Stubborn Sellers “Are Consigned To Misery”
The Sacramento Bee reports from California. “Just as when the market was rising spectacularly and sellers simply priced their houses thousands of dollars higher than their neighbors’ sales prices, homeowners, real estate agents, builders and even appraisers confess to some sense of winging it on the down side these days.”
“The old standby of measuring comparable neighborhood sales is proving undependable amid falling prices, excess inventory of resale and new homes and reluctant buyers who firmly believe prices will fall further still.”
“‘It used to be a mathematical equation,’ says Placer County real estate agent Kate Tustin. Now with a record inventory of houses for sale, she says the old math has given way to quantifying a house’s ‘emotional component.’ On such vague notions of the heart does pricing now rest.”
“Real estate agents have spent much of the year complaining that homeowners were in denial and refusing to cut their price despite daily evidence to the contrary. Many are still resisting. (Broker) Mike Lyon says the market may decline another 10 percent, and still sellers aren’t convinced.”
“‘About half the sellers are out in la-la land,’ he says. ‘That’s better than before. Half are serious and are starting to reduce their price. I still think only 10 to 20 percent of the market is priced to sell.’”
“That doesn’t surprise Barry Schwartz, professor of psychology and economics at Pennsylvania’s Swarthmore College, who has studied the issue. For most people, he says, the joy felt when investments such as housing gain in value is greatly outweighed by the pain felt when those same investments lose money, even when the loss isn’t real at all.”
“‘If the baseline is their initial asking price, then people are consigned to misery,’ Schwartz says. ‘They will feel their loss on what’s probably the best single financial transaction of their lives.’”
“One huge issue that most sellers don’t pay attention to: New-home builders are exempt from such personal distress. ‘They have the ability to discount more than you do,’ Lyon says. ‘They look at it more from a business sense, and it’s easy for them to cut prices because they’re not in love with their homes.’”
“At William Lyon Homes in Elk Grove recently, sales representatives were handing visitors to their model homes an imitation credit card. ‘Our gift to you … $40,000,’ it states. Developers are now cutting prices outright. The combination of incentives and price cuts can top $150,000 in some cases.”
“Builders, who are still putting up more houses than there are buyers, say they are discounting heavily in attempts to ‘find the market.’”
“When Michael Castro decided to sell a house he owns in Citrus Heights, he considered his ideal asking price. Then he whacked it by $30,000. He also decided to pay the buyer’s closing costs on a four-bedroom house listed at $359,000.”
“‘I’m not being greedy,’ says the Roseville investor. ‘I’m going to make money on the home. And a prospective buyer will go in with a good feeling.’”
“Days ahead will tell if he priced correctly. But Castro’s decision symbolizes how hard it is for sellers to set a sale price for their homes in a market where many traditional pricing yardsticks no longer seem to apply.”
“In this unstable pricing environment, banks and appraisers are becoming the ultimate judges of a home’s value. Banks are increasingly watchful that they don’t loan more money than a house is worth. They may have to take it back in a foreclosure.”
“Such fears are prompting banks to more closely monitor appraisers who are themselves finding it harder to determine values, said appraiser John Ferguson. Appraisers must compare at least three current sales of similar houses along with real estate listings that may be showing lower asking prices than those sales.”
The San Francisco Chronicle. “The number of permits issued for new-home construction last month tumbled in California, the most-recent piece of statistical evidence to show that the housing market has turned sour. Builders received permits for 11,590 homes, including houses, apartments and condos, in September, down 47 percent from a year ago.”
“More than half of the decline in permits issued statewide can be attributed to a decrease in construction in Southern California, particularly in San Bernardino and Riverside counties outside of Los Angeles, as well as in Sacramento and San Diego.”
“New housing permits in most of the Bay Area also declined. New construction permits in Alameda and Contra Costa counties fell 42 percent compared with a year ago, while new starts in San Francisco, San Mateo and Marin counties dropped 71 percent.”
“‘The first and sharpest corrections are always in new homes, because existing homeowners have the option of waiting and they are wedded to the price their neighbors got,’ said Stephen Levy, director of Palo Alto’s Center for Continuing Study of the California Economy. ‘New homes have a high carrying cost and developers need to move that inventory.’”
The Press Democrat. “The skyline of Santa Rosa is on the brink of a transformation brought by three high-rise buildings that promise big-city living in the heart of Sonoma County’s hub city.”
“But there are questions about whether there are enough buyers. Some planners, such as Santa Rosa’s Laura Hall, wonder if people will snap up the residential units in the 12- and 14-story buildings. ‘People are flocking downtown. I don’t know if it’s to high rises,’ she said.”
“‘I tend to think high rises are a bit inhumane,’ said Hall. ‘It’s great to have more people living downtown. I love all that. But we could be an awesome six-story town, like Paris.’”
“City officials and business leaders acknowledge some uncertainty about how strong the market is for the $500,000 condominiums developers are planning in the buildings.”
“A $50,000 study commissioned by the city and released in December found Santa Rosa could absorb 50 to 100 units a year of new downtown housing.”
“The number of units planned for the three buildings is 395 total. But with other downtown projects recently built or in the pipeline, the number on the horizon is about 600 units downtown.”
‘In San Joaquin County, the housing market has been hit hard since last fall. Sales took a nearly 33 percent dive from the third quarter of last year to the recent third quarter, prices slipped 2.3 percent as buyers backed away from record-high prices. The Gregory Group in Folsom reported 621 sales in the third quarter countywide, a nearly 21 percent drop from 783 in the previous quarter. That number was nearly 33 percent less than the 912 houses sold in the third quarter of 2005.’
‘The biggest difference in the market is the number of days homes stay on the market, up from 32 days in May to 70 days in October, said Dee Brown, a broker associate in Hollister. The increase in days on the market reflects the buyer’s upper hand. ‘I think it’s clearly shifted to a buyer’s market,’ Fuchs said. Fuchs said there are plenty of buyers out there, but they are standing on the sidelines, believing that with every month that passes homes will be cheaper.’
brownies are a great sunday evening dessert
Special brownies are even better.
(pick your poison)
Yes they are. Sorry everyone about this post. I told my wife that the housing blog said that she should make brownies for dessert tonight. She didn’t believe me so I had to make it a reality. So again, sorry about that (but not sorry enough to wipe the chocolate off my face).
No apology needed
We just closed on selling my grandfather’s mobile home last weekend in Modesto. Last time I checked, a few weeks ago, there were 13 other properties for sale in this *small* retirement-age community. I’m pretty sure we were only able to move it because we deliberately undercut all the other prices by 20% (grandfather is in convalescent care and we only needed enough to keep paying those bills for 2-3 more years).
I really believe the Central Valley is toast–I grew up there and the jobs are mostly minimum wage, service-oriented industries! The wife and I now live in L.A. with very solid middle-class jobs but can’t even dream of owning until a major hair cut takes place in the market. The LA Times has pages after pages of million+ homes. Who the frack is buying this stuff?
“The LA Times has pages after pages of million+ homes. Who the frack is buying this stuff?”
This is precisely the problem with all of the bubble markets. Over 90% of the homes are at prices which less than 10% of the population can afford. Prices have to come down and A LOT. There is no way around it. The market has been reduced to move up buyers, naive speculators, and the greatest fools ripe for a shearing. But combined, their numbers are too few to carry the market, which is enforcing it’s will. The oversupply is simply too much. And it will only continue to grow for the next several years, working off most if not all of the appreciation seen the last six years.
Don’t tell them. I’m a semi F’d seller and I need to catch one of the dummies next year. Did sell a spec property this year by lowering the price below all the prices in the neighborhood just like ‘Central Valley Boy’ did in Modesto.It works, but p-sses off the specu-neighbors. Oh well.
“The LA Times has pages after pages of million+ homes. Who the frack is buying this stuff?”
I can’t believe that anyone is buying this stuff. And judging by the proliferation of signs in my neighborhood, no one *is* buying anything, but lots of people sure seem interested in selling. Out and around today, now the smaller street intersections have signs on at least three of the four corners, where a month ago I only saw this on the major streets.
This is definitely going to be worse than the early 1990s around here if the For Sale signs are any indication.
I couldn’t agree more. Going down Bundy, you are barraged. I was out and about so I drove by those Lofts on Redwood you mention in the Bits posting. Amazing, I hadn’t noticed them. Check it out, they had a sign spinner! and signs on trailers on washington blvd. There are defiantly at least a hundred units. That area has always been industrial, I don’t remember what they knocked down. probably auto repair shops. I don’t know about you, but I’m actually starting to think there too much inventory being built, in West LA. Well, I take that back, there’s to much “high priced inventory” being built. The way things are shaping up, if they want to move this stuff, they gonna have ta lower da prices, immhmm! When I look at Playa Vista an image keeps recurring in my head …… With all the fees & melo roos & price….. White Elephant.
I notice a lot of new condo inventory around my neighborhood of West LA also (Mar Vista). Not that we need inventory to topple this pyramid scheme. As BanteringBear said above (and countless others have said countless times), it’s all about affordability, or lack therof. Most buyers in the last 3 years couldn’t afford to buy the house that they did.
There’s nothing anybody can do to stop the coming fall, so let’s all just be patient and enjoy the show. And remember, it might be long, but it’ll be worth it.
check this out calgarys real estate in complete meltdown cagary real estate board stops up dates on there site “creb.com” listing up 250% since june
Southern California peaked with 19 months unsold inventory in the 1990’s down turn. 70 days is a doubling from May’s 32 days but historically, it is peanuts.
Just wait, it will get there.
Or go out and buy all of the great deals yourself.
Sorry, I thought the information would help, not hurt.
I’m sure things will get worse, much worse than 70 days and if anyone was curious about the severity of the last down turn, the inventory peaked at 570 days, give or take a few days.
Doubling from 32 days to 70 isn’t trivial but it needs to double again and again and again.
70 Days was for Hollister. SoCal in general has 7 months of inventory, last I heard.
Sounds like you’re mixing up DOM and months of inventory.
And the buyers are right ,every month the prices will be cheaper .
Who wants to buy in a declining market that needs more correction ,not me .For that matter who want’s to loan in a declining market without requiring more down payment to offset risk .
“One huge issue that most sellers don’t pay attention to: New-home builders are exempt from such personal distress. ‘They have the ability to discount more than you do,’ Lyon says. ‘They look at it more from a business sense, and it’s easy for them to cut prices because they’re not in love with their homes.’”
This is an interesting quote. I wonder how many homeowners will wake up and smell the coffin? This is what happens when local government officials allow unbridled development.
Overbuilding is not all a bad thing. It will work to drive prices back to reality. I would rather let the market do its thing than to have local government officials meddling in the market.
The problem with that line of reasoning is that ultimately you end up with alot of housing. There has to be a limit to how much crap can be built in a specific area. Unregulated markets don’t solve that problem, think Chicago in the 1840’s.
Josh
Northern San Diego County is another example of no plan development.
It is a disaster.
Where? Which neighborhoods?
Oceanside, Vista, Fallbrook, San Marcos, Escondido etc.
Just try getting somewhere on the roads.
Unregulated markets don’t solve that problem
And you think local government can?
What a joke.
The increase in days on the market reflects the buyer’s upper hand. ‘I think it’s clearly shifted to a buyer’s market,’ Fuchs said. Fuchs said there are plenty of buyers out there, but they are standing on the sidelines, believing that with every month that passes homes will be cheaper.’
Buyers on the sideline!!!!!……..Ya think?
What’s on the sideline are sharks.
It’s a hard world selling now………..pick ya poison…….Do you try to feed the gator, and then get taken by a shark or do you reduce the price and get out.
“Real estate agents have spent much of the year complaining that homeowners were in denial and refusing to cut their price despite daily evidence to the contrary. Many are still resisting”.
Here is an example of sellers resisting. This terd box is priced at $265,000 and is in a high crime area of Sacramento. Notice OWNER FINANCING- POOR CREDIT OK” that is because they will only get someone crack addict to buy the place.
http://sacramento.craigslist.org/rfs/225949888.html
This terd box is worth maybe $50,000.00 at the most.
Sacramento has so many hood homes for sale priced above 200K. I am amazed that anybody would buy one of these places only to live in hell on earth. I can gurantee the new owners will have their house robbed several times over the years.
There are a few of them in med center area that are relisted on CL continuously. I remember looking at a craftsman there (I work for UCD) for 108K in 1999. No way are the homes in the scary part of Oakpark worth 250K. Move that box to Davis and I’d consider paying 210k for it - maybe
Who would buy a terd box for over 200K near the med center or any part of Oak Park. Curtis Park I understand, but Oak Park, they must con people from out of town. I feel sorry for anybody that gets mixed up buying one of these homes in the hood of Sacramento. They are making the biggest mistake of their life.
Did they take the bars out of the windows in just for the picture?
I immediately fell in love with the landscaping. Do ya think it was done professionally?
It looks like the perfect setup for a half 60 gallon oil barrel barbaque set up on cinder blocks, with a nice outside couch, and pit bull who will spend his whole life on a chain.
Funny thing is I met a vet the other day who has a practice near this house and she sees a lot of pit bulls and she knows they are just hooked to chain in the yard. The other thing she told me is most of the time she does not even get to treat the dog because when they find about the cost they just leave.
- ‘I immediately fell in love with the landscaping’
Outstanding!
As for the landscaping - there are about 600 plus lawncare businesses here in So Cal that have definately have kin folk up state near this place…they could leave their card.
‘I immediately fell in love with the landscaping’
“Where’s Bob?”
”
Oh he’s out in the front yard humping the azalea bush. It’s why we bought this place.”
Maybe a Koi pond will do the trick. They can put a couple of bullet holes through the walls and build a nice chicken wire fence in the front so that home will not look out of place from the rest of homes in the neighborhood. If this area has CCR’s I am cetain there must be a minimum amount of bullets holes shot through the walls of each home. Possible certain calibers would need to be represented.
Don’t foget the engine hoist (w/engine, of course), stack of tires, and–the catfish farm in the basement. (-:
DOC
Oh my gawd. On Del Paso…. hood is an overstatement. It’s worse. Sacramento’s crime has risen everywhere and I would hate to be this seller of this pos.
Yes Sacramento crime is getting bad, real bad. Stockton I hear is turning into a little criminal empire. The police have lost control of the streets in South Stockton. That town is a toilet.
Agree. Its because of methamphetamine use. Certain towns in the Central Valley are being overrun with meth addicts.
DAVID, turd is spelt with a u. I’m sorry, I’m picky… Oh, it’s a blessing AND a curse…….
I feel sorry for you … that bothered you? Hope you are not married.
Correction noted. Thank you.
Isn’t spelt a grain?
Only in certain Balkan states, but you are catching on….. Oh my, I’ve used too many ellipses. god I’m a loooser. And very serious about spelting.
Way OT but actually spelt is pretty popular among the evergrowing low glucose crowd! Wheat makes a lot of people ill. Man what are they feeding us anyway?
What’s ironic (and off topic) about that is that spelt is wheat. It’s just an unhybridized and very old variety that’s probably closer to the original wild form. Many of the “wheat will kill you” crowd, and of course the truly allergic, are avoiding wheat by eating… wheat.
i have never held faith in anything financial more than i do the the premis of this site’s conviction.
/did that make anysense. Drunken stooper comment after the deleriam of watching the Ravens skunk the Saints.
MDMORTGAGEGUY, LOLOLOLOL! Well, it was a nice sentiment, anyway. Have a nice sleep and enjoy a hair of the dog that bit ya when you get up.
O.K. I’ll bite…..
What justifies $500,000 condos in Santa Rosa ?
Exactly, my favorite line was… Santa Rosa “planner” Laura Hall, commenting “‘I tend to think high rises [in Santa Rosa] are a bit inhumane,’ said Hall. ‘It’s great to have more people living downtown. I love all that. But we could be an awesome six-story town, like Paris.’”
Excuse me … Since when does Santa Rosa = Paris, France?!!? Santa Rosa less than 10 years ago was a trashy town, with run-down bungalows and trailer parks. It’s not much better today.
It’s pretty much the northern edge of the San Francisco Bay Area. You can get to downtown SF in one hour fifteen minutes without traffic, making it well within the commute radios. Plus there are jobs in Napa / Sonoma / Marin as well.
However, I think the builders are way overestimating the demand for that kind of housing. Most people who choose to live in Santa Rosa do so because they do NOT want to experience “city living”.
“one hour fifteen minutes without traffic”
That doubles with traffic and god help you if there is an accident and there always is. No Thanks Santa Rosa.
Builders don’t get people wanting to get away from urban sprawl development. They will build 6-8 homes per acre for 1000 acres if they could and believe the entire time that they are helping the community.
I wonder if they have oil paintings of a sea of roof tops on their walls.
“You can get to downtown SF in one hour fifteen minutes without traffic, making it well within the commute radios.”
I love people who say places like Santa Rosa are well within commuting distance of S.F. because it’s 1 hour 15 minutes from the city “without traffic”…. When exactly do you plan to be commuting … 3:00 A.M.?? That’s probably the only time there is no traffic on that stretch of 101 in Sonoma County south of Santa Rosa. When I lived in S.F., the few unlucky souls in my office who commuted from Santa Rosa and Rohnert Park boarded one of those commuter buses at about 4:30 A.M. every morning … and then they tell everyone it’s “not that bad” because they sleep on the bus.
I think she meant Paris, Texas. Forgive me if I’m wrong, I live in an inhumane high-rise in Manhattan.
Please, this is the Bay Area … No one in the Bay Area would compare their town to one in Texas. Bay Areans like to call it the “Best Place on Earth” … So believe me, she wasn’t comparing Santa Rosa to Paris, Texas … She was comparing it to Paris, France.
OT, but had a friend from Japan visit recently. He was saying how a growing number of Japanese are seeking therapy and even requiring medication after coming back from France (he’s an MD). It seems that instead of the romantic cultural hub they expected, they were shocked by the rudeness of the French people and their hatred for tourists…especially ones who can’t speak French.
me talk pretty someday
There is nothing in Santa Rosa, but a bunch of Charlie Brown statutes.
And lot and lots of traffic!!
I used to live in a hi-rise. the great thing about being higher is you are that much further from street noise. Also, you get views you’d never get with a 6 story.
Santa Rosa isn’t all scrappy, run-down housing. It’s similar to many cities with a broad economic base. That said, Sonoma county has sure become overconfident by recent trends in real estate. When prices went up, everyone assumed it was to their credit. Sebastopol and Sonoma are particularly overvalued, and they’ll feel the downturn harder than areas within actual commuting distance.
Nothing. There’s no justification for a 500k condo aside from the fact Santa Rosa is one of the most over priced cities in the US when compared to median income.
“‘I’m not being greedy,’ says the Roseville investor. ‘I’m going to make money on the home. And a prospective buyer will go in with a good feeling.’”
Not if I were his buyer he wouldn’t!
>>
If they worried more about what buyers could truly afford instead of worrying about what the house is worth, there wouldnt be any need for foreclosures or bad loans. The only risk involved would be if there was illness or job loss like in years past. Not that interest rates were going to go up, or that someone overpaid for a house.
In the end everything works its way down to the mean. In this case houses are not worth what you are willing to pay for them but what one can truly afford. That number is around 25% of your income, not the 50% or more.
You got it Bob . The fact that lenders gave loans to people who could not afford the adjusted payment on low down loans is the worst thing that I have ever witnessed in all my years . If the buyers aren’t qualified really than its just as false a demand for houses as speculator demand .
I remember in 2005 one could hardly find a house available to purchase in alot of areas in California .To think that unqualified no down buyers and speculators were buying up all the supply ,driving the prices up ,is just crazy .
And I agree with you , 25% of income is the max. one should pay for housing .
And I’ve always considered that number to be 25% to 30% of your TAKE HOME income, not your net income. That really cuts down on the amount you should be spending.
I totally agree. Great points all. Renters saving for a downpayment should rent at 1% of gross income. IMO, that is the only time gross is used in the calculator as opposed to net.
That seems a bit extreme to me… 25 percent of the nation’s average household take-home income is like $700. The average rent in this country is not $700 to my knowledge…
Here, Here! I have never understood that 30% of gross thing AT all! This is money you are SPENDING every month- why in the world would we want to factor in the money we give to Uncle Sam and may never see again? I only want to factor the money I have at my immediate disposal after taxes, 401k, medical, college 529 contribution etc… After all the important expenses… THEN we can consider 25% of my take home for living expenses.
“Builders…are still putting up more houses than there are buyers”
Yes!! So many stories refer to “buyers” as if real people could and would buy and live in these houses, when the whole thing was flipper-driven in the first place.
Just watched a PBS show (”Wealthtrack”? i think) on “how to protect the value of your home”. Ha ha. Well, it wasn’t total trash, because Robt Shiller and another bear were on. Robt Shiller was surprisingly mild, stating only that his options market is pricing in a further decline of 5%-8% in the next 12 months. He didn’t, of course, claim that the actual losses in RE would be that small. The other bearish guy was pointing out that money you put into renovations usually returns 40c-87c on the dollar. (In a much healthier market than the current one, presumably.) Then there was a lady shilling for the REIC, missed her name. The three of them were asked what people should do w/ extra money now. Shiller said T-bills, the other bearish guy said pay down your mortgage, and the liar lady said buy a second home — what a nerve! Nobody said get out of dollars, though I think many of us here are trying to do that.
As far as the renovations on a house go — I think it depends on the house. My parents used to flip houses back when it wasn’t cool. I remember one house they bought where the previous owners had owned numerous unfixed cats and the house stunk to high heavens. They tore out all the carpets, all the baseboards, all the cabinets, etc. They did really well on that particular house but it was a lot of work! (And we had to live in the house while they renovated it.)
(smug voice) Gee, since my mortgage is 4.875%, T-bills look like a better deal than paying it off. (/smug voice)
I just switched on House Hunters on HGTV and they are in Boston…
855 sq foot, 1 small bathroom, 2 bedrooms (barely), smallish kitchen…
$527,000
Pop.
Boston is getting ripped a new one. Suckers all bought last year. Now time to crash the market so they are forced to sell at the low. Smart money will be buying when it’s cheaper the own than to rent.
In re the “buyers on the sidelines” — I really wonder how many qualified buyers there are left. Yes, there are folks who participate and/or lurk here, but I’d guess that these number in the 1000’s, at most.
For most people, take your pretax income and multiply by 3. That’s the mortgage you can afford. Tops. Living in the Bay Area, I have no idea who can TRULY afford to buy. Most decent family homes are $1mm + and there aren’t that many people making 400K per year.
Look at rental prices — multiply that monthly by 100-120 and that’s the accurate price. Want a $1mm for your house but can only get $2K/month for it in rent? Sorry, you’ve got a $200-250k house. End of story
One of the newsweek articles on this very blog said (IIRC) 70-80K unique hits here per day.
Is that about right Ben?
I agree there are few qualified buyers left now because they already entered the market. I agree prices are too high.
I disagree on this point. There are many fixed living costs that do not scale when salary & mortgage increase so as incomes rise, the fraction spent on housing can rise and violate those housing debt to income hueristics. e.g. If I make 50K a year then essential expenses are a much larger fraction of my income than if I make 135K.
As for bay area homes being worth only 200-250k, that era ended in the early 90’s. You can tell us you’d not buy and make all the PE ratio and cash flow arguments you want but there’s amble data to show those low prices are not close to realistic. Or put this way, there is too much demand to permit homes to fall anywhere near early 90’s prices. The home may not be worth 1 M but it’s not 250K anymore.
I take your point, but this time is different in the sense that a housing bust is not the result of a wider economic event(ie loss of jobs etc) but rather because of itself. The housing situation today in itself has the potential to bring the rest of the economy down with it. Recessions are funny creatures, they change mind sets they also challenge the edicts and the politics of the day. This time “debt” will take a leading role in all this. The norm as we see it today may no longer exist in 5 years. Quite frankly, I don’t like what I see, and it will be interesting to see with the passage of time, how this whole mess plays out. The world economic situation is set up like dominos, best we hope the first one doesn’t fall. One things for sure, residential real estate prices will not be increasing for many years to come. And by the way, I don’t own a tin foil hat, I just relate my lifes experiences and information that comes from smarter people than myself. FWIW
I agree with your scaling argument, certainly income percentage arguments have always seemed like alot of handwaving to me. I do however think that PE (rental cost vs ownership cost) is a critical measurement of whether houses are reasonably prices. Not simple month of rent multiples, but you have to account for interest rates, and inflation in equivalent rents during the course of ownership. I would argue that the figure of merit would be years of ownership to break even over transaction costs. The difficulty is that there are alot of guestimates (future rental cost, interest that you would be earning on your downpayment etc.)that would go into that number. The diffiuculty and inacuracies of this sort of calculation are WHY simple metrics like %income and price/rent multiples are used.
As for the future, it pays to remember that these sort of mania tend to overshoot on the downside too. Now the prices in the troughs aren’t necessarily any more “real” or “accurate” than the peaks, but they sure are a better time to buy. This is what tends to happen in a market where demand can fluctuate more quickly than supply. It’s prone to “excursions.”
Given the almost pure-guesswork nature of the inputs to your “years to pay off” metric, I’ll bet that the simple ones we use are likely more accurate. Really “less inaccurate,” but you get the point.
As to the low point, if you take the price of your house in the 90’s, (most analyses I’ve seen use 1996 or 97) and project it forward by around 5% (inflation + normal appreciation), you’ll get to pretty near what your house is “worth.” The value without the bubble. Now subtract about 10% from that number to allow for overshoot, and that’s as close as I figure anyone’s gonna get.
Yeah, it’s napkin stuff, but hey, this is economics, not science.
–Shannon
“everything is worth what the purchaser will pay for it”–publilus syrus circa 100 BC. Still true today. Just because houses sell for less this year than last year doesn’t mean that they weren’t “worth” more last year; it just means that house prices are more volatile than people would like to believe.
Depends on how easy it is to get credit .
Customers with the intent to buy, who are qualified, is a statistic gathered by some agencies. I don’t know where to find this information but, this would put a hard number on the actual number of buyers in the market. It would help if we knew what that number was.
The suckers market today, will keep the smart money on the sidelines for quite some time.
Hard to know whether prices will get down as low as 100x monthly rent. I bought a condo in Glendale Ca in 94 and sold it in 96 (dumb, huh?)…anyway, both of these dates were near mkt bottom, and in each case the price was maybe 135x monthly rent, despite interest rates higher than at present and higher than in the 1950’s when i first heard that 100xrent thing. The multiple at the bottom will surely depend on interest rates, psychology, lending practices, insurance gouging, and so forth.
calgarys real estate meltdown listings up 270% since june so bad that calgary real estate board stopped updating site “creb.com” falling
That Sacramento house is cheap by Vancouver standards. Or, at least, was.
Tell Laura Hall to let the builders overbuild all those condos. When they get auctioned or foreclosed in 3 years they will make someone a good home (investment) at 50% of the original price.
I still would have a really hard time signing up for these condos at half-price … $250,000 to live in a CONDO in Santa Rosa?!? And that would suck as an investment too … You would need to get about $2,000-2,500/mon. rent to break even … Good luck getting that kind of rent in Santa Rosa.
“…reluctant buyers who firmly believe prices will fall further still.”
Those are just the ones out looking and making “lowball offers”. Many, myself included, realize it won’t even be worth the effort of stopping at one of the many open houses for at least another 1-2 years.
Does anyone know where to get data on average mortgages taken out by buyers in a particular geographic area? I heard that in the SF bay area the pmt was about $3000 per month, this will only finance about $500,000 loan on a 30 year fixed loan. The median priced home in the area is 800K to 1M so buyers must have
1. a very large down 300k to 500K
2. a toxic nodoc loan.
seems like a disconnect from reality.
Beware comparing Average to Median.
Also, when we bought we had two loans: 80% standard mortgage and 10% financed at a higer rate with 10% down. You might be seeing stats reflect the 80 and not the second 10 or 15 loan.
The majority of loans in the SF Bay area are adjustables. So that would give a slightly larger loan. I personally know two couples that last year tapped their 401Ks for down payments and went with interest only loans. Another couple I know cashed out some equity and bought a minivan and took a vacation to Europe.
They have no margin for error built into their next 10 years.
And now, how in the blazes, do anyone in CA pay $1000 HOA, $800 prop tax, and the mortgage? And some people think that housing isn’t going to fall? Santa Rosa is a piece of shit town. I think they were equating it with Perris California. That is a hellhole out past Riverside (another smoggy hellhole). Love to hear CA flippers in trouble. Great site, Max.
I wouldn’t actually call it a piece of shit town. South Sacramento and parts of Stockton now we’re getting closer to that description being accurate.
Watch the market tomorrow. GDP actually only +0.9% instead of +1.6%. Screw up in BLS. Miscounted auto sales and production big time. I’ll go into Bear Market Central.com late tonight to see what’s going on in Europe.
if it were their money, will they lend thousands of dollars to sub-par borrowers?
if there was some one questioning those appraisers and are held accountable , will they appraise irresponsibly?
may be private companies weren’t that bad..
Yes, they would lend their own money. I do it all the time. Correction: I did it all the time until NOW. I did lend thousands and tens of thousands of dollars to sub-par borrowers, and just occasionally a small 6-figure amt. What I didn’t do was lend them 110% or even 90% of purchase price. Another thing I didn’t do was give them ARMs or I/O or neg-am. Another thing I did do was, I wrote many more 10 and 15-year notes than 30-year notes. My experience in 13 years was not totally trouble-free, but close to it. Now the fun begins, let’s see if very low-end stuff depreciates fast enough to tempt my clientele to walk away. Wish me luck.
“‘It used to be a mathematical equation,’ says Placer County real estate agent Kate Tustin. Now with a record inventory of houses for sale, she says the old math has given way to quantifying a house’s ‘emotional component.’ On such vague notions of the heart does pricing now rest.”
The old emotional component of greed has given way to a palpable fear of catching a falling knife. For most, mathematics had nothing to do with the parabolic price blowout during the mania and it will be equally irrelevant to plummeting prices during the bust.
Here is the problem. Almost every major city hockey sticked from 2003 until early 2006. Kinda looks like the NASD chart before it went boom.
http://www.kerndata.com/index.cfm?fuseaction=User.doShowAvgPriceHistory
That table is impressive, you can just see the price/sq. ft. exploding, leveling off and then turning over. I be we will see that go back to under 100$ a sq. ft. and maybe back to the high to mid $70s. BTW that table put the lie to the ‘real estate’ as a great investment talk, from 94 to 2001 the price sq. ft. was always between the low to mid 70s.
“The old standby of measuring comparable neighborhood sales is proving undependable amid falling prices, excess inventory of resale and new homes and reluctant buyers who firmly believe prices will fall further still.”
This is illiquidity rearing its ugly head, in the guise of extreme uncertainty about the fair market value. Normally if buyers do not need to purchase a home (and they generally do not), they can avoid the risk of losing a good deal of money by simply renting and waiting rather than either buying a home whose market value has already fallen by a large and unknown amount or by purchasing a home early in the bust and watching its value fall for several years going forward as it gets dragged down by comps. Many who post here have generously recounted cautionary tales of their personal misfortune with the latter sort of scenario during the early 1990s.
GS……so true.
The only offer buyers should be even be considering making at this point is -50%.
Hells bells……….this housing bust has no chance of stopping for at least 2 years and after that it will be flat for some time, and that’s if the whole economy doesn’t tank in the meantime. What I’m saying is there is no risk taken in waiting to buy. The old mantra was buy now or be priced out forever, as I see it with this thing unfolding as it is, by waiting, buyers will find they are priced right back in again and then some. Seen it all before, and it’s like watching the rerun of an old movie, only this time the boom was the biggest in history, and the bust will be of similar proportions.
“as I see it with this thing unfolding as it is, by waiting, buyers will find they are priced right back in again and then some.”
Yes, it is interesting I am finding, to watch my savings and investments grow while this market begins it’s downward trajectory. Verry, very pleased to rent and wait. I just wish a couple of friends of mine that bought in 04′/05′ had listened and waited too. Oh, well…
DOC
Zillow.com shows homes in my neighborhood (CA, 91361) with absurd zestimates. Some of for sale for 20-30% below the “zestimate” and not moving after a couple of months on the market. Has anybody else noticed this? Another interesting feature is zillow.com’s new “weekly change” feature that shows most 3-4 bedroom houses in my zip code have lost more in value this week than I paid in rent for a two bedroom condo for the past year. Does anybody know where zillow gets this? Is it some attempt to return the “zestimate” model to actual value, rather than the silly wish prices paid by a few fools and speculators in 2004 and 2005.
Zillow.com is all messed-up. It’s #’s just don’t reflect what’s really going on price wise in the marketplace.
I have definitely noticed that Zillow’s estimates are garbage. Like I would pay $400k for a central LA 500sqft condo POS.
Maybe the lack of liquidity has their pricing algorithm ’stuck’ on 2005 prices.
I’d love to buy a central LA condo but the prices are much too high. I spend a lot of time down there so it would be great to have a home in the center of everything.
There is a pretty big difference between Central and South Central LA.
Well it’s no surprise that the algorithm can’t handle market conditions the like of which it’s never seen. Yes, there have been drops in price before, and they could try to match previous declines, but the only runup that even approaches the current one was the postwar one which represented a decade of pent up demand. I don’t suspect they have good data for matching that far back. We’re in uncharted territory here and looking in the rear view mirror won’t be as great a help as it has been heretofore.
Definitely have noticed zillow’s overestimates in CA coastal locations. Example would be zillow 20% higher than asking price, asking price (15-40???)% higher than likely sale price.
Anyone checked out Krugman’s “Bursting Bubble Blues” where he lists the 5 stages of housing grief? Interesting…
http://donkeyod.blogspot.com/2006/10/bursting-bubble-blues-by-paul-krugman.html
My wife and I was out with our agent yesterday and saw a few houses. We saw a flipper house and just laughed that this person is going to take a bath on that property. She stated that she had a seller that went into foreclosure because that person did not want to lower the asking price of their property. We told her to keep an ear out for people in distress and my wife and I will offer to buy at a very low price.
lose the agent- go direct save 5%- just wait till your selection listing expires= easy pickens
So here’s a question for the bubblemeisters on this list.
Under what market/economic conditions would you contemplate buying a house for your own personal residence?
I get the sense reading this list that there are a lot of people here who simply are not EVER interested in owning a house. It’s rent , rent, rent, and invest your money in something else besides real estate. And frankly I think that’s a reasonably smart move for many people in most market conditions, especially if you have the discipline to invest the “savings” in solid long-term investments like broad-based index funds.
However, for many of the rest of us, home ownership has its own non-monetary rewards. I like fussing with carpentry and gardening and it would be difficult and unrewarding to do it on some short-term rental lot. Also, buying lets us live in a neighborhood and school district that would be much more difficult if we rented.
In any event, how do you know when the market is right to buy? Do you simply follow rent/buy ratios and wait until they are alligned? Or are there other signs and factors that you consider?
Myself? I bought my first house in Juneau AK in 1998 when the rent/buy ratio was heavily in favor of buying. More so than I have ever seen anyplace since. I moved from a small 2 br 1.5 bath condo I was renting for $1300 to a much larger 3 br 1.5 bath zero-lot with a mortgage payment (with the taxes and insurance included) of about $850 after 5% down with a 30-year fixed. The market in Juneau was so distorted because there is a huge infux of temporary residents twice a year who only want to rent but who don’t stay year round. The legislature is in session from Jan-May and so all the politicians, staff, and lobbyists come to town on expense accounts to snap up all the decent apartments and drive up the rents. They have they money to pay whatever they want for rent because their expense accounts are gauged to local rental markets and have no intention or interest in buying. Then May-Sept is the tourist season and a whole new horde comes to town to work the cruise ships, tour business, restaurants, and tourist shops and who also only want to rent with no intention or ability to buy.
So for permanent year-round residents, it was ridiculous not to buy. Even without the mortgage interest deduction you saved a ton of money back then. Not so much anymore. I sold it 5 years later for $70 grand more than I paid and it took all of one hour to sell it. Put an ad in the friday afternoon paper which came out at 3 pm and by 4 pm the first couple who called to come see it had put in a full-price offer.
My second house my wife and I bought in May 2003 in an upscale suburban area of Waco Texas. After our first experience it seemed like a no-brainer. Especially as we got twice the house for less money than we sold our little Alaska place for. Now I’m looking at a stagnant market that isn’t crashing but certainly isn’t going anywhere. We don’t regret buying and like where we live but I certainly don’t expect to make out like a bandit on this place. Houses are selling pretty dang slow. Our neighbors just sold their place this week after listing last May. In retrospect, I still think it was the right decision to buy in May 2003 and judging from recent sales this week we probably have 20% equity. We could not have found a rental in this neighborhood (in fact the HOA prohibits rentals) and I the folks I know who do rent pay nearly as much as we do for our mortgage for much smaller places in much worse neighborhoods. What we would like to do though, is eventually move up to a larger place with more room for the kids. The question is timing.
So those of you who are sitting on the sidelines with the eventual intention of buying sometime down the road. How do you know when the time is right? What factors are you looking at? I know there are a lot of you perennial renters who probably think there is no time that is right to buy, at least within the next decade. And that’s fine, And you might be correct, at least in terms of investment purposes. But I’m speaking to the rest.
I will buy when it becomes a better investment than renting. True, in my rental house I can’t make major changes, but I also don’t have to worry about major expenses (furnace, roof, plumbing, etc). I like the house I live in; when the price of owning a similiar house, with all the extra expenses of ownership, is at least in the same ball park as renting one while investing for the future, I will buy.
“So those of you who are sitting on the sidelines with the eventual intention of buying sometime down the road. How do you know when the time is right?”
Read below.
“”when the price of owning a similiar house, with all the extra expenses of ownership, is at least in the same ball park as renting one while investing for the future, I will buy. ”
Good sound statement and advice, albeit one should not let one’s emotions s-t-r-e-t-c-h the “ball park” amount too far. Pushy spouses, uninformed friends and/or screwball RE tools can contaminate conviction and weaken resolve. Patience man, patience!
DOC
DOC
I’ll buy when I can afford a $500,000 house that I love in a neighborhood that I like. That is based on analysis of my financial situation and expectation of having a job in the future. That’s it. And, no, many of us don’t love renting, we just prefer renting to entering into a financial situation that will prevent the ability to save money far into the future, possibly lead to a position where one can’t move due to being under water (happening to many in the 90s), etc.
I rent now and would like to buy eventually. For me the right time will be when I can afford a house I like in a neighborhood I want to raise my son in without using financing that will pose a risk to my families fiscal well being. I make a good buck and am saving as much as I can right now. Affordability to me means PITI - MID is roughly equal to what I pay for rent now. I am interested in hearing from others on this blog regarding the cost of maintenance per anum. I am not hoping for anything extravagent or overtly luxurious. A simple home on a reasonable plot of land in a decent neighborhood. I realize I will pay a premium for being in a coastal community in SoCal, but until it is affordable on my terms I am not buying. In fact I am not even formally looking until I know prices here have come down and are moving toward my target zone.