Buying Frenzy Subsides In S. California
The press reacts to the Dataquick numbers. “Home prices in Southern California edged up to a new record in February, although they edged up to that record at the slowest pace in almost four years. The number of homes sold was the lowest in five years.”
“‘It’s numbers like these that both bubble-theorists and market cheerleaders can pounce on to make their points. Reality is more mundane. The frenzy is behind us, we’re in a new phase of the real estate cycle and what remains to be seen is how this cycle’s end game will play out. We’ll know much more when next month’s figures are in,’ said Marshall Prentice.”
“A total of 19,905 new and resale Southland homes were sold last month. That was down 7 percent from 21,394 for February last year. Last month’s sales count was the lowest for any February since 2001 when 18,040 homes were sold. The strongest February in DataQuick’s statistics was in 2004 when 23,004 homes were sold; the weakest was in 1991 when 10,025 homes were sold.”
“The typical monthly mortgage payment that Southland buyers committed themselves to paying was $2,251 last month, up from $2,162 for the previous month, and up from $1,905 for February a year ago. Adjusted for inflation, current payments are about 2.7 percent above typical payments in the spring of 1989, the peak of the prior real estate cycle.”
“The annual rate of price increase was the lowest since March 2002, when prices rose 12.7 percent to $257,000. Annual price increases have held in the mid-teens since April. ‘The prices hit a new record, but the rate of increase at which those prices hit that new record was the lowest in four years,’ said John Karevoll.”
“As the buying frenzy that drove the housing boom the last five years subsides, many home sellers are having to settle for less than their asking price. Many would-be buyers, meanwhile, remain reluctant to enter the market, looking for signs prices might come down significantly.”
“But while prices aren’t going up as quickly, real estate agents say they haven’t seen evidence of a widespread drop in prices. ‘We’re seeing prices perhaps level off a bit, but we’re not seeing a decrease in prices,’ said Kathy White, a realtor in Westlake Village, a suburb of Los Angeles. ‘We are seeing more properties on the market (and) they’re staying longer on the market.’”
“San Diego County saw the slowest rise in home appreciation, with median prices increasing 6.4 percent to $502,000.”
“Indicators of market distress are still largely absent, DataQuick reported, and foreclosure activity is edging up from its bottom, but is still low. Financing with adjustable-rate mortgages has dropped significantly during the last three months. Down payment sizes are stable, as are flipping rates and non-owner-occupied buying activity, DataQuick reported.”
Also from Inman News. “In California, which has historically had few foreclosures, there was a 150 percent increase in the number of new foreclosure listings in February compared to January. ‘Foreclosure rates in the western half of the nation are shifting. States such as California and Nevada have experienced a rapid increase in foreclosure inventory over the past six months,’ said Brad Geisen. ‘This is primarily because of a decrease in investment and speculative real estate activity in those markets. That investment activity has been moving away from California and into Texas.’”
There is a table of percentage changes at the bottom of the first Inman link.
while phoenix and its ilk go down in flames like drunken brawlers,
socal is going to play out more like a chess game.
at first.
S. Cal should show fairly orderly stagnation/decline because it is economically between the pure speculative locales (e.g. Bakersfield, Phoenix) and the SF Bay Area–where there’s the real chess game. The SF/San Jose available inventory remains tiny relative to other metro areas and they’re still dealing with the economic hangover from the dotcom bubble and outsourcing in the subsequent web era.
All the flameout dotcommers were the first to move into real estate as tech peaked and declined, and so formed a starting point for the housing price virus (in the 1990s then again in 2002 onward). No one is sure how SF/SJ will respond economically, with mostly management in the area in the future (all others working in Phoenix, India, or China).
RE: Bay Area chess game. Good analogy as no one can be sure of the next move. I was thinking the present situation is like a Mexican stand-off, and everyone is waiting to see who blinks first. Surely the supply of greater fools is dwindling. How many fence sitters will jump at the first noticeable drop? Honestly, aside from management, who will be left at these tech companies to pay these ridiculous prices? And what is up with Wall Street? Won’t the central bank be required to keep raising rates, at least as long as others doing so (ECB, CBJ)? Anyhow, I guess I’m in the camp that believes the Bay Area will be caught off guard and surprised by the economic pain and fall-out. I’m certainly no economist, so we shall see…..
Unlike most of the other bubble areas San Francisco has both an extremely limited supply of land and homes (excluding Oakland and Silly Valley), a decent economy, and a large population that wants to live there. Now that doesn’t mean that houses aren’t overvalued, but that of all the areas this and Manhatten are the two locations that have a hope of holding on to their value until hyperinflation bails out the homeowners with a few functioning brain cells.
I doubt it. CA has 1 quality that can’t be matched — affordbility in the single digits. Luckily, that’s a problem that solves itself. The IN DEEP SH*T FBs will find no one to sell to and then the lenders will be selling at 40%+ discounts. That 40% when measured in DOLLAR terms (DOLLARS are what people use to buy food and gas…, not percentages), well, may not be orderly. A $400K drop represents quite a ding. Lose 40% in Kansas and you skip going to Denny’s that month.
Lose 40% in CA and LOOK OUT ECONOMY!!!!
My hope is that San Diego prices return to reality. San Diego used to be a small big city with small big city prices, even for CA. Case in point, a friend of mind bought his condo in 2000 in Point Loma for $220k and sold it in 2004 for $545k. Why that particular condo’s price more than doubled in “value” in four years is beyond me, but I’m dying for us to go back to when real estate prices were logical.
i might echo the observations of others in my area - not a whole lot of product on the market, but a wierd stagnation for the stuff that is out there.
that being said, i’ve seen a noticable jump in product just this last week. and i can point to a number of local listings and tell you within a few thousand bucks how much the flipper will lose on a deal. i have a knack for that.
in the meantime, i cast my gaze towards phoenix and dtsd.
This article suggests that there is a roving bubble maker ,( now it going to Texas ), like it was a desease , going into a town ,running up the prices than leaving .
It’s those “real estate wealth expos” put on by The Learning Anex (and expos like it). I swear to you, 2 years or so ago, presenters at these expos were saying “making money in Florida, Las Vegas, and California is getting too hard, we’re all looking at investing in Pheonix now.” They’re probably ahwking Texas now (or Buffalo, NY…)
ahwking = hawking
yep
Funny thing, my wife and I just signed a lease for a 3/2 condo for $1850/mo. We walked over to an open house for the same thing with no view (the condo we are leasing has a full lake view in RSM). The price $490K, the cost per month, including tax and insurance would be about $3500/mo, take the tax savings and you might come out to $2800/mo not including maintainance and HOA - HOA is $185/mo. So for the privlidge of buying, you are paying a $1000/mo + HOA + Maintainance - for somewhere around about an extra $15,000 a year. The math just doesn’t make sense unless you are getting at least 10% gain per year. I guess we’ll see if Gary Watts is right.
And running your numbers shows you’ve deferred the maintainance costs out to future owners. The deprecation and subsequent upkeep on a home is about 2% per year per its value - for your condo that’s nearly 10k. That adds to a homeowning premium of about $25,000 a year. And that loss is greater than your total rent. Makes no sense at all.
turnoutthelights,
Exactly, which is why while we would prefer to own, rather than rent, there was no way the math worked out. Although, the contrast for us has never been more stark than it was this weekend, to see a condo across from us, with NO VIEW, cost more than 100% more per month. Ours has a beautiful view and we couldn’t be happier, the guy that owns it bought it in 1998 as an investment and has rented it since, he says he has no plans to sell as it is paid off and our rent is profit to him at this point. It makes us happy, not to have to worry about a FB losing our place in foreclosure. Here’s to hoping to buy in a few years. Funny thing is, my wife and I make 140K a year and still feel that $1850/mo is more than we would like to spend per month, but it is hard to find less in good neighboorhoods in the OC. So we are grateful for what we’ve found, hate leaving Newport Beach, but RSM is a great family community, I am sure we will be very happy there.
“But while prices aren’t going up as quickly, real estate agents say they haven’t seen evidence of a widespread drop in prices. ‘We’re seeing prices perhaps level off a bit, but we’re not seeing a decrease in prices,’ said Kathy White, a realtor in Westlake Village, a suburb of Los Angeles. ‘We are seeing more properties on the market (and) they’re staying longer on the market.’”
I can’t seem get this visual out of my head after reading Ms. White’s comment…….Think of an elevator representing housing prices and a home for sale as being the passenger. As you see more and more of these houses coming on board the elevator with nobody coming off, what do you think is going to eventually happen? There’s a reason they have that maximum weight capacity sign…..
Well said PS,
It’s a STARE DOWN between sellers and buyers. No ONE seems to want to budge right now. To me, the buyers now have the edge- because real estate always goes in cycles… and we have had a seller market in California for about 9 years.
The ignorant sellers don’t realize that “holding to my price” only prolongs the process of NOT selling their homes. They may not NEED to sell, so congratulations to them… but the flippers and ARM mortgage holders are going to get HURT with this mentality.
OCMetro-
We must live just around the lake from you.
We rent a 2 + loft/ 2 bath condo with a view of the reigonal park and steps from the lake for 1700. I got a flyer a couple of days ago advertising the same unit, without the view, for $495,000. Same story, same good reason to rent instead of buy.
The hopper
wow, we’re almost neighboors! Yes, the unit is in the Brisa del Lago II development. Nice area, do you like RSM? It was rated by Money magazine as the best place to live 2003 for towns under 100,000 people, lowest crime rate in the OC. Seems nice enough.
I meant to add that the unit for sale is in the Brisa Del Lago II development, we attended the open house this weekend, and felt pretty good about signing a lease.
I never thought I would like it here but we moved to RSM a year and a half ago and it’s grown on me. Trader Joes, quiet neighbors, and not as remote as I expected. Our new location is better- closer to the lake, more space, etc. I like it here, but I can’t imagine paying what our neighbors must. It’s not that great of town..
Many would-be buyers, meanwhile, remain reluctant to enter the market, looking for signs prices might come down significantly.”
and many other reluctant buyers realize they can in no way shape or form afford an 800k house on even a pretty good income. Impossible. No way with rising interest. Um, yeah, rent for SFR in great area remains 1350.
I found this on the piggington site, this is from Bob Casagrand, a realtor in San Diego. Read carefully.
“The reason that both the average and median prices have increased during the past year is that the sales distribution has shifted dramatically. The low end of the market has been crushed by the loss of buyers due to the increasing interest rates, especially the ARMs. The net effect is that the mix of homes sold has proportionally more expensive homes than previously. So comparing the average price now to the average price a year ago is like comparing an apple to an orange. Price reductions are real and ongoing and increasing. One neighborhood has not sold a house over $900,000 in the past 5 months where in the spring the over $900,000 sales made up 33% of all sales, and I see this trend all over.
The way to watch the market is to track inventory and unit sales. As long as inventory is in the 6 month (180 days) supply range there will be downward price pressures. The key indicator is the “days supply” this gives you the relationship between homes on the market and buyers. When prices were shooting up we were running about 30 days supply, to give you some perspective. ”
Take note of the “Price reductions are real and ongoing and increasing” quote.
I live in Westlake Village (described in the article as a suburb of Los Angeles although nobody I know who lives here would describe it that way), which is halfway between Los Angeles and Santa Barbara. I’ve been tracking open listings for the past several months. The number of listings has increased and list prices are falling. The price reductions ARE real and ongoing, even beyond the typical incentives (buyer pays closing costs, buyer offers credit for XXX, etc.) that are not recorded in median price. I simply don’t believe median prices can be rising at this point unless there is a big supply of high end stuff that closed in Feb. From what I’ve seen in the low end to mid range (that’s $420K to $1.1M) time on the market is growing, inventory is growing, and list prices are being reduced.
And this precisely why median price rises in a falling sales market. The under-median sales are ‘crushed’ and for a while the over-medians overweight the sales stats. What is very interesting here is the notion that the upper end stuff has hit a brick wall - just too much price. The slowly increasing mortgage rates will squeeze farther up the price ladder, and I would guess that in two or three months the whole thing shudders to a stop in a kind of eyeball to eyeball standoff. Whoever blinks first, the other guy wins. Problem is, the buyers are out of eyelids. Wonder when the sellers will realize that?
LA Renter,
Heard this explanation earlier on the blog (maybe it was you), but it did not sink in, and things continued to not make sense to me until your most recent explanation. In S. Cal Laguna Hills, Inventory began rising and prices falling in May 2005 - yet median prices continues to rise. Talk with any (candid) realtor in bay area and they will say a slow down/price flattening began about two years ago there, but again, median price statistics don’t show the trend.
May I ask how we determine that six months supply is the point at which price declines begin? Maybe that is from historical busts?
The current Months of Inventory is a traditional indicator as to the current strength of a local real estate market. 2 to 4 months of inventory is considered to be a Sellers market, 4 to 6 months a Neutral market, and 6 or more months is a Buyers market.
This quote is problematic. It actually contradicts its own conclusion. If prices have not been over $900,000, then it is the lower priced homes for that area which are selling (assuming there are no price reductions).
There is some confusion here as to what “lower end” means. If you are talking about condos and smaller homes in middle class areas, then the claim is confusing. “Lower end” is actually the ghetto, such as compton, south central, san pedro, wilmington, long beach, etc..
My sense is that the median prices continue to rise because low end homes (ghettos) are being bought up by multiple families. Immigrants are accustomed to crowded living conditions. Having 10 or more occupants in a 3/2 home is common. If you don’t believe this just take a look at the amount of cars parked on ghetto streets. You cannot find a parking space in the evening.
Higher end home sales are stalling. It is the immigrants pooling together to buy cheaper homes that is hiking the price of the median. IMHO.
I think he’s saying that the high end is selling- but those high end homes are now priced below $900K.
Again, this is from Bob Casagrand, a realtor in San Diego. I agree that his point is that yes in some neighborhoods where homes selling over 900K were 33% of sales are currently showing no sales over that amount suggesting these same homes are now selling under 900K (price reductions). Also, the lower end home sales have collapsed due to record low affordability and higher interest rates (total sales are down 25%). So what I think he is saying is that home prices from top to bottom are coming down, but the volume of sales in the lower end has fallen dramatically meaning that the higher end homes (which are also coming down in price) skew the average upwards.
This info is from an honest realtor. We should be thankful somebody in RE is not afraid to tell the truth.
That’s an interesting take an probably at least part true. What I can’t seem to reconcile is how these transactions are done because the buyers at these higher price points would be, presumably, move-up buyers. They would need to close out on the property they’re exiting so the sum should be a wash with new buyer taking the lower priced home?
Unless they’re extending and holding out for a price on the selling home which means they’re doubling down before the plunge…
Keep in mind San Diego actual sales are down 25%. Move up buyers can’t sell their homes because there are no buyers, the ones that can aren’t getting there list price so that means the higher end homes they are purchasing have to come down in price, thus supporting the statement “One neighborhood has not sold a house over $900,000 in the past 5 months where in the spring the over $900,000 sales made up 33% of all sales, and I see this trend all over.”
This “holding out” may be more common than you think. Many are simply turning their old “home” into a rental. I have at least 5 friends who did this because when they bought many years ago in LA, prices were cheaper and interest rates higher. They refinanced their “primary” condo and got a great interest rate and tons of capital to fund their up-purchase.
My guess is that this is drying up some, though, considering that rents barely even cover this type of real estate betting. And, I think they all know that it is “doubling down” before the peak, and they don’t really care because it’s about interest rates, not about appreciation. Most of them think about keeping until after it is paid off and doing this long-term. I would say it would be rare in LA to have lived there for 10 years and not own 2 homes.
The city I watch closely is Calabasas, for any of you out here in the west SFV. There has been ONE sale in the last week (a condo for about $500k). Last year this time there were about 12 sales per week. This is the slowest week so far this year, but the last couple weeks were only seeing about 4-6 sales each. Sales are really really slow out here.
and if you smoke its illegal to do so in front of your own house.callabas has the toughest anti smoking law in the world.
I know. Crazy place. I hate smoking, but if someone wants to rot their lungs, so be it.
Then it’s possible to die of debt-stress related causes before smoking related causes take you down in Calabasas. Great!
Next 60 days in Silicon Valley (and probably everywhere) is crucial:
http://www.prudentbear.com/archive_comm_article.asp?category=Guest+Commentary&content_idx=52446
Although I would never move back to Silicon Valley, I’m going to take personal pleasure watching them go down in flames. My mother still lives there — watching her circle of friends gleefully cheer stratospheric home prices while their 25-35 yr. old adult children are forced out of the area sickens me. They’re so condo-crazed, they haven’t noticed their younger family members and baby grandchildren disappearing. Sick.
We too (young family, new kid) were priced out of the area, just before the dotcom bubble burst, errrr, ummm, I mean “the dotcom balloon deflated to a sharply downward sloping plateau”.
I remember an article from the late 1980’s written by a guy who gathered with some of his 50+ friends. He was talking with the guys about their retirement plans, and how much money they would make when they sold their houses. But as the night wore on, he realized that they all had children in their late 20’s wanting to buy a home. And it seems that two of the crowd had actually sold their price-inflated homes to the children of someone there. He soon left, sick that they were paying for their high-life retirement on the backs of each other’s kids. And here we go again.
Want to know whats happening in Sil/Valley ??…Just ask…Been doing it here 30 years and counting….
Tales of a Seattle Real Estate Investor
http://seattlerei.blogspot.com/
from his March 5 entry:
I’ve not entered anything in Quickbooks for 6 weeks or so. Fortunately, my wife is great when it comes to bill paying, so none of our 10 mortgages are ever late. I’m in denial mode, and again, fortunately my wife is stepping up and is enlisting the help of her friend who has experience with Quickbooks.
That’s nothing, look at one of his earlier posts:
We also learned while down here that a tenant/buyer was found for our Marysville East property. They’ll pay a $500 deposit, first and last month’s rent, an option fee of $3500 (credited against the purchase price), and the rent will give us $50/month cash flow over the 2 year lease period. We didn’t have the time to market the property, so we paid a company $2500 ($500 up front, $2000 upon a signed lease) to do this. I checked out their competitor, and they wanted 2% of the purchase option price as a fee. That would have been more than 2X what we ended up paying. Since the fee comes out of the option fee paid by the tenants, we’ve effecitively pushed off this expense until the final purchase. Of course, if the tenants choose not to exercise, then we keep the non-refundable fee, and then probably would find a new tenant. As for the gain on the property, it looks to be a 25% capital gain over two years. We financed it at 90%, so the annualized ROI is 100%.
25% over the next 2 years? What is this guy smoking? He is definitely a very naiive newbie into any kind of investing. He’s got dollar signs in his eyes covered by rose-colored glasses.
In another post:
As for Cereal’s comment (which makes no sense to me), I never said we had 10 properties, I said we have 10 mortgages . We only have 5 investment properties at this time, plus our own residence. Four of these six have seconds to get our financing past 80%.
Can you believe this? He’s mortgaged to the gills, has difficulty making his mortgage payments because he’s disorganized, and he has almost 2 mortgages for every place (no doubt at least 50-75% of them are I/O or NEG-AM ARMS.
This is exactly who bought the Carlton Sheet’s starter set and quit his day job (actually, I think he still works too, but not sure) to do it full time after he saw one of the infomercials promising wealth beyond his imagination. Uh, I think his imagination isn’t the problem here.
OT: a good article by The Nation magazine (extract from Yahoo News) on the housing bubble. Just more evidence that this is starting to leak over onto mainstream thinking. The Realtors are right about one thing though, the bubble bursting will need to be part self-fulfilling prophecy and part economic circumstance. This needs to start sinking into “everyman” in order for this house of cards to tumble down.
http://tinyurl.com/fudge
It is time the sheep started listening to this great advice. This means they need to (1) sell their primary residence and wait for the bubble to pop; (2) stop spending out of that ficticious home equity wealth and start saving at least 10% of income for a rainy day.
Just wait until it seems foolish to have ignored the above advice! Right now, saying these things seems so 1930…
Well I am not sure of the numbers in this article esp. if J R Horton dropped prices 30% in the Sacramento area recently but here is a post from Financial sense.com…”the next 60 days’
http://www.financialsense.com/fsu/editorials/view/2006/0314.html
Bay Area House Prices Never Go Down.)
Didnt we see a similar scheme this time around in Kalifornia too?
Real Estate News Summary, Part 141, January 1993
Legislation would create a $2.77 billion FHA-styled California mortgage
insurance fund for first-time buyers. Cal-First would target buyers in
high-cost markets with 5% down. The state would cover any losses from
default. Homeownership among the ages 25-44 has declined 12% since 1980.
Since the state historically had a low default rate, the fund was thought
a safe enterprise; however, the California foreclosure rate has risen
sharply since the study was completed last June.
Slightly OT rant: If I read one more “news” article that says:
Experts in XXX say there is no RE bubble
Followed by a quote by some frickin’ RE professional, I am going to vomit my own blood, after biting my tongue off in a fit of rage. I know we’ve beaten this dead horse so many times, but let me pull out my dictionary for the definition of expert:
“A person with a high degree of skill in or knowledge of a certain subject”
This is antithetical to someone with a vested interested in providing the answer they would LIKE to be true versus that answer which is an analysis of all pertinent evidence.
ARGH!
LA Lawyer,
I feel your pain… do you feel better now? ha ha.
But SERIOUSLY, you make a good point- and I had a telephone conversation today with a realtor that fits the description, so therefore- I do FEEL YOUR PAIN.
But, being in a fairly good mood today- I hung up the phone and said to myself: “self, this b@stard is scared sh!tless that his career is coming to a rapid end… and just cut the dude some slack, play along with his “reality of self denial” and don’t let it bother you”.
Check with me tomorrow, but I think we need to just start accepting that there is a disconnect between us enlightened folk and these realtors who have their heads up their __sses (fill in the blank).
My boss is thinking about moving out of LA and selling his house. He has more than $1million in equity and he “just isn’t sure”. I printed 15 articles from Forbes, LA Times, white papers etc. and his thinking is so entrenched. All he latches onto is the articles he’s reading with NAR a$$clowns jerking him off into believing this is going to go on forever.
I hear ya.
I figure there are 3 types of people and scenario’s when it comes down to this weird market.
1) Those that got out a bit too early… could have possibly milked it for more equity (but who have known)
2) Those that got completely lucky and got out at the peak with maximum profits
3) Those that think it’s going on forever, and only in retrospect do they realize they should have sold 6 months ago.
“It is what it is”, and everyone selling will probably fit in to one of these categories.
Oh man, I just had a phone interview with a consulting firm based in the OC…do I really want to move to bubble central???
The OC is a great place to live–and I’ve lived all over the world. Just rent!
Rent and wait. SoCal is truly a great place to live, and affordable housing will return within six years, IMO.
Another vote for Orange County…except for the Santa Ana-like areas. Wouldn’t mind living in Mission Viejo or neighboring cities…
a wonderful place to live if you love being stuck in traffic,and enjoy cookie cutter subdivisions,endless strip malls,you people have no clue of what living in a wonderful place is…..it is not the oc….
If you want to know the real OC.
Watch on DVD Arrested Development.
That show captures the zeitgeist of living in OC.
I guess an inside joke for those familiar with OC culture didn’t go over so well as a TV show and it is now cancelled
Move to the South Bay.
Commute to the O.C.
Are you crazy? I love the South Bay, but one of the biggest advantages of coastal/south OC is the lack of traffic. Newport Beach may lack some of the bohemian flair of the south bay, but you won’t spend more than 20 minutes getting to work.
Believe me, as a renter you’ll be able to pick where you want to live. Pick somewhere with the shortest drive possible.
I’ve been around a lot myself and almost every town has its own version of a great place to live. So, whether it’s a great place to live, depends on your particular situation. If you can’t afford to buy a place that YOU like and still have $$$$$ left for vacations, good transportation, investing/savings… then it’s NOT a great place to live - IT’S A TRAP!
There are a lot of “quality of life” measures you can use to determine where you should live and what you should do. What I did was simply put a list together with weighting on points…
income level
stress level (strained finances = STRESS)
time w/ family
job satisfaction
housing
vacation
… you get the picture
For things that were important to me to be happy (commute time was up there) no place in CA measured up…
Real Estate News Summary, Part 143, January 1993
Lenders now have an unprecedented inventory of foreclosed houses for sale.
There were 1066 foreclosures in the county in 1992, up from 667 in 1991,
157 in 1990, and 137 in 1989. In past robust real estate markets,
investors bought these homes at auction and quickly sold them for a
profit. But now they are going unsold and are returning to the lender.
The properties barely have any equity. If the legal owner could have sold
the property for more than the loan, he would have.[San Jose Mercury News]
Last year 97,303 California homes went into foreclosure. Notices of
Default are 50% to 60% higher in 1992 compared to 1991. They peaked in
July or August and have leveled off. Statewide 15.4 per thousand homes
went into foreclosure in Santa Clara County 9.3 homes per thousand were
foreclosed. [San Jose Mercury News]
With prices plunging, unsold houses glutting the market, and interest
rates at rock-bottom lows, it’s now 30% cheaper to buy a house in
California than it was 3 years ago. Experts recommend that people buy a
house if they can afford it. If real estate appreciates at just the rate
of inflation, then mortgage interest deductions and high leverage will
produce a real yield of about 12% to 15% a year on buyers’ down payments.
[McClatchy News Service]
Desidude — great research. I’m collecting all of this history, to show the naysayers. Beats trying to convince them verbally.
hey chip
not seen in a while!
Once this train gets turned around everyone will admit they were bamboozled and find a new meaning to their life. Momentum is key, and the momentum is just stopping at present. After it shifts the other way the proverbial crap will hit the fan.
When I lived in Tokyo the media talk was always that “land prices have bottomed, now is the time to buy”. Meanwhile, everyone and their dog realized they could rent for much less, and this was with zero percent interest rates.
Oh, and most Americans don’t get bonuses equivalent to 6 months of their salary. This cycle could end in a very nasty way.
I think my husband would appreciate a bonus even equal to 1 week of his salary . . .
- And the bonuses come twice a year.
Momentum has not stopped, but the motion is very slow. Only the most careful observer would notice that those small daily increases in for sale inventory in places like SD and PHX are almost always positive. This is rather like one of those famous California landslides, which proceed for months unnoticed until the day that somebody’s home is buried in mud.
its good to see a post from an X-Tokyo resident. Great perspective.
After 20 years have proces bottomed?
Kudos to Ben Bernanke for the great job he has done so far at the Fed. The housing market is crashing oh so slowly that only the most careful observer would notice. Meanwhile, strong economic reports and surging stock and job markets give perfect cover for continuing the rate hikes until the bubble’s heart is impaled by the iron spike. At the end of the day, he will say that a high level of inflation risk forced his hand, and nobody will be able to criticize him for it. Bravo, Maestro II!
I’d have to agree…pretty dang slick.
Our “Sitting Pretty Financially” friend has reduced her flip in Palm Springs, CA, to 629K for a “priced to sell” . . .
The breakdown was originally this:
MLS #: 21238109
“We are ‘confident’ that we can sell it in the 699 range”
Tell her “you keep using that word. I do not think it means what you think it means.”
lol. Did she keep you posted when she dropped the asking to 629k?
No.
I am “Confident” that she could have pulled this off about A YEAR AGO… but that’s the bitch about flipping- you never know when the market it going to take a dump.
Some of the flippers I know, get overly “Confident” in their business model… and end up getting burned when they are blindsided when the market changes.
A maniacal bull market and a market downturning are so clearly different animals. What is wrong with this asshat that she doesn’t have the good sense to UNLOAD now that she knows which type of market she is in the middle of? If the market were still a raging bull, she’d have multiple offers above asking. Instead, it sits with a reduced price. This isn’t a case of leading a horse to water but it not having the sense to drink — in this case, the horse has been dropped into a lake but it will die of thirst because its stubborness is imagination-defying.
Most of the people that I would consider “real estate pros” got out of the market last summer. They didn’t do it because they somehow knew that the market was going to take a downturn (that is a story that is still playing out). They did it because the RISK that the market would take a downturn was too high. It’s all about (correctly) managing risk. It’s not what you make, but what you keep. Maybe she’ll learn that from this little episode.
Are you kidding? No, she’ll keep on her schtick as master of the universe and will continue to dispense her smug, all-knowing “advice” (that nobody reads) to the rest of us dumbasses who clearly don’t have the acumen she does.
My guess is she ends up losing money on that crapper.
Right on the money Arroyo….
Well said Arroyo Grande!
Like stocks or any other “risk” investments… the smartest investors have a sixth sense-
Combined with DISCIPLINE… they get in when it’s not that popular and trendy- then pull out just before the HERD figures out that IT’S OVER.
This gal is clearly a beginner, because she is not recognizing the trends.
Having said that, none of us can really pinpoint the optimum moment to PULL THE TRIGGER, (some smart investors I know got out about 1 or 2 years early- they unknowingly could not assess the “frenzy” freak nature of the market perfectly)…
so in these freak times, it’s still a bit of BLACK MAGIC to figure out when to pull out- but clearly, in hindsight- this gal is going to be eating crow.
You forgot property taxes and HOA dues.
see the similarties in the market and the RE shills’ comments in the previous bust and now. so strikingly similar!
Real Estate News Summary, Part 111, June - July 1992
Another S&L failure could result in some San Jose homes being sold for
almost $30K less than the last asking price. At an auction to unload the
homes, the opening bid on a 1-bedroom condo will be $68,600. The last
asking price was $98K. [San Jose Mercury News]
864. Kennedy-Wilson will auction 27 luxury single family homes in Patterson,
California. Minimum selling prices now from $95K; previous asking prices
$149.9K to $185.9K [San Francisco Examiner]
865. Kennedy-Wilson will auction 25 condominiums in Modesto, California.
Minimum selling prices now from $45K to $55K; previous asking prices
$71.5K to $87K San Francisco Examiner
Real Estate News Summary, Part 4 Wed, Nov 14 1990
California has experienced an unprecedented decline in real estate values
in the last year, with almost a 6% decline in median home prices since
the peak in July 1989, according to the Calif. Association of Realtors.
Bay Area home prices have fallen even further, more than 8% since August
1989. What is incredible is that there is seemingly no outside cause.
Housing prices simply rose higher than most people can pay.
Joe Arsenio, an analyst with Hambrecht & Quist Inc, says that the
fuel for further home price increases is not available. “We are not
getting the explosive growth of the past, and there will be a more
extended period of flattening in real estate prices.”
First Interstate Bank chief economist Jerry Jordan expects 3 to 5
years of flat to stable home prices in California, with actual price
declines early in the decade, especially hitting the higher-end homes
–those costing $400,000 or more.
Kenneth Rosen, chairman of UC Berkeley’s Center for Real Estate and
Urban Economics says, “There are not as many people out there trying to
buy a new home. And the absolute level of home prices is so high, it
scares people. There’s risk of more pronounced home price declines
because we are at such a high level already.” Rosen expects a 15%
decline in home prices from the peak in July 1989.
“A lot of buyers who bought just last year have lost their equity,”
said Michael Rivers, National Directory of Real Estate Advisory Services
for Ernst & Young. [SF Examiner]
Such good information …thanks
I would be thinking that July 1989 = July 2005 and Nov 1990 = Nov 2006. This thing is so much like the last cycle, it is scary.
This time will be much worse. The reason is the we now have 3 billion more people competing against Americans for high-skill jobs. During the past 5 or 6 years, college graduates have experienced 5% wage declines nationwide ( I posted the CNN news link on today’s CA thread) and more than 1/4 of info tech job loss.
In the early 90’s, the only threat was Japan that had its own hands full with its own bubbles. Now we have 3 billion Indians, Chinese, eastern Europeans, and Russian all in the same game.
Until the US figures out a way to create new high-skill jobs or reverse the trend, the economy will keep falling . The jobs lost are gone for good. US companies are not going to spend 5 to 10 times as much to replace foreign workers with Americans. So the only hope is a new achievable space or fusion program that gives the US new edge again. This is going to be the most difficult battle Americans have ever faced and so far few even recognize the crisis.
If the US doesn’t win this battle, the middle class will disappear like it is already happening in So Cal. Within 30 years, there will be less than 5% of the super rich who profit from overseas operation and the rest of the population will be their servants. Who is going to buy those middle class homes at current prices?
I read the articles you posted yesterday. I have been following this on my blog.
I’m coming to the slow and grinding conclusion that our collective standard of living has declined and will continue to decline for some time. This housing bubble has created an illusion of wealth that has allowed voters to rank “gay marriage” as a more important political concern than this country’s finances. Under this cover, corporate subsidies have been shoveled out of the national treasury by our overfed political establishment in place of making focused investments in our future such as child health care and education. As we all stand by and watch this house of cards collapse, those pensioners whose funds are highly invested in these exotic MBSs are going to get incinerated. How many of them gleefully cheered the run-up in home prices at the same time their own children were being driven away by those same increases? My aunt and uncle sold their home in El Cajon, San Diego and bought a bigger house in Alpine (exburb) just so their son and granddaughter could live with them instead of moving to Texas. Their son has to endure a 100 mile commute every day just to keep them crowded under that roof.
globalizattion is an old game..late 19 th century’s globalization was thrown into disarray by world wars and global protectionisms..just like cycles in real estate/sock market/life-span, there is a cycle in globalization & protectionism…no matter what proponents of the former swear by..
major headwinds are on the way,real estate debacle notwithstanding.
Nice thinking, but who is going to buy the products and services that are being manufactured over seas?
americans, with govt printing the currency freely!
Weimar republic all over again!!!! Yipeee!
Watch small fringe groups that advocate violence against minorities gain a lot of power….
No violence - just deport all the illegas.
Wow — the permabear Rosen’s forecast decline was on the conservative side last time around! That is scary.
I just can’t wait to see how fast this bubble unwinds once those resets go to foreclosure, and the homes go for sale by auction
Floridians: Better take what you can and run. See below:
Weather expert warns of costly hurricanes
Paige St. John
news-press.com Tallahassee Bureau
Originally published on March 14, 2006
But the undisputed trend is that current hurricanes are much more damaging, Lyons said.
“We are, at least in Florida, far more vulnerable to hurricanes than we have in the past,” he said.
“We really need to be taking preventative medicine here as soon as possible. We’ve just completely changed the face of the coastline in Florida, and we’ve set ourselves up for very costly disasters.”
It is the costliness of those storms that troubles Lyons’ current audiences.
The House Insurance Committee this week takes its first crack at a 92-page bill that allows automatic rate hikes up to 25 percent, removes the public subsidy for second-home owners on the beach, and requires storm shutters in the Panhandle.
Sorry for the OT post. I found this link on a recipe site. Sounds pretty frantic if you ask me…
Would you like to make $10,000
That phone’s in Red Rock, TX. Where the hell is Red Rock?
I don’t know if this has been posted, but it’s an interesting article on the status of the housing market drivers.
http://www.safehaven.com/article-4774.htm
what is it like to live in oc?
I was raised in Santa Ana and have spent the bulk of my life in OC. NOT THE OC.
Some people think it is like the popular tv shows. The show that most closely captured the zeitgeist of OC is Arrested Development (now cancelled) but you can rent the dvd.
That being said it is my home and you really can’t change that.
I thought Arrested Development was renewed for another season?
SBG: Thanks. Someday “The” will be gone forever from OC…
The more I research this, I realize the housing bubble is more extreme in certain places than others. Foreigners and people from the East Coast are moving to Southern CA. Foreigners want to belong to their expanding ethnic communities, and I suspect that many of the people from the East Coast feel that Southern CA is a safer place to live in the age of terrorism.
Meanwhile, Southern CA natives are moving out in large numbers. They’re going to Nevada, Utah, Idaho, Colorado, New Mexico.
The Southern CA housing bubble will pop especially hard when the newcomers realize there are reasons why the others are moving out.
Namely, traffic jams from hell, earthquakes (”the big one”), all those fun things people tend to forget about ’til you’re stuck in it.
I have to travel to L.A once or twice a week and it is HELL but I sold my house a year ago Feb. and renting. I am scouting Colorado and New Mexico as a retirement place. Yes I know what you mean by the foreign people coming here with cash to buy , they too do not see this bubble as it will crash around them especiall here in Irvine where almost everything is PERFECT!!!!
I love OC or at least what it used to be. It was a great place to grow up in the 70s and 80s. But I tell you this, having moved out in the late 90s to the bay area has opened my eyes to the destruction going on there. Everytime I visit it makes me sick. Everyone talks about how great the weather is but you can’t even see the sky through the haze. Most of the beaches are trashed. Always sewage emptying into the ocean and Newport Beach is a fricken trash pit now. It used to be beautiful. The weather is better in Vegas for gods sake. I would love to move back but its just not worth it. Maybe after prices drop by 35 to 40% which is my prediction. Sorry for the rant but its tough being patient waiting for the big turd to hit the fan.
FlippinCrazy
Everyone talks about how great the weather is but you can’t even see the sky through the haze. Most of the beaches are trashed. Always sewage emptying into the ocean and Newport Beach is a fricken trash pit now. It used to be beautiful. The weather is better in Vegas for gods sake. I would love to move back but its just not worth it. ..
how do you reconcile going back w/ what u said above..
Would you realy rather live in OC vs. the bay area ???
Yes…not to trash the bay area, it is a beautiful place, and “some of my best friends live there”, buuuuttt…
After living there for 7 years, I got tired of the “we are so cosmopolitan and smart” attitude a good number of the people seem to have up there. I *know* that’s an overgeneralization, but an example is the rivalry (hatred?) SF people seem to have against Los Angeles…while people from LA seem to not have been told that there is supposed to be a rivalry.
This is so true. Most SoCal people don’t even know that BA people think they are so much better than them.
Socal typical response, “Really? So what? I don’t care what they think of me.”
All other things being equal, OC is better than BA; no contest.
I constantly meet people who have moved down to LA from the Bay Area. Every one of them says that they can’t believe how nice it is down here. They are all surprised that we don’t trash the Bay Area. They don’t miss the weather up there. They like the people here better. They find out that there’s plenty of culture in LA. People aren’t nearly as snobby or cliqueish. It’s much cheaper. The tech bubble ruined the city’s culture anyway and made it so that only wealthy people can afford to live there, so a lot of the cultural reasons to be there have moved away. Artists love it here in LA, and they have a far bigger market to sell to. They all seem to agree that the Bay Area is a great place to visit on a weekend, but not to live in anymore. Even New Yorkers have been saying these kind of things about LA. LA is truly a world-class cultural center now- but one with bad traffic…
Article about Bend, OR RE Bubble: The usual baloney statements in the top part of the article, then they actually quote some bloggers and the reality comes out. This article is the whole bubble bursting in just a few paragraphs.
Bend makes list of most ‘overvalued’ markets. Realtor disagrees; blogger says it’s worse than he feared.
This is the last half:
I am in the process of completing 2 large purchases in Southern Oregon….We looked very hard in the “Bend Oregon” area and were just astonished at the over valuations in that market…I have seen a tremendous increase in inventory also….The mustard is off the hot dog in that market…Just plain STUPID…..
FlippinCrazy
“I love OC or at least what it used to be”
This is exactly how I feel about alot of places. The problem is that every great place makes the news and all of the best place lists and then every body rushes there and makes it like the hell hole they were escaping from. Next time you find a place you really like, dont talk about it.
After all the flack about the glut of condos in San Diego, we’re still seeing San Diego median prices rise. I guess selling prices are the last thing to correct!
They’re saying new foreclosure listings more than doubled in one month?!?!?!? Holy cow!
Yeah, there were 2 foreclosures and now there are 5.
miamirenter
Family!
I don’t understand the avg SoCal mortgage payment figure in the story. They say it’s now $2,251. That sounds awfully low when you consider the median home price is now $480,000. Must be a lot of funky loans going down.
Let’s assume they are correct with the $2,250 figure. When you factor in taxes, insurance and a small amount for upkeep and repair, it comes to $3,450 a month. And that’s conservative.
The avg SoCal household income is about $55,000 or so. Factoring in about 20% for taxes (conservative), the net HHI is $44,000 or $3,666 a month.
So these median folks are paying 94% of their take home pay on mortgage, taxes, insurance and upkeep.
How is that possible?
These median home prices make absolutely no sense given the HHI’s in SoCal. And if you use less conservative numbers, it would appear the median HH is spending over 100% of the median HH income on the median home.
Bizarre.
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