“Sellers Expectations Have Had To Come Down”
The Record.net reports from California. “Anne Thompson, of Stockton, has a variety of properties in the Central Valley. The rental market is better now partly because the area is seeing a rising wave of foreclosures, she said, as people who bought homes with flexible loans tied to interest rates are caught with higher payments after rates rose.”
“And there are a lot of people who haven’t hit foreclosure yet who are in trouble, she said.”
“There is a plethora of houses for rent on the market these days, owned by investors who bought when values were jumping 25 percent to 40 percent per year during a five-year period that ended last fall.”
“Since prices began dipping, the investors have been unable to ‘flip’ the properties for a profit, she said, and they need to rent the houses to get some kind of cash flow.”
“Those investor-owners likely have big mortgage payments and probably are left needing to charge more than the market can bear, she said. ‘Fourteen hundred dollars is the break point,’ Thompson said. ‘It’s really hard to rent out anything over $1,400.’”
The Sacramento Bee. “Plans for an eye-popping housing and retail project in midtown have been shelved, the result of an overly ambitious design and a declining residential market. ‘We shot too high and it cost too much,’ says developer Mark Friedman.”
“CADA boss Paul Schmidt is optimistic he can interest another developer in the site. And given the current housing market, probably with apartments rather than condos.”
The Valley Voice. “A new City of Visalia report to the City Council says there are about 8400 unbuilt home lots in the city’s current 129,000 population as of September 2006. ‘It’s going to take years to work through this inventory,’ says contractor Basil Perch.”
“On top of all this there is nearly 1000 acres within the city limits that is not mapped but is likely for future residential or mixed use - meaning there is likely another 4000 units in the shadows.”
“Visalia is swimming in residential lots that builders and city planners expect to market when there are over 2000 homes listed for sale in the Tulare Visalia MLS - a sizable portion of them vacant. That doesn’t count the number of homes for rent - not on the market, that are also empty.”
“Council member Greg Collins says the empty homes he sees around town make him scratch his head. ‘ I wonder if we are really losing population’ he says citing all the people who have moved away in recent months in neighborhoods he is familiar with.”
“If there is an inventory beyond those of planned or permitted homesites of 12,000 to 15,000 - we’re looking at a decade or longer worth of inventory to work through.”
“What has gone up says Realtor Bill Jordan according to his numbers, is inventory of homes for sale up from just 600 listings in July 2005 to 1730 in July 2006. Mr. Jordan says he hopes sellers expectations have had to come down from two years ago on homes that could have sold for half a million now having to take a $100,000 price cut to sell. To that degree he says he has seen a price drop.”
“Home owners here and real estate agents alike may sense a glut of competition forcing prices (due to) the fact that national builders have continued to build and widespread incentives are being offered to reduce their inventory.”
“Even with a $50,000 price cut suggested in the last issue of the Valley Voice by homebuilders the run up in prices in the past few years still allows for profits for homebuilders if the land was purchased at the right time, says industry sources.”
“Council member Greg Kirkpatrick says says while it may seem strange that builders continue to pull permits considering the atmosphere, ‘it shows that even at lower prices they seem to think they can make money.’”
‘California employers added 17,300 workers to their payrolls last month, with some of the strongest growth coming in temporary jobs, according to data released yesterday by the state Employment Development Department.’
‘Economists say that although job growth has slowed over the past few months – dragged down by weakness in the real estate market – hiring continues at a mild but steady pace.’
‘It seems like the state economy has got pretty good momentum,’ said Keitaro Matsuda, economist at Union Bank. ‘We used to get pretty good tailwinds from the housing sector, which isn’t happening right now. But fortunately, hiring in the service sector is continuing.’
“But fortunately, hiring in the service sector is continuing.’
Translation: “Would you like to SuperSize that order of fries?”
They are closing the drive in on Mooney, near the high school, in Visalia. The cute car hops use to serve you on roller skates. Times of the past.
Or: would you like plastic or paper bags?
Or: Should I pick it if it’s a little green?
Pay less jobs, are not real jobs.
The CA state employment transition at this stage appears to have two key features:
1) Overall the housing slowdown (bust?) has not taken a big toll on unemployment rates.
2) But the transition from high payed housing sector employment (finance, construction, Realty (TM) with 6% commissions on $1m home sales, etc) to low paying service jobs implies that at least some Californians will have a hard time keeping up the payments on their $800K McMansions.
- sellers expectations have had to come down from two years ago on homes that could have sold for half a million now having to take a $100,000 price cut to sell. To that degree he says he has seen a price drop.”
Let me think out loud for a moment…The sellers are having to cut 100k at this point of the correction. WTF will it be in another 12 months when we have shaken out the construction / suppliers jobs along with all of the retail economy that followed it like prostitutes.
seriousely… when will this part of the problem sink into the heads of the ‘experts’ who are predicting that we are almost at the bottom.
yea he’s saying that “right now” seller needs to drop price by 20%!
(last year 1/2 million, this year -100k)
Wow! Reminds me of a Ween song. These poor “investors” are taking a trip on “The Poop Ship Destroyer” and the swirling waters have just begun….
homes that could have sold for half a million now having to take a $100,000 price cut to sell
Sounds like a 20% haircut… but for some reason the median is only down 3%. Hmmmm.
‘It’s really hard to rent out anything over $1,400.’
YeeeOooouch! What does $1400 buy you on a freshly adjusted ARM rate? 160k? (just an off the top guess) And what did these people pay for their “investments”? And what will their carrying costs be? Talk about a band-aid for a bullet wound.
250k-450k. True cost of ownership PITI $2-4k/mo. More on really horrible loans, $5k/mo wouldn’t suprise me). This doesn’t cover repairs or upkeep.
At $1,400 rents no vacancy/no upkeep they lose between $600 to $2,600/mo. LOOSE!! .
Thats a pretty hefty layout per month ($600-2,600/mo) for their INVESTMENTS.
“‘It’s really hard to rent out anything over $1,400.’
YeeeOooouch! What does $1400 buy you on a freshly adjusted ARM rate? 160k? (just an off the top guess) And what did these people pay for their “investments”? And what will their carrying costs be? Talk about a band-aid for a bullet wound. ”
I live in the area and it’s true that historically, one could rent a really nice 3/2 house for under $1,500. There simply isn’t the incomes here to keep this fantasy alive. It’s going to be really hairy around here over the next few years. Forclosure city. Comps will go down, down, down…
DOC
realtors and builders should be required to read the economist
they called it near the top
jonaskinny said-
“realtors and builders should be required to read the economist”
yeah the Economist is so far ahead of their peers its ridunculous. I was listening to their podcast today and they consider it a fait accompli that there is going to be a massive US RE bust and a resulting recession. They just mentioned these facts in passing to make the point that China would not be dragged down with us.
And let’s not forget Paul Krugman of the New York Times (”That Hissing Sound”, Aug 2005, google it), although the rest of the paper is not too clued in on RE.
Do they have a regular podcast?
yes, I get it through itunes.
re economist: that’s hilarious. i’m here in china, living in a shiny, brand-new apartment complex (which is falling apart, btw because of shabby building codes). my girlfriend and i are the only ones that live on our floor. there are plenty of vacancies. (the landlord owns 12 apartments, btw, speculating on price apreciation).
a very nice mall was just built next to a very nice mall that nobody buys anything from these malls except groceries. yes, the poorer chinese areas and shops are quite busy, but big-ticket “first world” developments outside of shanghai are under-used and under-inhabited from what i can see. a lot of money seems to be going to waste.
this is a global epidemic. china will be spared? please.
“Home owners here and real estate agents alike may sense a glut of competition forcing prices (due to) the fact that national builders have continued to build and widespread incentives are being offered to reduce their inventory.”
Yep. They will continue to crush the little guys. Wait till the outright discounts start firing up. Horton’s already there in FLA.
I would read about this happening in Palmcaster in the 90’s . Builders SLASHED their prices mercilessly. People trying to sell who purchased in earlier phases were stunned. Then the “jingle mail” started. In the end, even the builders couldn’t get out completely. There were scores of half build houses twisting in the blistering heat.
“A new City of Visalia report to the City Council says there are about 8400 unbuilt home lots in the city’s current 129,000 population as of September 2006. ‘It’s going to take years to work through this inventory,’ says contractor Basil Perch.”
Whew! Living in Fresno from 1968 to 1985, I found the pattern, and my father discussed it to me numerous times. The big agricultural interests want to keep other industries out and perhaps had a hand in keeping out University of California for many years. The reason: They wanted to keep real estate prices low so that they could keep the farmworker wages low. Traditionally in Fresno, urban decay drove south to north, bringing drugs, welfare, and crime with it. The San Joaquin River seemed to provide some type of buffer - not sure why. It borders Fresno County and Madera County. The main industry today in the six county area is still agriculture. The price hikes of recent were due to a combination of Bay area families pushed out by high prices to the Valley, and the contagious greed of the homebuyers.
The prices in the bay area will be driven down, as in all hot markets, because the interest rates are unlikely to return to the 40 year lows for, well, another 37 years! These price drops will occur over the next 5 or 6 years and it will mean more amplified price drops (in percentages) in the San Joaquin Valley. After all, the Valley has agriculture and no good wages to support the prices of homes there today. The Bay area has the jobs and the university support system to keep the jobs there.
Yea, it still amazes me that many people just didn’t realize how unusual the interest environment was for the 3.5 yr. period. I mean 4.75 on a 30yr fixed? With the true inflation rate that probably works out to “Free”.
Here you go, have some free money.
Following previous busts, rents are now rising quickly in previous bubble areas as more and more folks decide to sit it out. From a pure math standpoint, given it will most likely take 5 years for the market to floor and rents may rise at 5% or more, it seems to me we will end up seeing net rent increases of 40% in areas such as San Diego since 1997 which I see as the beginning of the current boom, which should create a floor at 1997 prices + 40% or thereabouts. Translation prices need to fall at a minimum of 45% in San Diego to correct, even being generous on the other side. Is this logic flawed?
assuming they all were on adjustables or were all purchased in the last few years… remember that most folks will hold their homes but who the heck knows.
Comps are set at the margins so you don’t need the majority of loanholders to be FBs…just a handful can reset the market. This was the reason on the prices escalating on the way and it will be the same on the way down.
that is true but that also means not very many buyers will get those lower prices… i think 20-30% is more like it. rents will go up and prices will go down but probably not to the point where its cheaper to own. just my opinion.
Au contraire my friend. I said that only a handful of FBs are required to set the comps. But there is more than a handfull of FBs running around SoCal. That also doesn’t count those who bought before the bubble for whom cutting the market price significantly will still leave them in above water. There will still be the usual number of compulsory selling activity (relo for new job, retiring out of state, etc.) for which those new comps will be applied.
Also regarding rents. A significant portion of the volume over the past several years ( you know the ones that you keep wanting to ignore) has been speculation driven and not true demand driven. Rents may go up temporarily as the FBs must flee to rentals, but there will be deluge of available places for rent. Ultimately that rent rate is tied wages…so unless you believe that the Fed want’s to hyperinflate in order to save the FBs and their dope dealer lenders / banks, then wages will not increase.
Following previous busts, rents are now rising quickly in previous bubble areas
Boston in the late 80’s early 90’s was the opposite. The rents dropped as more people tried to capture some rent $$$ when it was clear that they couldn’t sell.
true… i rented 1200 sq ft 2 bed in orient heights (east boston) for 475/month in the early 90’s. i was nailing the landlord’s daughter but it was probably still within going rents +/- 100 bucks.
The rising rents is nothing but a myth. Rents fall with housing. Period.
In our area (Carlsbad, San Diego), rents are already up about 40% from 2004 levels. I think a lot of people are doing what we did: sell in a “starter” neighborhood and rent a much better house in a much better neighborhood for less than if we were to buy even the same starter home.
I think where rents were cheap in GOOD, DESIRABLE neighborhoods, they will rise rather dramatically. Homes for rent in our area are gone within a week. Back when we were originally looking (mid-2004), they were practically chasing us around to rent their houses.
Eventually, rents will go lower as more sellers turn to renting out their “investments”. For now, they are rising where inventory is tight.
Have to add: rents will go down in all those “rolling bubble” areas (Phoenix, Riverside, Central Valley, etc) as people move back to the more desirable areas — to rent.
My rent in Ahwatukee went up when I renewed my lease last month. Are you ready for this? A shocking 2% for the next 12 months. And Ahwatukee is a very bubblelicious area. LOL
Absolutely flawed. How are rents going to rise with the glut of empty homes on the market. Apartment rents will come down as foreclosures get purchased as investments and rented out. Why rent an apt. if you can get a house for the same cost?
Agreed. I am about 1/2way through my lease on a 2/1.5 townhouse at the beach and even though I like where I live fine, my current plan is to stay on only if I get a $50/mo. concession - else I will rent a small house for $100-$200 more a month.
The way I see it here: low end apts. - rents stable to rising; middle - stable to pressured; high end - gotta fall.
It is flawed. Since CPI is calculated by rents and not housing cost a rise in rentals will result in higher CPI and higher interest rates from the FED. That is deflationary.
Second, an increase of empty houses into the rental market will not raise rental cost but will lower them. That is deflationary.
“If there is an inventory beyond those of planned or permitted homesites of 12,000 to 15,000 - we’re looking at a decade or longer worth of inventory to work through.”
Beautiful. Glad to see Phoenix isn’t the only city in this pickle.
Anyone seeing a trend to smaller houses as discussed in this article:
http://www.semissourian.com/story/1151278.html
Or will buyers just wait for the price to downsize?
I’ve been interested in small houses for about 5 years (my last house was 1900 sq ft and too big!). But I know practically no one else who feels this way. And I sure don’t see any small houses being built. Well, wait, a house I looked at this week was about 1500 sq ft (with a same size unfinished basement). Very nice although it was not designed well from a energy efficiency point of view. Designed by owners, Amish built, 1998. Unfortunately, waaayyyy overpriced.
Small Houses are OK, up to a point. My current rental is 1850 sqf. It is too small. But, I have been through several models lately, and I feel that for MY families needs 2000-2100 sqf is the largest we’d want to heat,cool and clean. Upkeep on these huge new homes requires loads of time,and even given that they are energy-star rated, they still suck up lotsa juice in Bakersfields overheated summer temps. If push came to shove, I could see a Very Well Designed 1500sqf working for us,but that would need more of the pricey “features” to make it work. Living in an over sized house gets tiring after a while. (I suspect) just from all the work needed to keep track of family.
I had opportunity to speak with a realtor this morning who is scheduled to close Monday on 2517 Carolyn, 93551. Zillow sets its value at 594K. He told me it sales price is 474K. 21% haircut over neighborhood comps.
This seller was still above water if they didn’t refi, But I know there’s other in the area than aren’t so smart.
Zillow charts are starting to look like HB stock tickers.
“What has gone up says Realtor Bill Jordan according to his numbers, is inventory of homes for sale up from just 600 listings in July 2005 to 1730 in July 2006. Mr. Jordan says he hopes sellers expectations have had to come down from two years ago on homes that could have sold for half a million now having to take a $100,000 price cut to sell. To that degree he says he has seen a price drop.”
Interesting point. It was Bill Jordan’s firm, Jordan-Link Century 21, in Visalia that sold my house there last fall. Him, as well as his realors, were RE perma-bulls at the time; I remember the comment of “why would you want to sell now…prices will be going up another 15% in 2006!” The only problem is, most housing prices in Visalia have dropped 20% this year. This Bill Jordan guy even had a homebuyers guide put in the local paper (the online version of the Visalia Times-Delta still had it on their website up til about a month ago) saying how there is no housing bubble and people need to keep buying or be priced out forever. He is definitely in the same camp as David Lereah. Seems like these people need to be held accountable for their poor financial advice…then again, it is only the greedy dumba$$es that take such advice.
I love it! They are cutting $100,000 off of home prices in California. That’s what I paid for my 3BR 2BA house in Columbus in 1998! Of course, only a very small percentage of the population in Central Ohio has a job paying more than $40,000 per year. Still, I don’t understand California economics. What is so great about living there that it justifies paying 5-10X for the same postwar house? Also, does everyone in California make over $100K per year? How do people like me afford to live there?
They rent. Otherwise, they don’t live there.
100K a year will not buy a decent home in San Diego these days. 40K in Ohio may be a better bet…
200K/yr isn’t enough to buy a decent place in San Diego anymore
“While Visalia’s population appears to be growing yearly based on California Department of Finance estimates and Census reports, some of the estimates are based on building permit activity. But the glut of empty homes won’t give a clear picture of what is happening here since many are “investor” homes.”
I think they answered their own question without wanting to. There is a glut of homes on the market BECAUSE of the many investors they mentioned, or more precisely, a lack of new investors rushing in to buy. Visalia was nothing more than a stopover, not a destination.
“The Valley Voice. “A new City of Visalia report to the City Council says there are about 8400 unbuilt home lots in the city’s current 129,000 population as of September 2006. ‘It’s going to take years to work through this inventory,’ says contractor Basil Perch.””
Try roughly 16,000 unbuilt home lots for the city of Lancaster; current population 135,000. During boom times (3,000 permits issued per year for residential homes), it might take 5 years to work through the inventory. During bust times (400 permits issued per year), it might take — well, you do the math.
As a long-time watcher of the Southern California real estate bubble, I have some interesting news to report on several fronts:
*KB Homes closed it’s doors a couple of weeks ago. Their office is next door to the gym I work out at and as I have driven by over the last six months, I always wondered at the number of cars in the parking lot (I was wating for the office to collapse, but it took longer than I though). The lot used to spill over into the dirt behind their office, but now there is easy parking.
* I spoke with a relative of my wife’s the other day. She is a mortage broker who operates out of her home. She told me that business has recently picked up as FB’ers are looking for a way out of their impending financial doom (I/O or ARM loans). She is trying to help them avoid foreclosure, but understands that the weakest players cannot be helped.
* My wife’s mortage broker relative also talked about the neighborhood she lives in in Temecula. There are a ton of foreclosures in her area, but new homes continue to go on-line within a few blocks of the area. She commented to me that she wishes she would have stayed in her house in Menifee intead of moving into a new house in Temecula.
* Our commercial real-estate brokerage is starting to take on a lot of the residential real estate dead wood (they pay a monthly bill for the office and the name on the business card). With minimal training, they are trying to bust into the commercial real estate businness.
The property ladder in Temcula-Murrieta is unwinding, and the pace of this un-winding is accerating. And yet, the Builders continue to build their sub-divsions. WIth new inventory commpeting with the existing houses, I expect matters to get much worse.
It’s amazing to me how everyone (builders, etc.) seem to be thinking short-term instead of what is in their and their businesses’ long-term interests. I suppose that’s because almost everyone is highly leveraged and their business models require high turnover just to pay their bills and keep their doors open.
That plus Wall Street’s insane focus on this quarter’s earnings as opposed to what’s in the co’s long-term interests. Anybody with a brain knows you save up for a rainy day when the sun is shining, but everybody’s running flat out because they can’t survive otherwise and they hope the other guy will slow down to take the pressure off of them.
Add on to that the unintended consequence of Sarbanes-Oxley that has the SEC and other regulators preventing banks from increasing their loan-loss reserves beyond their immediate losses and the dominos seem set up pretty well for a big ole wreck.
Interesting to me as I sold a 16yr old house in Menifee in May ‘06 (in one of the first if not THE first subdivisions there). But your contact wishes she had stayed in Menifee rather than moving to Temecula?
They are building new homes just a mile away in every direction…I felt buyers had a LOT to choose from and was actually surprised that I got a good price for the house. It took 6 months to sell and I had only 1 offer. It wasn’t my house but that of an elderly relative who could no longer live in it anymore.
‘It’s going to take years to work through this inventory,’ says contractor Basil Perch.”
Next steps in Contractor Cookbook
1) Place Basil Perch into pan
2) Apply heat
As I mentioned on an earlier post, I was in Visalia last weekend and the whole speed at which this thing is moving along, down there, is really quite amazing.
All the new stores in the brand-new Packwood Creek mall were empty; Lowe’s and Home Depot, where full parking lots were normalcy any Saturday last year, were two-thirds empty now. The restaurants were empty, few cars compared to normal were on the streets; in short, it felt like the town lost half its population in the last year.
Of course, the more obvious thing was all the sign spinners at every manjor intersection pawning houses…incentives, etc. and the red helium balloons taking residence in the sky anouncing yet another new home subdivision. Contrast that to two years ago when there were massive waiting lists for any new home development, as specuvestors rushed in to grab whatever they could.
It is pretty obvious Visalia, along with other parts of the Central Valley, are pretty far along in this unraveling…it is obvious by the numbers of homes for sale, the lack of people shopping and spending money, and the overall “gloominess” that has replaced the go-go era of several years ago.
Glad to see it!
Can’t make the Payments,
Can’t re-fi,
Can’t sell,
Can’t wait it out,
Trapped and Checkmate Suckers !