“This Market Is Going South”: California
CNN Money reports on California. “Five of the cities on the Bottom 10 list are from this region, making the long rural stretch of Highway 99 between Sacramento and Bakersfield look like a treacherous real estate ditch. ‘A market where housing has increased by so much so fast when unemployment is that high is unsustainable,’ says Frank Owens, who sits on the board of Fresno’s builders association. ‘This market is going south.’”
The Fresno Bee. “Real estate agent Twyla Smith is trying to promote herself in what has become a sluggish real estate market. It’s her way of trying to stand out from the throngs of agents who got into the field when the market was red hot and who now find themselves scrambling for business as home sales decline.”
“She got into the real estate business four years ago. So did hundreds of thousands of others looking for sure money. There are plenty of homes for sale and potential home buyers, but properties aren’t moving as fast. For Smith, that means her income is more uncertain now. ‘I have only been used to the booming market,’ she said. Now, she said, ‘you have to work harder.’”
“Now, her name and telephone number is on the sign outside the north Fresno home of Mike Kadrie, who had been trying to sell his home on his own since June with no solid offers.”
From Inman News. “Prudential California Realty is ‘rightsizing’ in recognition of the market realities of slower sales, said Sherry Chris, the company’s COO. ‘All companies are looking at what the right things to do right now are. We’re rightsizing our company, looking at cost-containment opportunities and growth opportunities,’ said Chris.”
“Chris said that the market conditions will present special challenges for the huge group of agents who are relatively new to the industry, and there likely will be a decrease in the agent population over the next 18 to 24 months. ‘This to me is a market correction. It’s just a leveling out of the market. It’s not a downturn that is going to be going on for an extended period of time,’ Chris said.”
The LA Times. “Carl Christoph Nuechterlein plunged into a real estate career in 2004. He’s now folded up his tent, not much richer for the effort. ‘Sales volume dried up,’ said Nuechterlein. ‘I wasn’t making enough money.’”
“‘About half of our Realtors today have been in the industry only four years or less,’ said said Leslie Appleton-Young, the group’s chief economist. ‘Many have not experienced a downturn and find it challenging.”
“Although current data do not reflect a drop in licensees yet, there typically is at least a two-year lag between a market downturn and a drop in new and renewed licenses, according to the California Department of Real Estate, history tells us a fall will come.”
“Nuechterlein found the business a tough slog from the get-go. He had a job earning up to $60,000 a year in commissions, but like so many others he thought he could make an easier buck in real estate. He found his niche in Hemet — a small, mostly blue-collar town in Riverside County.”
“Taking a smaller commission assured him a fair number of sales, but he wasn’t rolling in income. When the market started to slump last winter, he decided to unload his own home and lived for a while on some of the $53,000 profit. It didn’t pan out. When the slump intensified, he quit and found other sales work.”
“Agents who’ve experienced Southern California’s up-and-down real-estate cycles say the housecleaning eliminates some of the fly-by-night and discount brokers. ‘A falling market can freak you out or give you an opportunity to do better,’ agent Syd Leibovitch said.”
From Origination News. “The California Association of Mortgage Brokers has issued a ‘best-practices guide.’ The guide calls for: uniform licensing standards with mandatory pre-education, continuing education, and criminal background checks for all loan originators; the enforcement of existing abusive lending laws; workplace efforts on integrity and consumer education.”
“Michael Faust, the CAMB’s government affairs chairman, said the guide grew out of the recent dialogue over nontraditional products and abusive lending practices. But that dialogue, he said, ‘has broken down, with everyone taking their sides and screaming their interest points as loud as they can,’ affecting the ability to reach a compromise.”
The Central Valley Business Times. “More than 37,000 homes went into the foreclosure process in California in the third quarter, a 171 percent increase over the same period in 2005, according to an Irvine-based foreclosure information company. The California number was up 35 percent from the second quarter of 2006.”
“”What our third quarter research appears to be showing is that the first wave of adjustable rate mortgages is having a negative impact on the number of homes going into foreclosure. With the volume of these loans, more than $1 trillion of them due to adjust over the next 15 months, this is a trend that definitely bears watching,’ says James Saccacio, CEO of RealtyTrac.”
The North Gate News Online. “The National Association of Realtors caused a stir in the real estate community recently when they released a statement saying that nationwide home sales and selling prices fell in August compared with the same month last year.”
“But San Francisco real estate professionals tend to balk at the findings and insist that the numbers do not apply to the city.”
“References to numbers about declining prices coupled with talk about good sales have made potential homebuyers uneasy. Scott Shapiro, who works in in Novato, currently splits a $2,500 monthly rent for a Russian Hill apartment. He said that about six to nine months ago he started to look into purchasing a home, albeit casually.”
“Shapiro said that he is ‘apprehensive’ about buying a home in San Francisco. In addition to the exorbitant price tags he encounters—ranging from $775,000 to $1.1 million—he wonders about the soundness of an investment in property at this point.”
“Through August 31, average prices for one-bedroom, one bath condominiums have actually dropped from $580,000 to $573,000. These kind of numbers make Shapiro want to take his chances and wait a while longer. ‘I think there’s a more market left to drop,’ he said.”
‘A market where housing has increased by so much so fast when unemployment is that high is unsustainable,’
There must be SOMEBODY reading this blog who works for a homebuilder and knows how they decide when/when not to build. My question goes out to them:
What happens to the guy in the boardroom that gingerly puts his hand in the air and opines “You know, there are a lot of homes going to be built soon and people here don’t make that much money (even if they do have a job). Maybe we should re-think our plans to break ground”
Do they get fired on the spot?
I think a key component that may explain why builders continue building is that a portion of construction loan proceeds go towards overhead and profit. Thinking that they only receive “profit” at the time of sale is not true. They receive it from construction loan proceeds during the entire building process. So, if you quit building, you quit receiving loan draws that include overhead and profit.
I’ve done some accounting for construction companies, and they are very short-sighted, for the most part. Going bust is seen as earning your chops, a normal course of business that happens from time to time.
I guess it is all the better if top management cashes in their chips a year before everything heads south?
Didn’t someone write on the blog that KB Homes as a “habit” of going bankrupt?
It’s also a business tactic. Small builders go BK right after a project has sold and is finished. They are corporations or LLCs. Then they won’t get sued for shoddy workmanship, warranty issues, etc.
Sister lived in a development where the siding on ALL homes was installed wrong. After 6 years it started to fail. Manufacturer wouldn’t fix it ‘cuz it was installed wrong. Builder was BK, so there was no money there. The owners were left holding the bag.
Same thing with FRT plywood from the early ’80s.
AH, BK! Shameless as a business tool. Shameful as a consumer…..Nope, no double standard here.
I often wonder. I see a lot of expensive houses (big anyway) going up using that chipboard composite for shearwall. But a few will use real plywood. I wonder how that composite right on the beach.
imploder
I think what your describing is OSB short for oriented strand board, this stuff is cheaper than plywood but does not have the structual integrity of plywood. OSB is used quite a bit by a lot of builders all over the country. It’s cheap but there’s a reason for it, if you were to take a sheet of it and water it down you could watch it fall apart before your very eyes in a short time.
Now picture this stuff used as roof decking with a small leak that permeates this stuff for a few months. Or how about an attic that isn’t ventilated and causes condensation at the roof, or even better, how well are those shingles nailed down to this stuff going to hold up where wind “hurricane strength” is an issue. If you see OSB used as flooring, sheeting for exterior walls or decking for a roof you can rest assured that this is a low quality builder. I used it when it first came out but had way to many problems with it, now we only use plywood.
Ahh! To be back after a brief vaca. BK offers an individual a “do-over” so they don’t “own their soul to the company store” as Tennesee Ernie Ford sang in “16 tons”. However, it’s true that a corporation does not get a “discharge” in a BK. The do, as was noted, get a release of the liabilities for warranty work, etc. There is no doubt in my mind that we will see a laundering of Cos. through the BK process. It will be up to investors and others to file challenges to the BKs. The new BK laws now allow ANY interested party to challenge the entire BK and not just your claim amount.
I disagree with your assessment of OSB. I was a roofer for awhile, worked for my dad who was and still is a roofing contractor in northern Illinois. If a roof needs to be re-sheathed, then that means you’re putting on brand new roofing, typically shingles. There shouldn’t be any leakage. If there is, the roofing contractor would be responsible for it, and the homeowner will know about it within the first few rains. A good roofer will install plenty of roof vents to ensure that no condensation takes place, even in the harsh freeze/thaw cycles of Illinois winters. As far as hurricanes ripping shingles right off the house and nails right out of the wood, I can’t comment. I would guess that the difference in negligible, except perhaps in Florida.
still not time-
thanks for the info OSB. I see it used a lot in moisture situations.
thanks to you as well bellevue-
I see guys paying for multimillion dollar homes on the beach hear in LA. Usually involving metal I beams. then some, not all, will use that stuff. Gets damp, and stays damp, near or on the beach. Seemed silly to go cheap with the sheathing, when your spending for engineering and Girder beams. Not that I could afford either. (real plywood or OSB!)
OSB can be as strong as (5/8) plywood when used in certain applications. For instance shear walls, concrete forms, and sub-decking. However, it will take less wet/dry cycles than good plywood. Furthermore, you can’t use OSB for concerte forming when the exterior surface of the concerte will be visible (unsightly).
Is is cheaper. It is just as strong. But it is not comparable to structural grade plywood.
What gets me is when it is used in housing and before the builders get paer on it, it rains. Then they just cover up the wet OSB. Or it just sits for a while getting multiple wet/drying cyles than is covered up. OSB cannot be left exposed to the weather for very long before it needs to be covered up/protected.
From Origination News. “The California Association of Mortgage Brokers has issued a ‘best-practices guide.’ The guide calls for: uniform licensing standards with mandatory pre-education, continuing education, and criminal background checks for all loan originators; the enforcement of existing abusive lending laws; workplace efforts on integrity and consumer education.”
The key is criminal background check. because there have been a lot of crimes in the RE market.
I say, for guys like me licensing, background check and putting up AT LEAST $10K of the applicant’s own money for bonding just to originate (not necessarily broker). That would be a good start.
exactly! Homebuilding is like running on a treadmill. You have to break ground as soon as possible. Once the utilities are complete the construction loan proceeds are based on the value of the buildable lots, not on the cost of build out. The difference goes directly to the builders bottom line. (in some cases it becomes tax free profit since it originates from a loan rather than a sale)
Each stage of build out has a payoff. Utilities, road construction, final grading. The final payoff is selling the house at which point the construction loan is callable.
A shady builder could maximize profits by completing utilities, roads, and planting a few trees. Take home 60% of the value of a completed project for about 15% of the cost. Then declare bankruptcy.
Lenders once again become the ultimate bagholders.
Great info, SCprof. and Dipster. thanks
Also, there’s a simpler answer. If you’re a builder (large or small) and you stop building, you’re out of business. Paychecks stop, bills go unpaid, cars don’t get bought. It’s like Cisco (or any other company) during the tech wreck, they couldn’t stop making whatever it is they make, they just dumped what they could for what they could get. They did downsize and the HB’s are doing that as well. But they can’t stop building until they’re forced to. It’s what they do.
You are wrong, Greg. They “right-sized”. I want to puke seeing that. We have gone from layoffs –> downsizing –> rightsizing. The English language deserves better.
Yea, everytime imploder got “rightsized” it felt like a “Rightsize 13″
“Rightsize” never means adding employees (oops, they’re now called “headcount.” Doublespeak has permeated every aspect of our society, especially government and business.
In a purely efficient company, it is right-sized from the start. The problem is sh!tty mgmt. Add some deadwood into the equation and now you need to hire more ees to get the job done. These good ees get pissed off at their high workload complain - and are the first (wrongly) to get layed off when the cycle starts.
If I owned my own company I would start with as much automation as possible, hire just the right amount of good people, if deadwood, cull immediately.
Large, bloated corporations are bastions of protected deadwood (and have incompetent, greedy sr mgrs) so they seem to always go through these expansions and contractions.
All that said, I think many contractions are here to stay as outsourcing to low cost countries is here to stay….
“I think a key component that may explain why builders continue building is that a portion of construction loan proceeds go towards overhead and profit.”
SCProfessor,
You make a good observation. Marketers do a similar analysis using contribution margins across product lines. Although a product may have a small margin we keep producing in it b/c it contributes to total fixed cost. If we removed such a product, the result would be reducing the margins of the other products in the line and total profit.
Sometime, even with a negative margin we keep it in the product mix b/c it complements and generates sales for other more profitable products in the line.
Another point is that management and ownership (esp. for most large public corporations) is generally separate so that managers may have less fear of bankruptcy than they do of losing their power, by downsizing, making tough decisions about empoyees, etc. So it may actually be in their best interest to ride the pony hard until the end even if they see the writing on the wall.
Also, along the lines of mkrtmaven: In the very short run all costs are fixed and in the long run all costs are variable, but managers may find it easier to just operate as if it’s all fixed - that way the decision-making is easier to support and justify.
“ownership (esp. for most large public corporations) is generally separate so that managers may have less fear of bankruptcy than they do of losing their power, by downsizing, making tough decisions about empoyees, etc. So it may actually be in their best interest to ride the pony hard until the end even if they see the writing on the wall.”
Classical principle-agent problem (principle = owners, agent = managers)
Public companies are very very bankruptcy averse. B.C the vast majority of management (*and* the directors) knows that they will lose jobs/pensions in BK.
What are stock options worth in BK?
wonder if the terms can change quickly - next time they will
As with any other business … demand ?
However regarding getting fired… looking at some really bad floor plans out there (ugly sh*t) on new construction not enough are getting fired!
Why shouldn’t they keep building? People are still buying, you know.
Builders (or makers of anything) will keep on building houses until the price falls to the cost of building one, and we’re nowhere near that. Prices are still way higher than in 2001.
Not only would they be fired, but they would be reported to Homeland Security. You really want to cheese off the government? Stop buying stuff. ** WARNING ** this is a radical idea that will get you on the no-fly list in a jiffy!
Oh, that is indeed a radical idea - “stop buying stuff”. Looks like a lot of folks have already done that with regards to the Big 3’s automobiles. Imagine if (when) that spreads to the other sectors - look out! Ah, the pitfalls of a hyper-consuming service economy!
“Rightsizing” the company. Does that mean they’re closing their doors and liquidating?
That has to be one of the lamer terms that I’ve ever heard. No matter what you call (layoffs, downsizing, whatever) it still means the same thing: cutting off someone’s livelihood in the interest of boasting profits.
Obviously, some restructuring is necessary. But one of the sadder developments over the past 20-30 years has been an decreasing reluctance to resort to it.
when bad news appears in msn it’s generally old news. It means 1 of 2 things: 1) things have started to improve or 2) things will get much, much worse.
I honestly think it’s the latter, but things are so engineered these days (look at the takedown of gas prices for the election), it’s hard to say. My call: Many FBs will be “saved” by the introduction of a final exotic loan –the 99 year fixed mortgage. The US fed (or some govt backed entity like fannie) will underwrite (to keep rates low) and likely actually own the house. De facto, these will be life-long leases. Imagine life renting from your uncle sam. Default and the IRS will come collecting. Wreck the place and the govt sends you the bill with the power to collect.
and the middle class as we know it goes bye-bye.
msn — I meant main stream media. I also want to thank ben for the blog. Saved my fiance from buying in phx, which made the list! 3 cheers for ben!
Badger, as to your 99 yr. loan. I’ve worried too they would try at a “Hail Mary” play. Does anyone know what the amortization would be on a 99 yr. loan? Would it really save anyone?
Seems to me the only way Fed could temporarily save the FBs would be a reduction in short term rates. They’d all sign on for another low intro rate. But appreciation has hit the glass ceiling and that means negative equity would continue to build. It would just prolong the inevitable. Long terms rates might go through the roof from a drop in the shorts and the Fed can’t really control them.
So far, all statements from the Fed are that Housing is cooling in an orderly fashion. No problem, and possible rate hikes to come. Sounds like end game to me. Sorry FBs. You broke it, you bought it.
I don’t think the 99 year loan really helps. Here are some quick numbers, using a $500K loan at 6% (according to Yahoo’s mortgage calculator):
30 years: $2,997.75/month
40 years: $2,751.07/month
50 years: $2,632.02/month
99 years: $2,506.70/month
As the term lengthens, the monthly payment doesn’t really drop all that much.
the payment on an i/o loan @ 6% would be exactly $2,500, so the 99 year mortgage is effectively the same as a long term i/o loan. they really can’t stretch the financing any further.
Exactly, OC.
These will only postpone (prolong?) the FB’s pain.
At this point, anything we say is just conjecture really. Nobody knows how this will all play out for sure. But consider if the worst that most of us are expecting occurs. We are talking a ridiculously large number of foreclosed properties. And just who are the lenders going to sell these properties to, even with the huge reduction in prices? I think it’s highly likely that instead of foreclosure, many lenders and banks will instead choose to work something out with their borrowers. Perhaps they will forgive a portion of the debt and recast the balance. That’s what I see happening, not just crash and burn, although i expect prices to fall considerably before this occurs. Many will argue that people will just mail back the keys and walk. I’m sure it will happen with quite a few spec properties, but with primary residences there is an emotional issue here which some might be overlooking. Lenders will be sure to remind folks that they may never own another home again in their lifetime. That argument combined with the new mortgage plan will probably be enough to convince many to stay. All IMHO.
Don’t kid yourself about who bought these homes, it was the lender that now holds that note. The FB is gone! Lender gone(broke/bk)! Reator gone (burger king)! Title Co. gone (Lawyers that wrote the all signed)!
They only deep pockets are those on the gov till (fannie, freddie, CountryW. and some others). Does it really matter how we deal with the implosion fannie? Gov. does nothing int rates rise (much) and dollar drops (much). Gov. bails out GSEs same thing happens as above, but is a smother ride to the same point.
Rich
Right there will be some saving of arse holes just not at the FB level. Taxpayers pay to “save” the institutions … is that what you are saying?
The problem with the plan of having the banks write-off part of their loans is that bank loss-reserve levels are at a ridiculously low level relative to the size of their loan portfolio. It wouldn’t take many homes to completely eat up those loss reserves and send the banks into (technical) insolvency. And even if the banks don’t get to those dire straits they would still have to raise their loss reserves and tighten lending requirements to stop the bleeding. Having the banks make deals with the FB’s or write off part of the loan is not really viable as a widespread policy.
Good point by WaitinginOC. Without Yahoo’s mortgage calculator, we know that 6% of $500,000 is $30,000 a year, which is $2,500 a month. Extending the term closer to infinity just makes the monthly payment approach an IO.
“I also want to thank ben for the blog. Saved my fiance from buying in phx, which made the list! 3 cheers for ben!”
You could also Paypal a $20 or $50 to Ben for his tireless efforts.
The middle class is already bye-bye, but I agree with you. I have believed for some time that there will be another mortgage reinvention to come along a save the day. I don’t think it will spark any type of buying spree to cause prices to rise, but it might bail out quit a few debtors in over their head. Of course it depends on your definition of being bailed out. They will still be in hoc for life, but might not end up on the street, which is becoming a more real possibility with each passing day.
But “prices” are our concern, yes? Would it sustain prices in your mind?
I think it will occur AFTER prices have fallen. The question after that becomes why would they continue to service a mortgage if they are so far back equity wise? Wouldn’t they just mail back the keys. Maybe. But I also think many lenders will hammer home the fact that after foreclosure, the debt is not completely absolved from the short sale. They may convince many that they will never own another home in their lifetime and this might just keep them there continuing to pay on some new recast loan. Homeownership is as much a emotional issue as it is a financial one. I fully expect the lenders to play the “emotional card” to the hilt.
I wonder if the “loss of the middle class” is due to our/their own fault. Trying to keep up with the Joneses. Growing up in the mid-80’s, I don’t ever recall my parents or that of my friends ever buying a $20k car. They all bought used. I rarely, if ever, saw any of them taking expensive vacations (no Disneyland, no Hawaii). Debt was avoided like the plague and using a credit card was an absolute last resort. If they wanted something expensive, they all saved for it.
Now, everybody has to drive the nice $40k trucks. Take the expensive vacation. Buy that flat screen. Go to that expensive restaurant. They don’t think twice about putting a purchase on the ol’ credit card or getting that IO loan instead of the 30-year fixed.
No, the loss of the middle class has nothing to do with the wealthy getting the breaks (the wealthy always have…i.e. Rockefellars, Vanderbilts, Carnegies, etc.). It has everything to do with spending beyond our/their means.
Two words: “debt slavery.”
Part of the loss of middle class is global labor competition.
High, high, high US taxes.
This is not a good time in history to be an employee in the west. Emerging third world markets like India and China have oceans of people living in abject poverty and willing to work hard for virtually nothing. In India, I recon programers live better than we do here in the US despite earning many times less. Listening to the “solution” to US debt, I keep hearing we must substantially raise taxes. Problem is higher taxes will result in less spending and less jobs etc, and so ultimately, the only way out of debt will be massive inflation (including wages). Massive inflation without wage increases (our current state of affairs) will result in massive defaults with or without bankruptcy.
I agree with everything written above me.
1. Wage arbitration: we (the middle class chumps) are screwed.
2. Have it Now Rockstar mentality: It the MTV media. Everything is pretty and everything is new. It was a fantasy. We wanted it, So it was researched, analyzed, and sold to us. At a price.
3. Reckless Credit: refer to #2, it enabled us to pay for it. But I do feel credit was PUSHED on an illiterate (financially) mass of people. (excluding those left here to testify). I think the Banks were reckless in their quest for “market share”
Now we are where we are. Beauty.
Great point. My middle class family made one trip to Disneyland (from Washington State) during the entire time my brothers and I were growing up (and it was very special). Now it seems that you are a loser if you don’t have an annual pass, along with annual passes to Sea World, the Zoo, etc. Also family habits regarding eating out have changed. Eating out used to be a treat or special occasion. Now it seems that lots of middle class folks eat out several times a week…ka ching, right on the ol’ credit card. Consumerism has made the middle class debt slaves.
Carlsbad: It’s interesting you remember parents as so restrained thru the 80s.
I was hitting high school in ‘75. What I remember is my Dad (who did at least use his vehicle for business) got a new car every 2-3 years. It was usually something all my brothers’ friends drooled over. Mom drove a giant Chevy 8 cylinder wagon, gas prices be damned! She usually held on to hers 5-6 years but both always bought new.
I remember my parents having spending wars as their favorite form of revenge: the sailboat purchased without mentioning it, the riding lessons, the motorcycles, the endless lunches/dinners/nights out. We used to call my Dad Inspector Gadget. If something new came out technology wise, he owned it within weeks.
We were one of the few families among my high school friends that didn’t head out to Disney World over spring break. Although DisneyWorld is now done every year instead of being a special trip.
When it came time for my wedding (the only daughter at 35) they told me they had no money. When it came time for college, they had no money. Now that they are in retirement, there is no money. And it all started in the 70s when my father made then what my husband makes today. By the 90s when things were ready to take off for most people it was game over for them. Self centered and stupid didn’t just appear in the last decade.
I agree with Carlsbad renter’s comment. I have friends and neighbors that look askance at me because I don’t have a $3000 LCD HD TV and because I actually clean my house instead of hiring a housekeeper. (Well, the probably look askance at me for other reasons too … :)) I know for a fact that I make more than most of those doing the pooh-poohing. I wonder what their outstanding credit card balances are????
You’re right on Carlsbad - the real culprits might be closer than any of us would like to admit. To watch my depression-era parents tirelessly buck the consumptive trends followed by their own siblings, friends, and neighbors wasn’t always easy as a kid - but the education has proven invaluable.
What will never cease to amaze me, however, is the arrogance of so many who believe that our economy (and nation) can never experience anything worse than we have faced since 1945. That’s why the sky’s the limit - the trucks keep getting bigger - and all the countertops are made of granite.
Too bad time waits for no man, as the economic paradigm so many of these folks STILL count on for planning their lives started collapsing over three decades ago. No adult should be able to claim ignorance for what is coming down the pike.
I AM SICK OF PAYING FOR THE STUPIDITY OF OTHERS.
Anyone have a sovereign state island for sale? Only non-dumbasses can get off the boat. LOL
Funny you should mention it. I’m not sure these are sovereign states, but appealing none-the-less
Private Islands for Sale
Where is that 3×6 ft rock, er… “private island” that was for sale for $50k in Canada somewhere? Maybe I should give it another look.
20 year time frame, we may see trading of homes on e-bay type of maket or instead of individuals paying for a single home buying into a syndicate. Where a syndicate owns 5,000 homes throughout the country and you trade within the syndicate. Your monthly nut payment buys you more shares of the syndicate and you can trade for a better or larger home within the portfolio.
Don’t they call those “timeshares”?
Something like a time share, but much longer term. years not weeks. Single familys homes, not condos or muti family units. If you default, the syndicate, keeps your shares, but you keep your good credit rating.
You lost me at “takedown” of gas prices in time for the election.
Do you honestly think anyone can control all the commodities traders and hedge fund managers who have bid up the price of oil and are now in the midst of a selling craze? Prices were even lower last December and that certainly wasn’t election season.
Don’t let your bias and suspicions get in the way of the facts and lead to completely untenable conspiracy theories.
It is a fact that Goldman Sachs substantialy reduced its weighting of gasoline in its energy index which increased selling of gasoline futures. How much effect it had on the price at the pump is unknown.
There’s a lot of suspicious tinkering going on. Follow the oil money and it’s quite interesting. Was it manipulated? Dunno. Can it be manipulated? Sure, just like the price of stocks, houses and PMs. Not on a micro level, but on a macro level.
Price action after the election will be informative.
Isn’t this Jas Jain’s area of study?
Jas is MIA…
I know. He was rocked pretty hard after his last diatribe.
If you’re lurking, c’mon back, Jas. The basis for you thesis is sound, and you add to the discourse.
Remember also that gas prices were sniped higher by hedge funds after Katrina, and these hedge funds made a ton ‘o cash. Then this summer and no storms, hedgies in too deep spec’ing on nat gas, Goldman Sachs and Morgan Stanley smell blood and sell short nat gas until the hedges hemorage ala LCTM. Case Study = Amaranth.
The $5B question is –> did GS and MS act indepedently, or were they directed to be the Economic Hit Men in this tragedy?
I appreciate Jas’ contributions here and on Financial Sense. Jas is a great deflationist and like some of his brethren (Prechter, Richebacher, etc.) he has made some seemingly outlandish prognostications over the years – stuff that seems almost surreal to even think about. However I believe that all of these guys are fundamentally correct on the most important point: ALL credit-driven booms have imploded in disastrous fashion and this one (undeniably the greatest of all time) will end the same way if not much, much worse. This economy is a sham and no recovery can be based upon speculation and unproductive debt.
I think where these guys miss the mark is they invariably underestimate the government’s will and capacity to rig the game for years and years (M3, CPI, unemployment anyone?) Greenscam, the Evil Genius, succeeded in manipulating and cajoling markets for almost 20 years - partly out of necessity and partly out of short-sighted political expediency. Heli-Ben continues in this misguided endeavor.
We all know how this ends, but can anyone say for sure WHEN it ends? The systemic risk has never seemed higher to me than right now and I know from history that all credit bubbles become terminal against the backdrop of a housing bust. OTOH, I could have said the same thing in the early 1990’s and somehow Greenscam pulled off a fast one.
One thing is absolutely certain; derivatives and other forms of financial mass-destruction have never been fully stress-tested and they are about to be ($300T for cryin’ out loud!!) Somebody has to be the bagholder in all of this and somebody has to write-off that mountain of bad debt. There’s just no getting around it.
Like I said in another thread: “Waiter! A round of counterparty failure with just a hint of systemic risk for my banker friends over at table 8.”
this is how it works:
http://www.cnn.com/2006/POLITICS/04/25/bush.energy/
…and the “oil experts” who question its effect are self-interested a-holes, as usual.
Sorry, but this is the typical monetization argument and it won’t happen. The Fed has to protect the dollar and what your suggesting will cause foreign investors in US Treasuries to start seeking higher returns elsewhere and then it’s game over…
“look at the takedown of gas prices for the election”
Hate to break the news to you, but there is no government conspiricy to lower oil prices. The global oil market is starting to price in a US led recession because of the housing meltdown. Recession = less industrial production in US and China = less demand for oil.
Goldman Sach’s reduced the weighting of unleaded gas from 8% to 2% in their commodity index. The result was the re-weighting of funds that track this index (GSCI) and the sell off of billions in unleaded gas futures. This is all verifiable.
I’m not sure why anyone would be reluctant to believe what a bunch of absolute ass-h*les are running this country. Here is a nice tidbit on the SEC and how forthright they are in helping the average investor.
http://www.financialsense.com/fsu/editorials/kirby/2006/1030.html
That’s an eye opening slide show. Thanks!
badger boy: bad news = old news, “things will get much much worse”
What would happen politically if the housing bubble really collapsed?
http://tinyurl.com/yhaxvl
I think that large chunks of the middle class have been cynically written off, feels like a political revolution.
God bless America!
The problem is would the masses see what the real problems and causes were or would they act like sheeple and follow whatever populist claptrap they were fed by opportunistic politicians? I may be cynical but I think #2 is much more likely.
The final exotic loan would be the 30-year zero-payment neg-am balloon payment loan wherein the borrower would pay nothing for 30 years interest being added to the principal the whole while. After 30 years the borrower would have to pay the entire balance.
So, on a $500,000 dollar loan at 6% the balloon payment would be about $3,000,000.
However, if you took the entire amount you would have paid in mortgage payments and invested it at 12% (S&P avg over last 50 years) you would end up with a nest egg of about $14,800,000 and could handily pay off the note AND profit about $11,800,000.
Step right this way. Line forms to the right.
You say this in jest Chris, but this is the investment side of the debacle’s thinking ……
(Wait a minute ….. did you say 11M profit …..?
Why don’t they call a 99 year loan what it really is: renting from the bank.
Not going to happen. FB’s are 10% of the population at most. That’s more than enough to clobber the RE market, but not enough for a viable political constituency.
And in the bigger picture, any attempt to save RE by throwing money at it will sink the US$ and bring about the end of its status as a reserve currency. That’s the end of superpower status for the US, all the missles notwithstanding.
FB’s are toast.
I think the FBs are closer to 20% or about 2 years of churn in the housing market.
There was a study posted here that claimed that 15% of US mortgagees were already underwater.
But I understand that close to 40% of homeowners own their house free and clear, with no mortgage and the home ownership rate is ~70% so so 15% of mortgagees = 15x.6x.7= 6.3% of households with an underwater mortgage. Of course this number is likely to grow greatly and all homeowners will see their (unrealized) wealth decline.
Yowza!
This ratio is important. “Knowing” of a friend/family member/coworker who has gotten themselves foreclosed on, will further dampen the urge to buy buy buy (if there is any left right now).
California is going to hit rock bottom real hard. Went out to Julian last Saturday. The town and area are nice and westerny (also great apple pies). My wife and I could not believe it. I thinhk everyone except the mayor is selling on highway 78 east on the way to Julian. I kid you not, there must have been 50-75 homes for sale. On the way back I pulled over and pulled a few of the flyers. These people are smoking something. I don’t care if you have 5 acres, your 2,500 sq. ft. home w/pool is not woth 950K, not out there, not anywhere. no wonder they are all selling. If any of these fools are flippers, they are doomed. The local economy cannot and will not support million dollar mortgages. On a side note, still see the same 20-30 open houses in Rancho Santa Margarita every week. What I don’t get is that these fools will not lower the prices. If you can’t sell at 800K, try 725K the next week or 2. If it still doesn’t move, try 675 or 650K in another week or 2. That would be a 150K slash in a month. even if it doesn’t sell, you might get some lookers. Nothing is moving down here. If it keeps up, we are going to look like hwy 78 east pretty soon. No matter, in about 2-3 years I think houses will be back to 300K area here, maybe even less.
Reminnds me of the $1M+ homes I looked at along Bass Lake (near Yosemite) when I was there a couple of weeks ago.
Okay, so there’s a lake that probably looks nice from time to time but it didn’t look THAT great and who the hell was making enough out there to afford that much on a home?
Oh my GAWD. $1 mil at Bass Lake??!! You have GOT to be kidding. I almost fell out of my chair when I read that. Unbelievable. Thanks for the laugh.
I will gladly enjoy my Bass Lake camping there for $16 a night.
Recall how many made wallpaper out of their stock certifcates when stock market when bust. What will they do when prices tank 25-35% ? The stock was paid for but worthless, the house is not paid for and underwater! If we truly were in a bubble, i think it is, then prices will not come back to 2005 prices. Its a bubble.. just like NAS at 5,000.
In both cases they can only walk away broke!
Indeed they are smoking something out there in Julian. Now, can WE have a puff or two?
julian jammy
I was out in Julian last year, and watched them making the pies. Yep, they ladled huge scoops of prepared apple pie filling from big plastic paint buckets into frozen pie shells, then popped them into an oven. Authentic Julian Apple Pies for $9.59 plus tax. I passed on buying one, prefering my industrial pie from the supermarket bakery.
Wouldn’t mind a big house w/ land out there, though.
Paul
“Shapiro said that he is ‘apprehensive’ about buying a home in San Francisco. In addition to the exorbitant price tags he encounters—ranging from $775,000 to $1.1 million—he wonders about the soundness of an investment in property at this point.”
Bad idea to use the term investment if your unable to buy and rent it out at cash flow positive. Its not a good investment i can assure you that. Rental appts are half of owner rentals. Since 1999 prices have gone up 300% … a 50% drop will be needed to get back to the mean and back to break even with rental markets.
Aside from that there is a limited job market that will pay to carry a $1M mortgage.
Shapiro or anyone should be ‘apprehensive’ buying in SF unless you can spend $1M in cash + have a fat savings account + without a worry about lossing your job.
“Bad idea to use the term investment if your unable to buy and rent it out at cash flow positive.”
I completely agree. Whether you are putting money into houses or stocks, if appreciation is the only way to generate profit then you are nothing but a speculator. Nothing wrong with being a speculator in and of itself, but you should make sure that you can weather any losses. As for investment properties, cap rates have dropped so low it is ridiculous. It has gotten to the point of stupidity. I think (hope?) we will soon find out who has been swimming naked.
As for the central valley, well they are SCREWED.
“Whether you are putting money into houses or stocks, if appreciation is the only way to generate profit then you are nothing but a speculator.”
What does this say for the stock market which is paying dividend yields well below T-bonds and capital gains (since Y2K) of about 0%?
With stocks it’s the earnings that matter, not the dividends. Paying dividends just moves the earnings from one bank account to another.
In theory, yes.
In practice, the big difference is that dividends are paid in real (OK, “real” fiat :)) money whereas earnings can be whatever the accountants can get away with.
Another problem with earnings is they can get diluted away really fast when the big boyz all cut and run at the top of the market, which kinda “screws up the comps.” (In this case, the comps are identical shares in the net worth of the company.)
Im in Stockton,
Ive seen $360k paid for a 1950s, 1,000sqft., 2 bedroom, 5,000sqft. lot and crappy pool that takes all back yard. Buyer is
SUPERSPECUVESTOR!
Able to spot perfect real estate investments everywhere!
Pay $360k rent out for $1,300 (high)
less (per month):
$300 Taxes
$150 Insurance
$300 Vacancy & Upkeep (low)
($750) exp + $1,300 rent = $550/mo cash flow.
Rents $6,600/yr/$360,000 yields %1.8.
HAHAHHA, 1.8%. Now SUPERSPECUVESTOR! has a sidekick name Silb (Stupid Ignorant Lackey Broker) that give hime a choice.
Loan A
I/O 3/1 ARM of death $1,250/mo (to triple?)
SUPERSPECUVESTOR! Loses ($700/mo) HAH
Loan B
30yr fixed $2,000/mo (low)
SUPERSPECUVESTOR! Loses ($1,450/mo.)
Please don’t ask about down payment, his supersense in spotting the best RE deals negate him needing any down payments.
SUPERSPECUVESTOR! Losing $700-3,000/mo in a single transaction, but being a super guy he makes it up in volume this is his 5th similiarly bad purchase. He bought his first investment home in 04′ and the one above is his fifth. He has allready refinanced three of them along with his primary residence.
I shake my head trying to figure out this new mathless alter universe where there is not just a SUPERSPECUVESTOR!, but great hordes of them that appear to be the risen dead.
Real life SUPERSPECUVESTOR! Now losing between $3,500-15,000/mo not counting price declines or the fact that this dipshit hates renters and rarely rents anything he has!!!!!
Now multiply this dipshit by millions, toss in a heavy layer of fraud, drizzle with graft paste from GSEs and let simmer under complete lack of oversight for years.
Hahah, so depressing but I feel better after my rant.
Have you actually seen the stuff they are building in Stockton, Modesto, et al? It is funnier than hell. Like they said, parts of the Central Valley are armpits, and the only reason people moved there was because of low housing costs. Once those costs went up, no one has a reason to move into the Central Valley.
Driving up thru these areas, I have seen construction that defies logic. Condos in Turlock. Big house outside of Stockton (about 600K) right NEXT to the freeway. Housing developments 20 minutes away from Stockton shoved between distribution centers, etc.
Fortunately, there seems to be some sense coming into the market. But not all the condo project we have had in our office have been cancelled, yet.
I am a native Californian, planning to move in next year+.
Moving out of state is more appealing to me than anything between Bakersfield to Modesto.
I believe this will be a trend that speeds up. Eventually I see cities like Los Angeles being extremely polarized: either extremely wealthy (Westside) or dirt poor (south/east and spreading rapidly).
Have posted several remarks about a Pasadena friend whose daughter was trying to sell for $790K, down from $890K. Total surprise to me: after a month or so at the lower price, the house is under contract at full asking price ($790K) with no mortgage contingency. $24K earnest money. We’ll see what happens — anyway I sent my friend HEARTY congratulations. Pasadena is nice but I think buyer is GF.
“I believe this will be a trend that speeds up. Eventually I see cities like Los Angeles being extremely polarized: either extremely wealthy (Westside) or dirt poor (south/east and spreading rapidly).”
This is the way the modern world was at the dawn of the 20th century, and with today’s middleclass being squeezed by debt we are headed right back to that era of polarized wealth distribution. The skilled union worker with good pay, a retirement, and healthcare was an industrial age anomaly. Without tariffs and border control, the U.S. worker is forced to compete with 3-billion skilled workers in China, India, and Indonesia, or roughly 25-million illegal aliens within the U.S., so don’t expect the situation to improve in the short term. It’s game over for this generation of deeply indebted workers!
It’s also the way it was at the dawn of the 19th century when 5% of the population owned 85% of the wealth. Perhaps it’s a turn of the century cycle and we are just a little late for it.
If you can’t compete with Indonesians for services rendered in the US then you are vastly overpaid. What “skill” to these workers in China possess that is so valuable? As far as I can tell, it is “time.”
I think the midwestern auto worker has discovered this fact the hard way. Why someone who pushes a car out a door is entitled to a state of the art 4+2, vacations, 40 hour work weeks and steak three times a week while people are living in poverty all over the world is beyond me. People need to realize that you have to work hard, invest in yourself and take risks - you cannot vote away competition anymore - technology is too advanced.
The auto worker still has a job, only, he must work in non-union shops for Honda instead of GM for the free market wage.
For those of us who are harder to replace, our real wages continue to go up, even if we have to take a nominal paycut at some point. Most people benefit from globalization. Pretty much everyone that hasn’t been protected by artificial barriers to entry for the past 50 years.
For those of us who are harder to replace, our real wages continue to go up, even if we have to take a nominal paycut at some point. Most people benefit from globalization.
Do you have any fact to back up your claim that most people benefit from globalization? I mean I’ve been to a lot of places in Mexico and its still a 3rd world country. If anyone should have benefited from NAFTA, it should have been Mexico and it does not appear to me to have changed for the better in the past 10 years. Take out the 14 Billion dollars that Mexicans send back home, and I think they would be in much worse shape than in 1996.
jdd,
Why do you think you’re not as vulnerable as the US auto workers? In case you haven’t noticed, even physicians are being “outsourced” in that patients are going overseas for medical services.
NOBODY is immune, and that includes people who do whatever you do. You are not any more special than a Chinese or Indian who are just as capable of doing your job.
Sorry if this sounds harsh, but the tone in your post that somehow YOU are entitled to everything, but an autoworker (or any other worker, for that matter) should live in squalor is disturbing.
correction: Chinese or Indian *worker*
Hadn’t read done to see there were already some great and insightful posts!
I’m perfectly happy with physicians being outsourced. Maybe doctors can charge less then.
For the Mexico/NAFTA comment, the greatest success story in Mexico from NAFTA is Monterrey. It’s pretty much the richest per capita city in the country (which is 60% of a typical U.S. city).
It already is; this was recently reported in the msm. The most recent census statistics said that L.A. has one of the most extremely polarized demographics in the country, with almost no middle class. Anyone who lives here could tell you the same. However, the Westside still has a lot of pockets of lower income and poverty, thanks to rent control and section 8 housing, some of it on the same block as $650k townhouses.
“Eventually I see cities like Los Angeles being extremely polarized: either extremely wealthy (Westside) or dirt poor (south/east and spreading rapidly).”
Loon Officer: I’ve been hearing that theme a lot on MSM the past few weeks. Charles Barkley, who is thinking of running for office, was on Glenn Beck repeating the rich have declared war on the poor. Lou Dobbs has his book on the war on the middle class something he’s been sprouting for over 2 years at least. I put a link on the blog I think yesterday showing how the Democrat’s were using that same theme as leverage in this election. It may appear right now like a political tool but if it’s hitting nerves out there, then the pain is real.
When I imagine that reality taking hold, I think of the Farmer’s Rebellions–both ours historically and in present day China. I think of the violence during the rise of labor unions….and the desperation behind them. Any thoughts from the historians?
The polarization ought to be looked at statewide. As far as California is concerned, polarization is east-west. If you have money, you can move within 30 miles from the Pacific Ocean. If you don’t have money, you can settle for the Central Valley, the Inland Empire, or the Mojave Desert. And if you really really don’t have money, you can settle for an Eric Estrada special in Modoc County.
posyed “anything between Bakersfield to Modesto. ”
it’s the same between you back and balls when you crap.
North of Sacramento is no better. A couple of months ago while returning from Sac to Chico, I finally had to turn off 99 and go see some of these 100k-200k price slashed homes (Lincoln & …. I think Live Oak). The model homes in Lincoln didn’t look too bad, but when I drove through the neighborhood of occupied houses, it just had that cheap low-income housing look to the properties. Lousy cheesy landscapes that are not kept up, 4+ vehicles per house, garages full of crap & the door open, kids toys everywhere ….
Then Live Oak….. had to drive about 4 miles west of town, orchards and junk properties all around. Thought I had to be lost, but no! Here it is! Same story all over, but every ¼ home was a resale or for rent. Both of these developments really looked kind of lifeless and sad, and I do feel sorry for the folks (who wanted their own home to live in) that were lured into these areas by price. When the RE market recovers in a few years (?), these properties will not be a part of that appreciation.
I always find it amusing when people think San Fran can’t lose value because “everybody wants to live here” and “they’re not making any more land”. So what?
Fact: Very few people can afford to live here, and with the reduction in affordability mortgages, that number drops even farther. SF consistently loses people year over year because of this. The ones moving in to replace them are usually fresh college grads who spend 95% of their salaries on rent, pizza, and booze. They ain’t buying $1MM+ condos.
Fact: Locals who CAN afford to live in the city under normal circumstances are usually in their late 30s to early 40s and married, so they either have or are planning kids. These people don’t buy in the city, they buy in the burbs where they can get a real house for the same price as a one-bedroom condo in the city.
And THEY ARE still building…I see 4 cranes out of my office window right now. They’re just building up instead of out. This town is so overdue for a large correction. We’ve got Manhattan prices with a fraction of their economy. Eventually fundamentals have to come back, right? I mean, that is how mean reversion works…
Quite a few people don’t want to live in the “City”. I was in SF this weekend at a get together, and I wasn’t the only person there who feels that SF is nice to visit, but there’s no way I’d live there.
Also, I should note that SF has a reputation of being family un-friendly. Not surprisingly, school enrollment has been going down.
I was just there this wknd as well. And in Woodside, San Carlos, Atherton, etc. I was:
a) a little alarmed at the state of the city (I go at least 4 times a year)…seems seedier than usual…am I wrong?
b) amazed at all the signs/open houses in the “best” neighborhoods…Palo Alto, etc. There are some 51 houses for sale in Woodside!
c) sensing a little more panic in the usual chutzpah that settles on the shoulders of the coffee house regulars. Heard lots of talk of the “bubble” and more than a few people are freaking out about their house not selling…I mean, these are people who bought 1mil homes on tiny lots and then did huge renovations (this I saw in San Carlos), sure of a quick and satisfying sale.
What do you peninsula people think of all this?
We left SF a year ago for San Mateo. Tried for 6 years to like living in SF but it never ‘clicked’ for us. Eventually we’ll move home to NY but for now San Mateo is a great place to be.
I lived in one of the better neighborhoods of San Francisco (near Duboce Park) for almost 10 years. On a block with 2-BR flats going for $750K+, I regularly saw homeless passed out on the sidewalks, urinating and defecating on the street and sidewalk with people and cars passing by, and drug addicts smoking crack or selling crack in broad daylight on a busy street. Walking to the Muni subway stop (about half a mile), I literally would have to step over about a dozen sleeping homeless people every morning. S.F. simply cannot address its homeless and drug problems, and the police do nothing to enforce ANY quality-of-life laws (re drugs, prostitution, aggressive panhandling, etc…). Meanwhile, S.F. pays any homeless person who shows up and says they live in the City, General Assistance payments of just under $400 monthly, which only attracts more bums from all over the country. When you live there, you learn to numb yourself to it. When I go back now, after just over a year away, it’s shocking to me to see how bad it really is.
SF is one of America’s most beautiful cities with a terrible veneer of filth. Sad the cities elite love their bums like Yellowstone bears.
This really saddens me. I haven’t been to SF in years, but I remember it being a real jewel 12 years ago or so. Sounds like a real hellhole, now. I can’t imagine wanting to live amidst all that, especially at those prices.
it wasn’t any different 12 years ago… at least in regard to the vagrant life.
and i know if no legislation making it easier for these people in the interim period.
the city is still beautiful. though i feel the incessant construction of cheapsh*t lofts is a bigger blight than the bums.
I was in SF last June for a conference in the Financial District. I was walking around looking for some lunch when I passed three young men. One of them said “I just got my GA check, let’s go to Taco Bell”. He was probably 22 years old, was fairly well dressed, didn’t seem to have any disabilities. I thought “Why are you on general assistance”. Then I thought “Oh, right, this is San Francisco”.
Even in the suburbs the prices are ridiculous and so we are losing population as well. I’m in Livermore and the houses down the street from me are going for 875 G and 925 G. They’ve been on the market for months now with no lookers. I want to go ring the doorbell and ask the owners what they’re smoking …
Years ago we considered moving to SF. Even with a well above-median income for the city, we couldn’t make the numbers work and still save enough. I don’t know how anyone does it.
On the California Association of Mortgage Broker’s “best-practices” guide: This does not sound too good for those of us hoping that the new federal mortgage lending guidelines will also soon apply to states (something OCC head John Dugan and others have said they are working diligently to secure). Or at least it doesn’t look good for those of us in California. Does anyone know if the buck stops with the CAMB — or can some other organization force stricter lending regulations on CA state-licensed mortgage brokers?
Actually, now that I think about it, my question is pretty silly: The CAMB has about as much “authority” over lending guidelines as the CAR or NAR does — since they are all just professional organizations, not government agencies…
I think in California the government agency that would regulate the lenders would be the Department of Corporations, Financial Services Division (which administers the Finance Lender’s Law and the California Residential Mortgage Lenders Act. I tried looking at their website, but I couldn’t find any info on new rules or any good way of contacting them to ask (other than an 800 number).
Do any of the loan officers or others in the business out there know if California is proposing any new rules on loans similar to those the feds imposed?
Thanks for the info, OC. For my part, I’ll add that one agency which would help put together any new state mortgage lending guidelines seems to be the AARMR (American Association of Residential Mortgage Regulators). Their website is perplexing at best — no clear way to see recent news, etc.
WOW. I saw this at money.cnn.com
“Hauck says Cox also tried to convince her that theirs were victimless crimes -that no one really ever got hurt, and everyone was in on the con.
Hell, one of the owners of a bank was in my office the other day, and he told me that as long as the borrower makes his first mortgage payment and the bank sells the loan to his secondary investors before the loan goes into foreclosure, he really doesn’t give a crap whether the loans contain fraudulent documents or not. “
“…‘A falling market can freak you out or give you an opportunity to do better,’ agent Syd Leibovitch said.”
Where are the opportunities Syd? You’re working twice as hard to make half as much as you made last year.
“‘This to me is a market correction. It’s just a leveling out of the market. It’s not a downturn that is going to be going on for an extended period of time,’ Chris said.”
And another plateau-ist is born…
plateau/soft landing == Wishful thinking.
one more flautist I see.
Toll Brothers coverage initiated as Outperform today by Goldman Sachs. Hard to believe isn’t it?
The stock price has certainly outperformed the fundamental support for the past several months. Maybe Goldman Sachs understands the reasons?
Same CNNMoney article projects 40% APPRECIATION for San Luis Obispo CA over the next 5 years. They have got to be out of their minds!!! SLO is at least as out of touch with fundamentals as the rest of the state. Although the “Bakersfield Riviera” is just over the hill
SLO price-to-rent ratio is very, very silly. Buy for $500K, rent out for $1600/mo ? Not me.
I was in SLO a few months ago. It is a nice town, but way over priced. I also saw the CNN article what a laugh. Wonder where they get their info from?
Also went to nearby Nipomo, a town with only one supermarket. Some new homes there started out at 750k now reduced to 625k and still not selling.
I’m in SLO. 120+, 3br homes on MLS. Most asking 650K. Some smaller homes at 550K. Nothing is selling. Many 10K price reductions but still not selling. Buyers Strike here.
I’m in SLO. 120+, 3br homes on MLS. Most asking 650K. Some smaller homes at 550K. Nothing is selling. Many 10K price reductions but still not selling. Buyers Strike here.
One office-for-rent ad in Morro Bay has an address that reveals it is … part of the Coldwell Banker office. haha
One office-for-rent ad in Morro Bay has an address that reveals it is … part of the Coldwell Banker office. haha
People forget. There are no jobs on the Central Coast!! And the professors at CalPoly San Luis Obispo take home $60K if they’re lucky. And no student can afford to rent there, without getting together with five of his friends. And what you get in result are single-family renter communities with six cars per lot, and parties on Saturday nights. I guess the area is starting to get folks who telecommute and make good money with jobs in L.A. or S.F. - but other than that… nothing supports the crazy housing prices there. For a real shocker, check out the prices in the pathetic community of Shandon, about 20 miles in from Paso Robles.
LA native - have driven up and down the 101 and 5 a hundred times over the years.
Nipomo was, until 10 years ago (or less) a one-horse trailer-trash town. Total rural poverty. I mean there were literally shacks and trailers.
Now there are all these spanking new tract homes stuffed up against the highway…where do these people work??
Nipomo is not far from Santa Maria. There are jobs there and housing is some what less costly, but still not affordable for most people living there. One guy we met who lived in Nipomo worked in a motel in Pismo Beach. He bought his home in Nipomo when Vandenburg airbase had a massive layoff and homes were vacant for over a year.
So far this theory has not been tested, since they all earn equity on thier homes as a primary source of income. Now this is gone, it will be interesting to see what happens, given there could be few if any real jobs in these areas.
Nipomo is way over-hyped. It’s an unincorporated community of over 12,000 people with yes - one supermarket, one freeway overpass, and way too much traffic down Tefft - the only main street. There are drainage issues throughout the community (few curbs and gutters) - spent my time as an intern driving through puddles down the streets of Nipomo counting vacant lots.
In the CNN Money article listing the 10 markets they recommend will do well over the next few years….they estimate prices will go up 35% to 40%, but then also show small population growth and small income growth. WTF??? Do they really believe this will happen all over again with no fundamentals in place??
That report is way too bullish. If you go to SDCIA message board, you probably hear the investors talking about buying homes their with toxic loans and then selling them off in a few years to some suckers.
Give me a break. Nobody at the SDCIA board is talking about buying in CA.
“Five of the cities on the Bottom 10 list are from this region, making the long rural stretch of Highway 99 between Sacramento and Bakersfield look like a treacherous real estate ditch. ‘A market where housing has increased by so much so fast when unemployment is that high is unsustainable,’ says Frank Owens, who sits on the board of Fresno’s builders association. ‘This market is going south.’”
I-99 is a north-south route. Last year the real estate markets in towns along I-99 was headed north, and this year it is headed south.
The single digit projected drops in these cities are laughable. I’d be very surprised if these places haven’t dropped at least that much already from what I have heard from friends there.
‘A market where housing has increased by so much so fast when unemployment is that high is unsustainable,’ says Frank Owens, who sits on the board of Fresno’s builders association. ‘This market is going south.’
High unemployment is nothing new to the Central Valley. It’s still high, wages are still low, and unemployed people shouldn’t be buying houses anyway. Builders helped to push prices in these areas up to double and triple what they had been just a few years before, and only now he feels that this is unsustainable?
“The single digit projected drops in these cities are laughable.”
Gaaah! It’s maddening. They start off saying the right things: prices up too much, no fundamentals, can’t be sustained, has to come down, and then right when you think they’ve got it…squeak! They predict a 5%-10% drop over five years.
Just drives me nuts.
“‘About half of our Realtors today have been in the industry only four years or less,’ said said Leslie Appleton-Young, the group’s chief economist. ‘Many have not experienced a downturn and find it challenging.”
Especially since nobody warned them; they were completely blindsided, in fact.
And a lot of them bought in to this mess too. Realtors will be some of the worst casualties….But they are just friendly fire to
the NAR.
Oh they were warned they just thought the old coots were crazy
“But San Francisco real estate professionals tend to balk at the findings and insist that the numbers do not apply to the city.”
It’s different in SF, because everyone wants to live there.
Yes, I was informed that the SF Bay Area is truly different while at a party over the weekend. A homeowner friend suggested that we buy before the end of the year. Apparently, the market in the Bay Area is going to really pick up in the spring. He also informed me that real estate in the Bay Area never goes down, it only plateaus before climbing ever higher. Most people I know seem to share this opinion about the beautiful, special, immune to everything bad, Bay Area. I think there is something in the drinking water.
Did your homeowner friend see the early 90’s in the Bay Area?
Prices did go down and some areas were really hit hard. Although the Bay Area is still fairly strong compared to other areas at this time.
Second that comment.
Even though they are a friend, don’t you still want to smack them across the face? How do these people think that prices can only increase when wages are not? Were they not here in the early to mid 90s? The Greenspam-era has lulled the citizenry into thinking the economy is bullet-proof. This is part of the reason why I don’t like to socialize much. The average American is delusional. They know more about celebrities and fashion than they do about current events and finance.
My friend says he’s been in the Bay Area market for years - he believes it is immune to a bubble. I don’t know, perhaps he was drunk during the 90’s, though that would have to apply to a lot of the housing bulls I know - selective memory perhaps.
Yes, socializing can be particularly painful when certain topics arise. I’m careful with my bearish housing remarks in social situations - I’ve had one too many evil looks from otherwise good friends. But, they still feel free to hound me about buying now or being “priced out forever.”
I too used to be hounded by friends and relatives about “not getting in the game,” “being priced out,” blah blah, blah, but thanks to all the recent negative press those pie holes have been shut. So I’m no longer the idiot who “still rents”. Instead I’m personally responsible for vanishing paper gains. One of my pals, an otherwise smart guy, actually said “It’s your doom and gloom attitude that’s ruining the market”.
Look, I’m on the verge of seeing a shrink soon because of my self-imposed negativity of the downturn. The few times I’ve tried to communicate any of this economic analysis, I get freaky looks too. The general naivety and arrogance of most people around makes me want to vomit. So, this isn’t healthy for me; but I believe in biological equilibriums and I’m currently making up for the few years in which I was obtaining a financial high from observing my condo appreciate approximately $1,000 a month. Luckily, I sold the beginning of this year because I relocated, and I simply rented afterwards because prices were too damn high.
My friend says he’s been in the Bay Area market for years - he believes it is immune to a bubble.
—————————————————–
We had multiple bubbles in the tech heavy economy decades after decades..
We had housing blow outs in 1981-2 then again 1991 after peaking in 1988….
Wonder what will happen now to workers at charles schwab brokerage HQ since Bank of America has free stock trades … yep… this is the same what killed off tech companies down in South Bay when compeition cuts prices and drive our local business out.
when people insist that san francisco can’t go bust i think about these pictures:
http://tinyurl.com/yj7rqx
san francisco has always been a boom/bust town.
My family moved to the Bay Area in the mid 90s. We compared monthly rents and monthly payments (30-year fixed w/downpayment) on comparable properties and discovered a place we wanted to buy where the rent on anything of similar quality would have been 50% higher than the monthly nut. When you find this situation on the ground, then you should think about buying; not before.
“Apparently, the market in the Bay Area is going to really pick up in the spring.”
ssshhh! I heard this “rumor” at a party. This is the inside scoop, the hot tip, for the Bay Area market. Don’t blab it on a web site! Just quietly buy a house before everyone else catches on.
Goody. San Francisco. We could have relocated there after the DH graduated law school (Boalt, at UC across the Bay). Nah, we thought. Why would a young family even think of staying in SF? Exorbidant housing, sub-par public schools, necessitating more expense to send the kids to private schools, crappy weather, nightmare commutes, and homeless people vomiting in your doorway every night. Nobody in the middle class can afford it, and no one with enough money to pull it off would want to. SF has become a boutique town. And you can’t even get a pizza at midnight on Saturday like you could in any other decent city.
Yeah, we’re glad you’re gone too, judy. btw thanks for letting us know where your husband went to law school, I’m so impressed. Hey kids! There’s a lady on the blog whose husband went to BOALT!!!
I guess I’m just jealous ‘cuz I went to the CC of Nipomo.
I’ve lived in San Francisco for 20 years (an east coast transplant), and I can verify that reality does not apply here (RE or otherwise).
The thing is, a good number of people have only lived here since the mid-90’s or so. They experienced the internet start up stock option driven housing boom of the late 90’s - a pricing plateau in 2000 and 2001 - and a continued rocketing upwards since then.
Many people really don’t believe that anything bad could happen to sully our precious little city and the real estate gains that have come about in what has really been two distinct bubbles.
LOL missed the big quake … shattered the Marina..
The center was 100 miles way in Santa Cruz… wait for the big one…
Yea … lots of transplants from east coast. That too will change. Much of 1997-2000 was anomoly.
Office mate has a deposit into a $800,000 condo unit South of the Ball Park (3rd street?). New light rail line, nothing around neighboorhood looks like old port industry? Completion not for 2 years. Thinks he can flip for over a $1MM. I asked will he ever live there…no not unless he can’t sell it. Here’s the kicker… He thinks its nuts to own in SF he currently rents in a flop South of Market. Stays mostly @ his girlfriends nicer apartment.
“This market is going South.” Yea, like Sherman.
Considering the housing situation in Atlanta, it may yet see its second burning.
Is this how banks and lenders really feel???
He should check in with his lawyer before being so cavalier about the authenticity of the documents he used to secure funding for his loans.
Like pretty much all white-collar crimes (or most for-profit crimes in general), an effective means of curtailing them is to start locking up the bankers who let them happen.
I’m not sure if this is sad or funny. I drove by a house today and called the recorded message hoping to get some info.
Here was the message (said in a very soupy voice).
“On that perfect fall day, you cuddle up on the family room couch and bask in the warmth of the fireplace. Your family nearby, you plan your weekend dinner party and debate a dip in the spa vs. a card game in the formal dinning room. The kids can retreat to one of the spacious bedrooms or play outside in the oversized back yard. Everyone will love to gather at your house.”
I was quite irritated that they didn’t give the major info , like sq. footage, price, # bedrooms, etc. That just really gets me. So…when the opportunity arose to leave a message, I did. I simply told them that their message didn’t have the info I needed and was rather silly. Ok, it was rude of me, but I want info without a conversation!
About 30 min later, my cell rings and it’s the agent (using caller ID). Ok, so I freaked and hung up. I left the room and when I returned my daughter said my phone rang. He left a message! He very nicely said he wasn’t sure if he was cut off or if I didn’t want to talk to him, but then said to give him a call if I’m interested in houses in the are.
OK,I’m not through. This afternoon I go to check my EMAIL and there is a message from this agent!! I *think* I had signed up for updates a while back. Anyway, the email says JUST LISTED…..and specifically lists just that ONE house I had originally called about.
Am I being stalked or are they desperate? I wrote a nice note back and said “That’s very funny. Thanks for the info. You guys are serious. Good Luck!” This is Riverside, CA.
By the way, I have a relative who works for Countrywide. She’s only made one deal this month. This is getting serious.
Ha! More like: on a wonderful weekend afternoon, the family debates whether to huddle around the AC or to gather around the fridge and stick their heads in the freezer.
heads in the oven, anybody?
LOL. You used to have to attain celebrity status to obtain your own stalker. Looks like you made the grade!
on my way to santa rosa this am,i heard a radio ad from 1-800-sell now,”where desperate sellers connect with buyers” several times in a 1/2 hour period.nice.”it’s a buyers market now” maybe they should offer a gallon of k-y as an incentive…
Some recent observations from the CA central coast:
1) A condo in a San Luis Obispo complex is advertised at 369K by a seller who needs to sell ASAP per the ad; an identical unit sold last December (12/05) for 465K. This is nearly a 100K price drop, and the largest I’ve seen to date.
2) The local tv stations have been running spots on the article that ranked San Luis in the top 10 of places to invest, and that prices are expected to increase by 40% in the next 5 years. All the anchors forget to mention that the article says the median housing price in San Luis is 440K, and is expected to increase to 616K in five years. Actually, the median was 602K a year ago (09-05), and has been more or less flat since then (dropped for a while, then increased to just over 600K again, and most recently down to 570K this past month). so if prices are 616K in five years, this would represent a flattening of the market, not a 40% increase. Gee, I wonder why they leave this out of the stories?
3) I actually saw a sign posted at an intersection, telling homeowners to call to get money from their homes. A sign of the times (literally!), I guess.
“Some recent observations from the CA central coast:
1) A condo in a San Luis Obispo complex is advertised at 369K by a seller who needs to sell ASAP per the ad; an identical unit sold last December (12/05) for 465K. This is nearly a 100K price drop, and the largest I’ve seen to date.”
But, that is only 21.5% off the 12/05 asking price of the similar unit. True, the sellar looks motivated… but I gotta think prices will go even lower.
SLO is a fantastic town… lived there for 9 years. Where is that condo?
bmfarely:
The seller describes the price as “rock bottom” but I agree that prices will go even lower. I was happy to see the drop, though, as I have seen asking prices slowly inching down, but this is the first sign I have seen of anything more than 5-10% down from the peak. The condo I mentioned is a unit in one of the complexes off South Street, near Meadow Park. The condos are 20 years old and seem cheaply constructed, but the location is nice, and the area is nice and quiet, with a lot of retirees.
I know that area… had a few friends that had condos there. Specifically… along Woodbridge.
I think there is still much room for prices to go down… even if that $369k figure is the latest and greatest. I’d guess another 10-20% minimum. Upper $200k at most imo is the best value for condos in that area.
http://www.nbdinz.com/sites/pufftags/store/condo_arrow1.html
Mid 200k for San Luis Obispo condo would have been 2002-2003 price - but 2003 prices are what we ought start seeing again soon.
Sign in Aliso Viejo California today: “Must sell this week. 3bd/2ba. Please”. Now there is some strong bargaining position!!
A variation on “will work for food” ? How about the FB agrees to stay in the house as an indentured servant ?
I saw one that was hilarious. “Make an offer today! Sellers need to move closer to grandchildren!”
Maybe they will be living WITH the grandchildren before much longer.
Another CA central coast observation: There has been a striking increase recently in Craigslist rental listings for North County (especially Paso Robles). I am also starting to see rental listings that advertise “price reduced” (which doesn’t surprise me, as some of the asking prices are quite a bit over market). The local perception is that rents are really going up in North County, but would-be landlords are clearly not all getting what they’d like. And foreclosure rates in North County, while still low by national standards, had one of the biggest increases in the country recently. Somehow, I do not think that rents in North County are truly on the rise in any serious and lasting way.
More California Central Coast observations: lots of “price reduced” tags in the local real estate porn mags for Monterey county. Lots of the high end places have been sitting for a year or more, though that isn’t extremely unusual for multi-million dollar places. The real estate agents are also using ad space to show as “sold” places that closed six months ago. There have been some price drops in low-end condos; that’s still a standoff, with no market clearing price set. There are signs sellers are starting to capitulate.
Don’t know if anyone’s seen this on CNN: http://money.cnn.com/2006/10/27/real_estate/Zillow_accuracy_subject_of_complaint/index.htm?postversion=2006102714
I know I’ve always thought that Zillow’s prices were fairly cracked-out. Seems I’m not alone…
‘Zillow uses a proprietary software program to crunch huge amounts of public data to come up with its estimates. The company posts disclaimers saying that Zestimates are not appraisals, but it also states that buyers can use the estimates “to avoid overpaying” and sellers can use it “to arrive at the right price.”‘
Anyone who puts faith in this kind of black box entrail reading deserves to get snookered.
Zillow estimates are a joke. It claims the townhome I live in is worth $650k. One block away there’s a much bigger SFH for sale, that it estimates at $800k. Interestingly, that SFH is currently listed for $720k, $130k off original list, after being on the market 8 months. There are many examples in my neighborhood where zillow estimates much higher than the current list price for the home!
My landlord’s home is much bigger and much more beautiful than her neighbors’ homes in Newport Beach. Lot is literally 3x bigger, and square footage is 2x. And her home is immaculate.
Actual stats, courtesy zillow.com:
landlord’s home:
Z-price: $1.30 mil (NFW)
sqft: 2400
lot: 10800 ft^2 (huge by SoCal standards)
bd/bh: 4/2.5
3 car garage, back yard, driveway, gorgeous front patio
Neighbor, directly across the street:
Z-price: $1.84 mil
sqft: 1900
lot: 3540 ft^2
bd/bh: 3/2
no garage, no driveway, house barely fits on lot - tiny front/back yard
I have seen both places, and there is no fraggin’ way the across-the-street neighbor’s house is worth more than my landlord’s. The landlord’s house is waaaay nicer. Should be 2x-3x in value, really.
You would think those dolts would have at least used the very most basic principles of hedonic regression in coming up with those Zestimates, wouldn’t you? So that anyone like yourself looking at houses across the street from one another would not show the one which is 26% larger at a much lower price? What a sick joke!
I actually received this flier on my door today from a local mortgage brokerage. It says, quote: “Don’t end up upside down. You know where the market is headed. Don’t delay. Get the equity out while you still can. Call us. Hablamos Espanol.” What the f…? Am I missing something. Aren’t they proposing that homeowners go upside down by taking out equity while they still can, before the home value drops and it’s too late? That way they can really be upside down.
I saw an ad in one of the OC rags (free, looks like an actual magazine, but has nothing but ads between the covers, possibly OC Metro). It was an ad (that looked like an article) for a mortgage broker/company, and it attempted to explain that a negam loan was a great way to take money out of your equity to spend on cars and other things. What’s more, this option offers the money, and I quote, “without eroding the value of your home”.
WTF? How does a loan erode or not erode “the value of your home”???
They would explain how you would take out the money, and then appreciation would exceed the rate of negative amortization, thus a great option. Especially since it wouldn’t “erode the value of your home”. Well, isn’t that nice!
At the bottom of the “article” was a small word: “Advertorial”. Even worse than an advertisement - it was an advertisement with editorial content from the advertiser!
Yes - get that equity out now. Don’t worry about repaying it - heck, you can use some of the proceeds for payments for a while …. and things will, uh, all work out in the end.
I went from the bay area to Albuquerque (previous post). It mentioned ABQ hurting from CA folks not being able to sell their home. I didn’t have one to sell in CA (unfortunately) and bought ONE house to LIVE IN here in ABQ. If someone wants to buy one and live in, fine. Flippers, please go ruin somewhere else, and I wish for you to lose your A$$ when you buy homes to flip.
moved to the central coast from the san fernando valley 2 years ago and have enjoyed watching the this wildly inflated bubble slowly bursting…in these 2 years i have seen about a 15% drop in price, a house which was once 800k is now 680k big deal,still way to high…wages are low,its all second home buyers from la and san fran these people have to see big depreciation in their primary residence,i am waitng for this domino effect to begin to works it way up and down the coast,.i cant hear the swell in pismo beach and san luis obispio…you all tell me its coming…..i hope its a tsunami…..
Presumably you are renting in the meantime, which is saving you tons of money. Of course, if you were to await the tsunami while living somewhere out of state, you would hasten its coming. But never mind, even if it never comes at all, you are still saving tons of money by renting.
posted ” i hope its a tsunami….. ”
It is usually an earthquake.
I would appreciate any hard facts about the IE and Riverside in general. I am very much a bear and honestly willing to rent until I retire and buy somewhere else at these prices. I have a 20% down, my wife and I make $170k+ but these prices make no sense. I am expecting a 25% minimum drop in prices and may not buy at that level. In the IE you have almost every home builder. I vist the Centex home in Mission Ranch about once a month and I continue to see dozen upon dozen vacant new homes and a sale lady that tells me they are just waiting to close. Can that be? What is anyone else seeing?
I live in Murrieta in a $700K rental and have watched 4 of the 10 homes in my cul-de-sac enter foreclosure and two more go up for sale. One of the two began at $735K and is now down to $549K.
Don’t visit homes, don’t look in the paper. All you’ll get are damned lies. Just put your thought of buying on ice and let this ship run its course…
By the way, that saleslady is right, those homes ARE waiting to close. They’re waiting for BUYERS, too!
Don’t confuse the lady’s Russian accent. When she said “waiting foreclose” she didn’t mean “waiting for close”.
And if anyone DOES buy them, those poor people will have to be waiting for clothes.
In the IE they will be lucky to only get a 25% drop. Keep monitoring the markets, you should actually be able to see the decline on a monthly level. I have been seeing it. Remember when home prices were going up $5-10k a month? Well you missed that bandwagon, anyway you will know when it is time to buy.
I remember meeting an old timer at a Riv. Co. condo complex where I owned (about two years ago) and he was telling me in the early 90s they could not give these condos away (they were selling for $35k). After 2.5 years and 95% appreciation I sold in March 2006 for $150k.
For a great short story on people getting suckered by a developer, get your schadenfreude hats on and read this thread (start at the beginning):
http://www.websitetoolbox.com/tool/post/sdcia/vpost?id=1164128
Not quite an epic, but a hoot.
Haha. Favorite line…
“But there are good reasons they are buying in that area, including a cheese factory moving in and a growing air force base.”
Awesome investment strategy — buy near cheese factories!
posted “Awesome investment strategy — buy near cheese factories! ”
Bad, bad, bad , very bad! You don’t want to be near imploder when he makes cheese…. on board is bad enough, But in real life can kill all in 1 mile.
postes “Awesome investment strategy — buy near cheese factories!”
This is imploders WMD….never pull finger!
posted “Awesome investment strategy — buy near cheese factories! ”
No No No…. Old Imploder trick….. old style netron bomb…. kill only people leave building standing….. takes 10 years before you can go in without gas mask and live.
AOL Real Estate is running Casey Serin’s story again….
“10 Mistakes That Make Flipping A Flop”
http://tinyurl.com/yzpaqx
For those of you who don’t recall, this is the 24 yr old who has the blog “I am Facing Foreclosure”: http://iamfacingforeclosure.com/
I didn’t realize that he is married? AND….neither he nor his wife have jobs. She went back to school to get an accounting degree. (HEL-LOOOO, McFly!!! Shouldn’t SOMEONE be bringing home some bacon??) So….how is she paying for this, and better yet, if they really don’t have the money, why would any lender touch them with a 10 foot pole for her to go to school? Am I missing something?
BayQT~
Strangely, the SDCIA moderator yanked a post which pointed out that Vishram was trying to sell a 5-plex and 3 SFRs on the message board in mid-October. In one post, he says he’s selling because he’s out of the country.
http://www.websitetoolbox.com/tool/post/sdcia/vpost?id=1450677
http://www.websitetoolbox.com/tool/post/sdcia/vpost?id=1450688
I dunno about anyone else, but I’d be spooked if the guy holding my spec money was “out of the country” trying to unload his own investment properties. Good luck to those who invested!
What about this? I jut placed my bid. I want to make a million learning how to invest in RE.
http://cgi.ebay.com/Millionaire-Mentor-Real-Estate-Investing-Program_W0QQitemZ130039997801QQihZ003QQcategoryZ102328QQrdZ1QQcmdZViewItem