and existing houses were sold in August in Fresno County, down 21.2% from August 2005, DataQuick reported.”
“Joan Jolly, president of the Fresno Association of Realtors, acknowledged a tough market. More than 3,500 single-family homes are for sale in Fresno and Clovis alone, which is causing sellers to lower prices. ‘The $300,000 to $350,000 price range is the one that has a ton of stuff on the market,’ she said. ‘Some have been reduced to sell.’”
The Press Enterprise. “Rates for 30-year mortgage rates dropped this week to the lowest level in six months, but the break for homebuyers may not be enough to buoy sagging sales in San Bernardino and Riverside counties, according to some real estate agents, mortgage lenders and a university economist.”
“‘It is going to help. But it is not going to make a significant change in the housing outlook,’ said Esmael Adibi, at Chapman University. ‘The interest rates have not gone down enough to make a difference because the (prices of) houses are still too high,’ said Diana Nieves, an agent who covers Corona and Riverside.”
“Real estate agents said despite lower interest rates and price reductions offered by more builders and private sellers, prospective home buyers are sitting on the fence, waiting for something more dramatic to stir them to buy.”
“‘A lot of buyers are saying they will wait until November or December until the sellers are desperate. Some think the economy is really going to get bad,’ said Yvette Plautz, an agent in Eastvale.”
“The only upside is that many California towns have turned from unaffordable hamlets to buyers’ markets.”
So a drop from $773K to $721 (San Mateo County) is now a buyer’s market? Surely you jest. Please tell me the above quote is meant to be a joke. No market in America is a buyer’s market right now. I would suggest for those looking/wanting to buy to wait out the ARM resets from 2006-2008, especially if you are looking in CA, FL, DC, Vegas, etc. I have a feeling the battlefield will be littered with corpses by then. Best to stay out ofthe crossfire.
That realtor is in Walnut Creek, where the median is probably down 1-2% YOY, which makes his ludicrous statement even more ridiculous.
OK, does anyone have PRE-BUST quotes from Stephen Levy? Where was he on the bubble before this? Suddenly it can’t continue?? I don’t think it was that sudden.
if people are holding out, then why is it that the sale declined only 30% and not more. I would say that until sales decline to 70% yoy that the message is being heeded. People who buy now are still being over leverage to the max.
we’re still seeing sales data from houses that went into escrow in June/July. Give it a couple more months.
What is the timing from shaking hands/signing the sales contract to to escrow to reporting in the statistics (CAR, NAR, OFNEO)?
For existing homes, it depends on how long the escrow is; I believe the average escrow duration is somewhere around 40 days, so if a house was listed on June 15, went into escrow June 25, the sale occurred in August, which is just being reported now.
And anecdotally, stuff is staying in escrow longer and falling out of escrow more often as the market cools.
It’s a buyers market if you’re stupid and have a bucket on money, otherwise for most people i’ts an oppertunity to become a house poor pauper.
The quote is a bucket full of money and a box full of stupid.
No market in America is a buyer’s market right now.
This isn’t true. There are plenty of areas where median homes sell for less than twice median income. South Bend in Indiana, Buffalo in New York etc. Whether you want to live there is another matter.
South Bend, IN usually comes out near the top in affordablity rankings. Of course, the lack of many high paying jobs means that there isn’t much of a push upwards. I would hate it if this place turned into equity locust heaven, but if the Chicago types haven’t bid up prices here yet, then I think we’re safe for a while as things start to slow down there.
Shhhh!! All the flippers with only 4 houses underwater will rush there to add 5 or 6 more to dollar cost average and “diversify” their “investments”
RE: “the only upside”
As though realistically, fundamentally-priced housing is a bad thing! Americans in general are extremely short-sighted. Everyone loves to make a profit, but I think our blind lust for unrealistic returns may finally come back to haunt us over the next few years. Let this market plunge! In the end we will be better off, as hard as that is to believe.
>>As though realistically, fundamentally-priced housing is a bad thing!
Oh so true.
I’d like him to name 3 of those places where a median income can purchase a median house at less then 4 times income.
“‘We’ve got sellers out there who have not adjusted to the new reality,’ said (realtor) Carla Giustino.
It’s a new paradigm. Prices never go UP.
Yeah, but the stupidest statement followed:
Sellers whose house are worth a million or more need to lower their prices 50-100k.
Now, Carla, you dumb money siphon…….if the houses were “WORTH” the million dollars, they would SELL for a million dollars. You have sellers with houses worth 400k, hoping for a $$$ MILLION $$$$………….
My personal estimate for my area suggests that a 50% haircut on prices will bring the market into line with equivalent rental yields (including a substantial 15% homeownership premium).
The mania will eventually stop.
I personally believe that home sellers are in the Wile E. Coyote phase — where Mr. Wile E. has left the cliff, has just looked down, but before he starts his fall.
Homesellers have actually run right off the edge of the cliff — but they have yet to realize the fall that awaits them. Some of them have just looked down and the horror is beginning to show in their eyes.
I’m buying when the discounts hit 50%.
You are probably right about the 50% haircut. Sounds about right. But like in the ‘94 timeframe, it’s doubtful that you’ll be buying from a homeowner. Once the prices drop 15%-20% we’ll be over the average for defaults. That’s when the party really gets rolling, as the secondary market for mortgages dries up and $$$$ gets super tight. We’ll be watching the eyes bulging out while the sellers are getting strangled, gasping for their last breath before going under…
A 50% cut assumes rental prices are stable. If home prices drop 50% the economy will be a mess and rents will come down. So 50% may be a low estimate.
If we reach a situation where the fundamentals drive a 50%+ price decline, I’d be hanging onto every nickel I had. A situation like that means life is hard all over - whether you bought an overpriced house or not.
I completely disagree with the “a return to histortical norms/revert to the mean = financial disaster for the whole country” nonsense. This self-serving line is spouted mostly by underwater FBs and REIC shills like David Lereah.
A return to sane pricing based on “quaint” fundamentals –like incomes and equivalent rents– is NOT the end of the world, nor does it mean Great Depression II. What it means is those who recklessly and irresponsibly gambled on housing prices soaring to the sky forever will be screwed, while those who prudently saved and did nor spend/borrow beyond their means will eventually be rewarded with a price they can afford. This outcome is far better for the health of the nation than every shitbox next to the freeway overpass costing $1 million and requiring a neg-am 100-year loan.
AMEN!
ditto
You got it, HARM. There’s no doubt that there will be some pain involved in this reversion to the mean, but that does not mean that the next great Depression is looming, either.
Sorry, you’re wrong. We’re already in a recession, and a depression is all but unavoidable.
You have to remember that the housing bust is only the tip of the iceberg. Make no mistake about it — the U.S. is in worse shape than it was in 1929. There are so many macroeconomic factors at work here that “domino effect” will become the negative catch-phrase of the next decade.
The only statement I totally agree with is that the health of the nation will be far better for it… afterwards.
I sure hope that you are right!
Yes, this will be bad.
Both the housing market and stock market are wildly overvalued by historic standards, and that is where the boomer’s have put their “retirement funds” (both house & stock).
Houses will get squished past the mean by demographics - bommers don’t need large houses with empty nests, and Gen Xers don’t need ‘em w/out kids.
When housing eats it, so does consumption. Then coprorate profits go down, followed by stock prices, job cuts, lay-offs. pension losses, etc.
Americans do not have a “depression” mindset. When times get tough, they’ll raid their 401k’s en masse, sooner most likely, later definitely (to support retirement). This inevitable selling will crush prices in stocks.
The wailing and gnashing of teeth will move congress to act. Inflation all around to pay Social Security, Medicare, bail-outs, etc.
People will only cut back when they have absolutely no choice, and some not even then.
Remember, the great depression came upon us when we still had hard money. Even after gold confiscation, the dollar was still backed by gold at $35/oz. We were also a net creditor nation then, and not mired in expensive wars. We had a positive savings rate, and NO entitlements. We had an educated populace.
Fast forward to today.
Negative savings rate. Everyone is in debt up to their eyeballs, or at the mercy of someone who is. Dumbed down populace. Fiat currency teetering on the brink of destruction. BIGGEST debtor nation. Already mired in unwinnable wars, with another in Iran coming down the pipe. Plus, our economy is very shaky. Service based, with huge malinvestments from the tech boom and housing boom needing to get worked out. Gov’t debt & liabilities are so obscene that they are literally inconceivable. On top of that, the petro market is yearning to break free from the dollar, and the Euro is waiting with open arms.
I can’t “bear” to go on. It will be bad.
All I can say is get a depression mindset now, and hold on.
“I personally believe that home sellers are in the Wile E. Coyote phase — where Mr. Wile E. has left the cliff, has just looked down, but before he starts his fall.
Homesellers have actually run right off the edge of the cliff — but they have yet to realize the fall that awaits them. Some of them have just looked down and the horror is beginning to show in their eyes.”
Great analogy — entertaining and easy to envision.
Not even the self levitation device from ACME can save them! These sellers are cooked!
Great analogy! lol
Central Banker “I’m buying when the discounts hit 50%.”
Me too.
You’ll overpay!
Suckers!
Greg Sturbens said ‘It seems like people are afraid to buy now. They don’t know where the bottom is.’….
The bottom is not that hard to figure out. When owning a home becomes roughly equivalent to renting, on an after tax basis, that is when you will have reached the bottom. In Sacramento, a $400,000 home will rent for $1600/mon or $19,200/year. Buyer’s should come back into the market when the AFTER TAX COST of buying that home is EQUIVALENT or BETTER than renting. Assuming a 6.25% interest rate, a 20% downpayment (and 6.25% opportunity cost for the down), $3,500/yr for RE tax, insurance and maintenance, then by caclulating a 35% total fed and state tax bracket, a buyer can afford to pay approximately $250,000 for that home. That is a 38% reduction in price to get there. When the market drifts below this level, then you will slowly start to see people move back into the market.
Buying before that happens is moronic, dangerous, and unecessary. Think, think, think. Not buying now is missing NOTHING. Is this market going to suddenly recover and start appreciating at 20% a year. NO WAY. Sit back, relax, enjoy renting for 1/3 the cost of owning. Save the difference in cash flow for your stronger down payment and a much nicer home in 2 to 3 years. Let someone else lose the $150,000 in equity.
I think you’re overlooking the prospect for an economic downturn that may be coupled with the price declines. Then the bubble buyers default, taking them out of the market and any economic downturn suggests that prices need to come down even further as rents decrease to match renters’ ability to pay. 50% minimum in bubble areas and it might overshoot if $$$$$ gets tight enough and bearish housing psychology takes hold…
Also ,a buyer has to wonder if they are even going to have a job in 2 years . Holding out on buying is smart . This rally next year that the NAR and realtors are predicting is not going to happen even if interet rates go down .
Don’t forget the popcorn to accompany watching the massacre!
Life isn’t so easy to predict.
For example, many FB’s may place their homes on the rental market. The oversupply may cause rental rates to drop. This will lower the target price that you would be holding out for. In the meantime the market may reach its bottom at a higher price and turn around. You’d still be waiting - thinking to yourself that this is a deadcat bounce. You may miss your buying opportunity altogether in the process.
I’m not claiming this is what will play out. I’m just offering it as an example of why your simple solution isn’t a silver bullet answer.
The only way prices won’t decline by 50% is if price inflation were to catch up, which would imply much higher interest rates. That could only happen if RE was purchased on fixed rate loans. Given the FB’s appetite for HELOCs and ARMs/Option ARMS and Int-Only mort products the FBs would be toast anyway and new buyers won’t emerge at current price levels as Int rates would kill them.
This RE market is in a corner 1000 ways. Nowhere to go but down, and hard…
Timing any market is risky and hitting prices close to bottom difficult, but nevertheless falling real housing prices in the next years are guaranteed in many places. Many home buyers don’t see themselves as investors going for maximum profit, but even for them, it is probably best to wait until the bulk of exotic mortgages have reset and buy afterwards only, if they plan to stay for a longer time.
No need to time. Just buy when it makes economic sense over renting. Buying equals throwing away money to interest, taxes, upkeep, insurance. Renting equals throwing away money to the rent itself. When (interest + taxes + upkeep + insurance + commision)
whoops buy when interest + taxes + upkeep + insurance + commision) lessthan (equivalent rent)
Peter T posts “Timing any market is risky and hitting prices close to bottom difficult,”
Very well put. As many of us (True Belivers) did our best to “time” the Top few Nailed it…. but many were close enough. Besides all the lip-flapping and day to day drama plyed out here, There is only one unresolved issue. When to buy back in? Some will go early, some have other needs, many, many diffrent strokes for differant folks.
Me I want the last “full measure” I want to be keen deep in blood and nail them for 10 more %….LOL
JR - everybody, for God’s sake please stop it with the “35%” tax bracket nonsense! Everytime I see someone calculating the “cost of homeownership,” they assume a 35% bracket.
That bracket only applies to MARGINAL, TAXABLE income ABOVE, like, $300,000 per year. Anyone experiencing the 35% percent bracket is among those J.P. Morgan was talking about when he said only those who didn’t have to ask how much the yacht costs could afford it.
Anyone in the 35% bracket (probably two percent of all of us, at most) can buy a damn house and not worry about any of this anyway!
Sorry for ranting.
DC_Too,
In California, we pay 9.3% to the fed. So I used a 25.7% Fed rate. And my tax rate last year was greater than 35% combined.
I meant 9.3% to the state. Duh.
DC - Too
Speak for yourself. Try living in a high tax state like california where the top marginal tax rate is 9.3% at 40K. Add this to the 25% marginal tax rate at 30K for the Fed and you come up with a 35% tax bracket for anything over 40K per year. This does not include SS, SDI, MediCAL or any of the other sundry taxes one pay is this Peoples republic. So I think the 35% percent tax bracket is just about right on marginal income.
9.3% at 40K? Holy smokes! I am generaly not a tax complainer but that is harsh!
Ever consider moving. The only way I would live in CA is if I earned unreported income. Those on simple W2s are getting KILLED, in every way. High cost of housing, prop taxes, everything overpriced & getting taxed to death.
You would think with all the financial pain, the overcrowding, pollution, crime, abysmal school systems, real earthquake concerns, traffic… there wouldn’t be anyone left to pay those taxes. You can bet the illegal immigrants aren’t paying nearly enough since many are under the table earners… or in jail paying nothing.
Check out the U-Haul rate schedules. That’s always a good indicator.
California offers higher incomes, which comes at a price - higher taxes, expenses, thicker traffic, etc. Also, that is why U-Haul rates are higher for Californians than say Nevadans.
Do people understand the difference between a tax bracket and what you actually pay in taxes?
U-Haul 1-Way Rental rates are not based on Californians’s ability to pay more. They are based on availability and the likelihood that the rented unit will make its way back. Rather than outright paying someone to bring the units back to CA (where they are needed for more anticipated 1-way trips out of state) they charge customers less for the 1-way back to CA.
Unfortunately for those unlucky ones that end up taking that deal, it will be the very last bargain they are gonna get.
Thank you for verbalizing what my husband and I are doing right now. We are renting after the sale of our over-priced starter home, saving the difference to add to our profit, and planning our lives in our future dream home that is properly priced.
Ok, I know there is a formula that keeps getting quoted here and it always seemed to make sense to me.
But on the example above, the renter pays $19200/year ($1600/mo). Assuming the buyer of a home purchased at 35 years old (In my family we tend to live in our homes late into our 90s). I could live in that home for 60 years…30 years after it was paid off. If rental prices stayed stable, that would be $1,152,000 over that 60 years that I’d pay in rent. So long term, I’m not sure how buying is losing money. (Sorry, you guys know I’m a bubble follower….I just need you to help me with the numbers. Sometimes I think the formula looks at a single year (of a working age person) in isolation rather than looking at the cost of housing over a complete lifetime.)
Ok, mortgage interest and taxes over 60 years will bring it close…then lots of maintenance over those 60 years. I see the error of my ways here.
CarrieAnn,
I don’t think that anyone is advocating using the rent vs. own calculations for figuring out if you should *ever* buy. I use them for “back of the envelope” type calculations to see in what ballpark the prices make sense vs. renting. Of course, over the span of 60 years, almost every assumption you can make will change, so the assumptions *I* use I base on a much shorter time frame. For now, and probably for the next 2-3 years (maybe more), I can save a *boatload* of money renting vs. buying (assuming same house, taxes, opportunity cost of not investing down payment, etc.).
In other words, I don’t like throwing my money away paying mortgage interest. I’d rather take the money saved and invest it in assets that pay *me*.
arroyogrande I agree with you. I have been a renter all of my life investing the difference. Now my equity in the stock market is substantial.
In this past year I have been investing with a new focus on dividend paying stocks. My portfolio does not require insurance, nor do I pay taxes on my shareholdings every year, nor do I pay anybody the “6% wealth transfer tax” every time I buy or sell. However much more spending the local school board wants to do does not affect me much, and I do not worry about it. (My landlord smiles every time I pay the rent because - you know - RE always goes up!) Now I just kick back and watch classic movies on TMC and relax while my portfolio pays me an income.
Life is good!
I thinkthis is the same basic idea that was used in that paper by the two profs at the Claremont Colleges. On one level it makes sense, but it is essentially useless because housing affordability should be calculated on a cash flow basis. It doesn’t matter if you’d be better 30 years out if you go bankrupt in the first month.
Someone else could probably explain this better.
I have been enjoying renting for some time now
“Buyers Market” sounds like the new NAR talking point - replacing “soft landing” and “return to normal market”. Next year it’ll be “Bargain Basement Market”.
How about if we amend that to “F-d buyers’ market?”
Who decided that sellers will be desperate in November or December?
They will be… in 2007 after their house remains unsold for over a year and they get their new tax bill.
along with their Neg Am IO adjusting.
if the majority of buyers decide that, it will be so.
Make it so!
Hopefully, when the new lending guideline go into effect, the “stated loans/ liar loans” will be decimated and so will the speculators.
Real buyers and real investors won’t buy until they can justify the purchase.
I dont’ necessarily agree.
Subprime lending guidelines are not governed by the comptroller of the currency since much of that money is coming from non-bank entities. We won’t necessarily see a tightening so much from that arena as we will likely see a credit event with rates jumping for dirty paper 2-3% in a month. FNM and ilk are not lending SISA type products and neg-am products that is fueling this speculation.
Sellers won’t be “desperate” until the bank comes a-knockin’. That’s how denial works. Mainly their emotional state will depend on whether the security of their finances can compensate for a mountain of debt they’ve acquired with the possibility of upcoming rate adjustments. Some will weather it okay, others will feel the slow burn. But I do agree in the coming months they will collectively begin to see the hole they have dug for themselves. And the Fed ain’t bailing them out either. The banks, maybe, but not the FBs.
SF Mechanist
“Knock, Knock”
Borrower: “Who’s there?”
Knocker: “Lender”
Borrower: “Lender who?”
Knocker: “Lender ass out on the street. This house in now mine.”
“Sellers won’t be “desperate””
Wake me up when the BANKS are desperate.
Both so I can look to buy, and so I can hide my wallet from the Feds looking to bail them out.
If you followed my posting earlier in the day about two agents(husband and wife). here is another reply from michael.
I should complement him for being nice and prompt in his replies. There is another agent tim * (who still BSs on realty times and )was very rude when I emailed him earlier this year about his BS on realty times.
ANy way here is a recommendation from a realtor, I believe a successful one in ventura county.
Madhu:
Thanks for your insights. Here are some of my comments…
1. Many people buy homes with “No documentation required” and therefore do
not have to show their incomes to the lender.
2. Many people who have bought homes that way, have accumulated a lot of
equity and have often refinanced their homes and have pulled out equity.
3. We used Gary Watts because he gave a presentation at our “Economic Forum”
that we put on every year at the Civic Arts Plaza. He has been dead on for
the past 11 years. However, I agree with you that he will not make his
predictions this year
4. Including our flip, we have sold 8 homes this year. However this is more
due to personal reasons (had a baby daughter and traveled to Germany due to
a sickness of my dad. Our office (Aviara Real Estate) has sold a large
amount of homes, but not as many as we sold last year. We also have two
listings right now, that have not seen too much activity.
I also agree with you that it probably is not a good time to buy right now
and that you should wait for an opportunity and follow the market very
closely.
I hope this helps you. If you have any more questions, please feel free to
e-mail or call at any time…thx
No one seems to notice (or care), but Gary Watts is using some new math to achieve his revised 10-12% appreciation for 2006.
We have to be competitive, and we can’t be greedy
Well that’s good, because if you’ve watched the Sonoma market for the past year, you’ll know exactly how greedy people were. Homes in the $600-$800K range routinely require an extra $200K to render livable. For a clue to their real value, look back to 2000. So, even if $639K looks like a “fair” price, it’s still riding on the back of unwarranted, even “greedy” markups. Owners/flippers thought they would make a killing, esp. eastside Sonoma, but now the killing is making a full circle.
Because everyone wants to finance a car for 30 years and pay $10,000 to $20,000 in extra interest.
Not to mention financing 6% of the price of that car as the inflated agent’s commission.
I’m tired of the RE agents and industry cheerleaders claiming that A:” Prices will probably continue to fall for the next 12 months”, and B: ” It is now a buyer’s market.”
Neither one of these are going to come true. This in effect is RE agents and the like trying to throw in some damage control. The fact of the matter is that the only people left to buy are people that have been waiting for a correction for YEARS and grew tired of hearing the stupidity and hoopla for years now. I’d say many of us actually look forward to seeing some people who bought squirm for awhile, sort of like the satisfaction one gets spraying a hornet’s nest with hornet killer after being stung. I agree with the above statement that we should ALL wait until prices drop 50%. Even then, prices will STILL be insanely overpriced, but the drop will be enough to extinguish all enthusiasm for Real Estate investment and monkey business for years to come, allowing for us to get back to a normal living standard- not one frought with unaffordability.
“Fresh data show that California’s market is not immune, and may be on the cusp of a long-feared correction. ‘I could see some continuing declines at least over the next 12 months,’ said economist Stephen Levy,. ‘Typically sellers begin to lower their prices, and that’s when you worry that the bottom could drop out. We still haven’t reached that point, but I don’t see how the economy can continue with these prices.’”
Get real, dude. Certainly the news of how real estate dependent the California private sector has become over the last five years is so widely known that it has even penetrated the ivory covered walls of Stanford University by now? If California home prices are already falling before any kind of a slowdown has even materialized, what do you think will happen when a large number of realtors, mortgage brokers and home builders are all out of work?
http://www.ccsce.com/bio_sl.html
“‘We have to be competitive, and we can’t be greedy,’ said Sterbens, who is having a home built in Redding. ‘It seems like people are afraid to buy now. They don’t know where the bottom is.’ Real estate agents and economists say Sterbens, and thousands of other sellers, may have to consider further reductions.”
Redding = ground zero for the speculative bubble in second homes
“‘We have to be competitive, and we can’t be greedy,’ said Sterbens, who is having a home built in Redding.
Can anyone check out this property on the CA tax records and find out just how generous and altruistic Mr. Sterbens is being with his pricing?
Man, the ability to do that on the internet is going to be the achilles heel of FBs everywhere from now until they puke these properties up. I don’t want to hear any BS. I’ll check it out for myself.
Gregory E. Sterbens bought his house in Santa Rosa for $252,955 in mid 1994. It is currently assessed at $321,252 by the county. Clearly, Beer and Cigar Guy, Mr. Sterbens is acting quite unselfishly, dropping his price by $45,000 so he can cash in on his $350,000 GAIN. Good call and I am happy to be of service.
Thanks JR and txchick! Don’t get me wrong- I believe that everyone looks for a profit when selling, I just see a big difference between profit and profiteering. Greg was probably using the ‘royal we’ when he said “…we can’t be greedy.” Well, I’ve got one for him- ‘We are not amused.”
Santa Rosa may be in Sonoma County but it is nowhere near the heart of wine country. It’s a crappy exurb and 660k is way overpriced. 460K would be more realistic.
It has been said before on this blog many times. Right now we are in a no mans land and have neither a buyers or a sellers market. It will be a buyers market again, but not till prices have adjusted out the bubble, speculator and option loan factor. In some areas of the country these have not been much of an influence, but in those areas where they have, watch out, the sky is falling!
And in many areas where they have not, manufacturing layoffs will have an equally devastating effect.
Instead of a multiplier effect, a divider effect perhaps?
Exactly. Leverage and ripple effects work both ways.
I believe inventory needs to be at 9 months to be considered a classic, serious, price-slashing buyer’s market . 6 months worth of inventory is a “balanced” market — anything less gives the edge to sellers, anything more gives the edge to buyers. It’s just one barometer for figuring out where your local market is at…
Where I live, West Palm Beach, FL, we have roughly a 36 month supply of homes. How much of a “classic, serious, price-slashing buyer’s market” is that number? Can we even come up with an appropriate definition?
DAP,
I live in WPB too (CityPlace). You should see it here. The parking spots here (which are deeded to the condos) rent for about 200/mo. So you would think the law of supply=demand, right? Nope, there are HUNDREDS of spots here. Nobody lives in CityPlace, its the little secret that only those who are left in the wasteland know.
The complex I live in (right behind the tower, for those who are local) has a few hundred units. I would guess more then 60% are for sale/rent. Its a total bloodbath here; just those who are bleeding don’t really know it yet.
WPB (especially downtown) is going to be one of the hardest hit in the coming downturn. The building here has just been amazing; prices more so, lack of end users….Well, that’s just staggering!
I’m hoping to pick up a nice downtown or Cityplace condo for a purchase about 50% off from peak prices … most likely in 2008. That should be about the time people say they never want to own real estate in South Florida again. It’ll be kind of a weekend getaway for the wife and I when we need a break from the kids! LOL
Mike F.,
I agree with you. The condos in downtown WPB are going to get crucified. The building of those units is speculation at its finest. I finished my MBA at PBA this past summer. I remember driving by One City Plaza all winter long when leaving class and seeing roughly 6-8 lights on. The place was a ghost town during “peak season”. Hell, some of those complexes haven’t broken ground and their puking up equity at an alarming rate. How’d you like to own one of those units? With each brick laid the value drops. Things are going to get very ugly here through 2009 in my opinion. I would’t look to buy until 2010. I’d let the ARM reset happen first. You saw were PBC had a 226% increase in foreclosures from August of 2005 to August of 2006 and a 50% increase from July 2006 to August of 2006. Rough times ahead.
DAP — I think you’re wise to wait a long, long time if you’re looking at a condo in South Florida. And not just for the price drop. I’d worry about the viability of the condo complex/association if too many FBs go belly-up in one of them. Who then will pay enough HOA fees to keep the place up? The banks? Don’t think past history supports that, from what I recall from postings here quite some time ago. Lots of nightmare scenarios, including takeover by a local government or slumlord and conversion to public housing (at least the fruit pickers could bring you the fresh stuff daily).
I like condo living, and in that respect am in the minority here, but I would only buy into one that has a very comfortable percentage of owner-occupants who appear to be able to weather the downturn. I would, however, consider a longish-term lease at market rent and with a right of first refusal on sale.
“‘A lot of buyers are saying they will wait until November or December until the sellers are desperate. Some think the economy is really going to get bad,’ said Yvette Plautz, an agent in Eastvale.”
Give it a minimum of four years, unless you want to catch yourself a falling knife. Home prices are sticky on the way down, and they have a long ways to fall in order to restore any semblance of affordability.
Keep in mind that based on previous cycles, property values may fall below “rational” values, in an overshoot effect.
Substitute “will” for “may”. This is not your average property cycle.
I don’t know. Q4 ‘07 might not be too bad, depending on how fast the defaults pile up. I’m not saying 4 years from now the prices won’t be lower but the price decline will flatten out at some point and only drift fractionally lower… for a few years. The “best” time to buy might be when the defaults begin to trend lower but as long as there are plenty of REOs there’s going to be a good deal out there.
I’m guessing the biggest real estate bubble in US history might take longer than average to unwind (which would probably mean over 5 years), but it is very hard to make any kind of confident prediction. On the one hand, you have the unraveling across the Pacific of Japan’s biggest bubble ever — still going after sixteen years. On the other hand, the information cascade effect might be far more extreme this time thanks to internet news, blogs, etc. I guess you will have to ask a one-armed economist if you want to get a good prediction.
Did anyone see the following articles on BW?
“Bad Blood Over Bad Loans - Mortgage defaults are rising. Wall Street thinks banks should mop up the mess”
“When will the tsunami of foreclosures hit? With millions of adjustable-rate mortgages about to reset this fall, experts expect a wave of foreclosures by Americans in every income bracket. Here’s why they could soar in late 2006 and beyond. By Charles DuBow, BusinessWeek
I just came from a brunch with some of the ladies in the neighborhood - a nice area here in Sterling/Ashburn VA - and one is upset that her current renter is leaving before the end of his lease - they’re divorcing - and her hubby is a realtor and it was suggested she put it on the market. Well, the consensus was unanimous - things just aren’t selling here!!!! Homes in this neighborhood have been on the market for a year and have not sold. Most of them are over 650k, a couple are over 700k and I guess the buyers for that level are fewer. We’re renting at 2500 a month and are quite happy but this house was on the market for 700k+ for over a year and never sold while the owners built a 1M place farther west. So even these wealthy (not I) ladies can’t deny the market here. I’m just hoping for this place to drop below 500k so we can buy! By then, the owners will be thrilled to take our offer. At least that’s what I’m hoping!
“…her hubby is a realtor…”
I’ll bet that wasn’t helping the marriage.
This is probably why they’re worried. I’m sure he’s not selling anything close to what he has in the past. I’d be curious as to how many houses some of these realtors are selling in this area.
Sales are definitely dropping a LOT this year. Here are latest sales numbers posted in the Washington Times today for the Virginia part of the DC metro area:
August Resales
2002 4,330
2003 4,870
2004 5,417
2005 4,969
2006 3,179
That’s down 36% since last August and down over 40% from peak in 2004. That’s a real beating. Imagine if you had a 40% chop to your own income.
But it’s actually worse than that for their pocketbooks because in 2004 their expenses selling a typical house were much lower.
Instead of running an ad for a few weeks and then getting a fast sale in a hot market, now they’re paying for ads for months and months — and for an increasingly large number of listings. All for 40% less revenue? Ouch. Oh, the poor, poor realtors.
Sterling / NoVA is going to get doubly crushed in the next 5-10 years. Not only is the bubble popping, but the next administration will have to put a stop to the drunken-sailor spending habits of this one. With mucho layoffs, the outer burbs are going to be in a world of hurt.
Yeah, either that or they’ll tax the hell out of everyone.
Not 5-10 years. Now that we know the top was reached in 3Q05, I believe the bottom will be reached before the end of 2007. The declining portion of the cycle is always shorter than the upward portion.
I agree, I think the use of ARM’s and neg-am loans will speed up the fall to the bottom.
“I’m just hoping for this place to drop below 500k so we can buy!”
I will bet that there is an excellent chance you’ll be able to do just that. You’re talking about a drop in the neighborhood of 25% — that almost sounds like a done deal by 2008, unless there is that one GF out there who picks it up earlier. Even then, there will be the one next door.
“‘We’ve got sellers out there who have not adjusted to the new reality,’ said (realtor) Carla Giustino. Giustino urges clients with homes worth $1 million or more to drop prices by $50,000 to $100,000.”
Ah, Carla Giustino chimes in–a face that’s tacked on shopping cart ads all over Marin county (she’s very photogenic). Realtors are an everpresent, inescapable presence in Marin county, no doubt thanks to our housing boom–which is now a unmitigated bust. Last year, the mantra in Marin was “House prices never fall in Marin, which is now supplanted by a “new reality”. So what is this “new reality”, and will 5-10% reductions make a difference? Here’s a bit of reality for Carla, Melissa Bradley, et al: homes in Marin have been reduced 5, 10, even 20% to little effect. So what will the “new reality” come spring 2007–reduce the home until it sells? Unless “money is no object”, make that sooner than later!
What’s a tanorexic to do? Work for a living? Ha!
I have seen in coastal Los Angeles, prices have dropped 5-10% since their peak in the second quarter. Listing prices continue to be decreased because buyers are not making offers. I feel that prices can still drop 40% to get to where they should be given affordability with “normal” mortgage financing, instead of loans with unsustainable artificial low payments, 100% financing and over-stated income qualifying.
This article seems to agree with the over-valued prices: http://money.cnn.com/2006/09/21/real_estate/still_overvalued_housing/?postversion=2006092110
(70% over valued means prices have to drop 40% to get back to real values.)
I have no idea if prices will drop this far. They may even drop more. Anything can happen, but I expect to be surprised as I have been many times in the last 30 years I have been in the loan business.
I agree. I have an interest in the South Bay (Manhattan Beach, HB, RB, PVE), having lived there since 2003 and spending now most of my time in Phoenix. 40% drop is what I anticipate. I also like the area near SLO on the central Coast and Mendocino on the north coast. I’m watching all those places. I think I will expect $400,000 to pay for some good beach area place in one of those areas in 2011 or 2012.
Since you’re in the business, I’d be interested in your thoughts on lending standards and the “waiting for Godot” feeling I’ve had with regards to tightening. I thought for sure more subprimers would be blowing up by now … the MBS markets would have started forcing significant tightening on primary lenders … and signs of a true credit cycle turn would show up in the bond markets. But it seems like spreads over Treasuries for riskier debt are still pretty tight, and that lenders haven’t signficantly tightened standards. Am I just missing it and it’s happening “behind the scenes?” Or have we not crossed that threshold yet where risky bondholders actually start worrying about return OF principal instead of return ON principal?
70% overvalued applies only to places you wouldn’t want to live in. The really nice places have appreciated upwards of 250%, so I’ll be looking for oceanfront property at a 75% haircut.
“Greg Sterbens thought his 3-bedroom, 2.5-bath home on a cul-de-sac in wine country was a great deal when he hung up a ‘For Sale’ sign two months ago. List price: $685,000. After a month without offers, Sterbens lowered the price to $660,000. Earlier this month, he reduced the price to $639,000, making it the cheapest house per square foot in his Sonoma County neighborhood.”
Greedy punk. The “cheapest” home in a ridiculously overpriced row of woodboxes? This is the kind of garbage-speak we’ll have to endure until the bubble really blows. How many idiots are seriously going to buy in this falling market at $639,000? He knows deep down that it ain’t gonna sell at that price either. Knock another $300,000 off the price and maybe an offer will come
“The only upside is that many California towns have turned from unaffordable hamlets to buyers’ markets.”
More garbage-speak. I guess if you’re not a very honest realtor you’ll say anything to try and sell another overpriced house.
A buyer’s market is not a reduction of $30,000, not in this market. The buyer’s market will be the reduction of $300,000, at least.
(There are plenty of areas where median homes sell for less than twice median income. South Bend in Indiana, Buffalo in New York etc. Whether you want to live there is another matter. )
I wouldn’t mind living in Buffalo. Trying to work there is another matter.
I wouldn’t mind living in South Bend. A university supplies a stimulating environment, and I like Lake Michigan. I wouldn’t commute from there to Chicago for work though.
There are a lot of places in Upstate NY that are nice to live in, very affordable, good schools, short commutes, etc. But it’s tough to get work there unless you’re a teacher or a healthcare professional.
There are a lot of places in Upstate NY that are nice to live in, very affordable, good schools, short commutes, etc. But it’s tough to get work there unless you’re a teacher or a healthcare professional.
If you HAVE to sell your home at this time, I would put it up for auction. Things will only be worse next year at this time.
Many who bought these overpriced houses over the last few years are just waking up to the fact that their home has very high carrying costs. (Mortgage, maintenance, prop taxes, insurance etc).
These costs were manageable under 1999 prices, which I believe is where we are headed. That means at least 50% trim in some places.
“A lot of buyers are saying they will wait until November or December until the sellers are desperate.”
********
Yvette got a couple things right with this quote. One is that, yes, sellers will be getting more desperate.
And yes, November or December is correct, too. Except she got the year wrong.
2009 - at the earliest - would have been the best answer.
Waning Home Sales Take Further Toll on the Industry
http://tinyurl.com/zmz9k
The speed of the sale outweighed getting a price that was ‘quite a bit below what I think the house was probably worth.’”
It must be because I’m 50 years old! Something is only worth what someone is willing to pay! I am past being sick and tired of these comments. Blood in the streets, that’s what it will take for these candy assed pablum fead pukes.
Prices are down in many northern california counties. Does anyone have any stat or opinion on LA county in regarding to price drop?
RE: Potential Price Drop in LA County
Someone posted that the home price should be the 1997 price plus 3.5% annual appreciation. I think that is a good place to start. If you can work it down from there, you are doing good as a buyer.
So, for us, we are looking at price drops of at least $300k. I know it sounds like a lot, but just look at what the sellers paid for these properties when they bought. We compare the two figures and work it down from there. (Note to RealtorsTM: I feel very much at home at the County Clerk-Recorder’s Office.)
Historically, all I can tell you is that the day following the first day of the LA riots (Rodney King riots) a representative of CAR got on the news and announced “an immediate devaluation of 20% in the value of residential properties in Los Angeles County.”
After the 1994 Northridge earthquake, home values dropped 1/3 in the Antelope Valley. (I’m a native of Lancaster, or Landscatter, lol.)
In the SF Valley, the price drop was even greater depending on the neighborhood and its proximity to earthquake damage. Sellers are supposed to disclose proximity to sand boils, quicksand, fissures, and other earthquake attributes. It was considered a luxury to be a renter. How this “bitter renter” talk evolved is just amazing considering recent history.
Someone posted that the home price should be the 1997 price plus 3.5% annual appreciation.
Too high. Assumes no mean reversion and too high a level of appreciation, especially since wages have not kept pace with inflation.
No, that is a reversion to the mean and a normal rate of appreciation.
No, mean reversion isn’t just a return to the exact average, it’s the tendency to return to the average over time. That means any deviation over the average has to be compensated by an equivalent deviation under the average.
Also, a “normal rate of appreciation” can only apply in normal circumstances. The last five years have been anything but that. If you exclude the top 5% of earners and correct for the bubble-related overcompensation throughout the REIC, wages have fallen dramatically for most Americans. Houses should not have experienced any appreciation these last five years, all things considered.
No:
http://mathworld.wolfram.com/ReversiontotheMean.html
“Reversion to the mean, also called regression to the mean, is the statistical phenomenon stating that the greater the deviation of a random variate from its mean, the greater the probability that the next measured variate will deviate less far. In other words, an extreme event is likely to be followed by a less extreme event.”
Regression to the “average over time” (as you put it) also occurs over time. It only occurs necessarily given an infinite set of data with literally random variation.
Also, I did not say that a normal rate of appreciation was warranted; only that 3.5% annual appreciation (given current inflation) is a normal rate. I misinterpreted your first post to mean that 3.5% was not normal. After rereading it, it is clear that you meant it was not warranted during that time period. Some people would disagree with you and say that 1997 - being the bottom of the previous cycle - had housing undervalued. I am agnostic on this point.
Okay, you got me — I’ll concede the “mean reversion” definition. Regardless, I still stand by my view that we’ll overshoot to the downside.
Also, a 100-year chart of housing prices adjusted for both inflation and size/quality (since houses have progressively gotten bigger) showed 96/97 as nothing more or less than the historical average.
Dl asks “Prices are down in many northern california counties. Does anyone have any stat or opinion on LA county in regarding to price drop? ”
My opinion is LA currently, if you could sell would be at mid summer of 05′ prices. Off of the few foam buyers thru early summer of 06′. The decline can be fairly measured from now on.
50% haircuts will be comming, plus many wack jobs, bleeding heads, no eyebrows, a few ears on the floor and some lip’s clipped.
Have scanned the august dataquick figures for LACounty and it looks as if the zip code areas and communities with homes priced in the $300,000 to under $500,000 range show the most sales activity. Of course the only areas which still have average med sales prices at those ranges are somewhat problematic locales such as Compton, Hawthorne,La puente, parts of Scentral LA, Lancaster, Long Beach(90805),
Norwalk,Pacoima,Pomona,south gate,LA Watts,ect. There is a lot of Funny money/quack lending going on in the lovely innor LA burgs, which is pushing up YOY’s in these Falluja Districts even as the pristine LA coastal enclaves are showing YOY declines.
sample subprime regions:
Compton 90220 47 homes sold at
av$404,000 yoy 17.1
Pomona zips 144 sold av $420,000 yoy +10%
LA 90044 62 sold@ $412 yoy+17.7 %
la 90059 53 ” 373 ” 18.8
La watts 53 ” 400 23.1
Sample prime regions:
Ply del Rey 4 homes sold -30.8% yoy
Pac Palisades 27 sold - 17.8%
Arcadia : 0 and 6.1 % for 2 zips
Calabasas : -11.3% yoy
Encino (91436) -9.8%
Hermosa Beach -16 %
LA/Bel-air -58 %
La ranchoPark flat
Venice -12.5%
In short the more higher the av med price in a given area, the more likely it will show YOY declines. The lower-priced LA subprime regions are still frothing, though i do not expect this trend to continue long. Even ignorant lower-income innor city buyers will eventually catch on.
“‘A lot of buyers are saying they will wait until November or December until the sellers are desperate. Some think the economy is really going to get bad,’ said Yvette Plautz, an agent in Eastvale.”
Dear Yvette:
For us, its at least 1.5 years. And, we are prepared to wait even longer.
Love,
(Digital Signature)
Misstrial (aka Miss Demeanor)
in my area if prices drop to 4x the median it will be at least a 2/3 drop in prices.
Traditionally, if you calculate the future value of a house, buying over renting should come out ahead by about the future value of the home (a little less, but not a lot).
Right now, renting over buying comes out ahead by almost 50% of the value of a home.
I assume 3% appreciation on homes and rents go with inflation (5%) and a 6.5% fixed rate mortgage.
I’ll only buy when the advantage is buying over renting by at least 50% of the future value of the home.
But I will also track inventory to see if the trend is changing (e.g., one could expect rents to shoot up, etc.).
We have years to go, so these discussions are academic until 2008.
Neil
I live in Simi Valley, right down the street from Countrywide. Currently renting a 1600sf SFH for $2400, which seems reasonable for the area (I rented a 1200sf townhome in Simi for $1700 in 2001).
My neighbors across the street put their house (identical floor plan to mine) on sale in mid-June for $639k. Fliers, open house, the works. No one came. After a couple weeks, they reduced the price to $629k and put up “PRICE REDUCED” signs. No interest. Side note: why would someone cut the price by only $10k in this situation? Is there really going to be a buyer who says “$639k is too much… but $629k? It’s a deal!”
Sometime in July, they cut it to $599k, added “Motivated Seller” to their fliers (they’d already bought a new house) and started having open houses every Sunday. I saw a few people stop by but apparently no one serious. August rolled around, they cut it to $559k, and started to get some more interest, but still no sale.
Finally, a couple weeks ago, they took down the for sale sign and rented the place to an apparently large Hispanic family.
Simishag
They are going to be in a world of hurt.
Good luck to your neighbors tryng to sell their rental POS 5 years from now after 5 years of rental wear/tear. Market price should be around 250 (minus an allowance for repairs) by then
I have to Hand it to Countrywide: they have a well-laid out site/campus up there in the hill overlooking Simi. To bad they are downsizing; The cost to keep up that sprawling mini-city up in the hills must be running them into the red.
Just in case you were wondering where we were going to find the new, much needed GF’s:
http://www.voiceofsandiego.org/articles/2006/09/22/survival/950moves2.txt
“Hot storylines meet meaningful messages in Nuestro Barrio (Our Neighborhood), a Spanish-language TV mini-series about Hispanic life in the United States. Nuestro Barrio is at the forefront of a new trend of television programming called “edutainment,” a combination of education and entertainment to produce programming that is both informative and engaging.”
“Rep. Joe Baca of California added, “Millions of Latino families in communities across the United States want to pursue the American dream of owning a home. Nuestro Barrio will provide a valuable service by presenting information to help teach Latinos about the homebuying process and how they can protect themselves against predatory lending practices. It is an innovative program that combines education and entertainment to spread financial literacy, and I look forward to watching it.”
“Edutainment”, “Infomercial”, same thing: get people to part with their money….
And who’s funding it? “Freddie Mac and other lenders”. Your tax-dollars at work.
I had a day off today.
There is a flipper on my street turning over a 60 year old beach cottage. They are taking their time about 4 months (new roof, new windows, new landscape, new paint, etc.).
I got a look at them today. A group of 3 lesbians, 2 Asian girls with very butch haircuts and Nina the blond lipstick lesbian.
I wonder if Nina from Sitting Pretty (she is in Newport Beach, CA) has another flip, this time on my street.
I would laugh my ass off on that one.
It would be somewhat serendipitous, wouldn’t it?
Keep us posted, please.
Anecdotally, there is a condo conversion taking place down the street from my place. Thay’ve been going at it all summer until the last few weeks. There are no workers, no trucks, nothing, just an overflowing demo trash bin and a half finished conversion job, looks like they may have run out of funding. As it sits, the units, about 6, are not suitable for renting in light of the unfinished rehab. This is SDO.