“It’s No Surprise To See Price Cuts” In California
The Sacramento Bee reports from California. “On a wintry weekday in California’s fastest-growing small city, Bryan Petersen steps from a sales office to discuss how eager home builders are to make any kind of deal with people like him.”
“‘They’re asking $453,000 and offering $60,000 in incentives,’ he says. He nods back toward the sales rep and grins. ‘And she said, ‘Make me an offer.’ I think you could get this probably for $375,000,’ says Petersen.”
“The nation’s largest publicly traded home builders overbuilt and then jostled for a shrinking share of area home buyers last year. They turned the boomtown suburb of Lincoln, population 39,000, into one of the Sacramento region’s most ruthless sales battlegrounds.”
“It’s no surprise in Lincoln to see advertised price cuts on new homes of $96,000, $103,000, $150,000, even $221,000.”
“The price-cutting battles reveal how pressures on big public companies to sell extra stock can also impact individual sellers and small-time speculators, even entire counties. Real estate experts blame Lincoln’s price wars for fueling a 55 percent drop in new home sales in Sutter and Yuba counties.”
“But the competition among big corporate builders has had a number of collateral effects. Speculators who missed the the window to ‘flip’ their investments now find them nearly impossible to sell. And the alluring discounts for new Lincoln homes have flattened sales to the north in Yuba and Sutter counties.”
“Builders in those two counties sold 811 homes in the first nine months of 2006, after selling 1,789 during the same time in 2005, according to consultant Greg Paquin.”
“Sacramento’s Protrades Connection ran as many as 100 tradespeople and laborers a day to local construction sites at this time last year. Now the demand has dwindled to 40 a day. ‘Construction is very down,’ said branch manager Jay Evans.”
“A survey of quarterly employment trends released Monday shows that caution flags are being raised across all industries as the new year starts. Nearly half of the 100 regional companies in the survey will not hire new employees in the first quarter of 2007. About one in 10 area companies anticipates layoffs during the period, the survey found.”
“By the end of 2006, with the housing slump worsening, Protrades radically changed direction from its emphasis on residential construction, focusing almost entirely on providing workers for commercial construction jobs. ‘If we continued in what was our bread and butter, we’d be looking at going out of business right now,’ Evans said.”
The Bakersfield Californian. “A housing development near Cal State Bakersfield is aimed at young, sophisticated customers with active lives. The company anticipates starting prices may be in the mid- to high-$200,000 range.”
“The company believes future buyers will include young people looking for their first homes or those who are ready to purchase home No. 2. The concept appeals to Isaac Ramos, 20.”
“‘I don’t think there’s something like that to appeal to the younger market. I think Bakersfield could use something like that,’ Ramos said. He’s about to close escrow on his first home, and he’s interested in buying more properties.”
The Orange County Register. “(Realtor) Steve Thomas in Aliso Viejo calculates it would take 7.51 months for buyers to gobble up all homes for sale at the sales pace at Dec. 28 vs. 6.88 months two weeks earlier BUT still way above 3.59 months a year ago.”
“Thomas notes: ‘The active inventory for Orange County continued to grow from the beginning of 2006 until it peaked at the end of August at 16,006 homes on the market. Since August, the inventory has dropped consistently to 11,879 homes today, 4,636 additional homes compared to last year at this time. I am EXTREMELY concerned about the potential for the inventory to grow to 16,000 homes in May and even 20,000 homes in August.’”
“We finish our eyeballing with Leslie Appleton-Young, chief economist for the California Association of Realtors trade group.”
“Us: How do you think O.C. will differ from the nation or state market? Leslie: Because of the greater-than-average inventory of unsold homes on the market, sellers in Orange County will need to be especially motivated and realistic if they are really interested in selling in today’s market. Only those homes that are priced to sell and are in excellent condition will sell quickly.”
“Us: What events might change your outlook, pro or con? Leslie: A recession or spike in mortgage rates is the most obvious negative scenario for housing.”
The Voice of San Diego. “The San Diego Daily Transcript ran a story pointing out that over 3,000 condo units are currently under construction downtown. Additionally, another 7,000 downtown units are either approved or proposed.”
“Friends in the industry tell me that once a building is under construction, the odds are high that it will be finished, which implies that most of those 3,000 units in progress actually will be built to completion.”
“At the moment, ZipRealty.com indicates that there are 505 dowtown resale condos listed for sale. The pace of recent downtown sales has been so weak that it would take almost a year just to burn through that existing inventory. It is into this already serious oversupply that a further 3,000 or so units will be released over the next two or three years.”
‘Calimesa, known for its spacious ranches and country charm, teeters on the outskirts of the county’s rapid growth but has added fewer than 200 people to its population of 7,300 since 1990. Only three major housing projects have been approved in nearly two decades.’
‘Seven model-home building permits for The Fairways at JP Ranch were pulled this month. Grading has begun on all three major projects: 700 houses at JP Ranch, 268 for Mastercraft Homes and 3,650 at Summerwind Ranch. Most of the homes are expected to go up within the next two years.’
Spacious ranches and country charm? The place that comes to my mind has neither, and is rather run down. But throwing up 4618 new houses in a city of 7500 which has no schools or much of anything for that matter?
“Calimesa has been seen as slow or no growth, so developers have focused on Yucaipa and leapfrogged to Beaumont, but have rediscovered the (cheaper)available dirt in Calimesa,” said City Manager David Lane.”
Just what the IE really needs. Even more houses for the inventory pile.
Regarding the proposed developments in calimesa:
That will cause more seizure problems for the 10 fwy, which is the only main arterie for that entire area. Was coming back from a trip to palm springs in early 2006 and the 10 had a horrible chokeup where traffic was stopped dead. Took little used tricky side roads to get around it(I have an IE thomas guide)and got back to the 10 somewhere in redlands.
Did get a glimpst of the Calimesa/Yucaipa region. It was just starting to sprout new housing tracts and shopping centers(Yucaipa). The IE developers will devour Calimesa. The pull of development dollars to fund public works, parks,schools, ect is just too strong for the local yokols to resist.
Calimesa has been no growth because a group of rural homeowners to the southeast has been successfully challenging most many new developments in the area.
Coincidence? I remember reading several comments here this past week blog about the Rivermark development in Santa Clara…. well it seems there was a 5-alarm fire there this afternoon. This story is from the KGO new site. Hope the link works…
http://abclocal.go.com/kgo/story?section=local&id=4900007
…on this blog..sorry
Summerwind Ranch HA!
I heard a radio essay where the commentator thought the names of new communities were a memorial to what had been there before the development went in:
- Summerwind Ranch (no more ranch)
- Fox Ridge (no foxes, and probably no ridge)
- Woodlands (bye bye woods)
- Great Oaks (used THEM for the floors)
- Sky Meadows (what meadows?)
- Reserve at Rorkby Farm (wonder where the Rorkby’s retired to?)
- Holly Forest Estates (you’ll get stuck, alright)
But my favorite by far is the most factually named one:
- Lansdowne Town Center Stacked Townes (I wanna live there!)
Sky Meadows - if in IE, what sky?
Cool all over the local news news here in CT they are saying MLN finally blew up. It should be intersting to see all the new for sale signs popping up in Middletown. Its about time, we all know this was going to happen for weeks now…..Ok OK so whos next step right up
Yep. Here is the Reuters story about MLN.
http://tinyurl.com/ylgq9b
They did over $3.3 billion in subprime loans in 2006. About 80% of their employees have been furloughed. But, of course, they are looking at strategic moves (i.e., hoping some fool will buy them). Any predictions for the next subprime to close up?
Not necessarily a fool. One or more of their lenders will probably take them over if only to manage the liquidation of its asset base. Much better than trying to recover from a fire sale or receivership.
Interesting parallels between Enron and sub prime lending from the New Yorker…
I wonder if homebuilders are using the same tactics with land options.
“Us: What events might change your outlook, pro or con? Leslie: A recession or spike in mortgage rates is the most obvious negative scenario for housing.”
Hmmmm, seems to me the elephant in the livingroom is being conveniently overlooked - ARM RESETS WITHOUT APPRECIATION BAILOUT LEADING TO MASS DEFAULTS. The demise of risky sub-prime lending practices is a close second.
A severe spike in interest rates is unlikely so that’s why it’s at the top of her list - everything is going to be just fine according to the CAR [revise outlook later after consulting with Gary Watts].
AZ_Bubble Popper,
Yeah, uh nevermind this gaping chest wound and the gash in my head it’s this hang nail that’s really got me concerned?
You’d think they (CAR) would have abandoned the campaign of dis-information by now but….. you’re right! They painted her into a corner for a statement and this seemed like reasonable lip service at the time. In the end, rates haven’t had to so much as budge to de-rail this. Kind of funny ain’t it?
Funny how these f***ing boneheads ignore fundamentals when they talk about why the market is still hot, a good investment, not tanking, whatever. You know, five years ago, one could buy a very nice home on the exclusive Mercer Island in the Seattle area for $500k. That was a lot of money. Nowadays, you can’t even get anything nice in Tacoma (the a**hole of the PNW) for that. Have wages gone up? NO! It’s a speculative circus folks. When you try to mention this to people, they look at you like they just got a lobotomy. For petes sake what the hell has this country come to?! I feel like I am living in the Twilight Zone. This crap is unreal. Rant off.
I know it’s disturbing how out of touch people are with fundamental realities. My favorite response for why Seattle will hold up is because “it’s cheaper than SF, SDO, and LA.” Nobody even seems to question the fact that we could have a downturn.
Yeah. A good example is the wannabe “investor” Seattle Eric. He is all bullish on Seattle seeing more appreciation since it is cheaper than those areas. That clown just doesn’t get it. He paid like $450k or something for his west Seattle sh!tbox on a
oops, got cut off for some reason.
In a nutshell. Seattle Eric brought his tiny little west Seattle flip on the market for $649k. A laughable price for the property. No bites, he lowered it to $599k. The problem is, he will be lucky to garner $475k for it. This means he would take it in the shorts for well over $100k. The same goes for his Everett property. Way overpriced, no greater fools. Between the two properties, he stands to lose like $250k if they go for fair market value at this point (which excludes some sort of fraudulent deal). Do you think he has the money to do the deal? I would doubt it. Unless he has the rich relatives wild card, he is already done. But he is continuing to amass properties in Oklahoma, etc. I think it’s curtains for him once he finds he cannot unload the Seattle area properties. I mean they are dinging him for close to $10k per month. Time will tell, but my money says he, his blog, and his properties quietly disappear, unless of course, one takes a trip to the King County courtsteps this year.
And one more thing while I am on a roll about this nonsense. I am certain this guy is committing loan fraud. In his own words, he mentioned he was unloading a piece of dirt in Mexico because his DTI was too high to get a construction loan. Yet, he goes and purchases numerous properties in Buffalo, OK city and elsewhere in the midwest. Something smells funny. I am sick and tired of this crap going on. I thought we had laws in place to prevent this sort of thing. I wish someone would take a good hard look at what this guy is doing.
Furthermore, per Zillow, I just saw a property in Reno, NV sell for more than $200k above recent comps. It reeks of fraud. And I don’t think anyone has moved in.
Print up the comps to show they overpaid.
Pin it on the front door and write “SUCKER”
LOL!
Update on Sacramento Mortgage Fraud: 1/2/07
Background: 5 houses on Hillwood Loop in Lincoln CA (Sacramento, CA) sold for $250,000 over comps.
Update: There are now EIGHT houses that sold for $200,000 over comps. In my opinion, the builder has to be in on this fraud big time. Same people buying 2 houses, using 2 different sub prime lenders? It sure looks like fraud. One lender has four loans on the same block. I wrote to them an e-mail yesterday and copied Fitch, S&P, and Moody’s. Calls came back immediatley from the lender and from Fitch today, both wanting more info. The lender has requested some more evidence I have developed and has already opened an investitgation last month based on my prior e-mails. They are already working with the DA & the FBI. This lender is getting stung all over the place with buy backs and have a whole fraud division now. They have sent people to jail for several years already in multiple cases. Their fraud director is a former chief of police in L.A.
It is interesting how much their ears perk up, when I notify the rating agencies. This will stop their exit strategies right now and they will quit doing it.
Amazing that it takes such persistence to get this done. Some of my friends call me Mr. Tenacity. You can call me Paladin!!
“Wire Paladin, San Francisco”
Have Gun, Will Travel
Bravo, Paladin! When I saw the Lincoln story you immediately came to mind. Having lived in Sac when the bubble first started expanding, the pain that area will suffer is no surprise to me. Keep up the good work, and keep us informed of your progress.
It’s interesting to see that many people are detecting these kinds of shenanigans. We have Paladin here, and I saw people commenting on similar stuff in other blogs. It’s weird.
What is sad is that so many people were in on this! And don’t anyone give me crap about the buyers. They should have smelled a rat when they rec’d a check for 200K in their name. What cave were you living in. Since when does anyone buy a 750K overpriced PoS crackerbox and still get back a check for 200K? Not in any real world. Maybe Bizarro World, but not in real life.
Damn our economy sucks. Yeah, capitalism! It’s the best thing, I’ll admit, until the greedy and criminal element start running the show, then look out!
Our economy is like the judicial system. If it’s the best thing we’ve got, then we’ve got real problems. However, I am thankful that I live in the US. Just ranting that we needs some serious fixes here and quick. Keep up the great work Paladin.
I have a neighbor who has lived in the house for about 30 years and has some shady happenings going on. Sold the house in 04 for $200k then bought the house back in 10/06 for $400k, never moved never saw a sign up, but found this on county records office after seeing it was recently sold. The house cannot be worth more than $350k. I do not know what is going on and cannot figure out a reason for this, anyone have any ideas of what could be going on.
The sad thing is what fraudulent lending does to the neighborhood. Read the Denver paper’s series on the devastation of previously nice neighborhoods. Innocent people get to live next to abandoned squats when these straw buyers get foreclosed on.
fake muliple bids do it all the time.
Seattlerenter, I also have found things I cannot explain while checking the other condos in my building on Zillow. The condo across the hallway from our rental sold twice in 2 years for exactly the same price, and the person living there is always the same. Same thing for another unit one floor up. The people living in it have never moved, but they have two sales recorded in the past couple of years. I thought maybe it had to do with cashing in on the tax advantage, but that would not explain why one of the units sold twice at the same price. Go figure. I think that as things start unravelling we will find out what these people were trying to do.
When you see a lot of churn, there is almost always fraud.
In CA, no one in their right mind would cause a property to change hands just for fun. If the buyer and the seller are the same person, they just upped their tax basis by doing the transaction. So there had to be a hidden purpose, the only question is: what was the angle?
I am not certain that the buyer and seller are the same person. For that I guess I would have to check county records or something of the sort. The only thing I know for sure is that the people who live in those condos have not moved, although the condos they owned have changed hands at least on paper a couple of times. I can’t think what they are doing.
Paladin, I need your expertise on exposing these frauds.
In the past 6 weeks two rentals on my block (4 bed SFH) sold for approx 185,000 over comps. They have been vacant since I moved here (approx 7 months). This is in the Coachella Valley (Palm Springs area) and this area in particular is flipper central. I checked the Riverside assessor office and both were owned by the same Realtor office for about 2.5 years. Most comps for these houses are in the high 300,000/low 400,000 and they both were sold for 585,000 two weeks apart. It just seems extremely unusual as nothing else is selling in the area. Then out of the blue two sales for WELL over comps/asking prices. Could it be legit…I suppose but seems extremely shady. If you can share your investigative methods and who to contact I’d be thankful. More of us need to get involved in stopping this crap. I’m tired of it. What the hell is going on in this country that this fraud is so widespread? It cannot be this easy to scam the system.
Lex, You need to get the loan information and the sale comps. I have access to a title company database. You need to contact a title company customer service dept. They will help you (and remember them when you buy or sell) If you put the addresses up here, I will tell you in 30 seconds what the info is. I will check back at 3 PM Pacific time.
Sorry about the late reply but I’ve been working to pay the man. The addresses are 49454 Wayne St and 49814 Wayne St, Indio CA, 92201.
Thanks for any information.
Lex, Welcome to the nightmare of the sub prime financing game. Both of these properties were sold by a seller named Gold Hawk using 100% 80/20 loans.
Unit # 49454 sold to Sean Libbert for $585,000 on 9/29/06, funding by WMC Mortgage Corp, $468,000 1st & a $117,000 2nd mortgage. The unit is 2112 SF.
Unit # 49814 sold to James Proetz for $585,000 on 10/10/06, funded by Master Fin’l Inc., $468,000 1st & a $117,000 2nd. The unit is 1985 SF
I did some checking on comps and these are the highest priced units in the area at $275-$300/sf. In all the comps, I have yet to find a sale with less than 95% financing, except 49562 Wayne, which is 2066 SF and sold for $403,000 on 2/10/06 and used 80% financing. It is 2066 SF.
It certainly appears this area is ripe for fraud and rife with fraud. How is the overall market there? Solid, weak, appreciating, declining? These sales, using 100% LTV finanicing suggest it is continuing to appreciate at 10-15% per year.
Oh, and this just in….Sean Libbert (above) purchased another property from Gold Hawk the very same day: 48788 Sojourn Street, for $900,000, using 100% financing from Homefield Fin’l Inc. Prior sale of this property two years earlier for $574,000. 57% appreciation in 2-years, in a declining real estate market?
Lex, the real estate world has gone mad and is spinning out of control. You are seeing it live, before your very eyes!
Lex, move forward to Bits Bucket Jan. 4 to see what you have started. Use “Contol F” and enter “Lex” in the search. It has a life of its own now. Paladin
Your rant is a perfect summary of what goes through my head a few times a day/week.
It does have a certain surreal quality: kind of like a train wreck in slow motion. You don’t want to watch, but you just can’t help yourself. Every now and again the insanity of it all bubbles to the surface in little rants like banteringbear, then it goes back into hibernation for a while: waiting, watching, wondering when it will awaken again. I don’t know whether to laugh, cry, get angry, or just sit dumbstruck at the ignorance of my fellow man. I’ll probably just keep coming back to these boards feeling assured there are still sane people out there who see this insanity for what it is.
I choose to suck my thumb and rock back and forth.
LMAO!
I do the same while listening to soft rock from the 1970s. Amazing how those tunes can transcend one onto a sandy beach with pina coladas flowing.
Thanks for saying that BanteringBear,
I still happen to think $500k is a S&*tload of money, but just this weekend I saw a mediocre ranch home on 5 acres in Medford, OR for $795k! A circus is right.
No, Mr. Fester, thank you for putting up with the rant! Believe me, I have been wearing people out in person. I have never been the annoying relative, but lately I wonder. However, it has worked on close friends and family. They are bubble believers. I print out a lot of these newslinks, and have them read for themselves. The bulls have no data, just hopes and dreams.
$795k in Medford?! Laughable. I know Medford well. In fact, I have been all over Oregon, Washington, Northern CA, and Nevada throughout my life and am very familiar with the smaller towns as well as the bigger cities. The little places like Medford, Grants Pass, Ashland, Eureka, Shasta City, etc., they are done. Stick a fork in em.
Fester: I’m not surprised at all. How familiar are you with Medford? I have relatives there and visit once or twice per year. IMO, that is a catastrophe in the making. Talk about a place with total reality disconnect.
On a side note, I was able to recently view the MLS for east Alameda County. While prices are still unrealistic, the trend is clearly downwards. Saw one recent closing where the buyer lost money when you consider all the carrying and selling costs. Less than $40K TOTAL appreciation for two years of ownership. Some of the newer built condos are up for resale at less than the final units sold for just one year ago. While the current listing may show it has only been on market for a couple of weeks, when you look at the history it is actually months on market. The sellers are clearly chasing the market down with price reductions. One listing offered seller carryback financing for a portion of the price. A large number of listings say the home is vacant. Another very common phrase: Seller very motivated.
The ship has turned and spring will most likely be very ugly.
Hey CA guy,
I am very familiar with Medford, living, as I do, in Ashland, OR. Surprisingly, Ashland is showing signs of decline,but some pockets of Medford are still completely wacko. Most folks here are NOT rich.
Yes, but I have been in Ashland also, and distinctly noted the over-abundance of gays in the Starbucks by the Theater. Your town has gone gay, and they like to feign big show and big money even when they don’t have any.
Could seem that way,especially since we seem to be a bedroom community to the CA Bay Area. We are a big theater town, with our Shakespeare festival and all. Gays come to Ashland because they would be chased from most Southern Oregon towns with burning torches. Most of the town seems pretty hetero to me, outside the downtown part. But I agree artsy fartsy types do like the fluff.
Bear, so true about a lot of money. Think about 500K for a moment. That is half a mil. If you look at everone in the US, what is the percentage of people worth even a mil, bottom line, not some mumbo-jumbo value, but actual million. Now out of that group, how many have access to a million in cash, going right to the bank and getting to it, not selling off the art work or baseball cards/memorabilia.
My point is half a mil or a cool mil is still a lot of money, it is just that with this bubble, you can’t get much for it many areas. Maybe we should all move to Ohio.
If your net worth is in excess of 500k, you are in the top 1% of the World.
Absolutely is a LOT of money. What gets me is how lenders talk about a fee and say, “it’s only five hundred dollars on a half million deal”?
I loved looking them in the eye and ask them if they would take five one hundreds out of their pocket and burn them…..if it’s not that much money?
“My point is half a mil or a cool mil is still a lot of money, it is just that with this bubble, you can’t get much for it many areas. Maybe we should all move to Ohio.”
I sold a $500k condo in the OC and bought a $500k house in Ohio. That kind of money here will get you a highly upgraded 4000 sf on 1/2 acre in a great neighborhood with excellent schools. It’s almost surreal.
Bantering Bear has it right: we are in a temporary Twilight Zone. Case in point: a decent home in my area last sold for $368K in summer of 2000. It is a typical ranch style, 3br, 2 ba, circa mid-70s. By today’s standards it is a large lot. The house has been well maintained and updated with all the usual. Today it is being advertised at $600K after a $100K price reduction! A good start, but come on! 63% appreciation over 6 years? While things have slightly picked up in the bay area since the dot bomb, it isn’t what it was. The only explanation is loose money. It is a nice house, and I would like to buy it, but only if we were back to 2000 pricing!
That house should maybe be at 450K, tops!
“That house should maybe be at 450K, tops! ”
Dude Not Even $450K more like under $350K.
Consider in the Bay Area, in the heart of Silicon Valley you could under normal economy circ. 1997-98 buy a 2000 sq ft home for around $189K. After 1999-00 that figure nearly doubles. Then straight to $660K-$750K.
Thats a lot of foamy bubble…
Consider the long term trend appreciation of 1-2% appreciation above inflation you get $325K tops…
On a side note from todays Mercury News… graph shows how R&D Parks (Comercial RE) have gone down from $3.00 (circ. 2000) per sq ft to $1.00 sq ft (today) actually very near pre-tech bubble years of 1993-1998. Its actually gone flat.
Louie Louie comment re commercial RE flat/down
meanwhile
OC realtor says commercial RE is offsetting the plunge in residential. Yeah!
Seattle home prices have hit an all time high of 444K. Source is here
I believe this to be due to falling inventory which has “fallen off a cliff” over the last month or 2 as people pull their homes off the market and wait for the “spring miracle”.
Changes nothing but it will bring out the bulls for another month or so…..
By far the oldest game in the book - intentional misdirection - designed to dupe the unwary by dismissing the obvious or neglecting to even acknowledge it.
The best time ever, to buy & sell…
Paladin, we need an update on Lincoln and JTS estates (IIRC).
What is IIRC?
If I Remember Correctly.
THANKS!
Infinitely Insane Realty Company
SBG, Check above a few threads, then I read below here. There are now EIGHT F*CKING houses at $200,000 to $250,000 over market, using sub prime 100% financing. I am p*ssed off and entering a new phase. Rating Agency time!! I am sharing a few lines from the e-mail I just finishend to the fraud division at New Century and the rest of these GF lenders:
You will find a several attachments which will prove to you beyond any reasonable doubt that there is massive mortgage fraud going on in the Lincoln area. What started with me wondering about one house which sold at 1323 Hillwood Loop has lead to uncovering 8 instances of this behavior on that street. Furthermore, I believe I could make the case for more similar transactions within the imediate area.
As you know, I am working with the authorities with minimal levels of success, but patiently and tenaciously leading them into action. It was out of this relative inactivity that I began to contact the sub prime lenders, thinking they would react quickly to stop this self destructive behavior. First Franklin has been somewhat responsive, along with you at New Century. However, when I saw new loans were continuing to be made this month, I was completely baffled.
The rating agencies are my next level of appeal. It is my goal to create a list of these fraudulent loans, so they can be flagged and not make it into any RMBS pool, or if they do, they will get immediately pushed out for buy backs to the sub prime lenders. I am working my way up the ladder with Fitch, Moodys, and S&P to find the proper contacts. That seems to be my only option left to encourage the lenders cease this activity.
It was very refreshing to get your call today. You company, with 4 loans in that neighborhood, stands to lose at least $700,000 in value, or more if the market keeps dropping. I hope you understand the tables and the documents I have created for you. If you have any questions, please feel free to call. I would be pleased to meet with you if you would like more specific information I have developed. There should be no doubt about the crimes happening at your expense and the expense of First Franklin, Alliance, Long Beach, Fremont, and the rest.
…and the expense of First Franklin, Alliance, Long Beach, Fremont, …
Paladin
First, thanks for your great work. Sometimes it just takes
a good push to get the big ball of rubber bands to come undone.
I am wondering if there is a formal protocol to notify the
shareholders of First Franklin, Alliance, Long Beach, Fremont?
I personally hold 3 CD’s with Fremont.
What’s not so funny is the Fremont reps that I deal with (at
the Laguna Hills branch) have consistently commented
about how “conservative and careful” Fremont
management is about lending money.
What a snow job.
Anyone famliar with the inter workings of these instituitions
and who to call / email? At a bare minimum, I would like
to make them aware of this blog and this specific topic.
Paladin for President!
“It’s no surprise in Lincoln to see advertised price cuts on new homes of $96,000, $103,000, $150,000, even $221,000.”
Translation: If you bought one of these beauties last year, you are hosed.
Totally.
$221k? That’s the most I’ve heard of yet.
Locals in the Sac area call it “Stinkin Lincoln” because of the sewage plant in town. When the wind is blowing just right, you get the idea.
There are about 80 of them all in a row with these losses at the Estates at Lincoln Crossing by JTS. Check out the first photo on HBB photo gallery, top left corner on the Home page of this blog: Haunted Hillwood Loop.
And how much in incentives were they throwing in on top of these price cuts? Brutal for those who paid full price.
Didnt see if the 221K drop was from 500K or $1.0M.
I suspect it was from very high end which no one around Sac could afford. Add to that, I doubt this is the end … much more to come down to get back to the historical long term mean.
By the way, for those Arizonans out there, I think Sacramento is a great comp as a city for what you might expect in Phoenix. The two towns are fairly similar, in my opinion. Replace Lincoln with Surprise and move the clock forward a few months.
$770k, now $550k. Drove through a couple of these neighborhoods between Sac and Chico about 2 months ago, and they are really sad looking. The true definition of ugly stucco box. No landscaping, multiple cars per occupied house, garage doors open with all the crap inside. Really a low rent housing look. These are a GF buy at 400k.
How can you get a mortgage on a house with $221,000 in incentives? Where is the line drawn between incentives and mortgage fraud?
there is no line. more like a smudge.
“Real estate experts blame Lincoln’s price wars for fueling a 55 percent drop in new home sales in Sutter and Yuba counties.”
It’s a new era, in which the normal laws of economics have been repealed! Instead of resulting in an increase in sales, record oversupply and price wars (read deep discounts) are to blame for a 55 percent drop in new home sales.
“experts”
lol
expert con artists, you mean!!!
“Real estate experts”
Graduates of realtor school class of 6/07/06 1:00pm to 2:30 pm are now experts. I sell real estate therfore I am.
Instead of “experts,” I would like a newspaper writer to say, “the completely clueless who happen work in sales.” Or maybe, “the self-serving liars who want to dupe you.” Or maybe just call them “realtors.”
LOL Yea… sort of like the stock analysts experts who were recommending a buy on stock they were covering.
“Real estate experts blame Lincoln’s price wars for fueling a 55 percent drop in new home sales in Sutter and Yuba counties.”
Yes GS, they have it backwards. It’s the 55 percent drop in new home sales that’s fueling the price wars, not the other way around.
55 Freakin’ % Decrease in new home sales…..I didn’t think any market could stop THAT fast. Is someone driving around shooting buyers who try to make an offer?….LOL
Just overfishing. Buyers aren’t endangered, (yet) but they are considered threatened.
guys - there are still many GFs out there to be shorn- strange but true….houses still selling in SFV close to asking= if neighborhood is “desirable”. wow
“And the alluring discounts for new Lincoln homes have flattened sales to the north in Yuba and Sutter counties.”
How did ‘alluring discounts’ flatten sales? Don’t discounts normally make consumers want to buy more of whatever is on sale?
“Builders in those two counties sold 811 homes in the first nine months of 2006, after selling 1,789 during the same time in 2005, according to consultant Greg Paquin.”
It appears the supply of GFs is dwindling. And this is before the effects of the subprime subsidence have even begun to play out.
possibly dwindling, but imho should be zero. some people are still buying at dumb prices - i.e. asking price
Just wait till the foreclosure go up by 1000%. That’ll kill it.
That’s the only number left to watch. Massive leverage and unheard of debt built on high-risk pay-option loan products much of it on the backs of those with questionable creditworthiness. We’ll see the continuation of the current explosion in foreclosure rates until the whole mess hits critical mass and the latest incarnation of the RTC gets dusted off. Q4 2007 is my guess…
I hate to say this, but our guesses about when the SHTF keep getting pushed off into the future, just like REIC’s guesses about “the rebound”.
If it were 1 year ago without the trend & momentum in place and building I would agree with you. At this late stage the meltdown is irreversible. Q4 ‘07, latest Q1 ‘08 for some RTC-like program…
Personally, I want the day of reckoning to be stalled - and that’s for all of our sakes, so that we could squirrel away more money in PMs and T-bills. 3 month rates are going back up again. I just got a 3 month extension on my engineering contract and there’s overtime. So I’m into gold and 3 month T-bills.
There’s still very little in the MSM in LA and the Valley. It doesn’t surprise me at all that the mess is continuing. Last week in the LA Times there was a piece on these adorable young RE agents, and isn’t it cute that they’ve sold millions of dollars in homes. Until people see it outside of boards like these, they’ll still be buying.
I saw that article and wanted to barf. It epitomizes the BS world of LA.
I hope they do a followup in a year or so - see how the kids are doing.
They think it’s all gravy - have never been in a down market. They’ll make nearly zero dollars next year. May be flipping hamburgers rather than houses.
They might end up like the group of newly graduated engineers that joined Nortel in 1999 and were featured in the San Jose Mercury. They were all layed off in a follow up article two or 3 years later.
Unfortunately, I’m not so sure LA will have such a bad year, I still see plenty of inventory moving, and I’m still waiting for someone to post one listing with a significant price decline in LA.
I sent this in to the Times, I have a feeling they won’t print it.
It is truly a sign that the real estate Apocalypse is upon us when one picks up
the LA Times Real Estate section and sees an inane piece on the “million dollar
babies” and their awe-inspiring real estate sales. When economic principles
are screaming that a massive price correction is in line for much of California,
potentially ruining familes and destroying local governments, what does the Times
choose to print? A pathetic puff piece reminiscent of the stories of old lady stock
clubs reaping millions before the tech bubble burst. There was a time when I naively
believed that my local paper was a public service of some sort, but now I see it’s
merely a shill for the powerful real estate industry that fills its advertising
coffers. Dr. Robert Schiller, who correctly predicted the tech bubble, is now anticipating
a massive correction in housing, particularly in the hot markets (and Los Angeles
is red hot). Where’s the story on him?
You’ve inspired me to make a pseudo copy of your letter, sign it and send it in, maybe if they receive more than one they’ll have to print it.
Thanks, lainvestorgirl, the piece just boiled my blood. Some clod is buying a house today, signing over his life for the next twenty or so years and it really pisses my off that no one is out there to tell the truth in the MSM.
Lionel
The LA times chaps my ass. I’ll send them a surly note as well. I hate that no one in LA is covering the housing bubble. They may say, “Hmmmm, I think I smell peanuts” but no one is saying “Why in the hell is there a huge elephant in the room!”
Not to defend that lousy article, but the MSM are in a tight between a rock and hard place. Someone said above that the minute one of the MSM decides to call it like it is, things will get serious. I agree, but they have to be cautious precisely because of that. For them, it’s the old damned if you do, damned if you don’t. They either get accused of looking the other way or of causing an apocalypse in real estate.
I have heard realtors complain bitterly about “how terrible” the media have been and how they are spreading a panic among buyers. I thought about asking them exactly what news outlet they were talking about until I realized that they are so overly sensitized to any piece of news that rocks the boat that they think that a headline reading “prices up, sales down in LA” is spreading doom. I don’t expect any MSM outlet to call it before it is totally obvious to everyone. They will follow up with good stories, they will probably investigate the mortgage fraud and the tax derivations all this will have, but until then my guess is they will treat the subject the way they’ve been doing it so far: like a hot potato. For every slightly bearish article there will be another upbeat piece. That is the way they cover their a$$es.
You have a good point, cass, but I think they have done a horrible job of covering this. I can’t recall a single article that was not steered along by RE agents. Their primary job is to print the truth, even if it is painful. They certainly have a duty to the people out buying right now. I recently was blabbing about the bubble to a friend of mine, and his response was that the LA Times said that prices had stabilized. Indeed there was a report like that recently in the Times. Shouldn’t thee people of LA know about Robert Schiller and at least have the opportunity to agree or disagree?
“Shouldn’t thee people of LA know about Robert Schiller and at least have the opportunity to agree or disagree?”
Yes, they should, Lionel, and although the LA Times has not covered the bubble per se, there have been articles like this one
http://www.latimes.com/business/la-fi-petruno24sep24,1,33389.column
It won’t tell people here anything they don’t already know, but personally it was this type of article that led me to look for more information, and thanks to that I found this blog not long ago. They should do better, though, but it doesn’t surprise me that the quality of information has deteriorated in direct proportion to corporate ownership of major news outlets. They are dropping the ball on many important issues, the bubble being only one of them. It’s just so sad (and dangerous).
I think it was a piece in the LA Times that led me to this blog initially.
I’m not so suspicious that they have an agenda to keep the RE market up, maybe they just don’t have a clue. There was some housing slowdown news on the front page of the WSJ today, that paper has a little more savvy about economics (obviously).
They have to pretent to be “fair and balanced” to keep their advertisers. The occasional puff piece is required.
“Unfortunately, I’m not so sure LA will have such a bad year, I still see plenty of inventory moving, and I’m still waiting for someone to post one listing with a significant price decline in LA. ”
I will give you two examples of why the LA metro zip prices are so out of whack. Lets veer off of LA westside and venture into two LA city zip areas which are complete polar opposites of the westside, zips 90011 and 90003. These two zips are the very worst decayed, innercity slumzones in all of LA. yet 90011 shows 23 sfh’s sold @423,000, median price @ +14.3% yoy. 90003 showed 38 sold @ 428,000 for 18.8%yoy increase. Reason:toxic suicide loans thrown into these third-world tijuana s*itholes, and even probable mortgage overappraisal fraud here and there. Maybe this type of garbage lending/throwing buckets of investors money into SCentral sewer zones does not happen in the LA westside, but this entire aspect of loose lending standards sending LA RE prices up the kazoo infects the entire LA Market, whether it’s upscale westside or scentral hoods.
Note : i have been going into these areas on job assignments and am appalled at the garbage,broken discarded furniture and all assorted waste spewed all over these inner city areas. Some of these Scentral residential/mixed areas qualify as superfund EPA disaster sites. Maybe the LA times can do some useful reporting on environmental degradation of inner city areas instead of stupid fluff pieces on wonderkids selling million dollar RE in beverly hills.
There is a big difference between the business press (WSJ, Business Week, and more so the Economist), and the MSM. The readers of the business press are sophisticated people who know what investing is all about. They are paying money to get the straight goods and won’t stand for any BS.
The readers of the MSM…. well need we say more.
And at least in the Washington Post, there is a great deal of difference between the coverage in the Real Estate and Business sections of the paper.
1 million for van nuys - gimme a break!
cass and lainvestorgirl, you’ve both made good points. I guess I just have trouble imagining someone working in the real estate section of a major newspaper not having a pretty good idea about all this. My wife’s cousin work for the Chicago Tribune and he seems to know everything about his field, and he’s just a young guy.
For the whole town maybe…
“I’m still waiting for someone to post one listing with a significant price decline in LA.”
I guess you haven’t looked the latimes zip code chart at dataquick. Many zips negative YOY, some significantly. Not all or most, but it’s the start. This town’s built on hot air.
Sacromento… got this from Wall Street Journal RE Blog Discussion Board…
Document No.: N/A – Active Listing
MLS No. 60129476
COE: Active Listing
Sale Price: $450,000
Price %Change $590,000/$450,000 = -31.11%
Property Address: 5617 Valhalla Drive
APN: 230-0331-017
Document No.: 20050321-2765
MLS No. 50006529
COE: 03/21/2005
Sale Price: $587,000
Lionel — I’ve never heard of an old lady stock club. Why pick on the old ladies?
Well known financial folklore…
http://en.wikipedia.org/wiki/Beardstown_Ladies
BS the house nxt to my parents was just pulled after 103 days and no offers.They dropped the price from 559k to 539k and refused to go lower.This is good area n hills and homes last year sold for 600k easy and the house behind my folks sold for 700k one year ago.
This is the san fernando valley by the way.Those that say houses are still selling must not live here because i see very few sold signs.
signs are out and slow but there are some dummies still buying close to asking….
where in the valley do you see a complete stop?
The valley, like LA, is gigantic. I’m in L.A. near the Grove. People are still paying Within %10 or so of asking here. Things are still selling, not like the last few years, but there appear to be plenty of GF’s still. Other areas of LA however… D.E.A.D. Prolly true in the valley too. North Hills may be dead, but I bet there’s still people snapping things up in Studio City / Valley Village. Denial runs strong in the “monied” parts of town. Not sure what’s gonna kill the beast here. I have no insider info… maybe the beast *is* dead, but on the surface it’s not as bad as…uh, I’d like it to be… Watching paint dry is a thrill ride compared to this…
i agree with what you say
“Not sure what’s gonna kill the beast here.” SoCal Subprime shops imploding throughout 2007 will kill the beast rest assured. When the credit drys up so do the GFs.
I’m following a few properties in my area of Westwood, 90024 zip code. In the past two weeks, no house sold, no price reductions. Whatever is going to happen here, it hasn’t happened yet…
Dataquick Nov 2006 single family homes
LA/Westwood 90024 5 $1,309 -28.8%
Imploder, that’s good to know. I guess that applies to the houses that actually sold, not the ones I’m following, which are still on the market. But thanks for the info, it gives me some hope. How can I get in that website?
http://www.dqnews.com
on the left side there are click on for LA Times Zip codes
dqnews.com
Shhhh!!!!
Last summer, my ex bought a house for the 1.125M asking price in Northridge - a few blocks from the barrio (Zillows at $886,000 - recent comps $700K). He is also sitting on two “appreciating” WPB condo conversions (rent for $750 - purchase price $156,000 - neg am ARM - taxes $3300 +HOA).
He is intent on purchasing more property and becoming the next Donald Trump - whose seminars he regularly attends. Cap rates aren’t a problem - appreciation solves everything.
He deserves to live his ‘dream’ - don’t ruin it for him.
Imploder, thanks for the info and I did check it. After doing that, I looked for each of the properties I am following. They are all still on the market, at the same price. I don’t know what to make of it.
In my mind it means they’re the ones at their original price and they’re the ones that didn’t sell. The ones that did sell, sold at an sq ft price average of 28% less than the previous year.
Hope this is a start.
Santa Monica and most of the West Side is in deep freeze; prices firm, nothing moving.
Hang in there, landlord, let’s wait and see what 2007 brings.
If it didnt sell for $539K today it wont sell below that this year or next. As YoY slides even deeper into negative numbers.
General public will evantually catch on. No more greater fools.
Buyers are getting smart about overpaying even in SFV. Im hearing in the media about a term used many years ago — Its called lowballing an offer. Had that on Bob Brinker show and Fox Sat AM money shows.
Friends trying to sell in West Hills (SFV), due to divorce. Started at 670K, then dropped to 650K, now at 630K for the last 2 months with no offers (or interest). They need to sell soon since they are borrowing $ from family just to pay the rent on their new apartments.
Interesting to see the comment about the OC. IMHO, the OC has a long way (maybe as high 40-50%, in some areas) before there is a return to normalcy. There is absolutely no one left who has any brains who is willing to buy these 600-750K cracker boxes on a 5K lot that went for 200K 8-10 years ago. When these come down, to say, 300-350K, I think we will see movement. Even the 400s are going to be a tough sell once everyone realizes that RE is not the retirement, get out of debt, hit the lottery scheme many think it is.
Once people see that SFHs are just that, SFHs, and the lending standards tighten severely, prices will begin to fall. Yes, even here in South OC, it will happen. However, when things get ugly, the real question will be, what advantages are there to buying in this area?
Like txchick57, I would like some land. Def. not going to get that here in Rancho SM. Lots are postage stamp size. Also, upkeep and taxes, even on a 350K home, are alot. Lastly, using traditional fundys, a 360K home with 60K down (and how many have that?), would still require almost a 100K salary. Unless 2 people work, that might be atall order for many.
This area is so overbloated it isn’t funny. I know we have discussed this ad nauseum, but something is going to give in this area and when it does, look out.
Lastly, when the bottom is finally reached many of us, me included, have to decide if it will still be worth it. For one, using the Buffet model, do I want to hold this thing for at least 5-10 years, because when the bottom hits, no one but serious buyers will be buying at that point. No doc, stateds will be ancient history and people will wonder how we ever used them anyway.
Absolutely. Prices have a long ways to fall in both dollars and percentages here. Median household income in OC is around $65k. Median prices tend to be in the 4.5 to 5 times income in OC (that is our sunshine tax); currently they are at about 10 times income. So, median prices should be in the $300-350k range, instead of the $600-650k range they are in now (and that doesn’t buy you much of house, and it won’t be in a very good neighborhood).
When I do buy, it will definitely be something that I want to stay in for at least 5-10 years. In normal times, it was understood that you needed to hold that long just to break even (after accounting for transaction costs). I look forward to getting back to normal times.
NAHB/Wells Fargo says median household income is ~$78K in OC.
Still a long ways from affordable but slightly more comforting.
Thanks for the update. I haven’t seen any new numbers when I’ve looked, so I was using Census Bureau numbers for, I think, 2004. Like you said, still a long ways to go to get to affordable (it would be around $350-390k to get back to the 4.5-5 times income long term trend at the current $78k income).
NAHB/Wells Fargo says median household income is ~$78K in OC.
When you say “household” does this mean everyone living in the home??
I wonder if this refers to the 5 illegal aliens in a house, or one college educated person renting an apartment, etc.
IMHO, $300 - $350K is probably a bit low. A median home of $615K would buy a 3/2.5 townhouse, 1500sf or so, in Irvine. If you consider rent rates these days, a rent for that unit currently would run around $2000, maybe slightly more. That would translate to about $440K to cover 90% of carrying costs. The traditional recommended proportion of gross income to rent/mortgage of 30% for a median income of $78K would be around $2000, which indicates rents are fairly in line with income right now. That would substantiate the $450K median, or about 30% lower than what it is right now, as the expected value. Further on that point, that Irvine home probably went for around $250K back in 1998, and if we use a FV calculation with growth at 7% (avg. OC house price increase including the past 7 years), that puts us at around $430K. So discounting for the exorbitant growth the past few years, but accounting for rent/mortgage ratios, a figure more like $400K - $425K might be a reasonable number.
I agree that Irvine will probably not see $300K-$350K median. Your rental numbers are a bit low. A 3/2.5 townhome rents for about $2,500 in Irvine. The $2,000 number will get you a decent 2 bedroom, but no 3’s. People in Irvine have gotten used to very high housing costs. This will stop the median from dropping much below $450K.
Depending on the assumptions used, if you look at properties available for rent or sale, you will see the cost of ownership is more than double the cost of rental. For instance, right now on OCRealestateFinder, there is a house listed for rent in Woodbury for $2,700. If you go there you will find a real estate flyer out front trying to sell it for $875,000. I saw another flyer a few weeks ago showing a house for rent for $3,500 or for sale for $1,250,000. Do the math on those. It’s crazy.
It is probable that average income will fall…put that into your figures.
Gotta figure rates will be at least 2 to 3 points higher, too.
Also, that people will be less inclined to spend so much of their income (remember the negative savings rate) on housing alone. Time for us to allocate more money to important things like retirement, healthcare & “rainy day” savings.
Many people were able to spend so much on housing because they had a third income earner living with them — their house. Lots of people cash-out refi’d and HELOC’d their equity away.
I think those $2500/month rents will be going down to $1800-$1900/month. Time will tell…
Anaheim median income approx. $52k in 2006.
Anaheim median house price approx. $580k in 2006.
11x income. Crazy…
Interesting point fiveseals: 11 x’s annual salary is crazy. What is an acceptable ratio of salary to cost of house?
no more than 3x!!!!
NAHB median price/income data shows 3.5x for many quarters during the mid to late 1990’s (LA/LB/Glendale). It went over 4x in 2001. Now it’s over 9x. Reasonable should be 3.5x, maybe 4.
If you predict falling markets, you should only pay 2.5x to insure yourself a cushion.
Good research, Suzanne!!
I am not sure the median income directly correlates to median house price, though. We should that most of the home ownership could very well be at the high spectrum of the income range.
A better figure would be median income of just the ownders, to do a true price to income ratio.
I mean, if the majority of the people earning the median income are renting, then perhaps the numbers make sense, they are currently ‘priced out’.
Wow, I am embarrassed by my poor spelling / grammar.
What I meant to say was by simple comparing median income to median price, we also include incomes of renters in the mix.
If one were to (naively) assume that the majority of the renters make a lower income than the owners, taking their data out of the mix would yield a higher median price.
My point, I believe (again, naively) that the median income of property owners in LA is a higher number than the plain median income figure.
By how much, who knows. Do we have that statistic?
I see your point, but would like to argue that if rentals need to be cashflow positive in the long run, wouldn’t the renters’ annual income put downward pressure on the price for housing? (Assuming, of course, that most of the rental properties are not owned by a few who purchased years ago.)
The mechanism would be increased foreclosures as the FB’s are unable to collect sufficient rent to cover the mortgage.
Regardless of the how homeowner’s median income compares to renters, the historical relationship is still valid.
Dan, all of CA is over-priced. Will 40-50% off current prices happen…maybe…but I’ll bet that with even 20% off, there will be a TON of people buying out here. I hope lending standards tighten further, and when they do prices will come down…but who knows by how much. If lending standards tighten back to circa 1992 and we have a recession, I could see prices coming down 40%. If they don’t, and there’s no recession it probably won’t be quite as much (I’ve said here before 5-10% drop)
Many places in South OC will fall hard due to the fact they tend to be further from major job centers (and majorly over-priced). If you want some land in OC you need to go to San Juan Cap, Yorba Linda, or Laguna Niguel (Nellie Gail Ranch?) but bring your wallet. You could venture out to the IE and get the land cheaper. RSM isn’t so bad if you don’t have to commute very far and you like a low-maintenance lifestyle that a master-planned community offers. And you need two incomes out here (unless one does really well) to live comfortably.
And to predict the bottom will be hard. But when you do buy, plan on being in the home for at least 10 years…who knows maybe you’ll decide to save your money and just rent. Nothing wrong with that option either.
Just my two cents.
“…there will be a TON of people buying out here.” I’m not sure about that. This bubble is nationwide and it will spark a severe recession or worse causing credit destruction (M3 Deflation). They may want to buy, but they’ll need cash and really good credit to do so. That’s if they don’t get trapped in their own locale, another bubble center.
“…there will be a TON of people buying out here.”
Ummm… I think you need to visit some non-coastal states where an average couple with kids and live in a nice home, have access to nice schools in an uncrowded, unpolluted place and do it all with one income and little stress. And most of those places have pretty decent paying jobs that moved from California.
awaiting bubble rubble, I don’t see the comparison with my quote and your statement.
I’m simply referring to the buyer’s mentality here in CA not the quality of life outside the state (much of which you say is true.)
Now if I said “Cali rules and all the other states suck” then I think your argument/comment would be valid.
That “buyer’s mentality” won’t be there when they’re cash-poor and underwater on their existing mortgage.
‘I’m simply referring to the buyer’s mentality here in CA not the quality of life outside the state’
I agree, but think the ‘buyer’s mentality’ is changing radically. Within a year or two the ability to buy will be based on actual price to income ratios rather than hokey financing schemes, stated income, etc. I choose to live in CA after trying other states, but all the anecdotal comments I hear now are about people leaving CA to buy an affordible home and a better lifestyle. I heard many of the same things in 1990.
Kurt I agree with you that I might just rent it out. I don’t think I will ever buy again in CA. This area is nonsensical. I want s 3/2.5 with about 1,500 sq. ft., preferably a ranch style home somewhere in the Northern corner of S. Carolina or Eastern TN. I’ve looked at homes there in person and am truly shocked at 150-200K will buy, inc. the land.
I know the humidity is a deal breaker, but I’ve dealt with that for 20 years growing up in NJ. July-Sept in Bergen County, NJ is bruuuuuutal. It’s been awhile since I lived in that type of weather, but if I want a home, that is where I will probably look again.
I grew up down South (TX and FL) and I know what you mean by the humidity…plus, you have rain, snow, etc. But at least you will have a whole lotta land and a decent house. Something to be said for that.
Don’t give up hope yet. You have to be patient out here…as long as you have a decent rental and you are saving cash for that downpayment then you are in no hurry…especially with prices moderating. Who knows…like you said you may never want to buy out here so make your money here and retire out of state. At least you will get better BBQ in TN or SC
Dan: Total agreement on pricing in CA. CA has ALWAYS been INSANE!!! I have wanted to move to SD / SF / LA for the last 10 years. Got a 1900 sq ft 3 / 2.5 in the northern suburbs of Chicago in ‘93 for ~198K. Dislike snow, cold … BUT to replace what I have here out there you are looking at least 2x to 3x in the ‘90 ! FORGET IT Or maybe in the IE 40 - 50 miles away, 1 - 2 hr commute (temps in the 100s) better yet why bother … Prices now for 20 miles away from job = 800k - 1000k ? This in NUTS (oh, the salary of a software engineer will be higher in CA, this will make it happen hahahahah!)
I would think $300 - $350K is probably a bit low. A median home of $615K would buy a 3/2.5 townhouse, 1500sf or so, in Irvine. If you consider rent rates these days, a rent for that unit currently would run around $2000, maybe slightly more. That would translate to about $440K to cover 90% of carrying costs. The traditional recommended proportion of gross income to rent/mortgage of 30% for a median income of $78K would be around $2000, which indicates rents are fairly in line with income right now. That would substantiate the $450K median, or about 30% lower than what it is right now, as the expected value. Further on that point, that Irvine home probably went for around $250K back in 1998, and if we use a FV calculation with growth at 7% (avg. OC house price increase including the past 7 years), that puts us at around $430K. So discounting for the exorbitant growth the past few years, but accounting for rent/mortgage ratios, a figure more like $400K - $425K might be a reasonable number.
“The traditional recommended proportion of gross income to rent/mortgage of 30% for a median income of $78K would be around $2000, which indicates rents are fairly in line with income right now.”
You walk into a open house and the realtor asks you “How much do you plan on spending and how much do make?”
You answer…
(1) Tell him your price range and your salary.
or (2) Not a single thing about your price range, salary, profession, and any wealth…
You should say (2) … what business do they have knowing all about your financial background. Never tell realtors your income or price range. Thats how these prices have been inflated. Loose lips will sink you!
It’s going to be another kind of an earthquake.
“Even the 400s are going to be a tough sell once everyone realizes that RE is not the retirement, get out of debt, hit the lottery scheme many think it is.”
What will the price be when they see a mortgage as an anchor around the neck when they are swimming in a sea of debt ? When people talk like that, then we will have hit bottom.
Right now people are dipping their toe in and complaining that the water is a bit cold. Wait until people start drowning. Then they won’t be so quick to jump into the RE pool.
“Right now people are dipping their toe in and complaining that the water is a bit cold. Wait until people start drowning. Then they won’t be so quick to jump into the RE pool.”
And those in the pool will be shooting out of it like a penguin to a sheet of ice.
Hey,
I liked that image, but it needs a visual of a leopard seal skinning and shredding a few penguins before their eyes. With all the subprime and flipping nonsence,there is no doubt there will be gore galore.
I pictured Lereah, a club, and a couple of baby seals.
And when RE hits bottom, everyone here will look like Shmeigal with that fish in his mouth, as they steal the forbidden fruit of 2005. Don’t forget, we’re ladies and gentleman ……
And be like Ray Kroc, when you see your competition drowning stick a hose in their mouth.
Ray Kroc - I feel like a Big Mac.
“Even the 400s are going to be a tough sell once everyone realizes that RE is not the retirement, get out of debt, hit the lottery scheme many think it is.”
That is what I call a bottom. Everyone who walks into open house has that same mentality.
IIRC = if I recall correctly
oopsie - never mind.
Shortbus Passenger!
lol
Latest Toll Brothers inventory as listed on their online quick deliery site:
http://www.quickdeliveryhomes.com/#
12-4: 612
12-11: 615
12-18: 659
1-2: 665
I have heard rumor that Toll has vastly overextended themselves. Totally unsubstantiated, but I believe it. They have and still are building tons around my area. Not sure who is going to buy them all. One of their condo projects appears to be at complete standstill.
““The company believes future buyers will include young people looking for their first homes or those who are ready to purchase home No. 2. The concept appeals to Isaac Ramos, 20.”
After nearly 4 years in College , All you want to do is get as far away as you can from the campus you went to. That is what many kids I knew wanted to do(Including myself back in the day). Some want to work in NYC, Chicago, Boston,DC, Portland, SF, Miami, Huston, etc etc. Who in their stupid mind would want to get pinned down in Backersfield, CA . God help you if you did, your career went nowhere !!!
Couldn’t you do Dwight Yoakam’s yard work? Or tend to Buck’s grave?
And what is he doing even thinking of buying a house at 20? Shouldn’t he be as mobile as possible for that “great” job he has to take in SF or LA? college edumacated and past broke by 22 in Bakersfield… not a pretty picture.
That location of Bakersfield is not that bad… and at this point, I would live in that part of Bakersfield over 90% of the areas in the Los Angeles basin. The planners there are trying to bring something nice to the city, other than the typical leap-frogging, sprawling three-car garage developments.
You could build the world’s greatest oasis in Bakersfield, and it would still suck! (No offense to Crispy & Cole) Seriously, of all the larger cities in CA, that has to be one of the worst.
And damn, just when you think we had run out of GFs, this guy comes along! Unbelieveable! Talk about one for the short bus:
The concept appeals to Isaac Ramos, 20.”
“‘I don’t think there’s something like that to appeal to the younger market. I think Bakersfield could use something like that,’ Ramos said. He’s about to close escrow on his first home, and he’s interested in buying more properties.”
Imploder note misprint:
“‘I don’t think there’s something like that to appeal to the
youngerdumber market. I think Bakersfield could use something like that,’ Ramos said. He’s about to close escrow on his first home, and he’s interested in buying more (dumb) properties.”I went to highschool in Bakersfield and it was great. Now your right the town is just sort of the hick type situiation, but hanging out with all your buddy’s, hicks or not was just fun. Sort of like midwest southern feel. I drank my fill of beer in Bakersfield.
Your right though there is nothing there, unless you look for it. Now I put myself out there a bit so be nice to me.
You should be able to find something to be cheerful about any place within the borders of the U.S. of A. As a matter of fact, outside of Bakersfield is one of the places on my watch list. There are a lot of things wrong with the property, starting with the asking price, but there are a few things that are VERY right about it as well.
I’ve lived in Westwood (admittedly as a student) and in the SF Bay area (as a well-paid professional), so I like to think I’ve got a little perspective. Liking life in the Bakersfield area is understandable. You can’t get the country life living alongside the 405. Other than the beach, any activities those kids get into are probably not going to provide better memories than time spent hanging out in the country.
You’re right, there is something nice that can be found in every community. What I don’t get is why people have the impression that any place outside of LA, SF or SD in California is some kind of hicktown. There’s over 300,000 people in Bakersfield - and very few are farmers. The next period of growth will be all inland, due to coastal NIMBYs. While these smaller communities have been dusty during the 80s, they are evolving into decent communities. More younger professionals starting families such as myself are moving away from coastal communities due to high housing costs - both rentals and sales. Should I rent a 900 SF bungalow in ghetto Van Nuys for $1800, or buy a new 1800 SF home in Bakersfield for 300K? There are people making that latter choice every week - granted, even 300K in Bakersfield is way overpriced. I would love to live in San Luis Obispo, but this bubble has forced me to look elsewhere - and during the process, I have found hidden (and relatively more affordable) gems throughout California.
Bakersfield is an okay place to live, so long as Boomer’s, Dewar’s and that Basque restaurant don’t close down. They actually have a mall there with white middle class people shopping in it, buying things at reasonable prices - amazing!
As long as I had a job within a 30 min or less commute, then I would be OK w/ Bakersfield. But I’m NOT driving more than that to work.
I like Bakersfield. I don’t like the pollution though. I grew up in Fresno. Nothing to be ashamed of if you get a sheepskin from Cal State Bakersfield. You use some of the same text books as those used in top universities. I’ve always wanted to start a high tech company in Fresno, but I’m too busy making a lot of money as an employee for now. BA Math/Csci 1985 CSUF, MSCS 1990 Cal State Chico.
And did not even have to take out a loan for a sheepskin with a fancy college name on it.
“The company believes future buyers will include young people looking for their first homes or those who are ready to purchase home No. 2. The concept appeals to Isaac Ramos, 20.”
“‘I don’t think there’s something like that to appeal to the younger market. I think Bakersfield could use something like that,’ Ramos said. He’s about to close escrow on his first home, and he’s interested in buying more properties
This stupid dipstick doesn’t this fool learn anything in school. Never catch a falling knife.
Let’s just run some numbers for the he11 of it. I am 40. Let’s say I live another 50 years (no jokes, peanut gallery). That means I have 600 months of rent, if I go that route. Let us assume my rent averages out to 4,000/month, of course there is inflation, but me and the missus can also downsize to a 1 bedroom in the middle of nowheresville, so I’ll stick with that. At that price, it will cost me 2.4 million in rent. Ouch!
Now what will it cost to own over those same 50 years. Let’s go with a 600K home, here in RSM, South OC. I know, there aren’t any. I am using the 600K just for easy math.
Assuming I pay once for the loan and twice more for the interest, I am at 1.8 million already. Now, let’s add another 6K/year for taxes (over 50 years, remember), that will be 300K total. We are at 2.1 million.
Now let’s add 1K a year for insurance (fire, earthquake, etc.), there’s another 50K, bringing the total to 2.15 million. The house is still ahead.
Now we have the upkeep. Oh boy, these new crackerboxes aren’t made like they used to be. Let’s assume $200/month. This would include everything from dad reflooring the garage to actually having to replace the roof. At 200/month, that comes to 120K, bringing the total amount of house to 2.27 million.
Rent=2.4 million
House=2.27 million
Of course, you can always sell the house and get that windfall of money, even though it is still really just a windfall.
However, looking at RSM, housing is still overpriced versus renting. And this isn’t even looking at the traditional fundamentals, like 3X income and that if you pay 2K in rent, that would translate into a 350K home.
Renting, still a better way to go. Now if you bought here 10 years ago for 200K, you are in good shape!
Mmm… what are you smoking? I am paying 1.1k for rent.
700 sq.ft like the average couple has in the rest of the world.
I save 3k per month vs. owning… not to mention less crap to buy to fill the house etc…
SMALL IS BEAUTIFUL!
Oh and when I want to enjoy the outdoors I go rockclimbing at Joshua Tree!!!
$4K for rent?? That better be a really nice place for $4K / month even in SoCal or specifically SD where I live. That is more than double my rent for a 1800 sq foot house in Mira Mesa.
4K to rent a house and it better be really nice? Maybe in Mira Mesa. Not in LA.
$4k a month to bail out a stuck flipper.
I rent a 1988 three story 2/2.5 townhouse with wood burning fireplace hardwood floors with mountain views for $1350 in Glendale.
Guess you haven’t looked on Craig’slist lately. Three bedroom house with a private yard (not a townhouse or two on a lot) in Los Feliz, Silverlake, HH, $3,500 plus. Forget the Westside.
Guys, I really don’t think you should give up on buying a house (if prices come down). The fact is, at the end of their “work lives”, a house is all most people have, and if it’s paid off, it can really improve your situation. You don’t want to be 70 and worried about paying the rent each month. Hang in there, prices probably will come down in a lot of areas.
I’d much rather be paying rent at 70 than owning.
No flexibility. Not necessarily liquid. And worry about taxes being raised and not be able to move or move easily, so couldn’t do anything about the situation. Or have the neighborhood run down and not be able to move. Yuk.
I rent a house in an area that is an exclusive enclave. I could not afford to buy here.
3.5k for rent…. HA HA HA HA HA HA HA HA HA HA HA HA HA HA HA HA HA HA HA HA.
The idiot who would pay such a price!!!
Reminds me of the house for rent around here to bail a stuck flipper… the idiot wanted 3k / months for it.
Assuming 70% of the people are now stuck in the real estate taxes paying cycles… that leaves the cream of the crap to rent at such price.
If I am going to pay 3k per months, I expect free electricity for my pot growing operation as well as private security to hold off opponents or the police long enough for me to bail with my life in case of a raid!!!
Dan, unless you have kids you shouldn’t be spending 4k/month on rent. Even if you do have kids that’s a lot of dough for a rental house…he l l, you could rent at the beach for that.
If it’s just you and the missus, I would suggest renting a condo/townhome for half the cost. You can find that in the OC, especially RSM.
Sorry for the confusion. No, I am not renting for 4K. I was using that as an average number for rent over the course of say 50 years. Rent now for 2K. In 2056, rent might be 4-6K, so I was assuming an average number of 4K, for the benefit of doubt. Just playing with the numbers. Hell, 4K a month, my wife would have to work and leave the kids and then shoot me. Maybe not in that order, either!
I was just trying to show that over the long haul, with the cost of homes the way they are, even IF rents go as high as 4K in 50 years, you are still way ahead, esp. if you can save.
Heh heh. I hear what you’re saying. Glad you’re not paying that much for rent. I guess 4k is the magic number…when you reach it…DUCK!!!
Major assumption that what happened in Japan won’t happen here even though the fundamentals here are as bad or worse(savings rate) than what Japan was facing in the early 90s.
There are rents for 4k in the town where I live.
I pay much less but the house I rent is smaller and older with charm and has features I like. Hardwood floors, lots of windows and patios, decks and yard. Small so I don’t have to spend too much on heat.
But, the house across the street sits vacant. They used two lots to build the Tuscan. It was built with refined taste and quality materials. It was listed for 4.5M and has been reduced. I think the realtor said it is now 3.8M.
The house right next to me is artistically fashioned and very sweet but kinda large. The neighborhood is quaint. The ocean is a few minutes walk and I can hear it at night.
Rent will be 12 oz of gold per month in 2056, after the oil crash and the contraction of the economy by 50-70%
Reminds me of some soviet communist party members who were making nice predictions of what the Soviet Union will accomplish in 2010… that back in 1985.
I doubt there will even be elections in america in 2008 but I digress…
Very nice. Thanks for the numbers. I’ve always rented and while it certainly has its drawbacks, I have enjoyed flexibility. Lived in DC, NYC, Boston, SF and BA and now Monterey County.
For four years, until Oct, 2006, I lived in a small studio attached to a main house. I saved a wad living there, it gave me low overhead and time to study metals as I was continually investing and had already begun when I moved in. I had lots of (cough cough) “disposable” income. And I invested it in portable investments. Now I have moved to a house that I am renting myself. Love it. Love the opportunity the low rent gave me for 4 years.
It’s a personal choice and I certainly understand why people want to buy, but not in this market. !!!
The bankers must have fashioned the “disposable” term for income not going to housing/food, essentials.
Whose discretionary income is really “throw-away?”
Warning: Watch Wall St for huge pep-rally, bottom-calling, last-ditch effort to revive RE market in the very near future. Can they possibly be sucessful? I hope to hell not, but they are getting really good at extending/morphing bubbles and I bet they think they have this one all figured out already. Will reality prevail???
It seems easier from where I stand to control stock prices through complex derivatives, including naked shorts and other potential zero-downpayment derivatives the big boyz may be able to use behind the scenes, than to venture forth into the various highly-decentralized RE markets around the USA and make some kind of strategic purchases that enable them to prop up the prices the prices up on a permanently high plateau. That is just my gut instinct on this, but don’t count the REIC out from cooking up some grandiose scheme to prop up the prices using either taxpayer money, or a stealth inflation tax thereon.
However, even if they manage to figure out how to do the above (and perhaps they already thought they did back in 1998), it will never work. The problem is the supply response, which is the usual cause of death for cartels. In this case, a few big Wall-Street-listed builders are outsupplying each other to death.
Your gut instinct is good. That’s what they will do. Japaneese styke financial engineering “kaizatsu”. I think that’s the way they call that sh-t. The “kaisatsuation” of the US.
Reality ALWAYS prevails, sooner or later. Fundamentals always catch up with the hype. ALWAYS. Look what happened to the dot com boom. Bernanke and Greenspan and their types can only pump the economy for so long before China et al want their money back. One thing about pumping the economy is that it creates speculators, which don’t contribute to the base productivity, as we are finding out.
Hang in there.
There is not a damn thing anyone can do to make that excess supply go away, and the longer prices stay high the more that supply will grow.
bulldozers do exist.
My wife and I are in our late 40s with three kids, a combined income over 200K and we may never buy a house. Every time we move we ask ” What can we afford to rent and what can we afford to buy?”
The answer we always come to is we can rent a much bigger house, in a much better area, with much better schools than anything we can afford to buy. Right now we rent a 3000 sqft house (big for the Bay area) in a gated community, with the best schools in CA.(Acalanes dist.) We pay $3150/ month. Similar houses in our comunity sold for over $1.5 mil.
when the stove breaks .. I call the owner, its her problem. Time for a new $17000 roof…don’t look at me.
Could someone tell my inlaws that homeownership is not the great deal it was for them in the early 60s
Doug, with the numbers you are showing, you have proved my point above. When housing gets beyond the 375-400K range, you are going to have some serious problems showing any kind of reason for owning vs. renting UNLESS you plan on staying, make a 20%+ down payment, mortgage out for 15-20 years, really need the roots planted vs. maybe moving more frequently, hope for the big windfall after owning said home for 30+ years.
Your point about the 60s is so right on. Back then a guy making 15-30K a year doing whatever could go a buy a great home for 50-75K, which was magnificent back then. Sure, we think those Brady Bunch homes are funny now, but when all things are considered, still a much better deal than now!
As for the relatives getting on you. Show them the numbers. Heck, you can even fudge if you don’t want them to know what you make. Prove to them that it doesn’t make any sense. Otoh, you could just forget about trying to dissuade them and let them go on their merry way. Whatever works for you. My point is I was trying to run the numbers above to make exactly that point. At some money amount, renting is your best bet. If a home you rent for 3K is going to cost 6K plus insurance, tax and upkeep (7-8K), why bother? Makes no sense. Yeah, RE always goes up. Not any good unless someone buys it from you or you want to die in house or rent out after paid off.
It is amazing how many people just don’t run the numbers anymore. They will let some computer pick 6 for them in the lottery, but not even run some rough numbers for the largest purchase they will ever make.
Oh well, I guess that’s why so many jokers run to H.R. Block this time of season, when they could have done the return themselves. Nothing against Block, but when I see some of the people getting less than $200 refunds going to Block, why bother? Unless you have some serious additions/schedules to fill out do it yourself. You don’t need Block to fill out the EZ form for Pete’s sake!
Doug,
Just curious… If you had to sign a lease today what would your house cost you? I think rents are rising fast in LA and will continue till bust. Owners who can’t sell trying to stay afloat are raising the bar. For now.
I have a better math for your inlaws:
forget the mortgage
Let’s say you have $750K cash in a FDI insured savings accounts earning 5% per year (plenty of those online)
that means $37.5K per year or $3,125 per month
looks like you covered your rent
And $750K was only HALF of home cost…
‘3000 sqft house (big for the Bay area) in a gated community, with the best schools in CA.(Acalanes dist.) We pay $3150/ month. Similar houses in our comunity sold for over $1.5 mil.’
I would really like to know how people who post here are finding such fabulous houses at such low rents! I’m looking for a new rental and where I live (Westlake Village) houses with zestimates under $750K rent for $3000/month.
awaiting,
Here’s a nice-looking 4/2 SFH with a large lot in Newbury Park for $2850.
http://www.conejolistings.com/index_rentalhomes.htm
If that’s not to your liking, you might want to check out the other rentals on this site. Looks like there are quite a few that seem rather reasonable.
Good luck!
oops! Just noticed that takes you to the main page for the area. Just go to the $2850 prices and you’ll see a blue/white, two-story house. It looks nice!
Sorry for another post… it’s rental listing #83 on this site.
I renewed my lease 4 months ago. we settled on $3150 for first year and $3200 for the second year of a 2 year lease. Was 3100 last year.
This house was renting for $4000 during the Dotcom boom
ADVICE FROM A FAMILY THAT HAS RENTED FOR 20 YEARS
Do not rent from a FB,speculator, or anyone who has not owned the house at least 5 Years. Rent from a professional landlord only.
nothing worse than renting from a FB and losing your deposit as the house is forclosed upon
Good advice.
Under what cases does a tenant formally lose his deposit when the landlord’s house is foreclosed? I thought that whoever ends up taking possession of the house is still bound by the legal lease covenants of the previous owner. This would seem particularly tricky in renter-friendly areas like CA.
Why anyone would buy until they clean up the sub-prime lending mess is the question . I don’t want to live next to a bunch of people who can’t afford their payments with the risk that they will bring my property values down because they need to sell. The sub-prime borrowers /speculators pushed the market up and they will push the market down also . It’s a really unstable situation in real estate markets as far as I’m concerned .Look at all those people who are taking a bath because of the builders needing to discount to get rid of the inventory .
I’m a homeowner and I already know I’m going to lose equity ,but if your a renter your in a ideal position to wait until the market corrects .
Exactly right, Wiz. Lots of neighborhoods will be taken down by the FBs. It’s likely this will take a long time to unwind all the way. Best to wait and see where and how the dust settles.
Happy new year!
Is there a fast forward button on this damn bubble?
We all know how it turns out, let’s just get to the good parts.
That would be telling.
–Number 2
Driving through Hollywood today, relatively nice part of the flats, on Highland. Sign on a house says: “For Sale or Lease”.
My interpretation: “Help, I’m drowning!!!”
MLN Video: Box your $hit up and GTFU!:
http://bakersfieldbubble.blogspot.com
O.T.: Developer Courts Fla. Mobile Home Owners: Some Fla. Mobile Home Owners Stand to Become Millionaires if They Agree to Sell to Developer
So did the prices bounce off the bottom already?