Inventories Swell ‘Due To Softening Buyer Demand’ In CA
The California press reacts. “With unsold inventory continuing to grow, now at over 7,000 properties, according to the California Desert Association of Realtors, the valley market appears a far cry from the fevered seller’s market of early 2004. The ramifications of a healthy residential market are sweeping for buyers, sellers, renters and investors alike.”
“The current unsold inventory, already up 10 percent from just a month ago, is more than double the level of February 2004 and more than five times the level seen in April 2004, during the height of the fevered seller’s market. ‘We are having to lower prices and be willing to wait longer for buyers,’ said Jill Chavez of La Quinta, who has invested in several east valley properties in recent years.”
“In February 2005, there were 3,079 unsold homes on the market. This February there were 7,046. The median price for a new construction home dropped from $420,500 in December to $398,500 in January.”
The LA Times. “Home builders figured they’d face cooling demand this year. But they’re also facing another challenge: competing against some of their most recent customers. Speculators, whose robust purchases made 2005 one of the best years for new-home sales, have reined in their buying and started selling amid signs of a housing slowdown. The influx of their almost-new homes is making it harder for builders to sell brand-new ones.”
“Even though builders have tried to limit investor purchases by prohibiting buyers from selling homes within a certain time, ‘clearly they slipped through,’ said John Burns, an Irvine-based building industry consultant. Orange County resident John Cullum is one such investor. He’s trying to sell a new home he bought last year.”
“Cullum recently listed a four-room house in the Riverside County community of Menifee that was completed in October by privately held builder Van Daele Homes. It has never been lived in and is listed at $460,000, a price that he believes is competitive with yet-to-be-built models nearby that are being peddled by other building companies. ‘There’s so much new construction in this area,’ said Cullum, who said he received more than 100 inquiries in recent weeks. But his house is still not in escrow, and Cullum acknowledged that demand seemed slow.”
The Orange County Register. “A slowdown in homebuying continued through January in Orange County, causing inventories of unsold homes to rise. Unsold inventories hit their highest level in seven years. It would take 8.9 months to sell all the homes on the market in January, CAR reported. The last time it took longer was November 1998.”
“Meanwhile, Irvine-based Standard Pacific Corp.reported Tuesday that its new-home orders dropped by 13 percent in the year ended Sunday. Buyer demand didn’t match ‘the unsustainable pace of the past few years,’ the company said.”
“The firm reported that new-home orders were down 24 percent in Southern California ‘due to a softening in buyer demand, most notably in San Diego and, to a lesser degree, in Orange County,’ a company statement said.”
The Santa Barbara News Press. “Home sales and price gains across Santa Barbara County flattened in January, perhaps setting the tone for what many say will be a relatively soft year for the local real estate market. Sales of South Coast homes fell by 16 percent last month. Although the downpours and floods of January 2005 were cited as slowing sales last year, the mild weather of the recent January did little to boost buyer interest.”
“‘In January a year ago, we had the El Nino rains that got into the way of showing homes. So compared to that, you would think that January this year would have been better for sales,’ said Mark Schniepp. ‘But sales were down, and it looks like February will be down, as well.’”
“In January, Santa Maria posted a median of $419,500, a rise of just under 5 percent from a year ago. Sales were basically flat. The Santa Ynez Valley reported a decline in its median price to $810,000 in January, compared with $865,000 a year ago.”
Here is a more complete list from CAR.
More than a couple of neg YOYs in that listing– Nice.
bottom -
Didn’t somebody yesterday say prices weren’t changing in Burlingame? They’re not paying attention.
It’s about the largest y/y decline in all of California:
“Burlingame $1,200,000.00 $1,520,000.00 -21.1%”
Yep, that % loss about concides with my $/SF decline that I posted for Burligame in that thread.
Jack, Where’d ya get the B’game number? Felt like around 10% to me, love to hear it’s more like 20.
oops. just found the link.
Hey SMB!
What happened with your lowball?!
[I asked on another thread; not sure if you answered]
Rejected.
The place has been for sale since October, originally asking 1.299M. Then relisted at 1.259M in January, subsequently reduced to 1.199M in Feb. We came in at 1.075M, which I think is fair or even 25k high. Seller countered at 1.185M (which is overpriced IMHO), so we walked away.
We calculated he needs 1.17M to break even after comissions so he would have lost about 95k at our price. Sucks to be hi, but the market is weak. We aren’t going to pay for his mistake.
Our agent thinks the place would have sold for 1.3M in mid 2005.
Good luck to him, he’ll need it.
And by the way, before everyone flames about catching the falling knife, we’re looking for a 15 year home. We have one kid approaching school age and would like another. I would fully expect to lose money on the deal for another 5 years, but it’s a trade off we’re willing (and able) to accept.
I should add that there are a LOT of price reductions on the Peninsula. Very nice homes in the best neighbourhoods listed at the right price still sell within days. Anything that has defects that are not reflected in the (lower) price sits and eventually expires or gets reduced.
It’s not a fire sale…. yet. Very different from a year ago though when any old shack sold, frequently over asking.
Thanks - that was interesting.
I can see your thoughts/strategy and I could see that seller coming back to you, unless one of the remaining fools comes along.
Perhaps later this year could be better for you… wrt to inventory, etc.
Good luck!
Very interesting to see that in the table, the northeast valley (double yuck- sorry to anyone who lives there) is up 27% y/y, while the cities of the southwest valley (much more desirable, much better schools) show small increases or even declines: Calabasas -3.2%, Woodland Hills +2%, West Hills +7.8%.
There is clearly some shifts of market mix altering the statistics dramatically. Tarzana shows a 49% increase in price. This is clearly NOT the case, as any realtor in the area could tell you. There are loads of condos in that city, perhaps very few sold, skewing the results.
This is why we have to be very careful of relying too much on median price to tell us what is going on. It is simply not an accurate indicator of which way the price of a specific home is moving, up or down.
you also have to take into account that these numbers include the miraculous spring from last year. simi valley (my watering hole) for instance, is up 17% yoy, but it was up nearly 20% from january to june of ‘05. the numbers can be tricky.
>Coachella Valley
>median sales price reaching $405,000
We almost moved there, it’s really nice in winter…but last summer I had to visit on business, and it was 122 degree F. I kid you not.
I’m glad we decided on the central coast…
Here is a more complete list from CAR.
This may be of Interest, but CAR only reports for 31 out of over 70 counties. When I contacted them about my county, they said that they didn’t report those numbers, even though those number *are* being generated by my county association or realtors. I wonder how they decide which counties to leave out?
This article is an about face for OC Register writer Jeff Collins. On Saturday he wrote “Home prices rebound in O.C.” He said this was a “hint” of a “surging demand.” Glad he’s coming around.
In the ongoing debate of boom or bust ,
if you want to know what has more google mentions, housing bubble or housing boom, check out this site.
so many nice neighborhoods to live in 36 months from now.
like a kid in a candy store, i can’t decide.
I hear you. I told my wife last weekend, “Your patience will be rewarded. You’re not going to believe how much house we’re gonna get.”
That’s what should scare speculators and mortgage slaves the most…this will get much worse. We’re just getting a glimpse of what’s down the road.
a 2nd try for that link
no link.
BOSTON (MarketWatch) — Shares of real-estate services company HouseValues Inc. fell sharply Wednesday morning after it issued first-quarter and 2006 earnings outlooks well below analyst forecasts on a slowing real-estate market.
The company (SOLD : housevalues inc com
News , chart, profile, more
Last: 10.00-3.50-25.93%
11:19am 03/01/2006
SOLD10.00, -3.50, -25.9%) after the closing bell Tuesday reported fourth-quarter net earnings of $4 million, or 15 cents a share, up from $1.9 million, or 8 cents a share, a year ago. Revenue rose to $25.2 million from $14.4 million a year ago.
I wonder is they have a house value for their stock?!?!?
anyone else notice problems a ziprealty… for the last 48 hours, the number of homes in phx metro has been 36174… and it never stays constant for more than 6 hours?
I checked this morning and it showed the same number you have. Maybe they are having technical problems?
Or maybe they are dragging their feet on updates, given that the new inventory numbers always seem to increase anymore…
Ya I notice Zip Reality stop post new listing back on the 23rd of Feb.
I saw a problem with Zip last week. It wasn’t updating Chandler. I called tech support, and they called me back yesterday to tell me the problem was fixed…maybe they fixed Chandler and broke Phoenix.
Actually, I just checked, and if do you a “1-3 day” search for all of metro PHX, you won’t get anything newer than 2 days.
I just reported it to their tech support.
I have been doing the same search since July 05 for my spreadsheet… and it has been updated until just the last few days… I sniff a conspiracy
depends on the area. they are updating regularly for my area. could be a locational thing.
Check this out from the OC Register Article:
“First Team Real Estate reported that there were 7,584 Orange County homes listed for sale as of Jan. 20, up 23.6 percent from January 2005:
In August 2004, by comparison, Orange County had more than 13,000 homes listed for sale.”
Now is this complete sellside realtor bullshit or are these August 2004 numbers legit?
August 2004 was when OC real estate looked like it was going down, and then took off again that fall.
I remember that Mission Viejo inventory topped 800 that month. It is currently 600.
So those numbers may correct, but they are being very selective in choosing that month.
If you were watching it at the time, almost all of So Cal seemed like it was going down in fall of 2004. Just like now, inventories really swelled and sales fell in San Diego, OC and LA counties (maybe more, but those are the ones I follow). I even have printouts from Realtytimes.com where REALTORS were calling the “peak of the bubble” in May/June 2004. If you look at a graph, 2004 was very strange compared to prior years — many of us thought that was the end of the bubble. In fall/winter 2004, median prices were down from the peak of summer 2004. In my area (Carlsbad, San Diego), prices were down over 12% from the peak. They used YOY numbers to cover it up. Springhopemania, 2005, brought the median prices back up to level/positive. SD has “plateaued” while OC and LA moved higher.
In retrospect, we will likely find that spring 2004 was the true peak. Not in prices, but activity and certainly months of inventory.
Those of us who have been waiting for this for so long are more humble in calling the bubble “over.” We’ve been head-faked before.
I checked ziprealty this morning as well and there are properties no showing on zip that are still listed in MLS.
I did notice a few new outright price reductions in the past week in Davis as well as quite few more that were “relisted” to new lower prices. All good news.
Can some of the more educated economist type of people explain something to me ?
Realtors say that last (according to several quotes here):
“For the last few years, buyers often outnumbered the supply of homes for sale, allowing prices to escalate rapidly, but that’s no longer the case”
But now that sellers outnumber buyers, how come prices won’t de-escalate rapidly? Only now it’ll take longer to sell a house?
If it now takes longer to sell a house, now that sellers outnumber buyers, how come, last year, when the opoosite was true, it didn’t take longer for a buyer to find a house?
Is it because sellers have the luxury of sitting in their houses if the price is not right, and buyers need to find something because of relocation, addition of a child to the family, etc?
The “market clearing” price of houses HAS fallen. Therefore, anyone who wants to sell MUST lower their asking price. Right now, there is some confusion over just how low the market clearing price is. Sellers think “should I lower my price by $50K? $100K? $200K?.” After a period of time, they will figure it out and price accordingly. With the Internet and all, and with the huge run up in prices the last few years, I suppose that prices will fall quicker and deeper than in the past.
As to the issue of whether or not sellers are somehow averse to taking a loss and prefer to hold on for years until the market clearing price returns, I don’t see how that makes sense. If you want to sell because you want to move, there is a divorce, you get a new job, etc., then it seems odd to delay those changes because you don’t want to lower your price.
One issue may be credit constraints, however. New buyers who want to sell may find that they must “bring money” to the table. This should be no problem, because it is probably worth it to pay some cash if selling your house is what you want to do. But IF you must bring LOTS to the table, and IF you don’t have cash, then this could be a problem if no one will extend you credit. In theory, you should be able to get a loan for the amount that you must bring to the table, but maybe banks, etc. don’t want to make a $100K plus unsecured loan? Of course, maybe they could draw up a contract which gives the bank claims on a FUTURE house that the lender buys, but I don’t know if this is possible.
I think that as this bubble pops, more and more people will feel comfortable reducing their asking price and bringing money to the table than in years past.
I don’t believe many will feel comfortable bringing money to the table, but nonetheless circumstances will force them to do so…
“New buyers who want to sell may find that they must “bring money” to the table. This should be no problem, because it is probably worth it to pay some cash if selling your house is what you want to do. ”
How can you say something like this with a straight face? Do you think these IO, option-ARM, no down payment having idiots can bring cash to the table at closing? “This should be no problem, because it is probably worth it to pay some cash if selling your house is what you want to do” has to be one of the dumbest things i have ever heard on this blog. congratulations!
Didn’t you read the next sentence?
“But IF you must bring LOTS to the table, and IF you don’t have cash, then this could be a problem if no one will extend you credit.”
My point is (and here’s my straight face, looking you straight in the eye) is that too many people, even those who can afford it, are hung up about selling at a loss. And it gets in the way of them making good decisions, such as bringing money to the table when selling if they have a great reason to move.
It’s the same with stocks. Many people will hold on to dropping shares rather than cut their losses and move on. This is well established in the economics literature, that to many people the pain from losing a dollar is not outweighed by the joy of gaining a dollar.
I think that if people refuse to lower prices as this housing bubble pops, that will only prolong their anguish.
They won’t bring money to the table unless they are really loaded (i.e. wealthy). If they are genuinely forced to leave and are upside down, most folks will have only two choices; leave the keys and walk away, or rent the house with a negative cash flow. Rent with negative cash flow is what I saw most people do the last time this happened and is what I would do. It is easier for most folks to fork over a few hundred a month negative cash flow on a rental property and feel that they are investing that money in their property which they feel (hope) will eventually climb back in value (they can deduct the interest and depreciate the rental on their taxes and maybe even move back in if they relocate back to the area in the future). This is much easier to stomach than forking over tens of thousands of dollars at closing. The owners that held their rentals through the lean times of the mid to late 90’s when they were upside down with their properties, were more than amply rewarded if they sold during the current bubble.
“But now that sellers outnumber buyers, how come prices won’t de-escalate rapidly?”
Sellers are pricing in YOY appreciation at similar levels to what has been seen in the last several years, but demand conditions have changed, as
1) Lending standards are under increasing scrutiny
2) Pretty much anyone who could buy and wanted to already did
3) There is increasing concern about the possibility that recent price gains are not going to continue going forward, leading buyers to remove the speculation premium from how much they are willing to pay for a home.
The growing inventory of homes on the market reflects a disconnect between what sellers and buyers believe is fair market value under deteriorating demand conditions: Demand has shifted down, but sellers are not accepting the fact, as they believe they are somehow entitled to the same historically anomalous high rate of appreciation we have seen for the past eight or so years. This is a process known as equilibrium adjustment — forget about realtor bullshit that the market has stabilized at a permanently high plateau, or whatever, because the only thing that will end the inventory correction underway is adjustment to a new, lower market price, which will send the pendulum of price changes swinging in the other direction as some sellers will face circumstances which force them to sell at a lower price (bankruptcy, divorce, unemployment, upward adjustment to I/O ARM monthly payments, etc.)
“Only now it’ll take longer to sell a house?”
Only if you try to sell at above-market price levels. If you list a “$500K” house at $1, I guarantee you can spark a bid war and sell it in one week, and for much more than $1 if you advertise appropriately.
“If it now takes longer to sell a house, now that sellers outnumber buyers, how come, last year, when the opposite was true, it didn’t take longer for a buyer to find a house?”
Whoever suggested this did not go home shopping in San Diego last spring; there were no decent homes on the market for the price, and hence it would have taken a buyer an infinite time to find a decent home to buy at an affordable price. Only those with deep pockets of wealth or willing to finance with suicide loans were buying.
“Is it because sellers have the luxury of sitting in their houses if the price is not right, and buyers need to find something because of relocation, addition of a child to the family, etc?”
Only if their personal financial circumstances afford them that luxury. So, for instance, if my dad used to be a corporate CEO and has millions of dollars worth of inheritance wealth ready to pass on to me, I can afford to gamble on loosing a couple $100K buy purchasing an overpriced SD home. If I don’t have lots of family wealth and live paycheck-to-paycheck, then buying with an I/O ARM is tantamount to guaranteeing personal bankruptcy when payments adjust upwards after five years.
Buyers also have the option to rent at much lower cost than buying a comparable property, although many seem to have lost sight of this fact during the recent speculative mania.
There was a great episode of “Buy Me” on HGTV last night. Some fool (Canada) priced his house at 390K while an IDENTICAL house across the street sold at the same time for 305K. The realtor kept begging him to lower the price to be competitive but he was certain his house was worth 390K. Unbelievable. He finally lowered to $375K which was still way out of line and got no offers. He let his realtor go when the contract ran ou and seemed mad at her that it didn’t sell. For once I was a little (just a little) sorry for the realtor that put a lot of work into trying to sell their house for 3 months and had nothing to show for it. I think there will be a lot of this as homeowners try to stick at higher prices than their homes are worth.
Unfortunately that going to be reality for a little while. Everybody thinks their piece of dirt is worth more than the man’s across the street
Of course the price drops if a seller is sufficiently motivated. How much any one single seller can drop price largely to his basis. That’s what makes predicting where this bubble might settle out almost impossible. See, in the past bubbles, basis was determined largely by prior purchase prices. Now, prior purchase has little to do with basis as owners have been jerking cash out using all sorts of equity grabbing schemes or worse, option ARMS where basis is added to without even trying.
The purchase location in a large number of cases will be at the courthouse steps rather than a broker’s office - BET ON IT!
There will be very few opportunities worthy of buying at the courthouse steps for at least a couple of years. Buying at the steps will make you simply another FB. The banking industry has just got into the real estate business. They have been trying to for years. As they say be careful what you wish for.
Alright guys let me summarize…Supply and Demand:
1. The majority of the demand was from speculators. Speculators can and will sell when their investment is no longer profitable (leveling out or dropping). This adds a ton of supply and drops demand at the same time.
2. Builder are building at RECORD level which means supply is increasing very quickly. This adds supply.
3. Everyone who would have bought in 2006-2009 was scared into buying in 2005 which reduces demand even further.
4. Loans and lending practices made money cheaper than it EVER has been in history. % rates AND lending practices are tightening the noose.
5. etc, etc, etc.
There is an error in your question. You assume that realtors are correct. They say that demand causes an escalated price. That is only partially true. Interest rates actually have a greater impact on price than the ratio of buyers to sellers.
The econ 101 crowd might be up in arms about this, but hear me out. When interst rates fall, so do mortgage payments. When pmts fall, they become more affordable. In other words, falling interest rates allow a greater number of people to get into a home.
However, there is a secondary effect. If demand rises sharply, the housing market cannot cope and there is insufficient supply. Thus the rising prices. Nevertheless, it is important to remember that the increased demand did not cause the prices to rise. The cause was the accessible monthly payment. Thus, increased demand is actually not the cause, but rather it is an effect of the lower interest rates.
If you accept this point of view, then when demand falls, prices can be sustained as long as interest rates remain low. Sellers can sustain their prices because even if there are fewer buyers, those buyers that are out there can still afford the monthly payment. So the only determining factor is that their homes will take longer to sell because there are fewer buyers.
This results in the better homes selling quickly and the sub-par homes staying on the market for months or years. Look at what is happening in markets with rising inventory. The homes that show well are still selling for exhorbitant prices. The owners of uglier homes see that prices remain high and they refuse to adjust. The bubble remains.
However (there is always another “but”), there are several factors that can deflate this bubble.
1)When owners of undesireable homes become desperate to sell, they will lower their price.
2)When loans reset, the mortgage payments become unaffordable to many and they move into the first category.
3)Banks’ tightening lending practices reduces demand because fewer people qualify.
4)Home appraisals fall and people who over-mortgaged themselves cannot refinance to reduce their payments nor get HELOCs.
5)Flattening prices reduce or eliminate altogether the demand from speculators.
My conclusion is that although demand is sluggish, prices do not fall immediately because they do not NEED to fall. They don’t need to fall because the buyers out there can still afford the prices due to low interest rates. Therefore, there is a lag between the time demand goes away and prices fall because low interest rates temporarily mask market value. Low rates create a phantom value.
This is why prices don’t shoot down as quickly as they shoot up. However, I will say this. If the cause of slowing demand was rising interest, then prices would fall as quickly as they rose… or faster.
Correction:
If the cause of slowing demand was rising interest RATES, then prices would fall as quickly as they rose… or faster.
meanwhile… media and officials still looking in back mirror (Q4 ‘06 and last half of ‘06)
these people really must think they can pump their way outta this…
U.S. Home Prices Up Nearly 13 Percent
http://news.yahoo.com/s/ap/home_prices;_ylt=AiMEMwH.TRzqO7zW4LKNDxSs0NUE;_ylu=X3oDMTA2Z2szazkxBHNlYwN0bQ–
If you think inflation and the CPI are the same then I’ve got a bridge to sell you. In my area inflation, which includes food and energy, as well as medical ect ect has been rising at about 7-8 percent per. The Fed needs to raise interest rates (Fed Funds) to at least 7-8 %. Those of us with large cash positions are getting whipsawed. Have to pay taxes on interest. Going negative just like I/O and ARMS.
EXCELLENT! I see Ben found TODAY’S Santa Barbara article about real estate prices TANKING.
To REFRESH everyone’s memory… Maria Zate (SB News Press writer) had just done a lengthy article about a week ago- regarding the slowdown in local real estate.
The fact that ANOTHER article (posted Today/above) states that YOY prices comparing Jan. ‘05 and Jan. ‘06 show a measly 2 % gain (remember REALTOR’S were pumping up BUYERS talking about the (now theoretical) 24+ % gains for 2005 just a month or two ago) IS NOT THE BIG STORY.
What I think is great, is this BRAVE and confident reporter (MARIA ZATE) and the BOLD Santa Barbara News Press OWNER going head to head with the Santa Barbara Realtors Association. YOU KNOW… the group that decided a month or two ago to STOP providing NUMBERS to the newspaper???
Looks like “SHE WHO OWNS THE PAPER” will dictate what stories are reported to the general public… NOT the self-serving Real Estate Professionals that pimp the paper when the going is good, then diss them when the numbers suck.
MY GUESS is that the folks up at SB NEWS PRESS decided that they are not going to be MOB RUN by the realtors of this town… and will report the FACTS as they are, thankyouverymuch.
TWO THUMBS UP to MARIA ZATE (real estate writer) and WENDY McCAW (owner of SB News Press)!!!!!!!!!!!!!!!!!!!!!!
Well, let’s not get too congratulatory, they were pretty quiet over the past few years when the going was good.
They should have started to ring the warning bells after it became clear that our prices were only supported by dangerous speculation (i.e. I/O and option ARMS).
The early 90’s crash wasn’t that long ago, these news outlets should have done a better job of reminding people.
Amen, too bad this is a rarity. The only way to get accurate news is from orgs funded by long term grants or anonymous donations. Editors shouldn’t be beholden to accountants.
YOY declines in Cupertino and Mountain View. This is excellent.
I say: “Condotino condos for everyone!”
Condotino condos at 6% off even.
Another one went up for sale in my building this morning. I will be stalking the open houses this weekend. It’s perfectly normal to check my mail in the lobby 12 times a day!
“It’s perfectly normal to check my mail in the lobby 12 times a day!”
and on a Sunday!
Someone will think what is that guy doing?
Yes, and someone had posted earlier that SV would be one of the last to decline– oops!
How about that -first! Or nearly so.
We’ve talked about this before - that Condotino and Mountain View have to be the nexus for the phenomena of being down x # of jobs (still) since 2000, combined with “non-fundamental” house price gains.
Sunnyvale and Santa Clara still have plenty of empty office parks/buildings and the traffic moves much better than five years ago… as the region is still trying to make up for the 250,000 tech jobs that went away.
But Bushie says that offshoring is good for the USA.
Mr. Burns: Excellent!
Future history will be on our side.
The mere stubborness of home owners of not lowering the outrageously high investment horizon (1-2 yr) prices will inundate the market. By the time these bag holders realized that there is no such fool left even after Donald Trump a.k.a the Bankrupt billionare and Robert Kayasoki a.k.a the Rich Dad and Anthony Robins try to lure suckers in the housing market.
The writing is on the wall and the suckers inspired by the trio who I believe should be sued for their investment advice without any certification will try to find value (the valuable knife dropping from 60000 ft)
Good Luck buddy!
Yahoo is now starting to bring a possible bubble mainstream…go to yahoo, click on finance (not real estate), and look at the “special edition” section…a whole section titles “Get ready for a housing slowdown”…
Even here in Australia we get Anthony Robbins infomercials on late night TV. (And on CNBC, what’s more :(, looks like they switch to advertorials after about midnight on weekends.)
Anthony Robins too! One sign of the top last year was when a Playboy playmate said she was quiting that business and going into real estate. We were thinking what does she know about RE.
Not much different. Be a ‘ho as a playmate or a ‘ho in real estate.
Boy…all of you are on a roll today….Its like a feeding frenzy…
Euphoria can work both ways…
“Cullum recently listed a four-room house in the Riverside County community of Menifee that was completed in October by privately held builder Van Daele Homes. It has never been lived in and is listed at $460,000, a price that he believes is competitive with yet-to-be-built models nearby that are being peddled by other building companies. ‘There’s so much new construction in this area,’ said Cullum,”
Menifee is about as far from a metro area with jobs as you can get. Drove through there 2 weeks ago on the way to Palm Springs, lots of new construction in progress. Those houses will eventually settle out to a fair price in the low $200Ks.
On Marketwatch.com:
“Gains hit a plateau
Stocks move higher and then level off amid raft of data on oil supplies, factory activity and car sales.
Retailers: BJ’s profit climbs 10%
Energy: Key supplies data on rise”
Houses and stocks both seem to be leveling off to a permanently high plateau…
(Does anyone else think that financial journalists should have mandatory training in the history of ill-fated prognostications?)
I asked this previously but never got a good response.
So, when builders drop their prices for new homes…how does that reflect in the re-sale homes? For ex., the Orange County median went down to 580K(b/c of new homes undercutting). Since that is the new median will the resales have to drop also or how does that work…?Does that put the pressure on or what? thanks JF
Johnny, not necessarily…just because the median went down in OC due to lower new home prices doesn’t mean the resales have to drop. Much of the builder activity in the OC the last couple of years has been in condo construction and conversions which tends to lower the median. I can see it first-hand in these new developments across from me in Irvine on the old Tustin Air Base. Probably 3x as many condos being built than SFR with most being in the 400-500k price range. I think the most important thing to look at when looking at new home prices is to look that the mix of homes for sale. IMO.
Condos are lumped in with SFH when talking about new construction statistics. It is misleading by itself. There should be separate lists. Add the fact that there are 3 times as many new condos as homes and the number is skewed. Compare apples to apples and the picture is different.
Let me re-phrase that…I’m not sure if anyone replied previously…So I am re-posting…Sorry…
Comment by arroyogrande
2006-03-01 10:21:59
>Coachella Valley
>median sales price reaching $405,000
We almost moved there, it’s really nice in winter…but last summer I had to visit on business, and it was 122 degree F. I kid you not.
I’m glad we decided on the central coast…
Jesus Christ!!!!!!!!! Once again, this proves my theory, Coachella Valley is a sucky place to live…and where are the jobs to support these $400K homes? And 122 F degree weather? Even Las Vegas doesn’t get that hot. Damn, that place is going to be a ghost town once this bubble plays out.
Long time looker, 1st time poster. I cashed out of my 2br 2car in Aug of 2004 after owning since ‘99. I did not originally buy as an investment, just wanted to have my own 2 car garage and a place for my kids to call home. I began feeling how outrageous the prices were and decided the craziness had to stop sometime. I now rent a 3br 2 car for $1500/month and have all my profits invested for about 7% annual return since I sold. Not quite the @ 12% if I had waited about a year longer to sell but much less risk. No one including me really foresaw the virus like spread of $0 down I/O, reverse amortizing, and 1 year ARM type loans which allowed anybody with a pulse responsible or not to leverage huge loans with the accumulated risk eventually trickling up to Uncle Sam.
Here in south Orange County I have been tracking a very small niche 2-3 bedroom condos in Lake Forest. Inventory is up 140% since November in this niche. I have seen units in my neighborhood on the market for 6-7 months.
Along with everyone her I suppose, I am disgusted with all the Faux rich refi the last cent of equity out of their house morons driving 10mpg SUV’s and talking about their next toy purchases.
Seems every 5 cars on the road has a realtor magnetic sign stuck on their vehicle, or are home improvement related.
My sister is in the cult of Marshall Reddick and has tried to get me in on several properties including BAJA Mexico. I know from many years of visiting there that $20,000 lot 5 years ago now sells for $200,000. A day late and many dollars to risk if you buy there also.
I send her posts and info such as economic reports, geopolitical monetary trends etc.. from this and other areas to temper her “buy now land is running out, prices only going up” NAR brainwashing and she pretty much disregards anything except the NAR and Marshall Reddick spin.
She also talked my niece and her husband who are high school teachers to come to California and buy a new house on I/O loan with $0 down. He used to be a stock broker before he started teaching and I at least got him to realize the risk potential before he did it. They will be the first ones I know with buyer remorse once this Real Estate Ocean Liner hits the iceberg.
I just don’t believe in making a career off of using other peoples money to make your income and providing no product or service to our economy in return. The craftsmen making houses beautiful with marble floors and granite countertops are artistic and do have some talent, but the lie through the teeth real estaters, mortgage brokers, and speculator/sheisters, are no more than glorified used car salesmen in my eyes and typify the greed, sloth, gluttony, and envy part of the seven deadly sins. maybe the other three as well. All of thes are contributing to the decay of our society, especiallly in California.
I have said more than my 2 cents.
Thank You all for keeping me informed and entertained for over a year I have been reading this blog!
We all slam users of the term “soft landing,” but it seems the phrase isn’t well defined.
If by “soft landing,” a RE bull means that prices will plateau at their present outrageous level, then he’s a meathead. And not one of your better cuts, either; more like round or chuck — dense and hard to chew.
On the other hand, what if we define “soft landing” as meaning a return to where prices would have been if they had followed their long-term trajectory — i.e. pretty much the prevailing cost of mortgage funds, or between 5 and 8 percent for the period 1997-2006. That is, a “soft landing” could be defined as a reversion to the mean, without any overshooting on the bottom end.
By that standard (assuming a 6.5% annual appreciation rate, based on what I’m making a wild-ass guess to have been the average mortgage interest rate during the relevant period), an Eastside Costa Mesa house priced at $350,000 in 1997 (a little on the high end) would, after a true “soft landing”, be priced at about $615,000.
That house would probably sell for at least $800,000 today: Even with inventory backing up, that price would undercut the competition by enough that it would attract whatever buyers are left in the game.
A “soft landing” under this definition would therefore mean about a 23% decline — if the decline took place immediately. If, as is more likely, the adjustment is prolonged for a year or so, the drop required to get us back to the long-term trendline (which, again, roughly follows the cost of funds) would be less: By 2008, at an appreciate rate of 6.5% from the 1997 $350,000 baseline, that house’s “true” worth would have reached $700,000, necessitating only a 12.5% drop from the present level.
Thomas,
Yours sounds like a positively lovely idea. I think it would be the case if there were no I/O, ARM, option, no doc loans, rising interest rates, resetting loans and the unfortunate reality that the same herd mentality that causes frenzies also causes panics.
If interest rates remain at historic lows, and the media remains complicit in RE hype, then your scenario may be possible.
If anything goes wrong like rising rates, media getting on the bubble bandwagon, a new “can’t lose investment” (perhaps gold, tangibles or stocks), dollar devaluation, terrorist attack, or any other number of unforseen chinks in the armour, then the market is gonna pop like Oprah’s woopie cushion.
I’d hate to see, but I think it’s inevitable.
OK. a lot of people have described the ending of the bubble (peak was mid-2004) being a “soft landing” in Eastern Australia.
What we saw was a 5-10% fall in SFH’s, and a 20-25% fall in some condos. Truly outrageous asking prices got cut back to comps. Then a plateau.
The Laguna Beach number (down 5.9%) is quite welcome. The sales volume Jan-to-Jan is down 13.5%. Also, almost 30% of the listing on ZipRealty for Laguna Beach have price reductions. Looks like folks thinking resort towns like Laguan not going down like other places is not holding true.
What are other folks seeing in Laguna or other coastal resort towns?
Does anyone know Karevoll? From the LA Times…
“Karevoll said the downshifting in sales and price gains was happening at roughly the same pace regionwide. Such a gradual slowdown is helping to avert a more serious downturn… We’re not seeing anything that would precede a steep drop in the market, he said”
So what exactly does he think might precede a steep decline, since he didn’t say?
Skyrocketing Inventories
Sharp dropoff in sales
A pullback in prices from all-time highs
Affordability index that is abysmal - New buyers can buy
Incomes flat
Interest rates climbing
Speculators bailing out
ARMs coming up on reset dates SHORTLY
WHAT ELSE DOES HE NEED TO SEE???
He needs to see a steep drop in prices precede a steep drop in prices before he sees a steep drop in prices. Whore.
From the OC Register, Jon Lansner has a blog now
March 01, 2006
Slowdown? O.C. values up 18.55%
Local and national home markets were still cooking late last year, one of Uncle Sam’s home price watchers said Wednesday.
Values in The O.C. appreciated at an 18.55% annual clip in 2005’s fourth quarter, according to the Office of Federal Housing Enterprise Oversight. (Report is HERE)
That’s up from 16.55% in the previous quarter. The O.C.’s most recent gains ranked 64th among the 275 major communities tracked nationwide. Phoenix was top dog with an eye-popping 39.6 percent gain.
For ‘05, The O.C. averaged 21.1% gains. Yes, the second half was weaker than the first. And, yes, 2005 was down from 25.5% the previous year. (By the way, OFHEO’s beancounters say O.C. home have appreciated 123% in 2001-2005 — 17th best in the nation.)
So, as of New Year’s Day … maybe eons ago … things looked good.
As for the national scene …
Year-end home appreciation across the U.S. went much like The O.C. — slightly better than the summer. U.S. values were up at 12.95% in the fourth quarter vs. 12.55% in the previous three months.
And since you’re wondering: OFHEO’s math is different than others. This agency tracks home values by looking at data inside mortgage files — purchases and refinancings — at the giant loan buyers known as Fannie and Freddie. Other price trackers get their data from completed home sales.
So, for example, DataQuick’s numbers show appreciation of the median sales price in the fourth quarter at 13.9%. Please note: for the 22 days ended Feb. 15, local appreciation was down to 5.9%
PS: OFHEO offers some neat online price data. Just CLICK HERE to view it.
Looks like someone from the OC Register reads this blog.
Auction Heaven you had an impact. Looks like they are moving away from the bears and into the bulls category.
Lansner still has brought out his archive to show the even-handed treatment of housing in OC.
Lansner still has NOT brought out his archive to show the even-handed treatment of housing in OC.
3 O.C. towns among state’s 10 priciest
Fun numbers inside California Realtors’ monthly sales report tell us that three towns in the O.C. had some of state’s priciest housing — but none with the fattest gains.
Statewide, the 10 major communities with the highest single-family median sale prices in January 2006 were:
Los Altos, $1,700,000
Newport Beach, $1,501,000
Laguna Beach, $1,385,000
Burlingame, $1,200,000
Los Gatos, $1,075,000
Calabasas, $1,045,000
Santa Barbara, $1,027,500
Danville, $936,000
Dana Point, $875,000
Encinitas, $862,500
O.C. median, say Realtor counters: $699,060 10.2%
As for price gains ….
Nobody in the The O.C. made the “Hot List” — California’s 10 major communities with the greatest median home price increases in January 2006 vs. same period a year ago:
Sonoma, 78.2%
Atwater, 62.3%
Barstow, 59.1%
Sanger, 54%
Ridgecrest, 49.6%
Banning, 48.9%
Hesperia, 47.2%
Walnut, 46.9%
Lake Arrowhead, 45.9%
Upland, 45.1%.
O.C. gain, say Realtor counters: 10.2%
Long time looker, 1st time poster. I cashed out of my 2br 2car in Aug of 2004 after owning since ‘99. I did not originally buy as an investment, just wanted to have my own 2 car garage and a place for my kids to call home. I began thinking how outrageous the prices were and decided the craziness had to stop sometime. I now rent a 3br 2 car for $1500/month and have all my profits invested for about 7% annual return since I sold. Not quite the @ 12% if I had waited about a year longer to sell but much less risk. No one including me really foresaw the virus like spread of $0 down I/O, reverse amortizing, and 1 year ARM type loans which allowed anybody with a pulse responsible or not to leverage huge loans with the accumulated risk eventually trickling up to Uncle Sam when the house of cards implodes.
Here in south Orange County I have been tracking a very small niche 2-3 bedroom condos in Lake Forest. Inventory is up 140% since November in this niche. I have seen units in my neighborhood on the market for 6-7 months.
Along with most here I suppose, I am disgusted with all the Faux rich, refi the last cent of equity out of their house morons driving 10mpg SUV’s and talking about their next toy purchases and treating everyone with atitude.
Seems every 5 cars on the road has a realtor magnetic sign stuck on their vehicle, or are home improvement related.
My sister is in the cult of Marshall Reddick and has tried to get me in on several properties including BAJA Mexico. I know from many years of visiting there that $20,000 lot 5 years ago now sells for $200,000. A day late and many dollars to risk if you buy there also. My fear is also that the people that eventually buy these inflated places will take their inflated attitudes with them across the border, and destroy the charming and
laid-back mystique of the whole of Baja eventually.
I send my bsister posts, info and statistics on subject such as economic reports, geopolitical monetary trends etc.. from this and other areas to temper her “buy now land is running out, prices only going up” NAR brainwashing and she pretty much disregards anything except the NAR and Marshall Reddick spin.
She also talked my niece and her husband who are high school teachers to come to California and buy a new house on I/O loan with $0 down. He used to be a stock broker before he started teaching and I at least got him to realize the risk potential before he did it. They will be the first ones I know with buyer remorse once this Real Estate Ocean Liner hits the iceberg.
Personally just don’t believe in making a career off of using other peoples money to make your income while providing no product or service to our economy in return. The craftsmen making houses beautiful with marble floors and granite countertops are artistic and do have some talent, but the (lie through the teeth realty hawkers, mortgage brokers, and speculator/sheisters, are no more than glorified used car salesmen in my eyes and typify the greed, sloth, gluttony, and envy part of the seven deadly sins. maybe the other three as well. All of thes are contributing to the decay of our society, especiallly in California.
I have said more than my 2 cents.
Thank You all for keeping me informed and entertained for over a year I have been reading this blog!
Don’t stop the train now, I’m not ready to get off. I’m telling all the dummies to buy now. There will be just that more inventory when they go upside down in two or three years! As I make low ball (market value) offers I tell them , ‘It’s not personal, just business’. heheheheheheheheh
Well, I can see your point but I’m afraid the train is already headed downhill without any brakes. If the train had come off the tracks 3 years ago when it should have there wouldn’t be so many lives crushed when it does ultimately happen — By early 2007. You’ll have plenty of opportunity to pick up properties for pennies on the mortgage balance…
I’ve lived in OC for 12 years. Until that stupid TV show, nobody called it “The OC.” THE Orange County? Why are OC residents (and journalists) taking a cue from people who see OC as some sort of distant foreign land?
I can only hope that soon after that show passes from memory, so will the “The.”
/rant
For once I was a little (just a little) sorry for the realtor that put a lot of work into trying to sell their house for 3 months and had nothing to show for it.
—————————————————————————
I have a similar story to share. House down the street from us went on the market in August 05 for $ 969,000 - open house every weekend until around Christmas time when the price got bumped to $ 999,000 and then reduced back to $ 939,000 in early January 06. A couple of days ago the price got recuced again by $ 4k to $ 935,000.
Anyway, my wife and I actually feel sorry for the poor realtor who diligently does the opne house virtually every weekend. The problem is that this type of house sold for around $ 500 k 5 years ago.
That overpaid realtor can either earn his pay or join the soup line.
Sunsetbeachguy said…
“Looks like someone from the OC Register reads this blog.
Auction Heaven you had an impact. Looks like they are moving away from the bears and into the bulls category.
Lansner still has brought out his archive to show the even-handed treatment of housing in OC.”
I’m pretty darned sure Jonathan reads this blog.
I’m also pretty darned sure he’s wondering why he’s been listening to Gary Watts.
See, when Gary made his ‘predictions’ years ago…
…he wasn’t being paid by the NAR to be a spokesman.
It’s called ‘cashing in’.
Like when you take your chips to the cage at San Manuel Casino.
Gary’s just like the rest of us.
He wants to work hard, and then back off.
Jonathan didn’t see it.
And now he’s trying to explain it.
I still give Jonathan one more chance.
He’s got March and April- two months- to come to his senses.
The entire WORLD is waiting on the data from Orange County for these two months.
Yes, my friend, we are currently at the Center of The Real Estate Universe.
So here’s the bets:
I say: NO SPRING BOUNCE.
Jonathan says: BIG SPRING BOUNCE.
His reputation depends on the right call, right now.
Is he backpeddling a bit?
Oh hell yes he is.
He’s staring record Inventory in the face…
…hoping there might be just that many buyers.
Vegas oddsmakers give me 3 to 1.
Can he turn it around?
Yes, he can.
If Jonathan Lansner STOPS adhering to a BELIEF, and starts reporting the FACTS…
…he just might keep his job come next year.
To do that-
-he’s gonna have to go it alone, and think for himself.
Will that piss a lot of people off?
Maybe.
But it’s now come down to this:
Jonathan…
…maybe we AREN’T WRONG.
Investigate that.
For your own sake.
He CAN turn it around.
It’s up to Jonathan to see if he does.
Barstow up 59%? Just drove through there today in returning to the Bay area. There is nothing out there to support such an increase. I remember Palm Springs being 108F in May a few years back. Misearable in the summer. Will check open houses this weekend. It should be fun watching the bubble blow here. Out of state is much nicer, and saner.
Ciao
Ben, love your blog. This is the greatest thing on the internet.
I was in Woodbridge (Older Part of Irvine) some nice parts some eh parts. Hardly anything under 400K for nothing. Renting is half the price. Parking in a carport to pay 400K? There has been something wrongn with this picture for awhile. Maybe speculators are finally getting out of the Market. So much of the Mortage Industry is in Orange County….scary.