“Buyers Don’t Want To Buy In A Buyer’s Market”
The San Francisco Chronicle reports from California. “As of September 2006, Novato had experienced substantial price declines and plummeting sales volumes. But since it currently only has about two months of inventory, perhaps prices will stabilize.”
“The stabilizing influence of limited inventory isn’t present in all parts of the Bay Area however. In Napa County, for instance, inventory is running much higher with some areas showing a whopping 10 months worth. Last month, the county posted a 8.7 percent decline in the median price.”
“The 94065 ZIP code, which has newer developments of townhouses, condos and a more homogeneous housing stock has seen median prices fall 14.0 percent. Why would this neighborhood be harder hit than others? As developers continue to sweeten the pot for buyers, no doubt other developer neighborhoods will tend to be affected by these declines.”
“As Tim Earley, agent in Redwood City put it, ‘it’s hard to put a finger on it; some houses are selling with multiple offers and others need a lot of price reductions and even that isn’t doing it.’”
“He recently saw two four-bedroom homes, both fixers within three blocks of one another in the same prized school district on nice streets that received two completely different reactions. One got three offers and sold for more than $100,000 over the asking price. The other attracted no buyers initially until one came in significantly below asking price.”
“Earley said nearly 30 percent of the active listings in Redwood City have had price reductions. According to Alexander Clark, founder of a customized newsletter service for real estate professionals, the market probably hardest hit by the new housing paradigm is the cookie cutter lofts in SOMA. ‘Not the new loft developments but the ones that are all alike and a little older are selling the slowest,’ he says.”
“‘It’s street by street and property by property,’ he says. ‘It used to be that anything would sell, now if a house is on a busy street or there’s something odd about it, it may not have any buyers.’”
“At a real estate conference Monday in San Francisco, a UC-Berkeley expert predicted median home prices in the Bay Area will fall up to 15 percent in the next three years. ‘They should buy a house to live in it, and be sure they can afford the payments,’ advised Kenneth T. Rosen, of the University of California-Berkeley. ‘We’re a third or half way through already, depending on the sub-market,’ he said.”
“San Jose homeowner Michael Park and his wife wanted to move from their smallish three-bedroom, one-bath house near Santana Row into a bigger house on a big lot. ‘I just felt like the real estate market was so overvalued and sellers’ expectations were so out of whack. The last few months I felt like the market was settling down,’ he said.”
“The one they made an offer on, which has five bedrooms and a 12,600-square-foot lot, had been listed earlier this year for $1.15 million. When it didn’t sell, the owners took it off the market, made a few upgrades and then listed it again for $1,048,000, Park said. He offered less, and the sellers accepted without making a counter-offer.”
“Kathi Hammill, an agent in Los Gatos, said house-hunters in Silicon Valley right now are being extremely choosy. ‘Yes, there are deals out there, but a lot of buyers don’t want those less-than-perfect properties,’ she said.”
“In general, she said, ‘Buyers don’t want to buy in a buyer’s market, buyers want to buy in a seller’s market, they like the comfort of it,’ she said. ‘If I’m the only one, there’s this fear that it might not be the right thing to do.’”
“Investor Susan Bredehoft, an East Bay homeowner, is among those who aren’t touching California real estate right now. ‘It doesn’t fit into my game plan because the properties are so expensive that you can’t get cash flow,’ she said.”
“Bredehoft, who owns 17 investment properties in California, Arizona, New Mexico, Oregon and North Carolina, said she is planning to invest in rental property again next spring. But not in California, where properties are often so costly that rental income from them isn’t enough to cover mortgage and other expenses, she said.”
“‘What they’re worried about is, will prices decline further, so if they buy now, could they get a better bargain later?’ said Delores Conway, at the University of Southern California. ‘No one can predict that.’”
“Two things could cause a more serious correction than the mild one she sees happening. One is if large numbers of homeowners with adjustable-rate mortgages find themselves unable to afford their payments when their loans ‘reset,’ which could send inventories of for-sale homes soaring. The other is if there’s a sudden slowdown in the economy that results in big job losses.”
From San Diego:
‘Just shut up! condo residents scream in their heads. Designate a ‘quiet zone’ where engineers don’t have to blow their horns, they beg public officials. The problem has reverberated through downtown since high rises began to go up along tracks. ‘
Honk if you’re HELOCed — that’ my motto.
The LA Times had a priceless article about some guy who built right under the main approach to SD’s downtown airport. All conversation stops every time a plane lands (about every two minutes). Maybe it’s the perfect solution to a bad marriage . . . ;>)
Honk if you’re HELOCed
Lets copyright this slogan and make bumper stickers up.
Man are we stupid, before buying our properties we looked at maps for train tracks, state web sites for chemical dumping, superfund sites, nuclear plants, flood plain designations…I never knew you could just pick a place and whine if you didn’t like it.
You probably thought you had to read your mortgage contract, too, and that you should be truthful about your income, yes?
As surfer-X from patrick.net would say, “Why do you hate Amerika?”
I can almost hear the engineer as he pushes the horn button,
“Okay rich azzholes time to wakeup!!” WAAAAAAAAAAAAAAAAAAAAAAAAAAAAAH! WAAAAAAAAAAAAAAAAAAH! WAAAAAAAAAAAAAAAAAAAAH! “Do I have your attention? Now go back to sleep!”
I bet that gets old but I am amazed the condo owners didn’t notice the train tracks running parallel to their building. Probably was even a selling point involving urban realism or some other nonsense.
Last month in my town there were so many for sale signs that you couldn’t go anywhere without running into them. They were as thick as trees in the forest, they were.
Yesterday, I was looking for the real estate signs and I would have to say that I saw at least 50 % less than last month.
Bredehoft, who owns 17 investment properties in California, Arizona, New Mexico, Oregon and North Carolina, said she is planning to invest in rental property again next spring. But not in California, where properties are often so costly that rental income from them isn’t enough to cover mortgage and other expenses, she said.”
Often? Shouln’t that be “invariably”?
Perhaps North Dakota will be the next state in Susan’s portfolio.
North Dakota, you say? Check this out:
House Price YOY Change
Among the top performers are Salt Lake, Wichita, El Paso, Albuquerque, Tulsa, and Bismarck. Looks like flyover land prices spiking indicates the bubble’s last gasp. I think speculators saw other markets tanking and tried to jump on these. In the end I can see it all collapsing.
Wichita 15% a year? Come on.
I once examined OFHEO’s data looking for the most linear, noncyclical market possible. It was Wichita.
If Wichita is in the lead, things are getting rough all over the place.
“He recently saw two four-bedroom homes, both fixers within three blocks of one another in the same prized school district on nice streets that received two completely different reactions. One got three offers and sold for more than $100,000 over the asking price. The other attracted no buyers initially until one came in significantly below asking price.”
“As Tim Earley, agent in Redwood City put it, ‘it’s hard to put a finger on it; some houses are selling with multiple offers and others need a lot of price reductions and even that isn’t doing it.’”
Yeah, real hard to put a finger on why one sold for 100k over the listing price.
Fake multiple bids…very common in the bay area.
Buyers are told there are other offers but not what the other bids
are!
That is probably not what happened.
This is most likely a case of mortgage fraud, where the Buyer is walking away with some cash on the sale.
The scammers here in Florida and other hot markets have learned to troll for houses that are not selling. Then they have an owner who is willing to “negotiate”.
They offer to pay the FULL ASKING PRICE, but they will list the sales price 100k more, and get an appraisal 100k more and the owner kicks back the difference at closing, with the special closing agent…………A simple case of F R A U D.
Sorry Tim, but I simply do not believe you.
Do you have any evidence to back up what you said?
“He offered less, and the sellers accepted without making a counter-offer.”
If your first offer is accepted, you paid more than the seller would have accepted.
“Two things could cause a more serious correction than the mild one she sees happening. One is if large numbers of homeowners with adjustable-rate mortgages find themselves unable to afford their payments when their loans ‘reset,’ which could send inventories of for-sale homes soaring. The other is if there’s a sudden slowdown in the economy that results in big job losses.”
Inventories of for-sale homes have already soared — doh!
As for the prospect of a sudden slowdown in the economy, we have seen plenty of anecdotal evidence presented here to suggest the homebuilding sector is already in a recession. And as I recently documented, the past four times in a row the homebuilding sector went into recession, so did the rest of the economy. Maybe this time will be different, after the longest (14 years) period of continuous expansion of the homebuilding sector to the highest-ever level as a share of GDP (6.3%) since 1960?
We’ll see both.
Again, 2Q 2007 is when everything aligns. By then enough ARMs have reset, mortgage loaning practices will have tightened, and enough mortgage brokers, realtors ™, construction workers, etc. have lost their jobs. Calculated risk did a good job of showing how construction jobs lag starts by 6 months…
Again, end of 2Q 2007… it will be interesting.
Neil
Neil,
What is the actual calendar date for the day when the 2nd quarter 07 reference takes hold? I want to squarely mark it on my officialo 2007 calendar.
2nd quarter is April, May, and June.
By saying 2nd quarter, I am leaving open a *large* ~90 day window. What it looks like is:
1. Housing completions will go down in April and May. Thus June will see *a lot* of construction layoffs.
2. ARM adjustments. Going off the top of my head, its about 20% of the ARMs out there reset during the 1st six months of 2007. Thus… By the time 10%+ have “rotted” on the market, we’ll see banks *having* to clear their balance sheets.
Basically, Its late May or June when it all starts falling back to earth. But we know housing corrections are slow. Zzzzzz But not so slow then.
Neil
CNN real estate section had an article where an analyst’s historical data indicated that builder sentiment almost always tracked the overall economic activity w/ a one year lag. Thus current low builder sentiment will be reflected in a more recessionary general economy in the fall of 07.
“What they’re worried about is, will prices decline further, so if they buy now, could they get a better bargain later?” said Delores Conway, director of the Casden Forecast at the University of Southern California’s Lusk Center for Real Estate. “No one can predict that.”
As long as the economy stays healthy, there won’t be a major price correction — say a 30 percent decline — in California real estate, she said.
So if people cannnot handle their ARMs after they reset OR the economy slows down we will get a 30% correction? Thanks. Well looks like 30% is “in the bag” as they like to say in California. Uh, what if we get an AND situation?
“As long as the economy stays healthy, there won’t be a major price correction”
As Silicon Valley history has shown time and time again. Economy can be very volitile. The ‘91 recession in the Bay Area was not due to cut back in defense spending. Rather from competition from say the Japanese when they started to dump products on the US market below cost. In addition we have sharp changes in technologies which puts major employers out of business (Ask, Tandem, SUN, AMD, etc etc). Such actions are common today plus we have huge M&A activity (Maxtor,Conner, Peoplesoft, etc etc)
Overall we create deflationary products with declining margins.
I moved to Sunnyvale Aug ‘91 and recall a SJMercury headline “Lockheed cuts 18,000″. The Japaneese were accused of dumping RAM and that offense and ruling for tariffs came well before 91.
Also SUN and AMD are not out of business.
Lockheed was a small player in the 1980s in the valley. Chip production and design by AMD Intel National and host of many others were the backbone. The dumping by Japanese started as early as 1986. By 1989 10 our of 11 Semi companies left that business. I used to work for AMD back then. They had 20,000 employees but that went down to 11,000 by 1991-92. The same happend to other semi companies. Japanese equally targeted Semi Equip Mfg companies with equal results. Intel survived due to monoploy with 386 CPUs. Many other small PC component mfg also got hit due to high costs. AMD was going to sell itself to Siemens.
Mainframe companies could no longer operate due to high costs and declining revenues. Amdahl, Tandem, Ask and others were whiped out. Others like 3com and other networking equipment makers rose and then died very quickly due to overspending. Much of this came from cheaper client servers and boxes. Sun,HP Intel did well due internet boom, however after the downturn they did not scale down fast enough. Their products were not competivly priced when others were much cheaper.
It was pretty brutal back then and many lesson learned. Many empoyers from the 1980s did not survive. Home prices plunged due to job loses which was due to high cost of employees and their mortgages. Deflationary prices could no longer support higher incomes.
Last year the Korean makers of Nand chips which power the Ipod. Were accused also of dumping chips below cost to kill off competition. Today we have equals globaly in all aspects of high techh hardwareand software which drive compition world wide.
As in the past we could easily have job loses. We arent making ourself very competitive global due to high home prices. Many CEO have come out and spoken about the housing problem in the valley. Their only solution has been to outsource to other states or nations. This has proven to work in the past since the mid 80’s.
“As long as the economy stays healthy, there won’t be a major price correction — say a 30 percent decline — in California real estate, she said.”
You’d be surprised how desperate and greedy people can get. Lot’s of people (families) are now living together to keep the houses they bought….or will buy. They are refinancing into NEGAMS and I/O loans over and over again.
People have to understand….people are stupid they are, in general, greed aholes. A dangerous combination for sure as blind momentum takes over ones actions.
When you are surrounded by morons who will, literally, sell their souls to buy a home and buy into the consumption frenzy that this country has nose-dived into, it becomes a very unpredictable future.
Logic states, clearly, that the housing market is on complete borrowed time and money. People have outstretched themselves in ways that make me nauseous. Yet, it is quite evident that stupidity is far stronger than logic.
Stucco,
During your above mentioned 4 instances did the auto industry also slump?
No. In 90 the SUV miracle and mini-van pushed detroit into a big surge.
Not so this time.
That’s not true. New car sales were weak at the beginning of 1990, barely cracking 2.5% gains YOY. YOY sales went flat and then negative only a few months later, and were negative 2.6% by February, 2001.
GS, no need for anecdotal evidence here. Residential Fixed Investment fell by 10% in Q2, and by 17% in Q3. I’d say that officially puts housing in a recession.
Excellent — thanks for bringing the numbers to back my point.
David Merkel
Unreal Estate
11/24/2006 2:08 PM EST
Three days of positive follow-through after the purchase of Equity Office by Blackstone. As I have said before, to me it seems that a new class of buyer has entered the equity REIT market. Part of the additional buying comes from dedicated REIT investors finding that 4-5% or so of the market capitalization of the REIT universe is going away. That cash has to be redeployed, pushing up the prices of other REITs.
Looking at the performance of the iShares Dow Jones U.S. Real Estate Index Fund [IYR] is breathtaking. For a sector fund to achieve a 14-day RSI in the high 70s is difficult, and is a level where pullbacks typically start for IYR. Fundamentally, the growth rate of commercial real estate rents has to pick up dramatically in a sustained way to justify current cap rates.
The increased leverage of the private equity investors is another worry. Bubbles are predominantly financing phenomena. I was in the business during the last severe commercial real estate boom-bust in the late 80s/early 90s. Everyone was bullish, then demand changed without warning. Within years, the prices of many pieces of irreplaceable center city real estate fell by 20-50%. A large number of insurance companies and thrifts went insolvent as a result.
The new private equity buyers don’t have balance sheets as good as the insurers or thrifts that died. Their funding sources are less secure, and their leverage is higher. This increase in the price of commercial real estate induced by the new class of buyer is an unstable self-reinforcing cycle for now. I believe it will end badly; I just don’t know when.
Remember, bubbles pop when the cash flow proves insufficient to finance them.
Position: none
I was in high school during the last commercial real estate implosion in Dallas. All of these for-sale signs and empty buildings were everywhere like weeds and nothing would move.
If you had any sort of long-term outlook, it was a great time to buy if you (a) had the financing power for the acquisition and (b) could wait out the bad times. But a huge number of potential buyers and lenders were beaten to a pulp when the market collapsed so few people could take advantage of it which of course prolonged the agony.
My parents, who didn’t have a ton of commercial real estate experience, snapped up a few properties and did pretty well in the next 5-10 years despite being dragged up the learning curve of commercial real estate. The margin of safety provided by their acquisition price combined with their financial strength at the time more than made up for the lack of experience.
“At a real estate conference Monday in San Francisco, a UC-Berkeley expert predicted median home prices in the Bay Area will fall up to 15 percent in the next three years. ‘They should buy a house to live in it, and be sure they can afford the payments,’ advised Kenneth T. Rosen, of the University of California-Berkeley. ‘We’re a third or half way through already, depending on the sub-market,’ he said.”
Bay Area prices will have to fall a lot further than 15% if everyone is going to follow Ken’s advice and only buy homes where they can afford the payments…
Of course, it is possible that he is shading down his estimate of price declines in order to avoid offending his best customers.
It’s a long drop in San Jose before anyone around here can afford payments with median salary of $70K and that includes IO loans. Even if prices dropped 40% you’s still need over $100K down to get in the door without creative “Time bomb” loans. Sorry Lenders and Real Estate Agent wannbes, not enough Google employees to go around !
Early Goog employes who struck it rich left the valley for early retirement. Why would you live here? Higher home prices? State Income Tax of 9% ?
Many left the state for Nv, Fl, NM, Az
“a UC-Berkeley expert predicted median home prices in the Bay Area will fall up to 15 percent in the next three years”
This prediction makes me suddenly want to be a contrarian. David Learah, Lesslie Apple, and now a UC economist jumping on the bubble bandwagon. Lets see, the dollar tanked today, and HB stock have been going up for last 2 weeks, the NAR says they have the DEMS all locked up to pass 1st time homebuyer incentives, and long term rates are heading lower. Since Bernake is a Bush Man, and this is Bushes legasee, I see a rate reduction coming just in time for the spring housing season. Please tell me I am seeing to much into this possible change of course?
Yes. The falling dollar is a vote of no confidence in the Fed’s commitment to remain vigilant against inflation pressures. If the Fed tries to respike in the spring, you can expect to see press leaks from governors like Fisher which hint at mutiny, and a complete tanking of the dollar on the ForEx market, which will unfortunately increase inflation pressures, as we are an import-dependent economy. Respiking will be much harder than just giving the nod to crank up the printing presses.
P.S. David —
Putting Rosen into the camp of economists who recently “jumped on the bubble bandwagon” is a very serious mischaracterization. Rosen has been a bear since at least around Y2K — so much so that he has been discredited for being a stopped-clock gloomster…
Regarding the “Buyer’s Market”..
These days, that term pretty much means that there are more sellers than buyers. Thus it’s easier for buyers to bargain. Unfortunately, most people hear it and think that means it’s a good time to buy. When you hear the term Buyer’s Market, it’s a good bet that prices have topped out and are heading down. Darn right buyers don’t want to buy into that. “Fool’s market” is more like it.
Right after the peak in ‘84, my local paper had the headline “BUYER’S MARKET”. Then at the bottom, after a 35% drop, the headline was “IS THE BUYER’S MARKET OVER?” No, fools, the time to buy was just beginning!
Most people here do not know that prices here are actually dropping, and (as usual), everybody was pressuring us to buy at Thanksgiving dinner yesterday. Sigh.
Even though the market has slowed considerably, the general take seems to be that current prices are here to stay because of all the wealthy retirees. And there is talk of subsidized housing for just about everybody else (school teachers, CalPoly professors, employees of yet-to-be-built shopping developments . . . .) Meanwhile, we rent more space than most of those who purchased in the past 4-5 years AND we are within walking distance of work AND we pay a heck of a lot less per month than if we had purchased. Despite this, everyone feels sorry for us and really wants us to buy.
I sometimes feel like one of the last surviving humans in “Invasion of the Body Snatchers” (or is it another movie where the aliens are always saying, “Join us, do!”)
You’re good, don’t sweat it. The benefits of being a borg homeowner are overrated.
So it is the Borg collective that says, “Join us, do?”
Yeah, I have spent so much time reading housing bubble blogs in the past two years that I have developed a real aversion to the idea of buying. Prices aside, houses sure sound like a lot of work! But I do think that I also have trouble imagining a world where PITI and rent are more similar. I’d be more willing to put up with all the termite problems, broken water heaters, broken tree limbs, etc., if I didn’t have to pay such a huge premium to do so.
No they say something like: “You WILL be assimilated into the Borg Collective; resistance is futile. … Do NOT fear, do NOT run, do NOT resist. Resistance is futile.” No much unlike NAR, developers & agents nowadays.
Correct me if I’m wrong, SLO_renter; it seems SLO prices have been SLOwer to come down than So Cal shore locations. What are you seeing now?
I’m in north SLO county (Atascadero) and asking prices are down a solid 15% since the beginning of summer. How much selling prices are down, I don’t know, since NOTHING is selling!
I think the sellers are being super stubborn with their “SLO county is oh so special” mindset, plus inventory is down a bit as many are pulling their homes off the market since nothing is moving.
The consensus is to wait until Spring when the market “bounces back”. Problem is, everyone and his brother has the same idea.
The real panic will start in March/April/May when the market is flooded with listings, the buyers still don’t show up, and desperation begins to take hold.
Yeah, the idea that we are special seems pretty firmly entrenched here. I can’t speak even anecdotally about sellers waiting until spring, but the pattern this year sure seems similar to last year. And prices are falling here, no matter what ‘they’ say. I can see it in the listings and in Zillow sales records.
At T-giving dinner we were with a friend and her family. Said friend is a priced-out renter. The wife is a SAHM with three kids under 7, and they can’t even remotely manage to buy on one income. Luckily they’re smart enough to not go for a suicide loan.
The friend’s parents were stressing to the friend and her hubby how important it was that they buy ASAP because ‘Bay Area prices only go up!’ Ugh. What’s sad that that her parents are not dumb — they’re a recently retired college professor and an RN. They just seem to have a blind spot about real estate.
Tell your friend to ask her parents whether they could buy a house and give her a 10-year or so lease.
Great investment for the parents’ retirement, applying their own logic. Housing security for her and her family.
(Plus free entertainment at future Thanksgiving dinners)
I concur a buyer’s market & it being the optimal time to buy are two distinctly different times. The buyer’s market may start just after you’ve started back down from the summit, but its not optimal to buy until your at base camp 1 & getting ready to being the ascent.
Capitulation has not happend yet. That is still to come as 30-40% declines in Bay Area. Only then will it be a buyers market.
The Vix closed at 10.73 today up from a low of 9.81 on Wednesday. A 9.4% increase in two days. What’s up with that?
SPY Puts, Gold Calls Lead Early Action
By Steven Smith
Senior Columnist
11/24/2006 10:46 AM EST
Much to my disappointment, stocks are holding on rather well and finding some support well after the opening air pocket. But the early dip seemed to be a reminder that stocks can go down, as the most active options are in the Spyder Trust put options.
Right at the opening, someone came in and grabbed 10,000 of the SPY February $125 puts for 30 cents. This would be the type of cheap disaster insurance that investors had recently bypassed as concerns of steep selloffs had dissipated.
As reader Randy noted, one of the signals that the type of frothy call-buying I discussed in this morning’s opening post can be spotted when VXO, which is the implied volatility of the S&P 100 Index and based on closer-to-the-money options, increases more than the VIX as occurred over the past few days. I discussed it last week in looking for signs of bullish complacency.
Price Per Square Foot DOWN almost 8%:
http://bakersfieldbubble.blogpsot.com
Don’t click on that link. Sorry.
http://bakersfieldbubble.blogspot.com
What was that above–the link to the fifth dimension?
This is by no means a “Buyers Market”. Anyone who thinks that this is a “Buyers Market” is either very stupid, or makes money selling real estate. It becomes a true buyers market when prices return to the median they were at before the 20% year over year increase they just experienced. Smart buyers know this and are going to drive the knife in and twist it until the market and homes reach the price they should be at.
I’m wondering how much longer John Public is going to be trusting the “experts” in regards to the housing market. I’ve been tracking this market for six years now and have made it my hobby. Want my opinion? 100% decline in home prices. Not 15%, not 45%, you heard me right folks - 100%. Remember you heard it from me first, eh? This isn’t a “sky is falling” uneducated guess, this is from the public historical record - go look at them yourselves.
Well, a 100% decline would mean the house was free, and I am not quite bearish enough to buy THAT. Although I guess if prices declined 100%, I wouldn’t have to (buy, that is).
I will buy them all at 100% off!!! Where do I sign??
125% off, minimum
I think what you mean is 100% off from the gains.
In other words, if something was $800,000 back in Summer 2005, it will eventually become $400,000.
If that’s what you mean, we agree, since that would be a 100% loss on the gain.
I try to simplify it into something everyone can understand when I say that the correction will end up cutting prices by 50%.
Might be wrong but I think we’re talking the same language.
100% off the gains from when? The 18th century? Last year? Prehistoric times? Your explanation doesn’t make Renter’s comment make any more sense.
This is a very funny post. Love it.
Sorry for the confusion regarding 100% off - I am refering to eliminating the insane gains that have occured the last several years. The market will really be corrected when it eliminates those gains and returns back to the median price - where it would be had the bubble never occured in the first place. In many area’s, 500k homes are going to turn into 250k homes or even lower.
Ooo - bubble math!
3.5% inflation since 1997 means about a 41% rise in prices from 1997 levels. So, take 1997 prices ($350k in Silicon valley), and add 41%, and you get the “correct” price ($493.5K in Silicon valley, vs. the $700k it currently stands at.) See, math is easy. Do the exercise for your own area, see what you get.
Myself, I’d buy if it gets to around $500k for a 3br/2ba 1400 sq ft SFR. Or if rents skyrocket, like some (but not I) predict, so that it makes sense from that standpoint.
Incidentally, the rents for these places in San Jose are going for around $2200 or so now, which pretty closely tracks where prices should be using this method. (And rents are increasing at a pretty good pace right now - mine went up 10% this year, from an appallingly low $1350 to $1500, on a 3br/2ba 1200 sq ft apartment with old infrastructure.)
“Renter”, in all seriiousness, I think you meant a 50% reduction … which would be the undoing of a 100% run-up. Is that what you meant?
I am watching the Wahington DC area and mainly Montgomery County, MD. I see about a 10-15% value drop since the same time last year. I am very Pro-Home correction, but I am starting to get dissapointed as more Under Contract Signs are showing up and inventory continues to decline. I assumed as this correction/bust continued the inventory would continue to rise, but it aint.
Is anybody seeing the same thing? I unerstand that his time of year is slower, but it feels like it is picking up.
Wait until spring. Don’t even look at any statistics until then. Just be a bear and hibernate. My own research is telling me inventory is decreasing because the houses are being taken off the market, not because they are selling.
In the spring one of two things will happen. Either 1) people will start buying again at today’s prices, or 2) inventory will explode, and the pressure will force prices down.
My guess it will be the latter.
Wait until spring. Don’t even look at any statistics until then. Just be a bear and hibernate. My own research is telling me inventory is decreasing because the houses are being taken off the market, not because they are selling.
As I noted above, this is absolutely true in my town.
I’ve heard of others saying the same thing in NoVA. The underlying issue is why is inventory falling and will it rise again. I think its too early to tell. Many people may have taken their units off the market because prices were declining and/or because they did not want to bother with it during the holiday season. Plus if they left the unit on the market over the winter it would look even more stale in the spring and be at a disadvantage. Only those who are desparate to sell keep the units on the market during winter/holiday season and accordingly they will likely settle for a lower price. Alot of for rent signs have replaced for sale signs. An inventory spike in the spring means price decline will continue. Just enjoy your holidays and look at things in March and go from there. Plus remember there is still alot of new builds coming onto the market in metro DC that just cannot be shunted into the rental market or taken off the market.
Ok - I will go take a 3 month nap - thanks for the feedback
Fear not. Every realtor I come across is taliking up the “take your home off the market until spring” theory. No doubt they are advising their clients similarly.
my realtor mentioned that now a new regulation is in place about relisting property. you can’t jut take it off the MLS and list it right back. There is a waiting period before you can relist it - I’m not certain how long - maybe 6 months. Thr point is - with holiday and winter upon us and with this new mls regulation - many properties are off the market untill spring.
Take a look at this graph of Phoenix inventory:
http://tinyurl.com/ua4p3
Last year it started leveling off right at this time, and dropped until early January before starting the climb again. Are we in for a repeat this year? It is very possible.
If the pattern of that graph repeats itself a third time, we could be talking 80,000 units of inventory in the fall of 2007.
I’ve been following the San Diego market for a few years, and the reduction in inventory is normal for fall/winter. Expect inventory increases in Jan, slight decrease in Feb, and mad rush to the market in March. Pretty much the same every year. If you want to keep watching the market, check out YOY comparisons. As long as this year is weaker than the last, we’re on track to a bursting bubble, IMHO.
Don’t sweat it. We’ll see a lot of ups and downs on the long, long, long trend of the downturn. Personally, I don’t think we’ll be hitting “bottom” for **at least** another 3 years or more.
“Buyers Don’t Want To Buy In A Buyer’s Market”
They are not buying mainly because prices are still dropping. And the market is giving us information on delinquencies, short sales and foreclosures. You might want to call this a buyer’s market, but we have had previous buyer’s markets when they did not want to buy. Like for 6 years in the early 90s in Southern California.
Sensible Lender,
My take (based on what I hear people around me say) is that very few people here yet realize that prices are dropping (or believe that they will do so). I would not realize this myself, if I got my housing information from the local media, as they are amazingly good at selectively presenting data that makes things look more stable than they truly are, and the only reason I know that prices are dropping is that I spend several hours a week following local MLS listings and sales records.
My take is that the Central Coast slowdown to date is almost 100% based on lack of affordability, with the ongoing hikes in short-term interest rates putting housing out of reach for most even with IO option ARMs etc. Yet prices most definitely are declining. It is actually a bit frightening, as I did not expect to see so much happen so quickly.
But my impressions are purely anectdotal, as I am not connecting to the lending/real estate/construction business in any way.
Have you been hearing talk from customers that they are waiting due to price declines? From a purely selfish view, I would be happy for this to become the general sentiment, as I am SO tired of being pressured to buy.
SLO_Renter:
I assume every knows this, but I see evidence daily from my job and as a member of a local MLS. I have approved loans for 4 families to buy a house who are trying to sell their houses. The certainly know that prices are dropping because they cannot sell their houses for what they want.
Several other people can afford to buy but are waiting because they think prices will drop more. One example is a high income surgeon transferring from out of state. He did home shopping for over a month, and decided to lease for at least a year. I told him that his reasoning was sound. He not only can watch the market, but have a better feel for where his family should live, after getting to know the area better.
Sensible lender:
I am glad to hear that there are folks out there who are making sensible decisions based on current market reality.
Most of the people I know are home owners (and are not planning to sell any time soon), so they certainly have no incentive to go looking for up-to-date information on local real estate trends.
SLO_renter
New homes in Nipomo was $739,900 now reduced a few month ago to $622,900, a reduction of 16%, but still not selling. Still over priced by several 100K.
I like the SLO area very much and would not mind living there, but price are extremely high.
What is the average income there?
Check http://www.melissadata.com for income stats.
Thanks, good site.
It is a great site, and the most useful for shutting up a perma-bull.
Median family income is about $53K in the county - a little lower in San Luis itself. People here are concerned about the prices, and attribute them to our growing population of wealthy retirees. We are “Santa Barbara, North” these days, and we have the same sort of discussions about affordable housing, flight of young families, etc. that they have down in SB.
” Park said. He offered less, and the sellers accepted without making a counter-offer.”
Hmmm, how do you think Mr Park feels right about now? Think he may have left any of his own $$$$$ on the table in this deal?
What a dolt knife catcher extraordinaire. He not only bought in a rapidly declining market accelerating to the downside, he managed to overpay in today’s prices. He’ll be looking back next year wondering why he’s so deep underwater…
A few years ago, for cheap laughs, a friend of mine was looking at a set of semi-luxury condos in a somewhat gentrified part of Oakland that is right by a train station. So, that’s a lot of freight trains, Amtrak, etc. going through at all sorts of times.
He asked the broker what about the train noise? And the answer?
“Well, some people like trains.”
I live about 1/3 of a mile from a train track. It’s lightly used, maybe one train a day. When I hear one, the horn and rumbling does add a little character to the area.
But I’m quite glad it’s infrequent, and my property doesn’t front those tracks!
I moved from MT to SF, CA. There was a Muni street train that went by the house. The City noises drove me nuts every morning for a few weeks but then I got used to them and tuned them out. It all became background noise.
“Well, some people like trains.”
- - - - -
A realtor in Kansas City told me the exact same thing. At her sales meeting that morning she heard about an elderly man who bought an upscale rehabbed-warehouse condo overlooking the train yard (dozens of tracks, and trains coming and going 24/7). Apparently the trains reminded the old gentleman of of his childhood. REIC moral of the story: Don’t stereotype potential condo buyers! Get out there and sell those empty condos…to anyone with a pulse!
When I was house shopping, I toured those same condos because they’re two blocks from my husband’s job. The first drawback I noticed was the constant noise. The cool lighting fixtures and designer kitchen just couldn’t make up for all that industrial clanging and screeching metal (not to mention all the other noise of downtown life).
At my new house I can hear a distant train whistle just after midnight. It suspect it’s the Southwest Chief bound for Los Angeles. I love hearing it. But that’s just once a day.
To each his own. Perhaps it helps if you’ve lost most of your hearing.
I guess as part of my general thanks for Thanksgiving, I would like to thank Ben and all the posters here, from turning me from a JBR (”jealous bitter renter”) into a HR (”happy renter”).
Happy Thanskgiving, all!
Hear Hear,
Thank you Ben.
“In general, she said, ‘Buyers don’t want to buy in a buyer’s market, buyers want to buy in a seller’s market, they like the comfort of it,’ she said. ‘If I’m the only one, there’s this fear that it might not be the right thing to do.’”
BULL SHIAT!
No she’s right. When everyone wants to buy, it’s a seller’s market. When nobody wants to buy, except you, it’s a buyer’s market.
LOLLOLLOL!! Hilarious ad on Craig’s List SF:
“We are well aware this is a buyers market. We are just looking to break even. Therefore, we are looking for a MINIUMN BID of $595,000. ”
Owner claims to be located “on the border” of a very high-priced area within Oakland. Actually, it’s on the wrong border, also bordering a not-so-nice part of town, in an area that features far too many ugly, 1960s apartment buildings like this one.
“Buyers Market”…I do not think this means what he thinks it means.
http://sfbay.craigslist.org/eby/rfs/237114288.html
Sorry–URL didn’t show up in previous post
Horrible pictures - who the heck wants to see a photo of the front door? Show me the kitchen! - and the ad has a bunch of typos to boot.
http://sfbay.craigslist.org/eby/rfs/237114288.html
“San Jose homeowner Michael Park and his wife wanted to move from their smallish three-bedroom, one-bath house near Santana Row
Only a stupid Mall Hog would buy in Santan Row. Overpriced and dinky space.
But where else would I go to observe people with more money than sense buy ugly gucci sunglasses to cover up their bad plastic surgery ?
It is near Satan Row which means it is in the sea of tract homes that surrounds that entire area. Burbank is the nearest neighborhood with any character and it is blocks away.
Indeed. My office is a block from Santana Row. It’s actually not a bad area as far as office locations go, but I would hate to live around there.
I was reading the local Napa newspaper maybe 6 months ago, and one real estate shill was talking about how Napa would be strong because building restrictions are relatively tight and everybody wants to either move here or wants to buy a second home here.
Now, to some extent, this is true, but it only applies to the super rich and to a handful of homes that are worthy of their consideration.
For the other 99.99% of the population, it was of course horribly off, and Napa became an advance guard in the CA implosion. Check out the DQ stats for the last few months and see how Napa was one of the leaders ahead of areas like San Diego, the IE, etc. for YOY declines in volume and price.
You’re talking about a city with a $55K median household income with median house prices at $600K+. Napa is a fairly blue-collar town that basically revolves around food, wine, and tourism. So, you mostly see service jobs and small businesses. There isn’t much in the way of high-paying jobs here. Nobody is moving here as a cheaper way to commute to a big city.
When we moved here, we found a house rental we liked for $1800 per month. They didn’t even bother with the credit check. They just looked at us, looked at our business cards, and basically turned in the lease the next day.
The speed at which they wrapped us up hints at the true economics of the area. There aren’t a lot of people here who can afford $1800 per month. In 2000, supposedly only about 3.0% of the rentals were at that level and above.
The bottom here probably won’t be as bad as say the IE or Sacramento where the supply growth is stunning. But it’ll still leave a lot of broken households in its wake.
I spoke with my brother in law , who is a banking exec here in the Midwest, he said that back in August some guidelines were changed so that the minimum amount paid on a credit card is no longer based on a 36 year pay back, the minimum amount for the same principal is 3X what it was, he believes that here in the Midwest that change and higher HELOC rates are the 2 biggest contributing factors in the rise in deliquencies he is seeing. everone is getting squeezed a few hundred more a month…for many it’s enough to put them in default.
I spoke with my brother in law , who is a banking exec here in the Midwest, he said that back in August some guidelines were changed so that the minimum amount paid on a credit card is no longer based on a 36 year pay back, the minimum amount for the same principal is 3X what it was, he believes that here in the Midwest that change and higher HELOC rates are the 2 biggest contributing factors in the rise in deliquencies he is seeing. everone is getting squeezed a few hundred more a month…for many it’s enough to put them in default.
Yup, depending on when the banks implemented the new rules you could expect your MINIMUM payment to triple. This happened to a freind of mine who was carrying a $20K balance and only paying a minimum at roughly 19% interest rate. For those of you goood with math this meant the payment would increase monthly and the balance would also increase monthly. I warned her the new rules were coming but she still got schocked when that payment tripled and yet she still hasn’t paid that damn thing off yet. The new rules were supposed to “Help” people like her not get trapped in an eternal cycle of debt at Loanshark rates but sure hasn’t helped from what I’ve seen.
“‘What they’re worried about is, will prices decline further, so if they buy now, could they get a better bargain later?’ said Delores Conway, at the University of Southern California. ‘No one can predict that.’”
I think quite a few folks on this blog “predict that.”
Delores: Please open your mind, do your research and read this blog. Your grade is currently a “C-”. As extra credit go back and read starting about a year ago.
The final will be in about 2 weeks and you have a lot of catching up!
Delores: Also, you are not with the Lusk (?) realty department are you?