“A Storm Brewing” In California
The Modesto Bee reports from California. “Clamorous construction sounds are fading in the Northern San Joaquin Valley as the once booming building industry slows. In Modesto, 16 building permits were issued this September compared with 60 in September 2005. ‘We look to be in the middle of a correction,’ said Steve Madison, of the Building Industry Association of Central California. ‘Obviously, we would love to be selling more houses.’”
“Buyers are harder to find now, Madison said, ’so builders are only constructing homes they have an order for’ because they don’t want to be stuck with unsold inventory. But many of region’s builders have finished or near-finished houses for sale at discounted prices or offered with incentives.”
“‘Builders are giving up (land purchase) options and contracts, leaving money on the table. That’s happening all over California,’ said consultant GregPaquin, noting that land is being returned to farmers and property brokers.”
The Sacramento Bee. “Builders with excess inventory are cutting prices or offering sales incentives. Many are contending with high rates of buyers backing out of sales contracts. About 20 percent of new homebuyers backed out of contracts during the summer, according to Hanley Wood.”
“Wells Fargo Bank CEO Officer Richard Kovacevich said he believes real estate prices statewide will stabilize by next spring. ‘Buyers ‘may be under water 10 percent for a while, but you can ride it through,’ he said.”
“The shift to a buyer’s market has prompted price cuts by several home builders. Centex Homes is advertising $50,000 cuts in Woodland, Elk Grove and Placer County. Sacramento-based JTS Communities has advertised ‘liquidation’ pricing and up to $200,000 discounts on some homes. Miami-based Lennar Homes has advertised price cuts of up to $80,000 in Antelope and Yuba and Sutter counties.”
“‘Places with high Mello-Roos fees and high homeowners association fees aren’t going to sell,’ said Kathryn Boyce, a Sacramento analyst.”
The Orange County Register. “Orange County’s home prices continued to soften last month as sellers weathered the slowest September in 14 years. It’s the third monthly decline in a row.”
“‘Even though the numbers look like things are not all that bad, we see a storm brewing,’ said Greg Norris, a project manager for the Norris Group. ‘We see a lot of foreclosures coming, we see prices dropping, we see sellers starting to get desperate.’”
“Coldwell Banker’s Mac Mackenzie said he’s not seeing any home selling for more this year than it was last year. ‘We have to reduce the prices just to get an offer, to make the home sellable,’ he said.”
The LA Times. “After 90 days, four price reductions and a couple of low-ball offers, Jose Morales withdrew his three-bedroom Riverside bungalow rather than cut his $415,000 asking price, already down from an original $486,000.”
“‘When my real estate agent told me I should drop the price again, I said ‘That’s it. We don’t have to move,’ he said.”
“‘The market hasn’t gone into that desperation mode yet, but we see it as in the earliest stage of the downward pressure on prices,” said Economist Esmael Adibi, at Chapman University in Orange.”
“He forecasts that a year from now, the supply of Southern California homes for sale could be considerably higher. That’s because ‘a good portion’ of recent home buyers with riskier adjustable-rate mortgages with a minimum payment option will find it difficult to make monthly payments or won’t have enough equity to make refinancing worthwhile, he said.”
“‘How many of this group will be able to get out of a bad situation … if they face payment shock or financial distress and will need to sell?’ Adibi asked.”
“The Contra Costa Times from California. “Solano and Contra Costa counties, where much of the Bay Area’s once-booming housing market soared in recent years, now have the third- and fourth-highest rate, respectively, of foreclosure in California. A year ago, Contra Costa County ranked 11th on the list.”
“The numbers are rising at a time when many borrowers who took out adjustable-rate loans years ago are now paying bigger mortgages after the end of introductory rates. ‘I think that’s the biggest trigger,’ said real-estate agent Earl Rozran. ‘All of a sudden, payments have jumped a couple hundred dollars.’”
“Statewide, 14,806 properties in September were in some type of foreclosure proceeding. ‘I think what we are starting to see in California is the effect of (rising) adjustable-rate mortgages. The whole state has risen pretty dramatically over the last six months,’ said Rick Sharga, VP at RealtyTrac.com.”
The North County Times. “Foreclosure activity has shown a dramatic increase in San Diego and Riverside counties, far outpacing most of California and the rest of the nation, according to a foreclosure tracking firm. San Diego County had 4,069 properties in some stage of foreclosure for the quarter that ended in September, compared with 970 properties for the same quarter in 2005, an increase of 319 percent.”
“Riverside had 4,403 such properties for the most recent quarter, versus 1,297 for the same quarter in 2005, an increase of 239 percent.”
“Alan Gin, professor of economics at the University of San Diego, blamed the trend on the region’s high cost of housing. ‘The housing prices are so much higher here that people got stretched getting into a home,’ Gin said. ‘If you got into a $600,000 home in San Diego, you’re much more likely to default than someone in a $200,000 home in Dallas.’”
“Mark Fabela, director-elect for the board of the North San Diego County Association of Realtors, said the foreclosure increases were because of dropping housing prices. When housing prices decline, some people can’t refinance their way out of high mortgages. ‘People actually overextended themselves,’ Fabela said. ‘They get to the point where they can’t make the payments.’”
The Daily News. “The state’s foreclosure activity has risen more than 40 percent over the last two months. ‘I think a lot of buyers unfortunately got into some risky loans that may not have been in their interest,’ said James Joseph, (broker) in Whittier.”
“Increased foreclosures are a product of a market slowdown, said David Reid, a licensed real estate broker and licensed contractor. The market was moving so fast for a few years that homes would sell before they went to foreclosure, he said. But now that the market has slowed, homes are not selling and are foreclosed.”
“In recent years, people had to decide within hours whether or not to buy a home, he said. ‘Maybe those who bought the homes stretched because they had to make a quick decision,’ Reid said.”
The Ventura County Star. “There is a psychological component to markets that is hard to quantify, but it can show up in statistics. In September, Ventura County’s median home price dropped 3.3 percent from a year earlier, the first decrease in more than five years.”
“Economist Bill Watkins said..the sudden drop in sales that has plagued California’s summer selling season probably has more to do with consumer mood. ‘They heard so much about a bubble that they are sitting out,’ he said.”
“Mortgage broker Tino Montelongo said ..there are many people who got used to tapping equity in their homes to get cash, but they cannot refinance because their property isn’t worth more today than when it was purchased six months or a year ago.”
“Others, Montelongo said, might have owned for a long time, refinanced several times and cashed out all their equity. ‘They overextended themselves,’ he said.”
“Watkins, a Ventura resident, said his advice is not to panic. ‘I don’t have any property for sale,’ he said.”
What’s missing from these discussions has to do with the cost of heating, air conditioning, TV/internet/etc. that the average homeowner uses. None of it is reasonable anymore. Tie those costs in with making a payment on a $300,000 and higher home and I still want to know how people eat?
No question about it.
I will go a step further to make a point.
Let’s say you have a benevolent uncle who gives you - free and clear
a $3mm house. My theory is that 95% of the population still
couldn’t afford the house. Why? Carry Costs. ie. Property taxes,
insurance, utilities, short term routine maintenance, long term non-routine maintenance such as painting and roof replacement.
All of these costs, with the possible arguable exception of long
term maintenance have to paid with cash money. Joe Average
simply doesn’t have the cash. So what to do? Many HELOC
themselves into oblivion hoping that the day of reckoning
never comes.
Well, guess what? The day of reckoning has arrived.
“Life is hard; it’s harder if you’re stupid.” - John Wayne
octal77 - “63″… I think with proposition 13 and living in California, the nephew would be able to handle the carrying cost. Ass-uming that you can roll over the prop 13 rights.
Prop 13 is a great example of how the boomers get a huge tax break on the backs of the upcoming generations.
I’m glad about prop. 13. Saved my mom’s house for her. Again with the Boomer thing. I thought we all had that discussion. It sounds like whinning.
What’s so special about your mom that she deserves a tax break that a young couple struggling to raise kids doesn’t deserve?
I second that.
(meant for John in GA’s comment)
Even better question: how did Prop. 13 “save’ mom’s house for her? Was mom literally close to being evicted for nonpayment of taxes? If so, why?
If mom was really in danger of foreclosure, then why didn’t she do what fixed-income seniors do in other states?: Sell and move somewhere cheaper. It’s called retiring or ‘empty-nesting’. Nothing unusual or “unfair” about it, though no Prop.13 supporter would ever admit it. The senior gets to move out of the expensive city house located near jobs (which they no longer need) to live somewhere cheaper and quieter, while more city housing (within job commuting range) gets freed up for a young family who does need it.
There’s even a second alternative, if she insists upon staying downtown: Reverse mortgages.
Change: Inevitable? Yes. Always unfair? Hardly.
“If mom was really in danger of foreclosure, then why didn’t she do what fixed-income seniors do in other states?: Sell and move somewhere cheaper.”
My mom spend her life in South central Los Angeles teaching underprivileged elementary school kids. She contributed to the betterment of this City, I don’t see any reason why she should be forced to move out of it cause her 25k house now goes for 800k.
She’s old, right, she served her purpose teaching “your” kids…. Now it’s, get her out of the way, move her to Alabama, away from her family, friends and community she worked for, cause now “you” want her house.. Just my opinion, but it comes off a bit mercenary…
Don’t forget, I sold my house September of 2005. I face the same tax burden that any of you do, so I’m putting my “money where my mouth is” And I seriously doubt Prop 13 will be going anywhere soon.
Just my opinion
Talking about “Raising Children” …. If Prop 13 had not happened when it did. I and my siblings would not have been “raised in a house” My mom was an Single parent trying to hang on through School and Teaching Credentials. People were loosing their homes cause the State was taxing them out from under them.
I directly correlate the fact that we were raised in our own home with the fact that we were all eventually successes in life, so I guess it helped “young struggling famlies trying to raise kids”
Hey but if you want to talk about eliminating property tax altogether, and instituting a large sales tax… I’m all ears…
To clarify, she spent her “Working Life” in South Central. We lived in another part of the city. (didn’t want any undeserved empathy)
“Nothing unusual or “unfair” about it”
“The senior “GETS” to move out of the expensive city house ”
HARM
Why don’t you busy yourself creating “relocation areas” that the seniors can all “GET” to be moved to, if they can’t keep up with the young and employed. It will be for the “betterment of society”…
Then wait 20 years till the “knock” on your door comes…
Cheer up, Harm.
http://www.boomerdeathcounter.com/
Imploder, I like your posts. Amazing how many pro-tax people there are, despite government growing larger and larger. We are whistling cheerful songs down that road to serfdom.
Hi Bill,
I like your hosts, and have Hayek sitting on my shelf. A few observations:
It doesn’t matter if you are pro or anti-tax: government spending is all that counts. You can tax, sell bonds, inflate your currency, privatize assets, etc: as the end of the day, your citizens are paying. The method the govt uses to raise money will affect people (the young, old, rich, poor, educated, lazy, hard-working, etc) in different ways, but to be automatically opposed to taxes is naive.
Prop 13 is just an extreme example of what people in communities have always been doing: helping the current community and thus raising the barrier of entry to outsiders. It’s clearly globally inefficient, (and therefore perhaps immoral at some level,) but no worse than Manhattan’s deranged rent control, Houston’s homeowners’ convenants, condo associations’ rules, etc. Nastier examples include community sanctioned religious, wealth, and racial discrimination. Weirdly, Prop 13 is one of the shining examples of citizen-driven government at work
“The senior gets to move out of the expensive city house located near jobs (which they no longer need) to live somewhere cheaper and quieter, while more city housing (within job commuting range) gets freed up for a young family who does need it.”
The young family could move to where it cheaper to live, which is what we had to do. Grow up!
I can’t wait for today’s young to live through a seventies style recession; it would be good for them and the country. Nothing like hard times to reflect one’s actual worth — obese, attention deficit disordered, candy grazing, tattooed cellular losers need not apply!
Well, rms, I think some of us may be about to see the 30’s style depression our parents were always raving about. Friend of mine says “I feel like I grew up in the 50’s in the depression” (because her parents never threw out the tough ends of the asparagus). I guess Prop 13 explains my observation that the nice parts of South Pasadena are a senior ghetto. I always wondered about it, given that California ranks 46th or 48th in fraction-of-population-over-65.
Prop 13 is the only protection California property owners have against wildly out-of-control taxing and spending by state and local governments in California. Don’t fool yourself … Eliminating Prop 13 would not result in huge drops in property taxes for new homeowners. In California, they would simply jack up the property taxes of all those homeowners who formerly paid less under Prop 13, and find ways to spend the windfall. I lived 10 years in Northern California and lived through the Internet/Dot.com boom, when the State saw huge windfall income tax revenues … Instead of lowering income taxes, paying down the state’s debt load, or putting the windfall in a “rainy day” fund of some sort, the State found a way to blow 110% of it on new programs, enriched pay and benefits for state workers, etc….. So if you think doing away with Prop 13 will result in lower property taxes and more affordability for young families, give me a break! In California? Keep dreaming…
gorobei,
Spending is what counts. But, more taxes means more spending. Gov. is like a kid who has $5 dollars in a candy store. The kid is not going to be concerned with being prudent with that $5. He’ll spend it all, then be tugging at his parents coat tails for more. A wise parent, won’t give anymore and wouldn’t have given the kid that much to spend on candy in the first place.
I’m with HARM on this one. Way too much fraud and abuse woven into Prop13. The entire government and funding structure had to be twisted around to accommodate businesses that get around paying property taxes. It’s a total mess, and very unfair, when next-door-neighbors in identical modest homes might have $10K+++/yr disparity in property taxes. CA still spends a helluva lot more than they can afford, whether they have the revenues or not. Any yes, Grandma ought to move somewhere less expensive if she can’t handle the property taxes.
gorobei
“Nastier examples include community sanctioned religious, wealth, and racial discrimination.”
This is Horsesh#t propaganda. What does prop 13 have to do with religion or race? Not to mention that such discrimination is ILLEGAL. This is the lowest, slimiest style of debate…. It’s call dog faced LYING.
Boomers did not originate Prop 13 - the previous generation did…can’t remember that funny old guy’s name in California who headed the taxpayers revolt group that wrote and pushed it, but he was from the WW2 generation.
Jarvis
The one question - and the only question one has to ask - is this: is California better off today than it was in 1978?
Chilidogg:
you should edit sound bites for…. WHO EVER PAYS YOU THE MOST… (something I know about about…) Because your inept attempt at inference is that prop 13 is at the root of every problem of California since 1978…… How lame, clumsy…. and ill conceived. If your going to tarnishan issue, come prepared.
Above meant “tarnish an issue” forgive my typing
Chillidogg
I got all bad….And now I feel bad cause I see you defended my poor spelling (I r a Loooser) below… Life’s a BE@CH…
Prop 13 is a terrible idea. No one here is suggesting kicking grandma out of here 30 year home, what is absurd about 13 is that on a street with 20 identical homes each owner is likely paying a very different amount of tax. Did they buy at the wrong time etc… Why should a person who just bought pay full price while someone who has lived there longer pay less? Property tax should be re-considered to a formula akin to $X per acre of land + $XX per square foot of floor space and tied to the OFFICIAL inflation index of 1 - 2 % a year along with SS rises etc. In this way, the govt. gets a fair, predictable and consistent amount of tax each year tied to inflation and no one gets gouged. I agree the alternative of “assessment” based taxes is no better since then EVERYONE pays the MAX amount.
Not to worry, with prices falling, everyone will benefit and greedy local governments like San Diego will go bust in a massive way, clearing the way for a fresh start in these areas.
“Life is hard; it’s harder if you’re stupid.” - John Wayne
i love this quote. i didn’t know that john wayne was that heartless. but point taken. i was surprised to see that during the height of the bubble alot of my associates, very smart people, actually believed that the market will never decline, that a new paradigm had taken over the RE industries. so it’s no surprise that the average joe took the bubble whole and unquestioned.
” was surprised to see that during the height of the bubble alot of my associates, very smart people, actually believed that the market will never decline, that a new paradigm had taken over the RE industries.”
Uh, I have news for you about your “very smart friends”…..
The article that convinced me that the end was really near was a super-dumb piece in the LA Times in ‘03 or ‘04, explaining that the appropriate valuation should no longer consider (net rent/price) but rather (net rent plus appreciation/price). Anybody else remember that piece? or what idiot i mean IDIOT wrote it?
At times like this, I really enjoy living in an all-utilities-paid rental. (Yeah, I know, there’s no free lunch, so the utilities are priced into the monthly rental, so effectively I’m subsidizing my neighbor who’s running a monster portable AC unit night and day, but it’s still nice to have my total housing cost be less than what a McMansion owner pays in utilities, HOA fees, and property tax alone.
Don’t worry. Costco just starts selling its own line of Kirkland ramen. For those who want variety or can’t afford the ramen, the warehouse’s free sample foods are not that bad.
Knowing someone in the supermarket business, they often make a killing on ramen. 10 cents a pack go a long way when they are flying off the shelves.
My brother in law bought a house in Dallas. His first electric bill was around $600. My wife won’t believe it’s real, even after the second bill was close to the same amount. She thinks there’s something wrong with his house. I told her there was - it’s too big. I’m trying to convince her that the monthly mortgage payment isn’t all that goes up when you buy a bigger house. It’s really hard. She’s just aching to become house poor so that she can feel good about inviting our friends over. A 401k just isn’t any good for entertaining guests.
I live in a duplex in Austin. Our elect. bill was almost $300 in August. I about fell over. People with 2 story houses are easily playing $450/mo over this summer.
I belive it. It’s hotter than Hades there. My daughter has a house in San Antonio. Her 2000 sq ft house is kept at 79 to 80 degrees, she runs fans to save money and the air conditioning bill still averages about $200 a month.
When you live in Texas the key is tall shade trees on the afternoon/evening side of the house……cut our bill 30% by adding 5 cottonwoods.
You could try moving to San Diego. Crap, don’t do THAT - what the heck am I saying!?
Gosh - and I thought that $110 in the middle of summer for my apartment in CT was bad. After that happened I started going nuts on conservation - I set timers on all the A/C units, raised the temperature of my refrigerator, and put in compact flourescents throughout.
Knocked it down to $60 at similar temperatures, and now that I’m not running A/C the latest bill is $28.
I’m a happy CycleGeek.
Deregulated electric in Texas and residential electricity prices go up 100% in 3 years. Last rate hike of 25% blamed on natural gas prices. Gas prices drop back, no rate drop. TXU is making more profit per Kw/h than ever in it’s history. Austin is bought and paid for by big business.
Same in San Diego. Vast profits under the guise of repayment bonds and shortages etc. My bills ran over $500 the last three months running AC etc…
Thank you. I was going to say that but there aren’t enough Texans here to care. I have had my battles w/TXU but I bought their stock in the fall of 2002 when Earl Nye cut the dividend and the thing crashed. It’s been, shall we say, a good investment from that point.
LADWP is raising their water rates another 10% in 07….
You can thank Jackie Goldberg and her bill AB 2951.
LADWP is raising their water rates another 10% in 07….
You forgot the Tahoe in the driveway, with the spinning wheels and playstation in the dashboard. How do they eat? Credit cards.
A little ketchup and the plastic tastes just fine.
The LA Times article throws a wrench to this real estate price correction. There are some homedebtors who will pull out of the market rather than cutting the price “drastically.” I am calling their bluff and see who “folds.”
The number to watch now is defaults. Sept foreclosure filings tripled over last year’s figures in CA. Once these pile up and they start going REO in great enough numbers the FBs will be a lot less reluctant to toss their keys on the counter and say adios. That’s when the whole mess begins to unravel in a hurry given the nutty financing arrangements and the simple fact that many never even put up a dime to get their keys in the first place.
It really is different this time. The stickiness won’t be there this time around and the down cycle will be a lot sharper, at least in the early stages….
AZ
Here’s hoping you are right. LA area prices are still pretty sticky. I live in Valencia and sellers are sticking to their “wishing price.” I am ready to buy and throw lowball offers but I think I will just be wasting my time. Waiting until end of 2007.
Let a few dozen foreclosures reset comps and that ought to help break the logjam. Just a matter of time at this point.
Yea, I think this would be a good topic that many would be interested in. Southern CAli is still barely showing any real retrenchment, at least not enough to force that parrot cage liner of a newspaper (LA Times) to start writing seriously about it. When, Where and what sequence of events do others “the final fortress of Denial “LA” finally capitulating? A least people don’t call me “nuts” for selling last in 2005 now. But it’s like “nothing is happening”… When…When…When…?
Give it time - a lot of those ARM’s aren’t going to start resetting until next year and 2008. When you factor in the over 50% of home purchases in Cali made with those in the last 2 years at least - that’s a lot of defaults waiting in the wings.
Don’t do it. The panic hasn’t set in yet. Wait patiently for the defaults to mount or YOU will be the fall guy.
Patience! Coastal California’s crash may be delayed, but it won’t be denied.
Think about it. SF, LA & SD are…
1) I/O & OptARM central.
2) The primary source of equity locusts nationwide.
3) The poster children for living far above your means.
4) Home to 20+% of the value of all US residental RE.
We’re going down HARD, it’s only a matter of time.
LA county still shows 3% yoy increase in median prices in sept dataquick. That is not covering inflation so that prices esentIALY FLATlined since sept 2005.
Am perfectly confident that median LA prices will show further declines overall in the coming months, though the decline will be sticky. Sellers will wait it out till the supposed spring bounce, and the market will stagnate into a mexican standoff. See reduced prices as a % of listings of between 35% and 50% in many LA Communities(Torrance 45%,Long Beach 47%,whittier 43%).
I am convinced that sellers in LA will max out all their savings, CC’s, and even go to the brink of foreclosure to get by till the spring, when they think that prices will go up again. That is a delusion and a big gamble: a half dozen triggers/scenarios could possible accelerate the decline(rising interest rates, Stock market collapse,a few bank failures, hedge fund blowup, Korean or Iranian Crisis, another oil spike,ect). LA is not some special region which is immune from RE Bubble collapse:it just takes longer here(think of a slowly retreating glacier).
I suspect that foreclosures will be great this time partly on account of the local banks selling the mortgage in the secondary market. While the local bank loses community good will by foreclosing on the FB, the Wall Street mortgage company will have problem pulling the plug quickly.
LA Times = “Ra Ra Real Estate, Parrot Cage Liner”
I am seeing this alot on the Central Coast. People listed their homes for about 5% off the peak price and it didn’t sell. So, they pulled the house off the market because the REIC here says that the market will rebound in the spring.
However, if you speak to the title agents and Realtors one-on-one, they are absolutely scared $hitless - and then my schadenfreudometer goes off the charts.
Last winter quite a few of those so-called investment condos in Cayucos were sitting empty. This winter won’t be any better, do you think? Maybe a certain DCB in the spring but then it’s down the tubes.
“The LA Times. “After 90 days, four price reductions and a couple of low-ball offers, Jose Morales withdrew his three-bedroom Riverside bungalow rather than cut his $415,000 asking price, already down from an original $486,000.”
“‘When my real estate agent told me I should drop the price again, I said ‘That’s it. We don’t have to move,’ he said.””
————
There you go, another buyer out of the market. This guy is the perfect example of why the “move-up” buyer is going to dry up faster than the lowest priced starter homes. People will no longer buy the 2nd home before selling the first, and now they can’t get “what they know their house is worth” when selling the first.
That’s so stupid, though. The cheaper your house sells for the less you’ll have to pay to “move up”. If you sell and then rent for a while you can do even better on the “move up” since you’re buying with no contingencies and can make a better offer.
My wife desperately wants a bigger house. We’re going to sell first, and if the timing works we’ll buy right away, or we’ll rent while we look. Prices are coming down and that is only good news for looking to upgrade, it’s that much less we’ll have to borrow.
Yes, but you’re losing the equity on the first house in the same proportion to the price decrease on the move up house so it’s a net.
Except that when you are losing equity on your smaller (cheaper) house, you are losing fewer dollars even though the percentages are the same.
Example:
MoveUP Homeowner owns a house valued at $300K. It loses 10% ($30K) nets $270K. Rents for a year. Wants to buy house at $400K. $400K house loses $40K first year, $36K second year.
Now $400K house is only $324K and MoveUp H.O. only has to come up with $54K.
Uh, you don’t see the problem with the owner coming up with 54K after having sold the less expensive house first and then renting? Hope they didn’t buy after 2003, because it ain’t happening then if they were on an IO or Neg Am.
Not sure about that. Because more expensive homes will depreciate more in absolute terms. For example if, say, you paid $150k for your house house is currently valued at $250k ($100k equity or $85k after realtor fees) and it depreciates 20% to $200k, you would have $50k in equity (~$38k after realtor fees, if you go that way).
Now, if the house you are checking out is currently valued at $350k your loan minus current equity is ($350k - $85k = $265k) and if it depreciates 20% to $280k , your loan minus equity would be ($280k -$38k = $242k).
So, you would lose 50k in equity, but gain it back in greater relative losses in the more expensive home (70k equity) and a decrease of ($3k) in realty fees, yielding a net gain of $23k
Needless to say renting would be better yet.
Somebody check my math, but I think it is generally true.
In a perfect world you’re right, where everything moves predictably in lockstep. Actually, demand for expensive homes may fade sufficiently that they may actually not only take a larger gross $ hit but also take a larger percentage whack.
The microeconomics of individual streets and neighborhoods gets obscured by the macro numbers. Some areas will take a severe beating and go down so hard they may never come back… reverting to slums. Really… Depends on the defaults and where they line up. Expect Compton to drop close to $0 and beach areas… Redondo for example, to take a severe pounding (50% off sale) but hang in there overall. No area will go unscathed but some areas will get flat-out killed.
Your net gain of 23K will result if the person in question waits for the 20% decrease to happen before making the move to the better house. And as you said, selling the cheap house right now and renting while the better house depreciates is the best decision. My math degree is from Harvard, I knew it would finally be worth something someday. That day is today, coinciding with 40th reunion.
Your math degree won’t be worth nearly as much as patience. The dynamics of this collapse will only be visible in super-slow-motion, played after the dust settles.
I think All will suffer, cause “All” were reaching, using same toxic loan method. Renter reached for starter home. Middle guy reached for the good neighborhood. Good neighborhood guy reached for the “Im rich neighborhood”. All bought more than they could afford, cause the “higher the price, the higher the appreciation”. Now no appreciation and loan resets. At every level are weak link buyers who will fold and destroy the comps.
Interesting comments.
Actually, I agree there will be local scale difference based on desirability, speculative pressure,etc.
I can also imagine that so many “Executive” homes were built for the boundless hoards of well-heeled boomers everyone was trying to lure in that you may be right about higher end homes falling farther in percentage terms.
The more expensive a home gets, the more it disconnects from fundamentals and moves into pure psychology.
Million dollar homes are not generally rental properties, and they’re certainly more than the sum of their land, labor & construction materials. As such, they’re subject to much greater price swings depending upon the mood of the market.
I see a new real estate seminar in this line of thought.
Expensive homes are already pulling back. That’s why the median had stayed up as long as it has. Expensive homes will prove to be the worst place to ride out this meltdown, as they will suffer the most bleeding IMO
I am planning on doing the same thing except I plan to rent the old house. I bought a house that could easily be rented. I knew what the going rate for rentals was and have positioned myself to rent and be cash flow positive in my current home. In 08-09 I plan on purchasing a larger home with all the bells and whistles that were standard during the boom but will pay no more then 70 cents on the dollar and probably less!! The old house will continue to pay off at about $600 per month toward mortgage. It will allow me to carry it through the dip and sell 10-15 years later once RE bounches back upto the next cycle.
Just because it’s stupid doesn’t mean people don’t do it. The psychology of ownership and not selling for a loss is powerful.
Many won’t sell because they simply can’t afford to. At some point they say uncle and hand over the keys. That’s when the psychology of home ownership gets interesting… as panic becomes the prevailing psychological reaction. There’s another psychological phenomenon in play here. Many are uneasy with all the pure luck paper gains and fully expect them to get wiped out. They just didn’t want to be the ones riding the wave down…
I think you’re on to somethink there.
Whaddaya wanna bet Mr. Morales wouldn’t lower the price anymore because at that level he was looking at selling it for less than he paid.
I don’t want to take that bet. The chances are good that is the reason he is not selling . . .
I’ll bet you he didn’t.
(actually I already looked it up. He hasn’t gone HELOC crazy, but here’s something crazy- he only paid $86K for the place, way back in 1996).
Then he’s just stupid and greedy.
Yep. A 400%+ profit isn’t good enough for this dude.
For his part, homeowner Morales and his wife, Emily, were hoping to sell the house, take his profit and move to a bigger abode.
But he is happy to stay put rather than sell at a price he’s uncomfortable with, after having earned a decent increase in home equity by paying $86,000 for the house 10 years ago.
“It wasn’t meant to be,” he said of his would-be sale.
My guess is that it’s the wife who wants to move up and Mr. Morales is all, “Sweetie, instead of $900/yr taxes we willl be paying $900/month taxes and mello roos taxes and HOA.”
Lucky for him he won this round and is still in tall clover with the wife. “Oh honey, it’s too bad noone thought your wonderful interior decorating was not worth what we know it is. I agree - we are not giving the house away!” And off he goes to have a beer with his neighborhood buddies he would have lost had he sold and moved.
Works everytime… Got a friend doing just this!
Add= We’ll only move if we get “Full Price” Even he knows that’s crazy, but “He Tried”
I would’nt live in Riverside if you gave me 415K. Riverside? You must be kidding me.
Riverside? for 415K?
Me neither, dude….
“That’s it. We don’t have to move,’ he said” And I say BS. Why did you decide to list your house in the first place? Bet the mortgage was about to reset. Or he owes more on the house than he can sell it for. The one thing I learned over 35 years in real estate “Everybody Lies”, and I mean everybody.
“Alan Gin, professor of economics at the University of San Diego, blamed the trend on the region’s high cost of housing. ‘The housing prices are so much higher here that people got stretched getting into a home,’ Gin said. ‘If you got into a $600,000 home in San Diego, you’re much more likely to default than someone in a $200,000 home in Dallas.’”
That is complete bullshit. I’d like to see him back that up with hard statistics and facts. Dallas has huge foreclosures and more than half of them are in the 200K and under houses.
I think the point he’s trying to make is that people don’t make 3x the income in CA as they do in TX. I’m a software developer in CA, with friends in TX who work similar jobs, and all our salaries are in the same ballpark (within 10-20%). I certainly don’t make 3x what my friends make. Accordingly, it would be a lot tougher for me to cover a 600k mortgage than a 200k one.
I believe CA’s state income tax is the highest ( up to 10% of the gross income) in the country while there is no state income tax in TX. My coworkers in Ventura are paying $200 to $300/month of water bill alone to keep the trees on their 1/4 to 1/2-acre yards alive.
There may be no INCOME tax in Texas but there sure must be PROPERTY tax. You have to add up all three legs of the stool - income, property, and sales tax - to come up with a comparable number.
CA’s sales tax rate is around 8 or 9%, not really that much different from the one in TX. Property tax rate is probably close to 1/3 of what it is in TX, but homes are many times more expensive, so you probably end up paying the same amount of property tax for the same kind of homes.
According to the Census 2005 numbers , CA’s median household income was $51,755 while TX’ was $41,422. That $10K difference is reduced to less than $5K after paying State and Fed income taxes.
We pay 7.75% sales tax in San Diego, I think.
We rent. 7.75% in Sd is correct.
it makes perfect sense to me. Dallas has long had a high rate of foreclosures. The skyrocketing foreclosure rates in CA are something new and bubble related.
1 foreclosure in California equals 3 foreclosures in Texas.
Not to the Newspapers in So Ca, which is where it counts… (for So CA)
“Wells Fargo Bank CEO Officer Richard Kovacevich said he believes real estate prices statewide will stabilize by next spring. ‘Buyers ‘may be under water 10 percent for a while, but you can ride it through,’ he said.”
Another “let them eat cake” comment by someone who hasn’t a clue about the real world of non-CEO’s. Maybe he could ride it down 10% but the average highly leveraged FB in California sure can’t.
I agree with you. Not sure if Wells CEO is honest with himself, 10% drop is nothing for markets that have been up like 150-200% the past 5 years. This is another David Lereash, I would not buy what he said.
He’s also gone on record as saying that there will be no big bust because there’s no national real estate market, so any small pops will be absorbed by other markets which are performing well. We’ll see how that plays out…
“Watkins, a Ventura resident, said his advice is not to panic. ‘I don’t have any property for sale,’ he said.”
Here is another comment that dovetails with the Wells Fargo guy.
You guys over there on the titanic, don’t panic, all will be well, we’ll be back in a few hours.
Right. Stephen Pinker would tell us that the panic instinct was an evolutionary advantage, else in the early history of the species those who lacked it would’ve been naturally selected to die. With today’s social controls they have been selected for serfdom instead of death.
Actually, this would be a great time to panic. It might save you a lot of money.
As for the CEO of the bank…what do you expect him to say? A CEO is supposed to be a cheerleader for his company. Do you really expect him to say something like “I think it’s going to get much worse. Everyone should sell their bank stocks and probably remove all their deposits as well”? He would be fired, suied by the shareholders, and rightly so. Don’t expect candor from a CEO, it’s not in the job description.
Yup, you are correct here. CEOs are not in position to speak their minds.
How about a “no comment” instead of a lie?
“If he doesn’t lie, He is is WITH the Terrorists……
Yes, he is denied his freedom of speech. That makes me better and more free then he is.
My comment was sarcasam….
I’m just amazed that all these myopic twits who couldn’t see the correction coming are now magically able to see the bottom at 10%.
“Economist Bill Watkins said..the sudden drop in sales that has plagued California’s summer selling season probably has more to do with consumer mood. ‘They heard so much about a bubble that they are sitting out,’ he said.”
Mr.Economist thinks that we should cancele first ammendment of constitution!Who gave him economists diploma?
Media influence only affects consumer mood on the way down, never on the way up. When the bubble is raging, we expect the MSM to be compliant, enthusiastic cheerleaders. After that, zip it!
So, I admit I haven’t read each article yet, but this is the first time Ben hasn’t included the cliche’ ” Forclosure rates are still historically low”. Are they no longer low? I would love to see how many 300% increases we have to go until people get really concerned.
On Lanser’s OCR blog on Oct. 8, it mentions that for the 12 months ending in July 2006, foreclosures in OC (4,111) are 41% below the historical average dating back to 1989. So, at least looking back on the yearly basis they are still historically low but I expect that won’t continue for much longer (and that the latest monthly figures are probably much closer to the historical average than the backward-looking 12 month rate). Since foreclosures are accelerating, and will continue to do so with the ARMs re-setting, I expect we’ll be seeing some foreclosure headlines in the MSM before the end of the year.
Doesn’t a certain person generally predict Dallas will be the worst? Sounds like Gin is picking a fight:
‘If you got into a $600,000 home in San Diego, you’re much more likely to default than someone in a $200,000 home in Dallas.’”
Just to make sure people don’t take this seriously …
I commented but the post didn’t make it on. This comment is so specious it should be criminal. There is an extremely high foreclosure rate in Dallas and most of it is in under 200K houses.
The highest foreclosure rate in Minneapolis is for under 200k, in the poorer northside.
Alan Gin has absolutely ZERO credibility in my book. All you have to do is read his comments over the past 18 months or so when he has been endlessly been predicting a permanently high plateau, soft landing or whatever nonsense, the REIC tells him to spit out. Now when it’s obvious to anyone with even half a brain that the Californin housing market is toast - he is finally coming around.
It is an indictment on the media that they continue to trot out so called “experts” / “economists” such as this clown for their insightful comments! For once, I would like someone to challenge any of their statements instead of accepting as fact. Lastly, it also pretty scary that his day time job is teaching graduate level business students (impressionable young minds).
That $200K place in Dallas is within reach of anyone with so much as a steady welfare check, whereas the $600K San Diego property still requires at least a median income and decent credit (albeit with a 10x DTI toxic loan). Gin’s an idiot.
- The Modesto Bee reports from California. “Clamorous construction sounds are fading as the once booming building industry slows.
It is reported that 40% of the new jobs during the boom were related to housing. Here in So Cal it seems way higher than that.
My company wil participate in the ‘Extreme Makeover’ project this Sunday. The house is on Pinckard st in Redondo Beach Ca. The owner is a disabled police woman.
Not only is it the end of the housing ATM but if the construction business goes bust in California unemployment will shoot up. How many guys will be on unemployment, and how long till that runs out? Think of the sheer number of transactions/dollars that are going to stop flowing through the system. It is gona get bad, the younger generation is going get a front row seat to a bad recession.
El Niño is on the way…
http://www.noaanews.noaa.gov/stories2006/s2699.htm
Time to sell the beachhouse in Malibu.
You know you would think those a$$hats would learn after all these years. It’s almost like watching a sporting event now.
El Nino is on the way…
Don’t I know it.
For Australians, El Nino is a bad, BAD thing, ‘cos it means drought. Our wheat harvest is estimated to be down 60% this year.
I can personally vouch for the fact that it feels like early summer rather than mid-spring here in Oz. We’re even getting bushfires early.
Time to reserve a place at the North Shore of Hawaii for December through February
My favorite place on earth!
Awsome…another wet year for the Sierra’s!! Good snow and white water…the two main reasons I live in CA.
“Good snow and white water!” Yeah, and if the state runs out of money before clearing the hiways, how you gonna get to the snow.
Cal is BK, and Arnold jokes with Jay Leno. Thanks for nothing.
David, the whole country is BK. CA’s not so special after all.
Cool. Wouldn’t it be neat if it was like the ‘97-’98 El Niño?
I think you mean the 96-97 el nino.
“Increased foreclosures are a product of a market slowdown, said David Reid, a licensed real estate broker and licensed contractor. The market was moving so fast for a few years that homes would sell before they went to foreclosure, he said. But now that the market has slowed, homes are not selling and are foreclosed.”
This is a very interesting insight — a hot market suppressed the foreclosure stats, therefore a cold market will accelerate them. Now is the time to be scrutinizing the lenders. The builders took a hit on Wall Street today (and they’re gonna get hit a whole lot harder shortly), but as yet unindicted co-conspirators like Wamu are still floating upwards. They’ll be the next to get walloped.
You nailed it. I’ve been keeping a very close eye on the market here in Alameda CA over the past 2 years, and in the last month I’ve seen my first short sale and my first forclosure property. A year ago this would have never happened, someone would have swooped in and bought them before the owners were in real trouble with the bank.
“‘Builders are giving up (land purchase) options and contracts, leaving money on the table. That’s happening all over California,’ said consultant GregPaquin, noting that land is being returned to farmers and property brokers.”
Lucky for shareholders this will have limited or no effect on homebuilder stock prices.
“‘Even though the numbers look like things are not all that bad, we see a storm brewing,’ said Greg Norris, a project manager for the Norris Group. ‘We see a lot of foreclosures coming, we see prices dropping, we see sellers starting to get desperate.’”
How does this square with Gary Watts’ forecasted increase for The OC in 2006? I have not recently heard whether he has taken fast-breaking recent developments into account with any possible downward revisions to what he forecasted as “in the bag” earlier this year?
1) Uptick in interest rates will squeeze the adjustable crowd.
2) Falling prices will trap those that maxed out on a refi.
3) New bankruptcy rules will prevent easy discharge of debt.
… and foreclosure activity is steadily increasing. Not to condone irresponsible behavior, but it sucks that MasterCard will get paid at the cost of some family loosing their home. CC companies should be last in line.
> it sucks that MasterCard will get paid at the cost of some family loosing their home
If the family hasn’t paid their CC debt with a HELOC, they might avoid later foreclosure by seeking bankruptcy protection first. If their incomes allow paying the house secured debt and necessary expenses, bankruptcy might be the best thing to do now.
mmmm, The banks loan is secured by the property. Buy the time someone goes into foreclosure the property is worth LESS than what they borrowed, so the bank is loosing too. The CC cards ARE last in line. The irresponsibility of the Borrower is why the Borrower is loosing the home. They probably could never really afford it in the first place.
The CC companies are just double stupid to have extended the borrower unsecured credit.. It’s AFTER foreclosure that the CC Companies will make the borrowers life miserable. But only cause they’d like the money the loaned back…. (Gee, what a concept… Repaying Your DEBITS… Poor Borrower, has to pay back what he borrowed,( sniffle, sniffle, )
Why doesn’t anyone on blogs know the difference between loose and lose? I don’t get it.
Probably not as smart as you are. I’ll try to do better.
Such a looser.
I really find it fascinating. I posted here before, when I was in school, we had to take these grammar tests, where they provided two words to put in a sentence, and we had to circle the correct word. These were words like “taught vs. learned”, e.g. “The teacher learned/taught the lesson to the class.” There were other types of examples of poor grammar. But “lose vs loose” wasn’t one of them. Just a worthless observation…
I find some of the “not bother” spellers on this blog are the funniest and most accurate. Their comments are so cleaving and telling, I’m sure they do it on purpose. FlatPlan and A.E. Neuman come to mind. Truth is truth…. Alas, not me. You got me, I am a POOR SPELLER…. But thanks R I C I will make a concerted effort to not misspell “Lose” again.
So, what did you think about my comment, beside the misspellings?
“He forecasts that a year from now, the supply of Southern California homes for sale could be considerably higher. That’s because ‘a good portion’ of recent home buyers with riskier adjustable-rate mortgages with a minimum payment option will find it difficult to make monthly payments or won’t have enough equity to make refinancing worthwhile, he said.”
Could it also matter that the govt counts cancelled new home orders as sold?
All you have to do is multiply the new home sales by 65% to get the real number. I bet you didn’t think it could be that easy.
“Economist Bill Watkins said..the sudden drop in sales that has plagued California’s summer selling season probably has more to do with consumer mood. ‘They heard so much about a bubble that they are sitting out,’ he said.”
According to this ecconomist, prices are coming down only because of consumers “hearing”. Who gives Economist diplomas in this country? nHow they make a living?
economists pay varies greatly,depending on their oral skills.if they have a sense of smell,they end up as cabdrivers.
oral skills! Are these guys friends of Mark Folly?
Why don’t Congressmen use bookmarkers?
Because they like to bend their pages over!
Ahh yes. Everything old is new again…
On the OCR blog, Lansner mentions that subprime lender New Century Financial in Irvine is tightening its lending standards.
http://tinyurl.com/lzgbg
One less place for FBs to try to refi their way out of the mess they’re in, leading to more foreclosures and lower prices.
In the article, NEW makes it sound all nice, but the reality is tighter lending standards are gonna crush their profits (along with Americquest, Countrywide and all the other big lenders). Sounds like a bit of CYA too.
Ah, but alas…that’s not really what they said.
What they really said, nudge-nudge, was “Yeah, we know you’re having problems paying that silly mortgage. Call us, and we’ll help you out for a while before foreclosing you.”
That’s what the telephone number is for.
My significant other works for one of the big sub prime lenders here in So Cal (you hear their commercials). They have TONS of loans piled up that can’t get funding. She said the investors won’t buy them. I know its bad because they canceled the Xmas party, for the last few years they rented out one of the nicest restarants in La Jolla and threw one hell of a party. The party really is over.
“Alan Gin, professor of economics at the University of San Diego, blamed the trend on the region’s high cost of housing. ‘The housing prices are so much higher here that people got stretched getting into a home,’ Gin said. ‘If you got into a $600,000 home in San Diego, you’re much more likely to default than someone in a $200,000 home in Dallas.’”
no…no…no…NO! Alan. Blame the trend on rabid buyers shoe-horning themselves into mortgages they had no business ‘qualifying’ for while the mortgage lenders stood at the gallows with rope in hand and a friendly push. If your theory is true then how do you explain the foreclosure rate in Colorado? Florida? The price of the house is irrelevant, the rub is in the path to ‘ownership’ and how much you suck out of it. Someone could default on a five dollar house given the right circumstances.
“Blame the trend on rabid buyers shoe-horning themselves into mortgages they had no business ‘qualifying’ for while the mortgage lenders stood at the gallows with rope in hand and a friendly push.”
Also blame the economists who painted rosy future outlooks when the actual future outlook was here for all to see on this blog.
“if you didn’t shoehorn, you were WITH the Terrorists!”
someone needs to start an “Alan Gin watch” blog similar to the one for David Lereah. Talk about doing a 180 in record time.
And today was the first rainy day of the year…
I live and work in OC, California. Some observations over the last 3 months (beyond all the for-sale and for-rent signs, price reductions, etc.):
1) I go out to eat often. At all the places I go to have had noticeably shorter lines than I’ve ever seen. Going to lunch at many of these places I’d grown accustomed to waiting in line, especially around the peak period 12pm - 12:15pm. Now, lines are far shorter, even around this peak time, and in some places there is no wait at all. I’ve been living and working around here for years, so this isn’t just a comparison over the last couple of months, this is compared to a year ago, two years ago, etc.
2) The number of illegals hanging around Home Depot, 7-11, etc. looking for work has really multiplied. The number is easily 3 times what it was 6 months ago, and probably 4 times what it was a year ago. They’re spreading out now along the street, so that in some places there are literally city blocks worth of illegals waving at you as you drive by (especially at those in moving trucks, pickups, and the like). I don’t know exactly why, but my WAG is fewer developers, homeowners, or contractors are picking them up, leaving them to hang around these haunts all day.
I wonder if anyone has noticed the same sort of stuff.
I also noticed a for lease sign usually sit much longer than before and renting is actually 40% cheaper than owning a house.
For example, I pay $3000 (owner discount $200 for my good credit) for my rent, but if I buy the same house I’ll need to pay $5000 per month (after tax and assoc etc.),
My question is why it so hard in O.C. to rent out a house even it is in most demanding community ? (60% of chance, a for sale sign
is gone faster than a for lease sign)
The houses with the “For Lease” signs that just sit and sit are most likely owned by homedebtors who had no intention of becoming landlords, and no clue how to price to market. They have probably set the monthly rent to cover all of their expenses and a profit besides, resulting in a price that no sane tenant would ever pay.
I have seen this happen around SM on several occasions. For example, have a look at this beauty, only $12,500 per month:
http://losangeles.craigslist.org/wst/apa/218281367.html
Now I admit that’s a nice house in a terrific neighborhood, but $12,500 per month? I don’t think so.
Man, that is ridiculous. You can rent mansions in Coto de Caza for less than that, and while the SM house is nice, it is no mansion. Hope he has fun feeding the alligator.
Ask my Atlanta friend why he can’t rent out his empty house, the one that’s sat empty since he transferred up here to DC a year ago. Fact is, he tried to sell it at an inflated price, turned downoffers $10k less than the asking price on “his precious”, and so he keeps trying to rent it out for his PITI (princ/interest/tax/insurance).
Sadly, he’s about $300 over the market rate. So the house sits empty because the only people he gets interested are deadbeats who CAN’T rent at market rate. And so goes $1800/month — plus maintenance and utilities — month after month. Nearing a year now. I bet he wishes he’d just taken that $10k haircut last year because he’s now down $20k from when he turned down that offer. And I bet his house hasn’t appreciated, either.
Bwwwwaaahhhhaaa and that moron is an agent to boot. Unbelievable. No one wants to live in Santa Monica that bad. To pay $12,500.00 for that would be criminal.
it is an OK house in an overpriced neighborhood. Nothing there calls out to me. It looks like it is worth 300k. Really! If it were aywhere else, it would be!
Keep in mind that that you can only compare part of that $5000 to your $3000 rent. The amount being used to pay off principal should be subtracted from the $5000, so its probably more like an even deal assuming flat appreciation. Of course, the appreciation is probably negative, sucking principal away…so as long as this bust continues its probably a better idea to rent.
I’ve noticed this trend in other areas.
I had some business in Lancaster and was driving past a Home Depot and noticed this too. However, I didn’t notice the number of day laborers as much as I noticed how *packed* the liquor store across the street was. Now at first, I thought they probably were grabbing water, cokes, coffee… Nope. While stuck for a street crew, I couldn’t help but notice how many had given up and were spending the day drinking malt liquor. That has got to be a bad sign… Its a new sight for me… (Ok, I’ve seen them do it after work before; its the first where they didn’t even bother to hope for work.)
Neil
I wonder if anyone has noticed the same sort of stuff.
Yes, last time I was at Home Depot (Hollywood) the illegals were more numerous than usual and very aggressive in trying to flag me down, something I’ve never seen before.
I agree, I’ve noticed a LOT more illegal aliens in SoCal since 1978.
Home_a_loan,
Agree with the restaurant lines in OC. Not sure about the workers hanging out at Home Depot.
About 3 months ago, up in north OC, you couldn’t even find a single family home that was listed for less than $600K. I’m talking about 1,200 sq ft, 30-40 year old fixer uppers. It’s no wonder people were doing the exotic loans.
Now you can find a few houses in Brea from $500s. I read it here before and I think it’s true, the folks in OC aren’t likely to give up easy and it could stay fairly stable until all hell breaks loose.
Lip
Maybe a Housing Bubble Burst would be better than a fence for controlling illegal immgracion?
Hmm.
One reason why I’ve been praying for this.
It will probably produce a Lull in illegal immigration….. The home depot in Hollywood has always been crazy 3rd world. I work often near by ….
I honestly believe that all the homemoaners in LA (west LA, silverlake, santa monica, southbay, …etc) have another 50k in savings or credit to go through before it gets “REAl” here…. 6 months to 1 yr? Then the fireworks start igniting….
“The Contra Costa Times from California. “Solano and Contra Costa counties, where much of the Bay Area’s once-booming housing market soared in recent years, now have the third- and fourth-highest rate, respectively, of foreclosure in California. A year ago, Contra Costa County ranked 11th on the list.”
Trouble is, Contra Costa has large pockets of high-priced owner-occupied homes with no income support. My guess is they will have a steadily-increasing foreclosure rate for the foreseeable future.
Well, it’s good to see that Cramer and the investors were on the inside track a couple days ago with the homebuilder stocks going. I kept on hearing that the decline had “already been priced into the stock.” I seem to recall in the latter part of 2000 and early 2001 that a lot of declines had also “already been priced in.” Then the rest of 2001 and 2002 happened and we saw the reality.
As an undergrad Finance major I used to think that these guys were actually smart and that the market was truly efficient. Unfortunately, any focus on an actual income stream (dividends) from investors in regard to stock has long since been dismissed as naieve or quaint. The focus is only on whether some other sucker will at some future point in time be willing to buy your shares for more than you paid for it. Since dividends are sometimes not paid out in many cases or are so low as to be of no real value, it’s essentially a zero sum game- there are winners and losers and really no money being created. Therefore the market is all about gaming the system (hence Mad Money looks like it belongs on ESPN more than CNBC).
So the homebuilder stocks all of a sudden look good for no fundamental reason. Why? Because rather than looking at fundamentals of the company and the business segment, it’s all about the psychology. They think everyone else has already priced the losses into the price, therefore they buy now thinking that someone will be willing to buy it for more in the future because they’ll also speculate the declines have been priced in.
“(hence Mad Money looks like it belongs on ESPN more than CNBC).”
Nah, it reminds me of Sesame Street. Goggle-headed sock puppets amongst colorful props, talking to you like you are an idiot.
The smart money buys when earnings yield is cheap for the price, and sell when it is expensive for the price. The clueless/technical analysts buy when the price goes up, sell when the price goes down and end up paying for the the smart money’s new BMW.
“The first Rule of Investing is ‘Don’t Lose Money.’
“The second Rule of Investing is ‘Don’t Forget Rule #1.”
Right, so why will you be in auction heaven in ‘07? How about ‘08 or ‘09 instead? No offense.
Moaning, Pain and Misery in 07….
Full blown Auctions in 08…. (where the average bidders don’t even want to show up)
Well said, TRich. Like Templeton said a while back, the stock market is “broken”.
It’s my first time posting here, but I’ve been watching the housing market since I graduated 5 years ago, in the hopes that sooner or later I will be able to buy.
It is interesting to see the shift even in mainstream media about the bubble. Even at the beginning of this year it was stuff like ‘the summer will be strong - better buy now!’, ‘there is no bubble’, etc… Then it slowly changed to acknowledge the slight possibility of a bubble. Now its that the bubble has corrected and it’s a great time to buy. How anyone could justify that buying now is a good idea is beyond me.
My buddy just told me last night of an old acquaintance who sold his 700k home and bought a 1.2M home over the summer. When I mentioned that that might have been a bit excessive and maybe renting would have been better, he said that it was ok since they ‘did well’ on their last home. I Just shook my head. I wonder how many otherwise sensible people are, and have been doing this during the bubble. It could get really, really ugly pretty soon.
“The numbers are rising at a time when many borrowers who took out adjustable-rate loans years ago are now paying bigger mortgages after the end of introductory rates. ‘I think that’s the biggest trigger,’ said real-estate agent Earl Rozran. ‘All of a sudden, payments have jumped a couple hundred dollars.’”
This is one of the most idiotic comment I have ever heard. So according to this clown, if the borrower will have $200 more, he will be OK. Cut your kids allowances, movies and their uber-expensive trainers and you’ll be OK. When you borrowed $500,000, a couple of hundred of dollars is small beer compated to property taxes, utility bills, property insurance, etc.
And yes, you can see a $200 per month increase in these type of expenses. But when your mortgage re-adjusts, it re-adjusts in stlyle to the tune of $1000+ per month.
“‘Builders are giving up (land purchase) options and contracts, leaving money on the table. That’s happening all over California,’ said consultant GregPaquin, noting that land is being returned to farmers and property brokers.”
A Bud of mine sold his house in Sacramento, traded up and saw stars in his eyes thinking real estate was the road to riches. So what does he do then? He and his extended family bought a huge lot (150 acres) thinking they’d sell later to a developer and make millions. He was bragging to me how much money the property will be worth and how much they “made” (on paper equity) already when the deal was closed. I told him that was great, but that I had serious reservations about even buying a home–as I knew there was a bubble. He said I should buy because it’s “going to keep going up.” I knew he was caught up in the mania and left it at that. Well, it’s two years later and I talked to him on the phone and he’s not a happy camper. Didn’t need to ask why. His family is toast–at least financially–now. They’re going to watch that property continue to drop in price while paying their huge mortgage on a friggin’ peach orchard. I’ll bet the farmer they bought from laughed all the way to the bank!
DOC
One of the biggest economic pitfalls is not realizing the difference between “possible profit” and “profit”. There is all sorts of things that could make money, the number that do make money is far smaller.
“”I’m fortunate because I don’t have to sell,” said Freck, who purchased his home three years ago and believes that it has since doubled in value. “But as a homeowner, you got so used to watching homes sell quickly in the last couple of years.”
Talk about a sense of entitlement. Can anyone actually say this with a straight face? I think I should make over 400K in three years just because I’m a homeowner! Man, I’m annoyed.
He’ll also be ‘fortunate’ to watch his home drop right back down to the price he bought it at.
Fortunate Son.
“The state’s foreclosure activity has risen more than 40 percent over the last two months.”
So is CA’s foreclosure rate increasing by 20% per month, or did it perhaps increase by 15% in Aug and 25% in Sept and XX% in Oct. We are accelerating into the perfect storm here! By 2008, I predict it will increase by 500-1000% in CA.
AZ_BubblePopper…. why Redondo? What leads you to believe that Redondo Beach will drop more than any other so-cal town? Yes I live in Redondo, but I feel values have and will continue to drop in my town… just want to know why you feel beach towns will suffer more than inland.
Jonaskinny,
If I may put in my twocents:
1. The areas that will drop the hardest will be those that rose the fastest. Did you notice how insane the prices in the Hollywood-riviera section of Rendo became? They shot past similar homes in PV!
2. I’ve noticed a huge amount of flipping going on in the beach cities. Some in PV, but far less.
3. Redondo also allows for “lot-splitting.” Did you notice the shear amount of new townhome construction that went up in Redondo Beach? Since the most “at risk” homes are those that sold in 2004 through 2006 (1H 2007?), it seems Rendondo is a bit more at risk.
4. Nearby new construction (Fusion, those crazy townhomes planned on the old LA air force base, etc.)
5. Sales rate and inventory. Only 23 Sales in September for 90277 and only 49 for 90278. Ouch! Combined inventory over 400… Yikes.
Although October in 90277 is looking healthier.
https://www.melissadata.com/lists/ezlists/ezHomeowners.aspx?zip=90278
All of So Cal will suffer. Manhattan also overshot and will thus fall, a lot. But in shear $$$ terms, Redondo has an incredible amount of risk.
Neil
I agree, I live in Redondo Beach. Historically RB and other South Bay communities were less expensive than close-in beach cities (Santa Monica, etc.). It was madness here during the mania and now these towns and the traditionally extremely expensive West LA areas are neck-an-neck in price. BUT - when I must drive into Beverly Hills from Redondo Beach in morning rush-hour for meetings I need to leave 2-HOURS for the miserable commute. Redondo should be cheaper due to this fact. My name, Ground Zero, is because I believe that Redondo Beach is ground zero for the bubble action.
An aside: I despise those two-on-a-lot townhomes. For those that don’t live here, basically they have sprouted up like weeds in this town. They take a small in city single-family-home lot (the tear down would have been a 2br 1bath house with a small yard) and build a two story faux-tuscan duplex (they seem to have only one plan as they are all identical) out to the lot lines. There is only one driveway so basically it amounts to having two ugly-ass-mini-mcmansions stacked back-to-back with one planted in what would have been the back yard. Here they refer to them as the “front house” and the “back house.” Then during the mania each unit was priced at just under $1M. I pity these conspicuous consumption driven Redondo Beach a$$ hats who mortgaged themselves into serfdom to buy a $1M townhouse squeezed into someone’s back yard.
Also, if you reread AZ’s comment.. I think he was mixing metaphors. I think what he was saying was Compton will go to 0. (i.e. worthless, or 100% of current value) and Redondo will be 50% of current value.
Neil
Interesting your comments on Hollywood Rivera. Have a friend who bought there 3 years ago 1.4 million, I think he’s heading for a 50% haircut. Course, I don’t say that to him.
Imploder,
I’ve found I have to watch what I say around quite a few friends. There are relatives of mine who still only want to hear about how their new home deserves praise. Oh, it does (great layout, retirement friendly, enviable view), but they want to talk appreciation. At that point I start talking about meal or the wine.
Neil
Me….. I just start drinking the wine:-)
‘People actually overextended themselves,’
I know it’s hard to believe, but they actually did, as it turns out. You never would have thought that with illegal aliens buying $500K homes in Riverside with no-doc, neg-am loans and fraudulent appraisals that we’d eventually find that these people were getting in over their heads, but in retrospect, they really were. Who knew?
Well I bet many of them will move 15 people into the house to make the payments……. hope the neighbors don’t mind all the cars blocking the driveways?