February 28, 2006

A ‘Chill In The Air’ For Santa Barbara

A recent report from Santa Barbara. “The housing market in Santa Barbara County has gone from hot to lukewarm, and it’s likely to stay on the cool side over the next few years, according to state and local economists. ‘The boom is over. But the market won’t collapse, and we don’t expect home prices to decline,” said Mark Schniepp.”

“Sales of existing homes countywide fell by about 13 percent last year, the biggest drop since 1995, Mr. Schniepp. On the South Coast, known as one of the most expensive housing markets in the nation, total sales last year also fell in the 13 percent range. And the number of homes available for sale climbed to the highest level since 1998, he added.”

“Chris Thornberg, senior economist at the UCLA Anderson Forecast, also presented his real estate projections, which he titled ‘Chill in the Air.’ ‘When you see sales starting to fall, that’s the signal of the end (of the boom),’ said Mr. Thornberg, who for years has insisted that California was enveloped in a housing bubble.”

“Home sales have fallen not only in Santa Barbara County but throughout California. ‘In California, there is no growing market except in Riverside,’ Mr. Thornberg said.”

“But does a peak in sales signal that home prices will fall, and does that mean the housing bubble will burst in the same way as the stock market? No, Mr. Thornberg said. ‘You can’t day-trade housing like you can stocks,’ he explained. ‘The bubble pops not on the price side but on the activity side.’”

“Instead of homeowners unloading their properties at fire-sale discounts, most will deal with a soft market by ‘going into a bunker mentality.’ They’ll pull back on selling and buying homes, and they’ll stop talking about how much their properties are worth, Mr. Thornberg said.”

“Both Mr. Schniepp and Mr. Thornberg said..the fate of 2007 depends on whether the housing market deflates slowly or takes a sharp dive. Santa Barbara County and the rest of California have grown heavily dependent on the real estate sector over the last five years to keep the economy afloat. ‘A large portion of employment in the county is real estate-related,’ said Mr. Schniepp. ‘About 10 percent of all jobs in our area are somehow related to real estate, not counting retail sales for goods that go into houses.’”




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82 Comments »

Comment by Ben Jones
2006-02-28 06:03:09

Thanks to the reader who sent this in.

Comment by MichaelSB
2006-02-28 12:30:08

Here is an interesting data point for Sant Barbara. Drive down to a place called “The Wall” where you will find at least 100 illegal immigrants awaiting to be picked up for day labor and odd jobs. If you happen to drive by they will swarm the car begging to be selected for work. This is normal however with one distinction - there are more laborers available than ever before. The reason is that there is not enough work to go around. If you talk to them the construction and remodel activity has slowed dramatically. Therefore one could conclude that investment is slowing yet we are seeing a rise in inventories. Naturally, a price adjustment couldnt possibly be happening - its Santa Barbara, its unique and everyone wants to live here. Whatever. Let it fall, let it plunge.
So I dont have to endure another Jack arse bragging about how much he made on the house he lives in even though he hasnt cashed out.

 
 
Comment by txchick57
2006-02-28 06:08:55

I think I’d drop dead of shock if just one of these buffoons admitted that prices could decline. It’s like they’re afraid of being attacked by a lynch mob if they say it.

Hello. Econonmics 101. Abundant supply + low demand + affordability in the 10% range does not equal “stable” or rising prices.

 
Comment by rudekarl
2006-02-28 06:14:05

The real estate market won’t collapse because people will go into a “bunker mentality” and not sell their home. But, the economy is heavily dependant on the real estate market. What happens when the overall economy starts taking a dive because of the stagnation of the real estate market? What happens when folks lose their jobs and can’t pay their mortgages? What about the speculators who can’t continue with the negative cash-flow when they can’t rent or sell their investments? What happens when you can no longer count on double-digit appreciation to bail you out by using the refi ATM?

“You can’t day trade in real estate.” Exactly, so you can’t cut your losses and unload an unproductive property if there are no buyers.

I find so many baseless statements and unfounded assumptions coming from the economists on why this thing won’t collapse. When you have prices spiking to such ridiculous levels in such a short period of time with absolutely no fundamental reasons to support them, why on earth would one not expect the whole house of cards to come crashing down?

Comment by txchick57
2006-02-28 06:17:26

I was going to comment on that stupid statement made about daytrading housing like stocks. The flip side of the point made yesterday about not being able to leverage stocks like you can a house with very little or no money also works to the disadvantage of that kind of “investor.” People can’t go into a bunker mentality if they can’t make payments because of suicide loans and resets. We are already seeing evidence of that on Craigslist, where people buy in November and are sounding pretty darn panicky three months later. And yet, not a one will even consider offering at what they paid or a slight loss. It’s like their god given right to “make” something for their time and effort . Those are the folks who will panic and dump on the market figuring at the worst, they can file bankruptcy and walk away.

 
Comment by GetStucco
2006-02-28 06:46:39

Karl,

Your post reminds me of one of my favorite quotes, “I claim for Judicial Science, for Economic Science, for the Philosophy of History, a place in the discussions of our society, I pity and I scorn the formidable confederacy of fools who dare not call a spade a spade.”

Too bad so many mainstream economic commentators are either wittingly or witlessly a part of the formidable confederacy of fools which Frank Hugh O’Donnell disparaged…

 
 
Comment by moom
2006-02-28 06:24:17

Bach is at it again:

http://finance.yahoo.com/columnist/article/millionaire/2747

Timing is everything he writes and then writes that ti is never too late to buy!

Comment by Derek H
2006-02-28 06:54:03

There’s a famous story about Joseph Kennedy, the SEC’s first chairman and father of President John F.Kennedy, selling most of his stock prior to the 1929 Crash after his shoe-shine boy started giving him stock tips. He figured that if his shoe-shine boy knew something he didn’t, something had gone seriously awry with the markets.

Believe it or not, I saw a get-rich-in-real-estate-quick seminar infomercial, that had, yes, a 12 year old talking about how he was getting rich flipping houses. . .

But it’s never too late to buy.

2006-02-28 08:18:01

I declare a blogging moratorium on this anecdote.

Comment by EProbert
2006-02-28 10:05:07

here here!

If I never read it again it will be too soon.

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Comment by bellevue_blogger
2006-02-28 10:24:47

i second

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Comment by mo
2006-02-28 11:24:24

motion approved

 
 
 
 
Comment by Stephanie
2006-02-28 19:54:31

Well, the author is basically waking people up, prepping them for the exits. Only thing is, he ought to have done this about a year or two ago. And he doesn’t have enough information input to get some of what he said right.

 
 
Comment by rudekarl
2006-02-28 06:28:28

“The boom is over. But the market won’t collapse, and we don’t expect home prices to decline,” said Mark Schniepp.”

Followed-up by the next quote later in the article:

“Both Mr. Schniepp and Mr. Thornberg said..the fate of 2007 depends on whether the housing market deflates slowly or takes a sharp dive.”

But, I thought you just said the market wouldn’t collapse. Now you’re telling me that 2007 depends on whether the market deflates slowly or takes a sharp dive. But, prices won’t go down - Right?

My Expert Prediction:

The market will be just fine, unless it isn’t. Prices won’t decline, unless they do. Please mail my check to: RudeKarl, Dallas, TX.

Comment by loonofficer
2006-02-28 10:41:06

It’s a good thing I wasn’t eating or drinking when I read that….. It would have resulted in quite a mess. I’m still laughing!!!!

 
 
Comment by Bubbleviewer
2006-02-28 06:34:27

I keep track of houses in my old neighborhood of Natomas Park in Sacramento, CA. Here’s one that was right around the corner from mine. I’m sure with this strategy, it will sell eventually.
4883 CREST DR, Natomas, CA 95835
On Market: 131 days
Price Reduced: 11/17/05 — $440,000 to $424,900
Price Reduced: 12/12/05 — $424,900 to $420,000
Price Reduced: 01/18/06 — $420,000 to $418,228
Price Reduced: 02/15/06 — $418,228 to $413,228
Price Reduced: 02/21/06 — $413,228 to $409,955
Price Reduced: 02/27/06 — $409,955 to $407,777

Comment by Bubbleviewer
2006-02-28 06:37:11

That Natomas Park property is for a 3-bed, 2 1/2 bath 1603 sq ft

Comment by arizonadude
2006-02-28 06:55:53

It’s not worth 300k.

Comment by bottomfisherman
2006-02-28 07:13:01

407,776.99 is next?

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Comment by Stephanie
2006-02-28 20:00:12

Actually, it’s not worth but 20 grand, 25 grand tops. You have to factor in inflation since the Federal Reserve was created in 1913. The dollar has lost value, !!95%!! of its value since then. It’s not that the houses have become worth more, but there are more dollars chasing resources. The more of something you have, the less it’s worth.

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Comment by Mike_in_FL
2006-02-28 06:38:49

How do they come up with those price reduction numbers? Or put another way, why would you cut your price to 407,777? I understand the whole “sell at 4.99 instead of 5″ strategy in retail so that buyers see the “4″ and think the product is cheaper. But what’s with some of these weird numbers? Is that extra $228 over $413,000 really going to make or break the seller? :)

Comment by Gene
2006-02-28 17:17:40

Is a pretty common technique of negotiations to make the other side think that the number is significant and not just an estimate or quickly made up figure.

The theory is….If you offer $118,894 it sounds like there is a reason. If you say 120k, it sounds like you just thru that number out there.

Comment by Stephanie
2006-02-28 20:03:12

I can’t believe that a human with a properly functioning brain would fall for such a retail strategy like this. I mean Jesus, What is ONE CENT?

I think the numbers were pulled out of thin air in desperation.

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Comment by SDsurfer
2006-02-28 06:53:07

Who is advising this guy. These weekly price reductions are hilarious. You need to make a bold statement with a price reduction, expecially when it wasn’t priced properly in the first place. He will end up stair stepping the market all the way down. Look for $500 reductions next.

 
Comment by turnoutthelights
2006-02-28 07:36:34

Must be closing in on their mortgage/HELOC totals. Says real desperation to me.

Comment by Rainman18
2006-02-28 07:58:23

I’ve heard some of the more realistic realtors and even people on this blog suggest lowering the price every week untill it sells as opposed to a big drop…apparenty that’s what this guy is doing.

 
 
Comment by mtnrunner2
2006-02-28 08:23:52

Price Reduced: 02/21/06 — $413,228 to $409,955
Price Reduced: 02/27/06 — $409,955 to $407,777
Price Reduced: 02/28/06, am— $407,777 to $407,752
Price Reduced: 02/28/06, pm— $407,752 to $407,727

Yeah, just lower it by $25 twice a day until you get an offer.

 
Comment by steinravnik
2006-02-28 08:39:19

nah, he’s just chasing the market down.

Comment by Rainman18
2006-02-28 09:07:38

He’s come down almost $3500 a week average in the last three reductions and an average of $10,000 per month from the first price listed. At least this guy is doing something. I’m not suggesting that it’ll work but most sellers aren’t reducing at all as they dig in their heels…and considering how many fools there are that I read about every day still buying houses, he may be one reduction away from getting out…if he’s chasing the market, at least he’s gaining on it…what am I missing?

Comment by peterbob
2006-02-28 09:30:17

Exactly. This guy has the right idea. The only way for the house to sell is to lower the price, and this seems like a good way to do it.

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Comment by anoninCA
2006-02-28 10:19:14

He should be lowering 5% every two weeks. 1-2% is better than nothing, but is still categorically assinine.

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Comment by SDsurfer
2006-03-01 06:58:41

I have not heard of this weekly reduction strategy nor have I seen it used. It will work, eventually, when he gets below the radar and stands out from the crowd. As you say at least he’s proactive! The only problem I have with it is what’s to prevent people to just keep on waiting for further reductions, which we know will happen?

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Comment by GetStucco
2006-02-28 06:41:48

“Instead of homeowners unloading their properties at fire-sale discounts, most will deal with a soft market by ‘going into a bunker mentality.’ They’ll pull back on selling and buying homes, and they’ll stop talking about how much their properties are worth, Mr. Thornberg said.”

Real estate economists will point to evidence from previous booms, which suggests that sellers prefer to take their homes off the market rather than sell at a loss. They also conveniently ignore special cases, like the LA basin area (where I believe Mr. Thornberg resides?), where prices fell by 40% or so during the last bust (I guess that was due to job losses in defence?).

But this time is different, in a bad way, for the following reasons:

1) Cash out financing has left too many folks with lots of toys and little equity;

2) Irrational expectations for unlimited future price appreciation have led to stupid decisions, like using home equity cashouts to buy stocks and houses in other places;

3) Expectations for future pirice gains of the magnitude measured by Shiller’s polls (e.g. 23% YOY for LA for ten more years after 2004) will come crashing down to earth once everyone realizes that prices are not going up anymore (as Mr. Thornberg has suggested they will). The deflating of the spec premium along with lowering of expected future gains will result in falling, not leveling, prices.

4) Too many folks have used suicide loans (e.g., I/O Option ARMS on which they can barely make the minimum monthly payment) which will force them into a negative equity position and eventual bankruptcy when prices stop climbing through the roof.

But maybe I am wrong, and LA prices will quadruple again over the next ten years, just like all these fools believe! (In that case, I will feel foolish…)

Comment by Rainman18
2006-02-28 08:15:59

The South Coast median home price is projected to increase about 5 percent in 2006, Mr. Schniepp said, compared to a jump of more than 20 percent last year. He also expects appreciation to remain steady at about 5 percent a year over over the next five years.

It’s like these ‘economist’ are terrified to say to a room full of 400 RE industry professionals that something really bad could happen or they really don’t believe it. “Let me see, real estate prices have skyrocketed in the last five years unsubstantiated by any fundamentals I can see coupled with the loosest lending standards and massive equity cash outs. Well, hmmm… RE historically averages 5% per year…I’LL GO WITH THAT! for the foreseeable future…enjoy the chicken!”

 
Comment by OutofSanDiego
2006-02-28 09:36:49

Another obvious factor to consider (that I have posted at other times) is that owners (sellers) bought in at different times, therefore a large number of sellers can sell as prices slide and still walk with large profits. They don’t need to bunker down. If I just bought a home for $750K last year and it drops to $650, I would feel screwed and be underwater and probably bunker down. However, the next door neighbor that bought in 2003 for $550K can sell at that $650 figure and still make $100K (gross). Furthermore, the neighboor on the other side who bought in 1998 for 325K would be making a 100% gain or 325K gross. This is a realistic scenario and demonstrates that prices have a long downward range before all sellers would hold out and bunker down.

Comment by SB BubbleBeliever
2006-02-28 10:40:19

Excellent point OutOfSanDiego!

Not to mention elderly homeowners that die and leave the home to family. a debt free house represents a winning lotto ticket to family members, etc.

Also, anything purchased 5 years ago or more (in Santa Barbara) sellers will still see huge profits… even at price corrected/current values (as you have pointed out).

 
Comment by GetStucco
2006-02-28 23:27:58

Vintage effects suggest the successful sellers over the next few years will be those who got in a while back and did not leverage themselves to the gills with home-equity-financed luxury consumption…

 
 
 
Comment by Judicious1
2006-02-28 06:42:15

“But does a peak in sales signal that home prices will fall, and does that mean the housing bubble will burst in the same way as the stock market? No, Mr. Thornberg said. ‘You can’t day-trade housing like you can stocks,’ he explained. ‘The bubble pops not on the price side but on the activity side.’”

I’m so tired of people trying to make a comparison to the stock market - of course housing prices won’t collapse at the same rate stock prices have during crashes. All that’s being said here is prices will decline more gradually, but market activity can come to a sudden halt. That makes perfect sense.

Since the current market conditions are unprecedented (speculation, flipping, I/O, etc.) nobody can say for sure what will happen in the next few years, but you can count on anyone with a vested interest in RE to be on the defensive now that we’re just hitting the downside. RE is overvalued in many areas of the US, economists opinions have never prevented corrections in the past.

Comment by GetStucco
2006-02-28 06:50:50

I believe that the housing market behaves a great deal like the stock market (and other long-term asset markets), once you adjust for the rate at which information flows. This means that you need to use a different time scale to view a housing crash than a stock market crash. Through the lense of history, they will not look much different, but in real time, watching a housing crash is like watching paint dry. Godd thing Ben is doing such a great job of making the paint interesting to watch!

 
 
Comment by Derek H
2006-02-28 06:43:57

According to their website, the California Economic Forecast is an “economic consulting firm engaged in research and consulting support for business and public sector clients.”

Nope, no bias there. Uh uh.

 
Comment by Derek H
2006-02-28 06:44:57

Oops, I should have added that’s where Mr. Schniepp is from.

 
Comment by Jim
2006-02-28 06:57:02

You can’t day trade housing because there is no liquidity! Bulls make money, Bears make money, Pigs get slaughtered!

Comment by arizonadude
2006-02-28 07:25:33

Hey Jim, love the book.

 
 
Comment by hd74man
2006-02-28 07:04:22

“Instead of homeowners unloading their properties at fire-sale discounts, most will deal with a soft market by ‘going into a bunker mentality.

Oh, this will be nice to see, given the fact that 75% of the US economy 75% consumption driven. Wait until the avalanche of lay-off’s start, as a result of the end of the refi ATM process. Guess all those unionized, heavily pensioned, public service sector government workers will have to carry the load. Good luck, Helicopter Ben.

Comment by bottomfisherman
2006-02-28 07:17:07

Love it- Bunker Mentality. Does that mean “I’ll just rent it out at 1/2 of the mortgage payment?”

Comment by Rainman18
2006-02-28 09:52:48

“History has not dealt kindly with the aftermath of protracted periods of residing in a bunker.”

see Hitler
see Iraq
see Archie

Comment by cereal
2006-02-28 09:56:24

see bataan…….

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Comment by Larry Littlefield
2006-02-28 07:06:50

(I believe that the housing market behaves a great deal like the stock market (and other long-term asset markets), once you adjust for the rate at which information flows. This means that you need to use a different time scale to view a housing crash than a stock market crash.)

The time scale appears to be accelerating. Last time (end of the 1980s) it took more than two years in the NY area for prices to actually start falling, after they had stopped rising in early 1987. Duing that time, the only losses were inflation.

This time, the fourth quarter median home sales price from NAR was already lower than the second quarter in SF, Fairfield CT, the Boston area, and parts of northern NJ. That’s six months.

Comment by GetStucco
2006-02-28 23:31:06

Chalk it up to the internet / blog effect. It is much harder now for the real-estate-dependent mainstream media to suppress the release of current market information, or to hide the ugly truth of rising for-sale inventories and falling prices.

 
 
Comment by San Mateo, Bitch!
2006-02-28 07:22:34

I’m making an offer today. If successful, the flipper will be down about $95k. Interesting times…

Comment by arizonadude
2006-02-28 07:27:07

Lowball!!!!!!!!!

 
 
Comment by bearmaster
2006-02-28 07:49:22

‘You can’t day-trade housing like you can stocks,’ he explained. ‘The bubble pops not on the price side but on the activity side.’”

“Instead of homeowners unloading their properties at fire-sale discounts, most will deal with a soft market by ‘going into a bunker mentality.’ They’ll pull back on selling and buying homes, and they’ll stop talking about how much their properties are worth, Mr. Thornberg said.”

Economists are not psychologists with an understanding of mass psychology. According to mass psychologists who understand that markets reflect herd mentality, sooner or later sa seller will panic and “break away” from the pack, drastically lowering his asking price.

Econospeak is a lagging indicator. It took economists years to even admit there could even be a bubble-formation problem, lately they’ve been saying well yeah there is a bit of froth in some areas but it won’t affect you personally, then they start talking in vague terms about “soft landings”. By the time much damage has been inflicted and much economic pain and suffering felt, they will start talking about a very real drop in prices.

Kind of like Emperor Hirohito saying “the war situation has developed not necessarily to Japan’s advantage”, on August 15, 1945.

Comment by LALawyer
2006-02-28 09:41:11

I’m not disagreeing with any of your points, but then how do we explain the flat prices in Japan for so many years. Why couldn’t this happen in the US?

Comment by bearmaster
2006-02-28 11:51:20

Well Japan is somewhat a different situation, as are the Asian economic powerhourses, because when they had their bad economic downturns they at least had their export markets to the US and the US consumer to help them bumble along. So when the US goes through a downturn again, who or what is going to pull us out of it?

I was not under the impression that real estate prices had been flat in Japan. There are plenty of graphs on the Internet that say otherwise. It looks like some types of housing bottomed in the mid to late 90’s, and land bottomed in 2003. Real estate would have been a terrific short in 1990. It looks like things are turning up but I don’t know if it’s a false dawn or not.

Land Prices Bottoming in 2003?
http://abwblog.blogspot.com/2003_06_01_abwblog_archive.html

Changes in Offical Land Price
http://www.housingjapan.net/forsale/

Existing Home Prices in the Tokyo Metro Area
(various charts)
http://www.stepon.co.jp/ir/ar/ar2003/5e.pdf

It is impossible to predict absolutely what will happen with prices here in the US. They could crash in one place and just sort of coast along in another. The recent experience I draw from is the double whammy of recession + aerospace downturn here in So Cal in the early 1990’s. The only thing IMHO that is propping prices up is jobs. Historically, the higher an asset bubble flies, the harder it falls. So my working theory is “the more bubblified the market, the more potential it has to crash.” Maybe if there were an ordinary mild run of the mill recession on the horizon, I would think that real cash equity in a neighborhood would stabilize it somewhat, but if neighborhood conditions deteriorate due to a bad slump in the housing market, it’s gonna be tough for those feeling trapped in their homes because they paid so much cash up front for them and then can’t get it out and move someplace else.

 
Comment by HARM
2006-02-28 12:06:17

@LALawyer,

Umm… pardon me but haven’t RE prices in Japan FALLEN by 60% over the last 15 years? http://www.findarticles.com/p/articles/mi_m0NTN/is_50/ai_111506874

 
 
Comment by GetStucco
2006-02-28 23:34:32

Galbraith understood this pretty well, and so does Shiller. Galbraith was severely chastised by his peers for describing reality far more accurately than most other economists…

 
 
Comment by SB BubbleBeliever
2006-02-28 08:17:51

As a local “Santa Barbarian”, I’ve got to at least smile at the turn of events here in the local housing market.

WHY? Mark Schneipp has been doing these economic forecasts on a quarterly basis for YEARS. I personally used to attend them years ago when the entry fee was about $100. I didn’t even look to see how much they charged this year… but even $100 X 400 attendees = serious BANK.

BUT MORE IMPORTANTLY… these conferences are primarily attended by REALTORS, MORTGAGE LENDERS, INVESTORS, and any other person who’s livelihood is tied to where the “PRO’S” think the RE economy is going.

IN OTHER WORDS… Mark Schneipp and Chris Thornberg are being paid by 400 attendees, on a quarterly basis- to report what’s happening to the Santa Barbara real estate market.

CAN WE SAY “BIAS” or “Economists in BED with Attendees” or ???

Mark and Chris are not about to say something too harsh that might piss off their constituents… heck, these folks want to hear “good news” not DOOM and GLOOM!!! I figure Marky/Chrissy have to prostitute themselves a little bit… you know, prop up any kind of data or soften the news so that they can at least BOOK another CONFERENCE in the Spring.

 
Comment by bearmaster
2006-02-28 08:42:57

Does anybody know if the SBAR (Santa Barbara Association of Realtors) is still refusing to release monthly numbers to the press?

Comment by SB BubbleBeliever
2006-02-28 08:50:13

I believe they continue to refuse this info. to NewsPress writers.

The latest thing they are doing is publishing their own news in the SUNDAY real estate CLASSIFIED and ADVERTISING section. This section is not LINKED online with http://www.newspress.com the local paper.

Things that make you go hmmmmmmmmmm.

Comment by Rainman18
2006-02-28 09:59:34

I don’t think the SBAR has changed their stance on disclosing the numbers and IMO are unlikely to do so as long as the market is not to their liking. BTW the same reporter who wrote about that is Maria Zate who also wrote this article.

Comment by SB BubbleBeliever
2006-02-28 10:54:00

I agree. Maria Zate has done a great job of “exposing” the darker side of real estate in Santa Barbara. I’m not sure WHY she is being “fair” in her reporting… maybe she is one of the rare reporters that tell it like it is- regardless of what benefit/detriment it brings to her own life. Or perhaps she is locked out of the housing market herself and this is a bit of a platform to vent her frustrations.

I think a great story for her to do NEXT, would be to report on the SIMILARITIES of SB real estate to the rest of the country VS. the common practice of REALTORS saying that WE’RE DIFFERENT, SPECIAL, INSULATED to any downturn to the market.

As an investor myself, I believe that SB is mimicking the rest of the other higher-end Coastal communities in America… we all tout how great and insulated our market will be (babyboomers retiring with great wealth, they will always buy quality, etc. etc.)- but in the current trend…

WE ARE ALL OVER-INFLATED in PRICES due largely to SPECULATION and “FREE MONEY” (i.e. creative financing).

I believe it will take a little longer for SB to really figure out that we are no different than the rest of the country… but once we do- I DO BELIEVE WE ARE IN FOR SOME NOTICABLE PRICE CORRECTIONS. (thus my tag: SB BubbleBeliever)

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Comment by Rainman18
2006-02-28 11:15:42

You are right about Zate. I spoke with her on the phone after the SBAR withholding article at Auction 07’s behest. She said that the paper recieved a substantial amount of attention about that article. She directed me to other knowlegable people in the area and they alluded to me that she has a lot of the RE industry leaders in SB fairly pissed off with her unsweetened reporting. I forwarded my findings to the ABC news desk in L.A. so maybe her reporting will see the light of day on a bigger scale. I think she’s great.

 
 
 
 
 
Comment by goleta
2006-02-28 09:06:43

Despite slower sales, the median home price on the South Coast is expected to keep rising, but the slow growth in appreciation could disappoint many who have watched prices consistently soar in the 15 percent to 20 percent range each year. Median price is the point where half the homes on the market sell for more and half sell for less. It reflects the mix of all homes sold during a specific time frame and not appreciation rates on individual properties.

With almost 10 years of double digit appreciation and now they think it’s the norm?

 
Comment by John from Taos
2006-02-28 09:07:31

Speaking as someone who knows absolutely nothing, as evidenced by our having sold our home on the Eastern Shore of MD in 2000 (less than one percent appreciation over the previous 12 years), I think:

1. The Internet enables instant communication. When the selling panic hits, it could easily overwhelm all previous experiences of this type of phenomenon in terms of speed, breadth, and depth.

2. That said, the collapse of the housing bubble is only a very, very small part of the coming ecological, financial, and political storm, the exact parameters of which no one can predict and for which no one can prepare. The last point gives great comfort, frankly.

3. Overall, the prognosis is actually very good for those centered individuals capable of adjusting psychologically and pragmatically to changing conditions.

4. Not included in #3 are virtually all authorities in government, academia, and journalism and all who act on their advice. (The vice-president who shot an old man in the face is as good as it’s going to get in that regard.)

It’s a beautiful day here in el Norte. Best to all …

Comment by TXchick57
2006-02-28 09:33:00

How is the market in Taos? That’s one place that I just love.

 
Comment by OutofSanDiego
2006-02-28 09:44:26

John, you are quite knowledgeable on at least one very important fact…, that being, “No one can tell the future”. Though I’m sure that the guy that was lucky enough to buy your home on the shore now touts himself as a real estate genius (timed the market perfectly, etc.), you were probably glad just to dump it after 12 years of dismal appreciation. No one could have predicted this insane bubble.

 
 
Comment by OUT OF LA
2006-02-28 09:08:58

one important thing you all are forgrtting is hi is referring to santa barbara,this is the playground of the super wealthy,most of the upper end homes in santa barbara are trophy homes,the rich wont need to sell,they can afford to stick it out,its the folks in the areas surrounding santa barabara who feel the pain.

Comment by goleta
2006-02-28 09:37:06

The super wealthy are only interested in the top 2 or 5% homes. They are not going to be happy with any home less than $5M. A $2M SB home would be worth only $200K if it were in Austin. Some time ago I read a news that over 80% of the homes in SB were actually bought with ARMs and/or IOs.

Comment by SB BubbleBeliever
2006-02-28 11:04:46

Well said Goleta and East Beach…

Although I agree with OutofLA that the super high-end homes in Montecito, Hope Ranch and Padero Lane… the wealthy owners that live there (vs. the wealthy investors who are just flipping high priced remodels) can probably stand to just “Bunker Down”…

But the standard tract house (where standard working folk) live… These homes were $350k about 5 or 6 years ago. Now they fetch well over $1mil.

Celebrities, the Rich + Famous, etc. wouldn’t house their dogs in these homes… So a DAY OF RECKONING is coming to the entry level housing market- IMHO.

 
 
Comment by east beach
2006-02-28 09:37:49

After clearing my head over the past few years (via reading this blog, etc), I simply do not see the case for flat prices. Around my neighborhood in SB, the average home is like a million dollars. The only way way the target market (30-40 somethings with kids) for these homes (plain 40 year old 3/4 BR SFHs) can ‘afford’ the payments is via Option ARMs and I/O loans. Sure, there’s a few folks bought a condo 5 years ago, and can roll that money into one of these places, fine. But you’re still talking about a heck of a lot of money to borrow… The going rents are about $2000 to $2500 a month, and the house payments+extras would be what, $6000+?

In spite of the way the realtors paint the entire region as Beverly Hills, there’s no rich folks here in my neighborhood, and neither are the high paying jobs.

 
Comment by Rainman18
2006-02-28 10:35:51

Santa Barbara used to be a mix of young couples and retirees. The ‘newly wed’ and the ‘nearly dead’ as the saying went. Now with school enrolment down and the middle class being squeezed out the only people that will be left will be service workers and retirees. New slogan: the ‘made the bed’ and the ‘nearly dead’.

 
 
Comment by peterbob
2006-02-28 09:37:37

“But does a peak in sales signal that home prices will fall, and does that mean the housing bubble will burst in the same way as the stock market? No, Mr. Thornberg said. ‘You can’t day-trade housing like you can stocks,’ he explained. ‘The bubble pops not on the price side but on the activity side.’”

When the bubble pops on the activity side, that is a sign of market failure. It is bad for everyone. New buyers have to wait for inflation to lower the price over a long time period. Sellers are stuck in their jobs and locations because they refuse to take the loss. The RE industry suffers, because commissions on zero sales are ZERO.

It just seems like it’s in everyone’s best interest to bring prices down quickly to levels dictated by fundamentals and then let everyone go about their business.

Someone needs to remind sellers that sometimes it’s OK to take a loss. That’s life. Lower the price, and get on with your life. Grow up.

Comment by TXchick57
2006-02-28 10:11:39

That’ s the most important lesson in any kind of trading or investing. Sometimes a loss is win if you make it small.

 
 
Comment by east beach
2006-02-28 09:56:48

Oh also, just an empirical observation about Santa Barbara, but the asking prices for many of the lower end places seem to be off by about 10%-20% compared to last summer.

Back then, I didn’t see anything less than $600K (aside from mobile homes going for $400K). Now, I’m starting to see condos again for less than $500K. Still too much, but it’s a start.

 
Comment by LALawyer
2006-02-28 10:34:02

Slightly OT: I’ve been thinking through scenarios regarding housing place on the market. If boomer couple bought in Santa Barbara (or anywhere in “frothy” markets) 20 years ago and are heading for retirement, but haven’t saved enough, what’s to stop them from cutting 10, 15 or even 20% from their asking price since this is free money. They’ve got appreciation of 200% (or more) and they are planning to downsize, move or otherwise reduce their standard of living. They want $$$, now, to lock in gains and secure income. These people, if prudent, are happy to get $1.2 million instead of $1.5. They can live well off of the income and rent or buy somewhere less expensive.

Comment by goleta
2006-02-28 10:53:24

In SB, another option they have is reverse mortgage, which is becoming very common. The home they bought 20 to 30 years is likely worth more than $1.5M. If the boomer couple are in their 60’s with mortgage paid off or about to be paid off, they might be able to get $50K to $100K/year from reverse mortgage. But they have to hurry, if the price drops significantly and they have a huge medial bill they need to pay, their only option will be selling the home.

Comment by LALawyer
2006-02-28 12:15:40

Reverse mortgages are calculated using the life expectancy of both people, which in our hypothetical case would be 77 for man, and 81 for woman. 21 years of income from $1.5 million (while still being able to live in the house) would be:
$1079 per month under HECM program; and
$518 per month under HomeKeeper program.

Here’s a link to the AARP site that allows you to calculate reverse mortgages:
http://www.rmaarp.com/

Comment by goleta
2006-02-28 12:43:34

It’s much worse than I thought. If the couple are expected to live in the house for 15 years, shouldn’t they expect at least half of $1.5M/15= $50K/year back to give up the house when the time comes?

Seems reverse mortgage is a terrible deal compared to 5% interest from the $1.5M. If they sell the house now, they get at least $50/year interest and their principle doesn’t disappear.

(Comments wont nest below this level)
 
 
 
 
Comment by rms
2006-02-28 11:42:30

I used to visit the Santa Barbara area often during the ’90s, and I found the area uncomfortable as a middle class settlement. The place was highly polarized with rich at one end and working class poor at the other almost like a poor country. Can’t beat the weather though, very nice!

 
Comment by shel
2006-02-28 20:50:29

i really should stay away from these CA threads; the insanity of prices makes me feel like I should jump right in now and buy a 300K home in Ann Arbor because it would cost 750K in SB and therefore is truly a bargain!
cheers…

Comment by GetStucco
2006-02-28 23:36:29

Would you concur that it is a bargain at 450K to avoid living in Ann Arbor in favor of Santa Barbara?

 
 
Comment by Amy
2006-03-02 20:26:05

Oh my! That’s quite a comment. And a funny one at that. Frankly it sounds exactly like Tahoe. Had we not gotten out of there and into Reno when we did we’d have been living in a van down by the River.

 
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