“The American Dream Is On Sale” In California
The San Francisco Chronicle reports from California. “It may take the California housing market three years to recover from its downturn because homes have simply gotten too expensive for most buyers, whose salaries haven’t risen nearly as fast as housing prices, economist Ken Rosen, at UC Berkeley said.”
“‘This is not a one-year event and this is not a six-month event,’ Rosen said. ‘It’s going to take three or four years for incomes to catch up to housing prices.’”
“‘We are at the beginning of the correction in the housing market in terms of prices,’ said Stephen Levy, director of Palo Alto’s Center for Continuing Study of the California Economy. ‘The prices now are way out of line with the income and income prospects of people.’”
“The California Association of Realtors predicts a more-modest decline of 2 percent next year, according to Leslie Appleton-Young, the group’s chief economist. ‘It’s going to take another 18 months or so to work itself out,’ she said.”
“Appleton-Young, like Rosen, said that sellers who are refusing to drop their asking prices are dragging out the decline. Sellers will need to readjust their expectations, and lower prices, in order to get the market moving again, she said. ‘The period from 2002 to 2005 was unique — we had an extremely strong market and it was not sustainable,’ Appleton-Young said.”
“The number of buyers who purchased their homes with unconventional loans, or mortgages that start out with extremely low payments and in some cases allow borrowers to rack up more debt than equity, also raise concerns about the stability of the housing market, Rosen said. ‘Anyone who could fog a mirror could get a 105 percent loan,’ he said. ‘And that means anybody.’”
“Rosen also pointed to buyers canceling sales of new homes as another factor weighing down the market. Developers often sell homes before they are complete, taking a deposit of typically about 3 percent. Buyers are walking away from those deals in record numbers, swelling inventory.”
“‘They had lots of orders with a small down payment, those really weren’t sales at all,’ Rosen said. ‘They were options, and many of them have been canceled.’”
The San Bernardino Sun. “The national housing market may be staggering, but anyone looking for too much weakness in the Inland Empire will have a hard time finding it. Yes, sales may have been down 21 percent from a year ago in October, but the median price of a home in San Bernardino County still went up and houses are still selling.”
“‘We are going to see some weakness in the market in the short term,’ said Redlands-based economist John Husing, who studies the Inland Empire.”
‘”Three things need to happen before the market fully recovers,’ Husing said. ‘We need to work through some of the inventory on the market. We have to deal with the properties that are in foreclosure, the people who bought homes in 2005 and haven’t had a run-up in equity. And we need to get the speculators out of the market, the ones who bought properties to flip them.’”
“If there’s a complicating factor, it’s that the area has extremely low affordability. Only 6.7 percent of residents can afford to buy the median-priced home sold in the San Bernardino-Riverside- Ontario area in the third quarter.”
The Daily News. “The Los Angeles area remained the nation’s least affordable for house hunters in the third quarter, according to a survey released Monday. This is the eighth consecutive quarter that Los Angeles remained the hardest place to buy a house, according to the National Association of Home Builders.”
“In the Los Angeles-Long Beach-Glendale market only 1.8 percent of new and existing homes sold during the third quarter were affordable to those earning the area’s median family income of $56,200.”
“‘It’s a very critical thing,’ said Jack Kyser, chief economist at the Los Angeles County Economic Development Corp. ‘In all the uproar of the slowdown in housing this has sort of gone into the back of the room and nobody is discussing it.’”
“The index tracks the change in value of the same pool of properties. In the Los Angeles area some homes in Calabasas, La Ca ada Flintridge, Encino, North Hollywood and Studio City are included in the pool. ‘There is more inventory. Things that are not perfectly priced last a long time on the market. But we are definitely not seeing a bursting of a bubble,’ said Katherine August-de Wilde, chief operating officer.”
The Record.net. “Despite a cooling housing market and some slight price declines, buying a home was increasingly out of reach in many areas of California, including San Joaquin County, an industry trade group reported.”
“‘This market that we have has never been particularly driven by the local median income or average income; it has always been driven by the Bay Area market,’ said (broker) Mike Collins in Stockton.”
“‘California’s at risk for losing its college graduates and young families,’ Robert Rivinius, association president warned. ‘If they can’t hope to buy a home here, more and more of our best and brightest leaders of tomorrow will leave California for communities in other parts of the country where homeownership is still a realistic possibility.’”
The Record Searchlight. “Home sales in Shasta County in October fell for the fourth straight month, according to DataQuick. The slowing pace of sales and falling prices in the north state reflect a nationwide trend as the once-booming housing market fizzles.”
“‘I think the market bottomed out a month ago,’ (realtor) Brad Garbutt in Redding said. ‘The market is in slow motion. Retirees still want to move here, but they can’t liquidate the property they’re at now so they can’t move.’”
“Last month, Shasta County recorded 127 home sales, down from 149 in September and 198 in October 2005, DataQuick reported. The median sales price in Shasta County in October was $248,000, compared with $270,000 in September and $249,000 in October 2005.”
“Sales in California fell 28.6 percent in the third quarter. In Shasta County, home sales in the third quarter declined 37 percent from a year ago. For the year, home sales in the county also have dropped 37 percent. Shasta County’s numbers include new and used home sales.”
“Garbutt, a board member of the Shasta Association of Realtors, thinks buyers are wary despite a market tipped heavily in their favor. ‘The American dream is on sale right now. Prices are 10 to 15 percent off their peak,’ Garbutt said. ‘We’re dealing with a psychological market.’”
Rich Toscanos latest:
‘The truth is that all speculative financial bubbles are the cause of their own demise. This was certainly the case for the 1980s real estate boom. The current housing bubble — far bigger and longer in the tooth than its predecessor, and already faltering — is unlikely to be any different.’
The New York Times article on sign twirlers:
‘Mike McCullough, VP of marketing for Eventz Extraordinaire in Lake Forest, said the company supplied 600 workers each weekend in California and Las Vegas, a 50 percent increase in business since last year. ‘As the housing market has softened a little bit, that has been good for us,’ Mr. McCullough said. Some builders have increased the number of directionals for each development, and others that did not use them have started using them, he said.’
‘The unsold inventory of new houses in California has increased by more than 130 percent in the last year, according to Hanley Wood Market Intelligence, a housing research firm in Costa Mesa. In the third quarter of 2006, builders statewide were trying to sell nearly 18,000 homes either completed or under construction, according to Hanley Wood’s research.’
The San Francisco Chronicle reports from California. “It may take the California housing market three years to recover from its downturn because homes have simply gotten too expensive for most buyers, whose salaries haven’t risen nearly as fast as housing prices, economist Ken Rosen, at UC Berkeley said.”
this is so true. give myself as an example. years ago, when i was a rookie, i was making about 180K a year and i thought that buying a 700k house was just crazy. i bought a 400k house instead. now people are asking for million dollars for these 400 k house and the wage has not increased. the average wage in california is still 45k per year. how can people afford anything?
“‘This is not a one-year event and this is not a six-month event,’ Rosen said. ‘It’s going to take three or four years for incomes to catch up to housing prices.’”
I would be thrilled if my income doubled in the next 3-4 years.
What a complete fool this guy is, he is completely dissconected. I not sure he knows what he just said. Of course his job is safe and he can sit there and toss out these jewels. I’m sure incomes will catch right up and them we can get back to 20 to 100% price increases in the housing market!
I heard Rosen speak last year at this conference, and he was warning all of the unsustainability of housing. He then recounted a story of how a limo driver was talking about how he bought a few homes in the Central Valley as investments–that was his sign that this whole thing was going to end badly. I don’t think he’s all that disconnected from reality, or out of line, personally.
The only way you would need to double incomes is if interest rates went back to where they were in 2000/01. As of right now, lower rates are helping shelter some of the massive gains of the past several years.
Do I believe we are going back to 20-100% increases after 3-4 years? No, but I don’t think that’s what Rosen is saying either. I think that we are going to see sliding prices for 2-4 years, and only after that will we hit bottom (which may be a multi-year bottom) will we start more moderate increases again.
And for what it’s worth, while coming from academia, Rosen does run his own long/short real estate fund, and for the past couple of years, the position that he has been taking in his trades is that of a bear.
Contrary to popular belief, not everyone in the real estate industry is a complete knucklehead.
“‘This is not a one-year event and this is not a six-month event,’ Rosen said. ‘It’s going to take three or four years for incomes to catch up to housing prices.’”
I’m not sure what else you can read into this statement. He does not say home prices will be dropping as incomes rise.
““Appleton-Young, like Rosen, said that sellers who are refusing to drop their asking prices are dragging out the decline. Sellers will need to readjust their expectations, and lower prices, in order to get the market moving again, she said.”
And this implies that he thinks that sellers should drop their prices or suffer a longer period of decline. Most real estate folks I know are expecting both declines in prices and increases in incomes to be responsible for a return to normalcy, a faster decline in prices OR a quicker increase in wages will get you to normalcy faster.
I think there is way to much outsourcing (india, china) pressure on the middle class jobs and in-sourcing (immigration) pressure on the blue collar/service jobs to see any increases in wages. I think this guy Rosen is dreaming. The prices are gonna have to fall. That’s the only way there will be a “return to normalcy”. And normalcy in this case is gonna be repos and recession.
Last couple years the american wages have gone down (factoring inflation).
I also don’t listen to what most Real Estate Folks have to say.
“I think there is way to much outsourcing (india, china) pressure on the middle class jobs and in-sourcing (immigration) pressure on the blue collar/service jobs to see any increases in wages.”
Exactly, and we’ve only seen the tip of this iceberg!
Well who do you think is buying? Millionares from India and China. Throw in some from the middle east and thats the future of costal California. Ventura County house with a view of the ocean, bought by a Chinese Herbalist who knocked on the door of the house ( which wasn’t for sale ) and just kept offering more money until the owner sold it. The neighbor told me this story, a doctor. happened a couple years ago but thats Coastal cali and thats whos buying at the margin.
Go review the Japanese purchases of Pebble Beach, Rockefeller Center, Heavenly Ski Resot, Steamboat Ski Resort and see how well that worked out for them.
Here is a hint, they lost their shirts.
It isn’t any different this time.
Probably want to have trophies as anyone would. Didn’t Japan do something similar once?
So this is the latest spin from the REIC?? Don’t panic - just wait a few years until incomes catch up to prices??
Let’s see how a rough example pencils out:
Dataquick says the median price of a San Francisco residence (including condos, I think) is $746K in September 2006. I think the pre-bubble guideline of home prices to incomes was that the price of the home shouldn’t exceed 3X your annual household income. That would mean SF median household income would increase to $248,000 per year to cover that $746,000 house. . .
Chris, right on buddy. Rosen is a noodle head. He already makes 100K+ salarys and has probably owned for years or has a relatively small mortgage nut. If this guy thinks the average salary is going to be 100K in 4 years, I want some of what he is smoking. What a crock! Even if they go that high, 100K, you still wouldn’t be able to afford thee 700K-1M homes on that salary.
It’s a new paradigm! 20% y-o-y salary increases for everyone!
Did he say prices weren’t going to drop? Just because he explicitly said incomes needed to rise one cannot assume that he also doesn’t believe home prices will fall. At least he isn’t saying that this is going to be a six month to one year hiccup like many people in the industry are saying.
I think he is assuming that wages will increase and home values will fall over the 3 to 4 year period. For example, if wages increased 6% each year for four years then buyers would have 26% more income. If at the same time, housing prices fell 6% each year houses would be 22% less expensive. Net-net, housing would be 48% more affordable at the end of the 4 year period.
if you start with a median income of 70k and a median house of 750k, you have an existing multiple to income of 10.7x. grow the income by 6%/year and decrease the house price by 10%/year and you end up with a multiple of 5.6x. still almost double historical standards.
6% wage increases four years running would signal massive inflation and the market would respond with double-digit interest rates which would wipe out any increase in affordability.
“6% wage increases four years running would signal massive inflation”
Chris in La Jolla nailed it. Significant inflation like that would kill the housing market, which is entirely based on historically low interest rates and unprecedented levels of loose lending, and not on people working hard to buy a home for their families.
For incomes to catch up as house prices fall moderately for a relatively “soft landing” (I hate that phrase), one also has to ignore the ticking timebomb of the suicide loans, the unprecedented poor performance of portfolios (http://www.kiplingerforecasts.com/apnews/XmlStoryResult.php?storyid=265436), the increased mobility of the knowledge workers, and people like me who actually CAN afford a house but refuse to buy an absurdly overpriced asset because they have some analytical skills.
Well so do many, but thats not going to happen that easy. In the Tech lands of San Fran South Bay…margins are being squeezed. Tech spending is still a meager 5% growth. Employers are shipping more but making less. This is why IBM sold off PC business. Software is no different.
Before we see 2x increase in salaries we will see jobs shipped to other states/overseas.
Gartner Group reports that even after the recent tepid tech recovery, there are fewer IT jobs in the US than there were in 1998.
IT paychecks are *not* going up.
So, the rate of housing price increases are normal whereas the rate of salary increases are out-of-whack.
“the average wage in california is still 45k per year. how can people afford anything?”
This fact, along with the crappy loans and the overbuilding, are exactly why CA will tank. FINALLY, we are seeing the msm report what this blog has been saying the past year or two. It’s not rocket science, and I’m glad Ken Rosen is getting up a bit more nerve, although I think his 3-4 year downturn prediction is still too optimistic. Based on history, it will probably be closer to 10 than 5.
Every homeowner is hoping to sell their home for top dollar to some rich Goggle employee or ex-employee.
There is so much pimpin and snake oil salesmen (realtors) in NoCal its just smells like a sewer pit!
And it’s a sure thing — if you live near Google HQs. Or SGI when they were at that location and Netscape and etc.
“The median price of an existing home in California will fall 4.8 percent next year and 2.9 percent the year after, Ken Rosen, chairman of the Fisher Center for Real and Urban Economics at UC Berkeley, said Monday”
Rosen doesn’t just say incomes will have to rise to match house prices. He also predicts these very specific declines in prices. I wonder how he came up with a projected 4.8% decrease for 2007 — as opposed to say, 4.9%?
“I wonder how he came up with a projected 4.8% decrease for 2007 — as opposed to say, 4.9%”
Great point. I was taught that the least siginificant figure implies the margin of error. Rosen’s 4.8% drop implies that he does not expect to be off by more than 0.1% in either direction, which is just absurd. He should have rounded to 5% and 3% AND he should have indicated whether those were nominal or real price drops.
liquidity (easy credit) is the key to all of this. The easy credit has driven up the value of the assets, the value of the assets provide even more liquidity to borrow against and to chase higher return assets in order to pay off the original debt. Witness the hedge funds and the private equity funds, LBOing in order to pay out extraordinary dividends to purchase underperforming assets such as airlines, etc. In the chase bad decisions will be made on a daily basis, the value of the home builders inventory will be written off, as will the value of the land options, the underperforming industries will continue to underperform and release cash into the great ether. All of this will mean less liquidity to reload the asset (home) driven bubble, and then the underperforming loans will be written down, charge offs from the bank, etc. will bring us right back to where we started. It is only a matter of time, the amount of time being defined by the amount of liquidity remaining in the global financial system and how recklously it is burned off in the pursuit of higher returns which will not materialize just in time to keep the whole system going. The net effect will be certain americans will be house-poorer, and through the ever increasing trade deficits, our trading partners increasingly own a larger claim check on our own economy through their purchases of our debt and equities.
well said, thank you for that post.
Thanks to the federal reserve [private banks] who printed dollars with no controls in place who have this great big bubble in place. Don’t tell me Greenspan and his friends did not see what was going to happen. Create paper money and lend it out. What a money machine. When the public finally figures this out, that they have been had, you will see backlashes that no one can imagine. Only a fool would not prepare for what is going to happen. Retired mortgage broker when standards were in place.
Nick,
What praytell do you do for a living. I dont hardly know anyone years ago who made as much as you did except for extremely seasoned attorneys and surgeons.
I would be interested to know this. I have to give you a lot of credit if you were able to make that much a year a long time ago.
No sarcasm here. Just respect for this type of earning power.
Who in their right mind would want to stand out in the weather and twirl a sign? I mean, in this day and age, can’t this sort of thing be automated? Hey, with California’s abundant sunshine, sign-twirling machines could be solar-powered.
How about an FB who needs a little extra money to cover his ever-increasing mortgage?
I can’ think of anything sadder than a sign twirler. These poor saps.. What kind of money do you make sitting in the hot sun, breathing exhaust and dust, holding a sign? I make a point of not visiting any business that uses this pathetic, degrading form of advertising.
$8 - $20 an hour.
“Spinners like those who work for San Diego-based Aarrow Advertising wear uniforms and are encouraged to smile and make eye contact with passersby, said Max Durovic, who started the sign-spinning company in 2002.
“Our goal is to really work with towns and cities to make sure this doesn’t become a visual nuisance,” Durovic said.
His company pays sign spinners $8 to $20 an hour to work tricks they’ve learned from “spinstructors.” Despite El Cajon’s ban on spinners, Durovic’s people still hold practice sessions in the city, perfecting moves like the “helicopter spin” or the “Bruce Lee spin.””
It’s about meeting city ordinances. I occasionally get calls from agents asking where and how they can advertise open houses. Stand alone signs are prohibited in public right-of-ways. But there’s nothing in the city’s code against spinners standing out on corners. I also feel bad for the spinners here… during the summer it’s 110, during the winter it’s 30 degrees with winds blowing 30 mph. As for automated twirlers… I think clowns standing on corners attract more attention than machines.
A person holding a sign falls under first amendment coverage, whereas a fixed sign without a human holding it is subject to local ordinances.
“Who in their right mind would want to stand out in the weather and twirl a sign? I mean, in this day and age, can’t this sort of thing be automated? Hey, with California’s abundant sunshine, sign-twirling machines could be solar-powered.”
I expect a “sign twirlers contingent” at the next Mummer’s parade. Aren’t those parades held in Philly? Or Pittburgh?
Philly.
Ben posts ” The unsold inventory of new houses in California has increased by more than 130 percent in the last year ”
I drive by two ugly small developments a few times a week in the west SFV part of LA. They both are still being constructed. I laugh every time I pass a very large banner hung on a long slumpstone wall, the banner is 6 feet high and 25 feet long. I reads from the low Millions…. these are run of the mill track homes in a rotten, loud heavly travled area…. the gangs took to “taging” the other Centex mess a mile down the road. There link has been posted here many times.
The point being…. the slaughter has arrived late but none the less it is here. We are over do a whoopin’ …. we here in LA have over stated the party.
At some point all this inventory has got to be unloaded. I suspect that this 130% inventory, coupled with foreclosures/sheriff auctions, and existing sales is going to make for some great bargains in the coming years. If only people would wait. Sheesh like another year would kill you. In Rancho Santa Margarita why would I want to buy something that is currently 500K, when I know in 2-3 years we can get these McMansions for 300K, which wouldn’t bother me as much, since I plan on staying until retirement, at which time I can sell out on the next great bubble, if the entire economy hasn’t already gone teh way of the dinosaur by then.
Let me guess - Topanga in Chatsworth?
crisrose…. you get the cookie!
This flip is hilarious:
http://seattlepi.nwsource.com/national/1110AP_Katrina_Gift_House.html
I believe in karma. They’re in trouble. Maybe not immediately… but some day.
“Extremely Unique” is realtwh@re speak for bubble.
“Appleton-Young, like Rosen, said that sellers who are refusing to drop their asking prices are dragging out the decline.”
CAY blaming the sellers for not dropping their prices? Pinch me - I think I’m dreaming >; )
Yea, hunger has a nasty habit of slapping fools back into reality.
“Garbutt, a board member of the Shasta Association of Realtors, thinks buyers are wary despite a market tipped heavily in their favor. ‘The American dream is on sale right now. Prices are 10 to 15 percent off their peak,’ Garbutt said. ‘We’re dealing with a psychological market.’”
Oh, right, that prices have finally declined modestly, ‘We’re dealing with a psychological market.’ Unlike before, when buyers and sellers were perfectly rational in assuming 20%/year forever.
“Garbutt, a board member of the Shasta Association of Realtors, thinks buyers are wary despite a market tipped heavily in their favor. ‘The American dream is on sale right now. Prices are 10 to 15 percent off their peak,’ Garbutt said. ‘We’re dealing with a psychological market.’”
10 - 15% off a 400% rise? This guy needs to resume his career in french fry cookery.
Some past quotes from Brad:
Real estate agent Brad Garbutt, past president of the Shasta Association of Realtors, said the decline is a combination of the weather and a market that’s cooled. Both December and January were wetter than average in the north state. Rain typically dampens the enthusiasm of potential buyers, Garbutt said…”It may take until we get to spring, past the rainy season. It seems like when the rain stops, the buyers come out.”
~Redding Record Searchlight, March 2006
Two new homes in the Land Park subdivision in northwest Redding were discounted $70,000 this week, slashing the list price to $409,900. The reduction so surprised real estate agent Brad Garbutt that he initially thought it was a mistake.
-Redding Record Searchlight, June 2006
Excellent work there Landers. There’ll be a little something extra in your paycheck this week.
Ok. here’s his website
http://72.14.209.104/search?q=cache:_XW64wrYtk4J:www.movetoredding.com/+Brad+Garbutt+in+Redding&hl=en&gl=us&ct=clnk&cd=1
and his email:
bradgreps@yahoo.com
Thanks for the timely research, Lander! I guess Mr. Garbutt is “all wet”?
Email sent:
BG,
No amount of sunshine is going to help this situation. Your best bet is to tell the truth about the totally irrational levels house prices have risen to. Only the truth is going to work now.
WH.
Txchick post “Garbutt”
If I am not mistaken Gar—butt, is old world English for butt-boy. Perhaps this can explaine the failed thinking? If the constant pounding crushed some brain cells. You would have an idle-brained dullard.
I am here to help, just a thought……..
Actually, I think you’ll find that he has a degree in forestry hiding somewhere inhis past.
He’s a lumberjack and he’s OK!
“It’s going to take three or four years for incomes to catch up to housing prices.”
I suspect that not everyone’s income will double in the next four years in order to catch up to housing prices. Anyone willing to wager a bet?
My thoughts exactly. The shamelessness of these shill…
This has been a favorite topic at another of my favorite blogs. The question is, will the Fed deliberataley try to spur broad-based (non-RE) inflation via Japan-style ZIRP (zero interest rate policy)? If they can pull that off, it might possibly work. Please note that I’m NOT in favor of this approach (screw savers to bail-out irresponsible borrowers/lenders), but it’s not as crazy as it might sound at first.
If such a scam/scheme works, nominal prices for housing could remain stagnant to modestly depressed, while the price of everything else and –critically– wages would rapidly shoot up. Of course, for this to work, wages have to cooperate. And wages have not been rising much in the last 6 years, either in real or nominal terms, thanks to offshoring & outsourcing. We shall see….
I agree especially in that wages don’t have to cooperate in this globalised environment. There is no guarantee that wages will increase during such a policy. And even if they do, they tend to lag during inflations. Also, as the money will have to be borrowed into existence, there is no sure thing that the money will be borrowed and put into any productive capacity that in turn will be spent on increased wages domestically. Do you hear helicopters in the distance?
But with a disappearing middle class who really cares about wages? Either you have the money or the easy access to credit or you don’t. If you don’t? Well enjoy your life as a ward of the state in the Armed Services, on welfare, a government job, or in the big house. Who really needs private enterprise anyway since all of the money has one fountainhead?
Have you seen what’s going on in commercial real estate prices … junk bond prices … the stock market … global money growth (M4 in England, M3 in Europe, etc., etc.)? I’d argue that central bankers are already opening the money supply taps even if nominal interest rates are rising. In other words, they ARE trying to re-inflate. Notice that gold and gold stocks appear to be perking up again, too.
I wrote about this a week ago here:
http://www.moneyandmarkets.com/press.asp?rls_id=575&cat_id=6&
And I’ve had a few comments at my blog as well:
http://interestrateroundup.blogspot.com/
Mike,
I think you’re right on the money (inflated money, that is)!!!
Problem is, it can spin totally and wildly out of control with many untintended consequences, so I doubt it. First of all, the cripled SS & medicare systems will be forced to rage with inflation.
Here is a little tidbit on this topic.
The Cunning Realist
Sunday, November 19, 2006
Mark Gleich Mark
I haven’t written much about the economy or financial markets in a while. But it’s been interesting to watch the stock market march higher with the attendant hype about “new all time highs” for the Dow. Of course, outside of niche market commentators, there’s no mention that those new highs are nominal. Take a look at this chart via Barry Ritholtz that shows how the Dow has performed against gold in recent times. http://bigpicture.typepad.com/comments/2006/10/dow_gold.html Jude Wanniski would have been proud — and I’m sure he’d be reminding us right now that the Dow would have to rise several thousand more points to reach a “real” all-time high after accounting for inflation. This is one reason why, despite the stock market’s rise in recent months, the economy still ranks as a major concern in public opinion polls. Give me a large truckload of million-dollar bills to distribute randomly for a few years, and I guarantee you the stock market will rise. I also guarantee that everything we need to live will get more expensive, and everything we merely want will get cheaper.
At this point, it’s clear we’ve entered a period in which policymakers have decided that it’s never a good time for a stock market decline or a recession. Natural ebbs in the business cycle used to be times of cleansing and adjustment. Now, with a Federal Reserve chairman whose scholarly interest is the Great Depression, soft spots are considered “deflation” and are to be avoided at all costs. I’ve posted before about the use of liquidity as a tool of the nanny state, and it’s never been more true than right now. After the Fed’s brief dalliance with sanity (draining liquidity) earlier this year — during which the Nasdaq fell about 15% and some overseas markets plunged 25% or more — the liquidity jets are blasting away again at full strength.
It’s hard to predict how long this can continue (and risky to bet against it, of course). Monetary policy is the art of the possible, and much depends on our overseas creditors. But I think it’s important to understand the dynamic at work, so one can either protect himself or recognize events as significant when they occur. I just finished reading a fantastic book called When Money Dies by Adam Fergusson. For those interested in what can happen when fiscal and monetary policy go awry, this is a must-read. Sadly, it’s out of print and extremely rare; I’ve seen it listed by internet booksellers from $500 to over $1,000. As an alternative, you might try a library search using this wonderful service.
The book is an account of the inflation that ravaged Europe in the 1920’s, particularly in Germany. Let’s be clear….anyone who thinks we’re living in Weimar-redux is either shrill or uninformed. Despite our current fiscal and monetary mess, the dollar is still the world’s de facto reserve currency (although certainly not to the degree it has been in the past) and the U.S. still makes things the rest of the world buys. Germany enjoyed neither of these advantages eighty years ago, and that’s important. But the basic dynamic of inflation doesn’t change, and certain parallels are worth noting if only to understand the potential dangers of the path we’ve clearly started down.
I’d always thought Germany’s runaway inflation in the early 1920’s resulted from the harsh reparation terms imposed after World War I. Instead, Fergusson shows that inflation was a calculated path chosen by Germany’s central bank to boost the country’s exports and thus its domestic employment. After the war, the main fear in Germany was unemployment and the potential appeal of Communism. To the extent it made Germany’s goods more competitive in foreign markets, inflation was desirable and politically expedient. Fergusson notes that prominent industrialists like Hugo Stinnes (on this Time magazine cover in 1923) openly supported inflation as deliberate policy. Stinnes ran Germany’s equivalent of a Dow Jones-listed industrial giant, and thus benefited from inflation just as our own similar companies (and their stocks) are doing right now.
Moreover, Rudolph Havenstein, head of Germany’s Reichsbank (the equivalent of our Federal Reserve) was open about his actions. From Fergusson (p.165-166):
Dr. Havenstein plunged on. Day and night 30 paper mills, 150 printing firms and 2,000 printing presses toiled away adding perpetually to the blizzard of banknotes under which the country’s economy had already disappeared. Havenstein spoke of the efficiency — the Leistungsfahigkeit — of his printing system.
A central banker boasting about the ability of his printing press. Sound familiar? (If not, read the section on “Curing Deflation” halfway through this speech.)
As Germany went down this road, a cruel dichotomy developed. At the same time a pensioner needed a stack of paper money to buy a cup of coffee, the stock market and the economy soared because of the massive liquidity. Fergusson quotes from the letters of a private citizen:
Speculation on the stock exchange has spread to all ranks of the population and shares rise like air balloons to limitless heights. My banker congratulates me on every new rise, but he does not dispel the secret uneasiness which my growing wealth arouses in me…it already amounts to millions.
The folly was easier to grasp, perhaps, if one was a foreigner. Again, from Fergusson (p.81):
The Times on April 18, 1922, printed a bitter report from ‘a man of business’ recently in the country:
The greatest fraudulent conspiracy in the history of the world is now being enacted in Germany with the full concurrence and active support of its 60 or 70 millions of people. Germany is teeming with wealth. She is humming like a beehive. The comfort and prosperity of her people absolutely astound me. Poverty is practically non-existent. And yet this is the country that is determined she will not pay her debts…They are a nation of actors…If it wasn’t for the fact that the German is guiltless of humor, one might imagine the whole nation was bent on perpetrating an elaborately laborious practical joke.
Of course prosperity existed for some, and was to be seen on the surface. Those eating well in restaurants were those who could afford to eat well in restaurants. As money saved diminished like a lump of ice on a summer’s day, there was in any case every incentive to eat it, drink it or be merry with it.
Inflation “worked.” It was the fuel that created the veneer of thriving consumerism. And it worked most of all for the banks that sprouted on every corner, the 20 year-old stock trader, and those who had the savvy and means to protect themselves through hard assets.
There were consequences, of course. From Fergusson (p.229):
No people could be expected to remain unconcerned while huge profits and riotous luxury were ostentatiously being enjoyed by the few. Corruption bred corruption, and the Civil Service caught the infection even in the war years.
As the old virtues of thrift, honesty and hard work lost their appeal, everybody was out to get rich quickly, especially as speculation in currency or shares could palpably yield far greater rewards than labour. While the anonymous, mindless Republic in the shape of the Reichsbank was prepared to be the dupe of the borrowers, no industrialist, businessman or merchant would have wished to let the opportunities for enrichment slip by while others were making hay. For the less astute, it was incentive enough, and arguably morally defensible, to play the markets and take every advantage of the unworkable fiscal system merely to maintain one’s financial and social position.
As that position slid away, patriotism, social obligations and morals slid away with it. The ethic cracked. Willingness to break the rules reflected the common attitude. Not to be able to hold on to what one had, or what one had saved, little as it worried those who had nothing, was a very real basis of the human despair from which jealousy, fear and outrage were not far removed. The air of corruption in business, politics, and the public service, then, was general.
Remember, this was Germany — a society that had always been staid, ordered, and steeped in respect for the law. Something to think about in light of what we’ve seen in corporate America and Lagos-on-the-Potomac during recent years.
Just as the dynamic of inflation never changes, the “spin” from central bankers comes from the same script. Fergusson describes how most Germans tragically bought the spin until it was too late (p.18):
Most of them clung to the mark, the currency they knew and believed in, long after the eleventh hour had come round for the umpteenth time. Most had no choice; but all were encouraged or bemused by the Reichsbank’s creed of Mark gleich Mark — paper or gold, a mark is a mark is a mark. If prices went up, people demanded not a stable purchasing power for the marks they had, but more marks to buy what they needed. More marks were printed, and more, and more.
Confidence, of course, must be maintained. A bit of perspective for whenever we hear a more contemporary “creed” from a Treasury Secretary that “the U.S. favors a strong dollar.”
I found it without too much fuss at Alibris which is a good place for these sort of out-of-print, obscure books.
When money dies : the nightmare of the Weimar collapse
will the Fed deliberataley try to spur broad-based (non-RE) inflation via Japan-style ZIRP (zero interest rate policy)
Is it really necessary to point out that the US borrows more than $2 billion a day from the rest of the world? The US cannot dictate to its foreign lenders the interest rate at which it borrows money.
The Japanese do not borrow money from the rest of the world - they lend it. That’s why they can set their interest rates anywhere they want.
‘The question is, will the Fed deliberataley try to spur broad-based (non-RE) inflation via Japan-style ZIRP (zero interest rate policy)? If they can pull that off, it might possibly work.’
Japan saw a large RE crash, followed by 18 years of no appreciation with their policy. Their labor markets were not dealing with massive outsourcing and their labor practices are significantly different. I don’t think the Fed would try it, and I don’t think it would work here, even after a full on crash.
No doubt about it, all we have to do is just sit here for a couple of years and our incomes will jump up 200-300% and we will be able to get right into the game! It’s really just that simple, damn I’m glad that was pointed it to me, I’ve been in the dark so long. I guess the FED’s inflation rate is wrong after all…
I am making $100,000 a year and only three years ago I was making $58,000. I think that it is possible.
Are you a minor league baseball player?
same here - 3 years ago $50,000 - now $120k
Amateurs.
Five minutes ago, I was homeless, smoking crack in the back alley. Now I’m netting $200k per annum.
And yes, Mr. Lender, I will occupy these 6 homes, in 6 different states.
Reading between the lines, Rosen is also critical of sellers who are not dropping their asking prices (thereby dragging out this correction). I doubt he expects income gains to be the only thing to bring the market back to normalcy.
wages rising was the fundamental crux of his his statement and I don’t think wages are gonna rise. His theory is seriously flawed, IMHO, cause I don’t think wages are gonna rise much at all. If he wanted to indicate other factors he felt would contribute I guess he should of clearly done so. Then people wouldn’t be shooting his lame opinion down.
Considering wages have NOT kept pace with corporate profits or productivity gains, it’s not unreasonable to expect wage growth.
Escellent point Annata. If Rosen is so sure why doesn’t he put his money where his prediction is? Let’s say a year’s worth of his salary against mine! If the douchebags actually had to put up anything for all these predictions, other than 20 seconds of thought and 10 minutes of talk, then maybe we would get somewhere with this bubble. You know what they say about opinions…They are just like a%^holes, everyone has one.
Can’t wait till my company changes the annual 3% cost of living increase to 30%.
“Rosen said. ‘Anyone who could fog a mirror could get a 105 percent loan,’ he said. ‘And that means anybody.’”
Alright which one of you guys is Rosen? Stucco fess up!
Got to see the GS reply………..or even better what (imploder) has to say here
If I recall correctly Get Stucco is in higher education but in San Diego, not Berzerkly.
Yeah that’s right…so that must mean…Imploder’s Rosen!! Holy shiite!
imploder wishes he was Rosen, imploder would like Rosen’s big a$s CALPERS retirement that imploder is helping to pay for. imploder also thinks Rosen has it wrong. Wages ain’t rising.
He’s probably in UCRP not CALPERS.
I am Spartacus!
Thanks for sharing! Do you subscribe to Gladiator Magazines too? imploder see those at Savon while he does his reading. LOL
“Garbutt, a board member of the Shasta Association of Realtors, thinks buyers are wary despite a market tipped heavily in their favor. ‘The American dream is on sale right now. Prices are 10 to 15 percent off their peak,’ Garbutt said. ‘We’re dealing with a psychological market.’”
Garbutt old son……….you’re dealing in BS
You’re absolutely correct. Like 10-15 percent is supposed to mean something to me. Come on down baby, way down!!!
Definition of Garbutt: Man who speaks garbage out of backside.
“‘This is not a one-year event and this is not a six-month event,’ Rosen said. ‘It’s going to take three or four years for incomes to catch up to housing prices.’”
Well I hope he’s wrong, I’d rather housing prices decline to “match up” with incomes. However, the economy continues to amaze me, consumers are still very strong and housing prices haven’t declined as much as I thought they would have by now. If home prices continue to only register small declines by next summer, I will begin to believe that prices will not drop very much, the economy is just too strong. That will suck, I’m hoping to move back to California in 2 - 3 years and pick up a “bargain” on a house.
I would like to know how you measure the basis of “strong economy”.
From MISH:
“…The governor Tuesday brushed aside warnings that state coffers could soon start to shrink. Referring to the $37-billion public-works borrowing package voters approved last week, Schwarzenegger said: “There will be so much construction activities going on that where the private sector will fall off, the public sector will pick up.”
“With our infrastructure bonds, we will again stimulate the economy,” he said….”
Not going to save housing, but why can’t we HELOC the state?
(I mean, even more than we already have ….)
Swell, so the rates on Calif muni’s will rise, so those of us who decline to “invest” in RE will have some means of keeping some dough flowing in…
Don’t forget what happened in Japan’s “lost decade” — lots of stimulus packages, public works projects, bridges to nowhere built with borrowed money, etc. I’m certainly not saying we’ll have a massive bust like Japan, but it’s interesting to see the Governator talk about public works-stimulated economic growth (necessitated by a real estate downturn).
How do you say “Voodoo economics” in German?
Voodoowirtschaft.
posted ” I would like to know how you measure the basis of “strong economy”.
When I am getting filty rich, regardless of others.
Ah, it’s good to be the king.
Piss boy! Where is that piss boy?
“ …. the economy is just too strong. That will suck, I’m hoping to move back to California in 2 - 3 years and pick up a “bargain” on a house. …..”
What little strength there is left in this economic train wreck, is simply folks spending down the last of their ill gotten gains. Then recession. If you are moving back in 2-3 years, I think you’ve timed it just about perfect for a bargain (relatively speaking of course…)
“It’s going to take three or four years for incomes to catch up to housing prices.”
Rule of 72…
Let’s see now, for incomes to double in four years..72 divided by 4 equals 18..so people would have to get an 18% raise each year for the next four years..how many people in this blog expect their employer to cooperate with this calculation?
CUTE, the rule of 72; being picky I’ll just say the 4th root of 2 is much closer to 1.19 than 1.18 (reinforcing the gist of your post)
yep..almost time to reduce pie
Forgive the long post in advance.
If you are looking in a market where prices have doubled since 2000, how much of that increase can be made up with lower mortgage rates?
Let’s call the peak mortgage rate 8.5% (peak 30 year fixed in 2000), today is 6.5%–apples to apples, with the same payment, you can afford about 20% more home. I haven’t even assumed i/o, 40 year amt., etc., which many use to justify buying more home–40 year makes it 30% higher home price for the same payment, and i/o makes it 40% higher home for the same payment.
So, assuming you need to get the other 80% (or 70%, or 60%, whatever) growth off the 2000 base–over 10 years (2000 to 2006+4), you would need to justify wage growth of 70-80% from 2000 to 2010 to justify today’s prices in 2010. Highly unlikely.
Personal income growth per capital from 2000-2005 was 20%. Let’s assume that income growth is 4% per annum for the next 5 years, another 20%. Let’s say then, home prices are now 200% of 2000 levels, and wage increases, combined with mortgage rate reductions can get you to 160% by 2010.
This says that you should expect a 20% drop from today’s prices by 2010 to get to “normalcy”–from 200% to 160% of 2000 prices. If the world were a perfect place, we’d get there. But the world isn’t a perfect place, people get aggressive loans to hold on, keep their prices high, act irrationally, etc.
I think we’ll see 2-4 years of sliding prices, then a period of stagnation (another 2-4 years), then a period of recovery (another 2-4 years?).
The thing that will make this a much harder correction is if the 10-year goes up by only 1-2% or more. Personally, I don’t know what to expect with respect to home prices–I’d like to believe home prices are going to fall in all markets fairly substantially, but who the hell knows what is going to happen? Unfortunately (or fortunately) for me, I’m not looking to buy in a bubble market.
I’m a renter like many here, and I’d love home prices to drop 50%, but I don’t expect it. Prices ARE sticky on the way down, we have only begun to see how people will hang on for dear life.
What I mean by “bubble market” by the way is a market where there has been massive overbuilding.
you are a freekin nutcase put away the calculator
LOL
I posted this in the Bits Bucket but thought since its late in the day I would post it here also. Vix closed below 10 yesterday and closed today at 9.90. Brief article about the Vix from Yahoo/Reuters.
http://tinyurl.com/uavna
I’m spending next year’s drawdown already on March index puts. I must be there when this blows.
txchick57,
You’d make a great Aussie…….you certainly call a spade a spade
txchic- would you buy the vix?
VIX is near an all-time low. Closed around 9.90 today. I think the all-time low is 8.90 in 1992 or something. Whatever. The point is that if you get long VIX futures now there’s not a terrible amount of downside risk. You may have to roll your posy a few months and eat some basis decay, but sooner or later the VIX is going to be 20+. So are you willing to risk 4 to make 12?
The Mogambo is gonna go nuts over that one.
Last VIX this low (1995) corresponded to the beginning of a long bull run in stocks.
It may work - but that’s speculating, not trading. A trader would never buy index puts 4 months out, no matter what VIX is.
The New York Times article on sign twirlers:
‘Mike McCullough, VP of marketing for Eventz Extraordinaire in Lake Forest, said the company supplied 600 workers each weekend in California and Las Vegas, a 50 percent increase in business since last year.
Great. That means all the out of work realtors will have new jobs in the industry.
“Prices are 10 to 15 percent off their peak”
I think we are near this here in MA, but I don’t think it has made housing that much more affordable. Especially, when other things are factored in. Lately, more and more, people that I know are commenting on how much EVERYTHING has seemed to go up in price..taxes, healthcare, food, (gas may have gone down to $2/gallon, but the bleed-through to everything else is starting to show up now).
Can’t wait for Thursday and the long weekend to do some visiting and see if the REMIC friends/relatives have much to say. It could be the first holiday in a while that I won’t have to listen to their R/E $$$ spewing. Also, should they start in on it, I’ll be sure to mention how my equity funds are doing.
You tend to notice those things after you stop sucking cash out of your home.
You tend to notice those things after you stop sucking cash out of your home.
Mortgage Fraud….. AGAIN…..Lincoln, CA (Sacramento)
How is this still happening? I have been tracking a subdivsion in Sacramento for a few months, just for fun. The builder has been liquidating homes for $550,000, down $100-200,000 since April. Sunday, in the Sacramento Bee, I see two houses sold at $770,000. Same buyer. 100% financing from Alliance Bancorp on one and 100% financing from New Century Mortgage Corp on the other.
We need to stop this criminal activity. This is the third time it has happened in this subdivision, but the other two times it was Flippers selling the product. Now it is the builder.
Where do we go to report this? Is it a felony? Can the seller go to jail too? It is time to put some of these sellers in jail if they participate with the buyers. The cash back buyers walk with $100,000 and skip town. The builders would not condone the activity if they went to jail. Is this the DRE, the FBI, the local police? What. It is getting so prevelent everywhere. Help.
Here ya go (Attorney Dollar’s blog):
http://www.mortgagefraudblog.com/
A good article on Mortgage Fraud:
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2006/10/29/REGKQM0R
Can you write to the mortgage company home office? You might mention that you believe there to be fraud involved and that you will be saving this correspondence for any future foreclosure action regarding that property. That ought to get a response.
call the FBI
IS THERE POSSIBLE APPRAISAL/MORTGAGE KICKBACK FRAUD GOING ON IN LA INNOR CITY AREAS?
Just checking on the Oct dataquick figures for price runups in some of LA’s most slummy, rundown zips. Attempted to find a pattern of possible abnormal unusual pricing which runs counter to the normal october pattern of most LA zips showing essentially flat, slightly rising or declining yoy’s. There may be a possibility of massive overappraisals and mortgage fraud/ kickback schemes in these areas: there is no way that homes should be
priced/sold at the values indicated in these nasty decayed rundown INNOR LA SLUMS:
City, zip, SFH’s sold, Median sold price, YOY % , short description of area
Gardena 90248 2 $595 32.2% : E of 110 fwy in grimy industrial district, heavily immigrant.
Inglewood 90301 9 $520 14.3% : Nondescript older part of Inglewood, old small homes, decaying commercial zones.
Inglewood 90304 2 $560 45.5% : lennox, unincorporated, grimy heavily immigrant, hi-crime district.
LA 90011 28 $450 30.4% : East of 110 fwy, south of dwtn, classic run-dwn scentral inner LA slumzone.
LA 90037 26 $490 24.8% west of 110, s of usc, n of slauson. Another decayed Ccentral slumzone
LA/August F. Haw 90044 53 $433 15.2% : Adjacent to 90037. Another nasty scentral pit.
LA/Firestone Park 90001 15 $460 36.1% Slummy area north of watts, deep within scentral LA.
LA/August F. Haw 90061 26 $430 25.5% next to 110 /105 fwys,
LA/Baldwin Hills 90008 8 $769 37.2 may be some nice hilltop homes but just below them in the flats are crenshaw district and baldwin village, major gang infested areas.
LA/Lincoln Heights 90031 13 $499 43.2% : Includes
China town, Solano cyn. Grimy industral area
NEast oF LA dwtn, heaviy immigrant.
LA HAS ALWAYS BEEN THE FRAUD/CRIME CAPITAL OF THE US, HAS A 25% UNDERGROUND ECONOMY, AND A HUGE PUPULATION OF UNDOCUMENTED IMMIGRANTS CONDUCTING ECONOMIC/BUSINESS TRANSACTIONS IN SPANISH, MAKING IT EASIER TO COMMIT ALL TYPES OF FINANCIAL FRAUD AGAINST INSURANCE AND GOV’T AGENCIES. IN THE 80′S-90;S IT WAS AUTO ACCIDENT INSURANCE FRAUD, STOLEN SUV RINGS, AND COCAINE DRUG RACKETS. LOOKS LIKE THE LA ORGANIZED CRIMINAL RACKETS HAVE FOUND A NEW VASTLY MORE PROFITABLE RACKET WHICH INVOLVES FLEECING MORTGAGE LENDERS AND BANKS VIA OVERAPPRAISAL FRAUD AND SELLER KICKBACKS TO BUYERS. A HOME PURCHASED FOR $560,000 IN LENNOX? BS! LENNOX IS WORSE THAN COMPTON!
TIME FOR THE FEDERAL.STATE AGENCIES RESPONSIBLE FOR INVESTIGATING THIS MESS TO GET TO WORK. REALLY! LA CITY/CA AGENCIES/LA TIMES ARE SO PC’ED THAT THEY CANNOT OR WILL NOT PROBE INTO THIS MATTER BECAUSE IT WOULD BE RACIST TO INVESTIGATE POSSIBLE MORTGAGE FRAUD IN HEAVILY MINORITY SCENTRAL LA NEIGHBORHOODS.
Still boggles my mind that my parents’ 1910 600 SF bungalow (with an illegal add-on) got appraised for 400K. Yes, it’s a gang infested area. The City installed lighting in the adjacent alley recently that turns on at the sound of a gunshot. Too bad the City didn’t also install some kind of mechanism that sprays taggers in action (a la the movie Naked Gun). The homes on the hills in the same area go for 700K.
“Where do we go to report this?”
The folks that you would report this graft and corruption to are in on it too using your pension savings to make the loan.
There would have been a time for such a word.
To-morrow, and to-morrow, and to-morrow,
Creeps in this petty pace from day to day
To the last syllable of recorded time,
And all our yesterdays have lighted fools
The way to dusty death. Out, out, brief candle!
The economist is but a walking shadow, a poor player
That struts and frets his hour upon the stage
And then is heard no more: it is a tale
Told by an idiot, full of sound and fury,
Signifying nothing.
I’m not so sure Macbeth was really about an economist.
What I really want to know is why there isn’t more housing haiku or limericks in this joint.
Well? You want limericks? You got fingers… start typing…
“if you are not part of the solution, you are part of the problem” or some such shite….
We used to have Haiku threads.
But most of the Haiku writers have moved on.
What about housing stocks they have bounced off bottom too. I remember 2000 bubble we had a few false bounces which made sure the dump people (like me) could see major rebound coming.
With housing we will get a few false positives peppered within all the negativity.
I don’t know if we’ll get any bounces, rather than the numbers being reported not showing the whole picture, or perhaps skewing the picture. Case in point, the incentives being put into houses now, especially new houses. Also, the median price not telling the whole truth due to more expensive houses selling better then less expensive ones in certain areas.
It’s known as a Dead Cat Bounce …
Dead Cat Bounce
A temporary recovery from a prolonged decline or bear market, after which the market continues to fall.
Ever heard the saying, “Even a dead cat will bounce if dropped from high enough!”?
http://www.investopedia.com/terms/d/deadcatbounce.asp
“Even a dead cat will bounce if dropped from high enough!”
Unless the cat is impaled by a falling knife!
The whole salaries compared to housing costs are understated to say the least. I myself make a 6 figure salary yet cannot afford to buy in the BA. If people like myself making the upper 10% of the income level cannot afford, then what does that tell you about the median income? The simple fact is that prices in CA are 40-50% overpriced, and even then STILL expensive.
That comment about young families being stuck with the reality that they cannot afford to buy a starter home is right on the money. NOBODY I know who is my age can afford and views homeownership as a remote impossibility.
We’re seeing some of the inventory going to the progeny of Mom and Dad $$$, close to asking price… built-up equity being “re-invested”. What are these prople thinking, are their heads in the sand? It’s funny how a fool and his money got together to begin with. I’m still expecting a 25-35% fall in ‘07, but not seeing it yet in the south bay (los angeles beaches).
jestsonboy yu are usually spot on, but this time you have really nailed it. Maybe we will get to the point where no new buyers will come into the market, then this whole thing will really collapse and bring about housing that is affordable for 2/3 of the population with the caveat that old tyme fundys come back, i.e. 20% down, 30-yr fixed!
I would love to see that happen, of course that would bring this RE fiasco to it’s knees. Thererfore it won’t happen anytime soon. The object of the game is to get as many as possible strung out on the illusion of ownership. It would also be wonderfull to see only those that own property allowed to vote, as it once was. Of course I’d be out since I’m a renter.
“Retirees still want to move here, but they can’t liquidate the property they’re at now so they can’t move.”
Retirees seem to want to move everywhere, don’t they. Actually, the boomers just want to own more property. Who would really want to retire in Redding?
I thought they wanted to retire in Bend. There ARE 2000 houses ready and waiting for them, there.
Haven’t you heard? Bend Over.
ROTFLMAO.
That has to be the best “imploder”ism to grace this blog ever. IMO.
I read the rest of the article and at the end it said:
“The two brightest spots in the broader real estate market are apartment rentals and office space, where rents are rising and the number of vacant units is falling, Rosen said.
The vacancy rate for apartments in San Francisco has dropped below 4 percent, Rosen said, and rents have climbed 10 percent. ”
So why is that every instance that shows people having to shell out more money, get screwed a little more, or have to sweat harder to make ends meet, it is seen by the RE industry as a ” bright spot” I’m sure all those renters in SF would beg to differ.
But what happens when all of those failed condo conversions come back on the rental market as “re-partments”? Won’t that increase in supply tend to push rents down?
Now I am pissed! Why the effffffin should these aholes care? Just give me that damned commission. Although my wife hates when I say this I will repeat it here, I have a strong dilike for those who only make money by moving it around. Look, I’ll admit I work for a local gubmint, but at least I do assist people. Just driving around looking for houses and making 100K commission makes me want to puke! And then for these jackholes to spew such venom about “bright spots.” Tell that to the honest working middle class who are smart enough to realize that they cannot afford and are just trying to get by. This crap about me and mine has to spot. Of course there will never be any real attempt to make the realtwhores accountable since that might cost them and it might actually weed out the weak ones. Man I hate commission-paid people, WHO ONLY MOVE MONEY AROUND! Might as well be a used car salesman for all its worth! AND YES, THAT IS DAMNED WELL HOW I FEEL!
Would your assisting people exist as a job in the private sector if it wasn’t a government function? If not, then
Man I hate government-paid people, WHO ONLY MOVE MONEY AROUND! Might as well be a used car salesman for all its worth! AND YES, THAT IS DAMNED WELL HOW I FEEL!
I love working in local government… it keeps me humble — but I do get my share of booty from developers… in the form of boxes of chocolates during the holiday season that I’m forced to share with others in the office so as not to be interpreted as bribe. Now if only I can get the same love from real estate agents for giving out free zoning information.
Anyone care to comment on this?
http://tinyurl.com/yc2xz7
Apparently, due to a plentiful supply of GF’s like this one, this is gonna take a while to play out in L.A. :-/
Yeah, LA is definitely behind the curve compared to some other California cities. And, LA itself is huge, so LA will see different markets behaving differently. Still plenty of GFs drinking the kool aid and not doing any thinking about market fundamentals. Nice to see all of the comments on the article were by bears, though.
We are about a year behind as far as best as I can guess.
Sadly, I’m pretty sure she ended up buying a $480,000 one bedroom in my building that would rent for about $1500 a month. Okay, so it’s a nice, trendy, “classic Spanish” building, but boy is she gonna feel dumb in a few years.
GF?
Oh, yeah… greater fool…
no, no if still buying in LA, it means Gargantuan Fu@ktard
LOL.
Gargantuan Fu@ktard
Gotta look that up in my Funk and Wagnall!
Footie,
Sorry, you’ll only find it in the “Fu@k-Off and Wag-It” Which is my dictionary of choice …
“The national housing market may be staggering, but anyone looking for too much weakness in the Inland Empire will have a hard time finding it. Yes, sales may have been down 21 percent from a year ago in October, but the median price of a home in San Bernardino County still went up and houses are still selling.”
Not where I rent. House next door has been on the market for a year. Prices have dropped quite a bit but the YOY numbers don’t show that yet, not to mention incentives, buydowns, and all the other crap that’s not figured in sale price on the few sales that are happening. Tons of houses in the IE in some stage of foreclosure as well. More dishonest reporting….
“John Husing, who studies the Inland Empire…”
I doubt if John Husing studies much of anything. He is no more than a paid happy face for local communities in the Inland Empire trying to boost their bottom lines. (Makes you wonder what is happening to many municipalities’ budgets as housing starts continue to dive.)
“But the economy is strong, the job picture is extremely strong and the population is still growing.”
“If there’s a complicating factor, it’s that the area has extremely low affordability. Only 6.7 percent of residents can afford to buy the median-priced home sold in the San Bernardino-Riverside- Ontario area in the third quarter.”
So John, please explain how all of our new retail level jobs (yep, that’s our strong economy in the IE) here are going to pay for all those extremely high priced homes.
He is good at saying… “but it’s different here.” I will give him credit for that.
What’s with the sudden outbreak of sanity?
CYA has taken hold.
“See I told you it would go down and to be prepared!”
“But you said it was always going to go up!”
“Yes, but my forward looking statements should not be construed as investment advice only as guidance.”
“Huh?”
“Exactly. Now go bother that guy that still thinks that it will go up.”
“Ok.”
This definitely happens in places such as San Diego. Interestingly, 5 years after graduating college, the only friends I know who own houses moved out of state to be able to buy.
Bingo. After a BS and MBA from San Jose State, I moved to Oregon for that EXACT reason.
This definitely is a problem. In the 70s the average middle class family, with only one in the family working, could afford to buy a new home in Palos Verdes. there were lots of families with children. Now with prices at $1m+ very few young families can afford to live there and several schools have closed because of lack of students. OC same idea dumpy little homes for 600k+.
My grandparents considered moving to Palos Verdes in the 1950s. My grandfather got a better opportunity elsewhere but they were seriously considering it for a while and they looked at several average houses that were affordable to them.
He was a postal worker, my grandmother was a kindergarten teacher and they had 3 kids to support. Imagine that today.
Public school enrollments are dropping close to 9% per year where I live in Westlake Village, LA-Ventura County line, and I’ve read similar statistics from Hawthorne (near LAX). Families are leaving at a greater rate now than during the height of the 1990-94 collapse.
“Interestingly, 5 years after graduating college, the only friends I know who own houses moved out of state to be able to buy.”
I resemble that remark, having moved out of CA.
Helllloooo Ken, who stated; “…. buyers, whose salaries haven’t risen nearly as fast as housing prices, economist Ken Rosen, at UC Berkeley said.”
Why is it that salaries are to blame…why not PRICES THAT ARE TOO HIGH!!!!
Why not JUST LOWER THE PRICE SO THAT HOME PRICES ARE IN LINE WITH SALARIES??? DUH!!!!
~Misstrial ( a renter who will be enjoying a Ramen-free Thanksgiving
At the moment you can live The Crazy Good Life and can pick up a turkey on special at Ralphs for the cost of 40 Ramen packets.
Are you suggesting that one turkey is better than 40 turkey-flavored packs of ramen?
“The California Association of Realtors predicts a more-modest decline of 2 percent next year, according to Leslie Appleton-Young, the group’s chief economist. ‘It’s going to take another 18 months or so to work itself out,’ she said.”
Does this mean a measly 2% decline in prices is the only thing seperating us from a healthy and appreciating market? If sellers would just come down 2% we could save 18 months of frustration?
Why don’t the Realtor’s just suck it up and cut their commissions by 1/3 in order to produce the 2% correction which will get this market clearing. Come on guys take one for the team!
Maybe they’re counting on 2% per month of wage inflation to do the trick in 18 months. Let’s hope we don’t have it.
“Come on guys take one for the team!”
Soon the will be taking one “by” the team. The whole team…
Kaboom.
Now now…
This is like the road runner cartoons…
We’re hearing the whistling sound as Willy E. Coyote is falling down the canyon with a massive amount of explosives on his back. Wait… he’s freed the explosives. (Bummer they’re following down after him…)
Neil
wait, wait…the house price cannot be down, only up, up…up…
I was supposed to buy in 2005 or I was going to be priced out forever!
Exactly. Since we now know we’re priced out forever… no wonder sales are slowing.
I am convinced BOSA a privately owned Condo builder is going to feel some major pain here in San Diego. They just broke ground at the Bayside at the Embarcadero project without preselling a single condo. They still have condos available @ numerous other towers in town. It is going to get interesting when they have to start undercutting prices in all of their other buidings!!
Or maybe the 60 out of 200 condos on sale next door will undercut the new tower’s prices!
If that is true about the BOSA condo tower, they are royally screwed. I need to get down to SD and see the carnage in the making for myself. It is almost like some of these guys are striving for bankruptcy.
Here’s an anecdote on buying in the Bay Area and why I think things are stupidly overpriced: we just moved to the SF Bay area from the DC area with over $500k in cash for a down payment, no debt and a nice 6 figure salary. When we realized that most 3 br/2 ba homes in the area that are over 1500 sf were also priced at over $1M, we knew we had to pay up if we really wanted a home now. We found a lender who told us what to expect to pay at different interest rates and loan amounts, so we thought we could stretch to something a bit over $1M, but not much beyond that. When we finally put a bid on a place that needed work and got the seller to come down more than 10%, we had instant buyers remorse because we were homeowners who were spending a lot of my monthly paycheck for housing and had little slack in the rest of the budget. When the inspection turned up issues that the seller didn’t want to take care of, we saw this as the sign and got out of the contract, and we’ve adjusted our price range to give us more space in our budget.
What became clear is that with even putting almost 50% down on a house, the mortgage payment was unsustainable for a family. I don’t get how people in this area can even afford to buy a home - I did a quick search on mlslistings.com and in San Mateo, Santa Clara, SF and Alameda counties combined there at over 1600 SFHs listed at over $1million. That’s obscene - who can afford the payments?
Very few people living in the BA could afford to buy their own homes at current prices. Completely insane.
Little tiny 800 square foot homes in SJ selling for 600k to 700k, 40yr+ old that orginally sold for $25,000.
Invest the 500k in CDs at 5%, use the interest to offset the rent for a nice home.
Someone I know is renting a $2.4m home in saratoga for $3,500 per month. Purchase with no down would be around $18,000 per month.
– Renting in San Mateo.
Loving it.
That’s a great story–I’m glad you got out of that house. Where’s the enjoyment of paying $1M for a cramped house that likely needs major rennovations? Then there’s the taxes you pay for that piece of junk. I could wait here for a correction, but I seriously suspect the cost of living is affecting our local economy, so I’m moving on. Good luck.
The LA Times had a positive news article on local housing.:
“Relative strength in California housing”
“Among the reasons for California’s better performance: Lack of available land and regulatory restrictions have led to a smaller supply of new or under-construction homes competing with resale homes. New homes represent about 15% of the total state housing market.
Also, the California economy is healthy and most people “are keeping up with their mortgage payments,” said Leslie Appleton-Young, chief economist for the California Assn. of Realtors, which supplied data for the national Realtors’ report.
“The data on the economy is fairly good and we’re seeing job growth,” which helps bolster demand for housing, she said. “
“are keeping up with their mortgage payments,” said Leslie Appleton-Young,”
Wow, Leslie that is REALLY encouraging! What next for happy talk? They managed to pay the water and power bill? Cable not shut off for majority of Homeowners?
Bl@w Me!
Imploder posts ” Leslie Appleton-Young
Bl@w Me!
Imploder ….. I am ill. Did not your Mother teach you anything?
No personal hygine? Do not get your skin floote played by this like…. it turn to rot and fall off.
http://www.latimes.com/business/la-fi-homes21nov21,0,4694405.story?coll=la-home-business&vote26518892=1
forgot the url
Most salaries aren’t even keeping up with inflation, much less rising inexorably in double digits like this joker says they will. The only way we are going to see raises like that is if we first see Weimar Republic-style hyperinflation due to the Fed cranking up the printing presses to pay off its creditors in a blizzard of worthless green paper. Wages are not going to increase steeply to catch up with housing — we are headed for Jimmy Carter style stagflation, where real earning power, for those fortunate enough to keep their jobs, is going to keep dropping as it has been for years. Instead, housing costs are going to fall until they reach something close to the historical norm of the median house costing three times the pre-tax median salary.
Oops - italics off.
In SF BA few Engineers have comfort level to make long term commitment unless they happen to have moved into marketing or work for large stable company which isn’t likely to offshore/outsource their job.
Even now members of Congress from non tech states are trying to raise H1B Visas, this will lead to smaller pay raises and the H1B’s unless they get Green cards don’t have comfort level to buy RE.
Rosen said: ‘It’s going to take three or four years for incomes to catch up to housing prices.’
It’s going to take three or four years for housing prices to catch up to incomes’
I think that you will find the Congress Critters from CA & WA are big proponents of increasing the H1B cap. With Pelosi in charge in the House, it is almost a done deal.
My SF BA employer isn’t going to offshore/outsource, but I can definitely see transferring work to other states. That keeps me from buying here. Also living through the SoCal bust taught me what an illiquid asset housing can be when everybody rushes for the exits.
californias doom…100k salary cant afford a home……..most dont make anywhere near that…..how far down do we need to go on housing prices when all we create is service jobs….
many people in LA make $100k+ incomes. Very common
based on your anecdotal experience.
Empirically $100K/year is in the top 10% of incomes.
See melissadata.com and look up the income tax stats for your zip codes.
Average income for 91604 (studio city) is 86k.
People are forgeting that the playing field has changed to a certain extent. Gone are the days of traditional affordability. The best way to lower the standard of living for the middle class is to squeeze them into lower class. More debt, more inflation, less wages, etc….it’s a grand plan to enslave people in the modern sense without them knowing it.
When you have idiots waiting in line to pay $3k+/month for a condo, the banker’s work is done.
We really have no one to fault but ourselves. For the people who do see the truth in all this, it’s very frustrating because we’re aware of this all while living in and being surrounded by a bunch of absolute idiots who will drag us down with them.
I’m beginning to think that this RE boom is being orchestrated by the US Govt to attract foreign money. Since we basically don’t make anything of value to bring in foreign money anymore, we will sell them the overpriced land out from underneath our feet and put an overpriced condo or McMansion on top of that land.
How much Asian, European and Saudi money has been poured into Florida, Hawaii, NYC, West Coast the past few years? How much are they paying in insurance and taxes? How many jobs have those mountains of cash created?
What’s better to hold, worthless US paper dollars or overpriced land? At least when the USD collapses, the value of the land will increase (in USD of course).
The gubermint can make your money worthless through inflation, but they can’t take homes away from 70% of the population.
You have a few choices:
1. Buy physical assets in a year or two before the USD collapses
2. Invest your money in foreign currencies (Buffett, Gates, Soros)
There are some positives from hyperinflation:
1. Those with fixed rate loans will benefit greatly
2. We can finally pay off our national debt with worthless USD and screw the rest of the world
It seems to me that too much attention is spent on the national debt and not enough on the national deficit (which we could actually solve within a few years if Washington put the welfare of the country ahead of their own petty political ambitions). Don’t get me wrong, the debt is a terrible burden on future generations that will continue to apply inflationary pressures on the economy. But we could survive a $9T debt indefinitely (particularly because said inflation would GRADUALLY erode the real value of it) if we eliminated the annual budget deficits.
We can’t continue spending 125% or whatever of tax revenues. Cut spending and raise taxes, painful but it has to happen. The Bush tax cuts have been an absolute disaster. They have led to no real economic growth (as measured in an increase in real household incomes) but have basically doubled the debt in six years. Hell, Ronald Reagan looks like a deficit hawk compared to Bush. And we need to choke off the asset bubbles by continued increases in rates back into the 7.5-10 range.
Will these measures trigger a recession? Most definitely. But there’s no way around it. We need another 1981-3 (deliberate recession) to try to avoid another 1929-36. And this time the intentional recession needs to be a two-pronged attack of contractionary fiscal and monetary policies this time. But its really the country’s best shot at avoiding something much, much worse in the very near future.
You need to look at the time frame of the deficit spikes. They took off in 2000-2001. The Bush tax cuts mostly didn’t come into effect until 2003 (by which time the deficit growth was starting to level off). Variations in the GDP growth rate have vastly more effect on deficits than marginal tax rates, which really didn’t go down all that much. (Certainly not for me.)
OT but so on topic here is anothe big contrubiter the the whole global bubble espically in oil. Watch the price of crude collapse as this thing unravels. The first of many keystones just fell out
http://www.nytimes.com/2006/11/22/business/22hedge.html?ref=business
‘Anyone who could fog a mirror could get a 105 percent loan,’ he said. ‘And that means anybody.’”
Actually it was worse than that. Dead people, unemployed, and illegal immigrants all got loans! You really didn’t even need a pulse to get a few hundred thousand.