A Positive Thing In The Long Run For California
The Voice of San Diego reports from California. “In the sharpest price drops recorded since two economists developed their popular method to track housing prices in the 1980s, local home prices declined a steep 16.8 percent from a year earlier and 21 percent from the peak in November 2005, according to the Standard & Poor’s/Case-Shiller home price index. The index for January, released Tuesday, marked the fourth straight month of yearly double-digit plunges for local prices.”
“The monthly plunges are beginning to strike a dramatic resemblance to the skyrocketing double-digit price ascent in the county during the boom.”
“Of the 1,954 homes sold in February, 37.6 percent were foreclosed upon at some point since January 2007. Such sales constituted just 4 percent of sales in December 2006.”
“‘And it’s not going to stop,’ said Ramsey Su, a local retired real estate broker and investor who sold bank-owned properties in the 1980s and 1990s. ‘There’s so much competition out there from sellers in the must-sell category.’”
“The price paid per square foot in February for resale condos and townhomes was $265, down 17.9 percent from February 2007 and down 24.3 percent from the peak, according to DataQuick.”
“‘The condo conversions … are disproportionately more affected than the rest of the market,’ said San Diego real estate agent Dan Cassidy. ‘For them, the [data] is, in my opinion, understated. The resale attached side vacillates between 25 and 45 percent, depending upon market area and whether or not it’s a conversion.’”
The North County Times. “Analysts say that though prices will continue to fall, San Diego’s desirable weather and location means homeowners have to redefine what is affordable.”
“‘San Diego has gone through what is called a Manhattanization because there’s only so much land,’ said Nathan Moeder, a principal a San Diego realty adviser firm. ‘You can say (a house payment) should be a third of your income, but that’s not the case for San Diego. It might be the case for the Inland Empire, but if you want to be here in the sun, close to the water, you’re going to have to spend for it.’”
“Christopher Thornberg, an economist with Beacon Economics said he is unconvinced by the theory.”
“‘That’s totally bogus,’ he said. ‘The kind of population density in San Diego is nowhere near what you’re dealing with in New York. That you could possibly even pretend that is the case is absurd.’”
The LA Daily News. “During January and February, there were 1,084 foreclosures and 1,335 sales of houses and condos in Valley communities from Glendale to Calabasas, according to the San Fernando Valley Economic Research Center at California State University, Northridge.”
“By comparison, during the first two months of 2007 - also in a slumping market - there were just 235 foreclosures and 2,481 sales.”
“‘It’s bad. It’s really bad,’ market analyst Nima Nattagh said of the foreclosure flood.”
“The rising foreclosures and falling sales keep beating down prices, too. ‘There isn’t any sign that the price (decline) is going to turn around,’ said Daniel Blake, a CSUN economics professor and the center’s director.”
“Many potential buyers are waiting to see how far prices will slide in response to the weak sales and rising number of foreclosures, he said. ‘You don’t want to try to catch a falling knife,’ he said.”
“Many homeowners helped create the problem they are now facing, said Nattagh, who has examined a number of foreclosure filings. ‘If you actually look at a lot of foreclosures, you see repeat refinancers - people who, on the basis that home values were going up, kept taking equity.’”
The Daily Bulletin. “San Bernardino and Riverside counties ranked No. 5 nationwide in home foreclosures in February, according to RealtyTrac. Fernando Castellanos, manager of the Rancho Cucamonga branch of Buy America Real Estate Services, is noticing some of the nation’s biggest price drops firsthand.”
“‘Some of these price reductions are unbelievable,’ Castellanos said.”
“He’s been keeping tabs on a Rancho Cucamonga home that sold for $960,000 three years ago. Today’s price: $585,000 - a 40 percent plunge. ‘In some cases they’re dropping more, some less,’ he said.”
The Bakersfield Californian. “Economist Christopher Thornberg spoke about real estate, falling median home prices and the local economy with The Californian on Tuesday.”
“‘In the short run, there’s no doubt, it’s going to be ugly… But in the long run, the nice thing is, with prices coming down to a reasonable level, there will be more room for expansion.”
“‘One of the big issues California was facing was, home prices that were so high that businesses couldn’t attract anyone. Families were leaving the state because they couldn’t afford anything.’”
“‘So now with prices coming back down again, you have the fortunate side effect of a market that will allow more growth. And that’s a positive thing in the long run.’”
“The San Francisco Chronicle. “The Standard & Poor’s/Case-Shiller report found the average cost of a Bay Area home fell 13.2 percent from January 2007, the sharpest decline since the report began in 2006, when it tracked 18 years worth of data.”
“More than half of the decrease in the region, defined as Alameda, Contra Costa, Marin, San Francisco and San Mateo counties, occurred since November.”
“‘The nationwide composite figures look so relatively large because no markets are boosting or holding it up,’ said Maureen Maitland, VP at Standard & Poor’s. ‘After 15 years of basic growth across the nation, every one is in pullback at this point.’”
“Esmael Adibi, director of the Anderson Center for Economic Research at Chapman University in Orange, said he expects the housing downturn to last at least through 2009, citing Case-Shiller data from the last housing market downturn. During the early 1990s, Bay Area home values fell just over 12 percent during a period of 69 months. The current slowdown is only in its 19th month, and prices have already fallen further, he said.”
“‘The bad news is I think we’ll see lower prices; 13.2 percent is not the end of it,’ Adibi said. ‘The positive is that maybe the cycle will be shorter, since the prices are going through this adjustment in such a rapid fashion.’”
The New York Times. “In 2005, Randolph Harrison and his wife, Pamela, decided to move into wooded Marin County to be closer to her new job. They found a six-bedroom house that seemed ideal except for the price, $1.875 million. The current owner, they knew, had bought the house a year earlier for $1.475 million.”
“So the couple, who both have finance jobs in the technology industry, told their real estate agent that they wanted to offer $1.575 million. He told them that the owner wouldn’t even listen to such a low bid. The owner’s attitude was ‘we’ll just stay here until we sell it for 1.875,’ the agent said, ‘even if it takes years.’”
“Three years ago, when the real estate bubble was still inflating, this sort of standoff was the exception. It’s the norm today. For both economic and psychological reasons, there is no asset more conducive to hopeful overvaluation.”
“Robert Glinert, a real estate agent in the Los Angeles area, said he has recently been saying no to almost half the sellers who have asked him to represent them. Their initial asking price is just too unrealistic.”
“‘People say, ‘I don’t care about the market — my home is still worth what I paid for it in 2006,’ Mr. Glinert told me. ‘And I say, ‘To you. Only to you.’”
“Doing what Mr. Glinert is asking sellers to do — dropping the asking price below their purchase price — is especially difficult. It’s tantamount to admitting defeat.”
“Often, this hurts no one so much as it hurts the would-be sellers. They stay in homes where they no longer want to live, rather than accepting their loss and moving on. Or they move but endure the hassle of renting out their old home, waiting, usually in vain, for the mythical buyer who understands its charms. All the while, their money is tied up in the house, and inflation is eating away at its real value.”
“Back in 2005, after Mr. Harrison and his wife couldn’t find a house they considered fairly valued, they opted to rent instead. They pay $3,250 a month for a four-bedroom home, which is a bargain relative to what their mortgage payments would have been.”
“And that six-bedroom house listed for $1.875 million? The last Mr. Harrison checked, it still hadn’t sold.”
The Orange County Register. “Orange County real estate agents collectively earned about 13 percent less in commissions from home sales last year than the year before. And their income was down about 42 percent from 2005, shrinking by $645 million in the past two years.”
“The reductions, spurred by two years of declining home sales, prompted more agents to either leave the business or find jobs elsewhere, while offices either closed or merged with other brokerages. Real estate brokers also reduced agent positions while cutting support staff and costs.”
“‘The industry as a whole is definitely taking a gigantic haircut in commissions,’ said Steven Thomas, president of RE/MAX Real Estate Services of Aliso Viejo.”
“Forty-five percent of all agents affiliated with an active Orange County real estate office had no income last year from commissions, said Patrick Veling, president of Real Data Strategies Inc. of Brea. Of the 55 percent of agents who had a sale last year, half did just one or two transactions apiece.”
“To put that in perspective, a sales agent’s typical commission split amounts to a fourth of the overall commission, or about $8,900 for the sale of one median-priced home in 2007. Fewer than 28 out of every 100 agents did more than two transactions last year, according to Veling.”
“‘We have too many agents in the business. This will filter them out,’ said Bill Plattos, broker for a regional chain based in Costa Mesa. ‘People thought it was easy. They muddled it up. Some of them were unprofessional.’”
“Virtually every agent knows someone who’s gotten out of the business, although most who have taken employment elsewhere say they’re keeping their licenses active and trying to keep a hand in the trade.”
“One agent, saying he earned just $12,000 last year, took a job at a fitness center to cover living expenses.”
“Edward Campbell of Midway City launched his real estate sales career in early 2007 but after six months realized that residential sales were not for him. He switched to commercial real estate.”
“Campbell recalled holding two open houses in early 2007 to which nobody came. Those days followed attempts to market the house, then time spent setting up signs and flags. Only to end up spending the day sitting in an empty house, hoping somebody would show up.”
“‘It was just boring,’ Campbell said. ‘It was just standing around doing nothing.’”
“The nationwide composite figures look so relatively large because no markets are boosting or holding it up,” said Maureen Maitland, vice president of index analysis at New York credit rating and research firm Standard & Poor’s. “After 15 years of basic growth across the nation, every one is in pullback at this point.”
The way she says this, it sounds like she’s implying that the nation-wide numbers aren’t really as bad as they look. But that makes no sense. If there are no localities doing well enough to hold up the number, then doesn’t that just mean that things truly are “that bad”?
“He’s been keeping tabs on a Rancho Cucamonga home that sold for $960,000 three years ago. Today’s price: $585,000 - a 40 percent plunge. ‘In some cases they’re dropping more, some less,’ he said.”
Rancho Caca-mucho and 585K do not belong together in the same sentence. 40% ain’t nearly enough!
That’s a fact…
I’ve seen those million dollar homes for 70K millionaires. They are nice and larrrrge, but def. not 960K large. Dep. on lot, location, and how well-built, maybe 250-300K, tops. Remember, RC is still the IE. He can kiss another 50% those homes. 280K, anyone?
280k is still too much…when you get to far-flung desert area’s like that, where you have 2 hour commutes for a real job and 4 dollar gas…there’s very little justification to have anything priced over 200k unless it’s sitting on a half an acre with about 5 or 6 thousand sqft and even that is questionable because the cost to keep it warm or cool during the respective seasons is enough to choke most elephants..
My bro-in-law bought a 2900sqft monster on large lot in a nice area (if such a thing exists in IE) out there in ‘01 for 215K. I’ve been calling for retun to ‘01 prices out there for some time now.
Hmm, I’ll bid 200k max in a year. Check out the community on marketwatch.com. People know the truth about any idea of things ‘getting better soon’
Totally agree - and am completely dumbfounded that anything could have sold for $960,000 there. Unbelievable.
Waiting, I remember when they started building them and I have to admit I was impressed at first glance. You know how that goes. Large home, a little bit larger than usual lot, esp. in So Cal. However, when I saw the price tags, I couldn’t help but wonder how anyone in that area could buy, let alone why they would buy at that cost in RC.
sun stroke, maybe…
Or just filthy air and lots of it !
Liar loan, undoubtably….
Something that scares me about cali that i haven’t seen mentioned yet is the loss of tax revenues to the state/local govts. The houses getting foreclosed on and resold for lower prices are the same homes that made up a greater share of tax revenue based on prop #42?. This is money that will not come back to the govt anytime soon which will increase govt layoffs which increase foreclosures. Throw in a little earthquake and cali will be completly and utterly screwed
Good; we need some government layoffs. Bakersfield is so screwed. 21-22% of the City income last year went to pensions. Retire at 50 @ 90% of your highest income. File for disability and get 50% of that tax free. What is wrong with this? The F’d Bs are really F’d! hehehehehehe
Bingo.
You think this is bad. just look at the two million dollars houses in Bakersfield. That’s Bakersfield. I rest my case.
“Rancho Caca-mucho and 585K do not belong together in the same sentence. 40% ain’t nearly enough!”
Some trolls a year ago said nearby Claremont was ’special ‘and due to ‘new RE economics’ would never go down . latest i read was Clarement was down to close to $500,000 median price. Couple years ago homes there were selling for 1 million +.
Problem with Claremont & RC is that they are adjacent to such IE crapburbs as Pomona, Upland, Montclair, and inner San berdoo metro which are host incubators of gangs , which have a way of infiltrating into nearby decent hoods thru the trojan horse of section 8, Fb’ers renting out to lowlife tenants, and city/state mandated affordable housing projects(apts) which infect and degrade an entire community.
RC is 95-110 % baking hot in summer , and in winter has severe flooding problems when raging waters gush down from the San Gabriel mts. Not the worst IE community but average large SFH’s not worth more that $300,000, ,maybe $350,000 tops for super McMansions in really spiffed up areas.
So prices at the top were 3x too high. Will we see the same % price drops in the coastal areas?
No, ’cause they’re not making any more ocean.
yes they are:
dangit, lost the link. About the Antarctic ice shelf collapsing.
http://www.stuff.co.nz/stuff/4452970a7693.html
“During January and February, there were 1,084 foreclosures and 1,335 sales of houses and condos in Valley communities from Glendale to Calabasas, according to the San Fernando Valley Economic Research Center at California State University, Northridge.”
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Wow. Downtown San Diego is almost there with the number of foreclosures matching existing sales. What is that saying? A foreclosure a day helps keep prices at bay? A foreclosure a day makes neutral inventory seem a couple of years away? A foreclosure a day makes sellers cry the night away? Nope. I need some help remembering…
“Downtown San Diego is almost there with the number of foreclosures matching existing sales. What is that saying?”
Hmm….
I say: “Downtown San Diego condos for everyone!!”
‘I say: “Downtown San Diego condos for everyone!!” ‘
Yay! Let’s hand them out like party favors. Those little curly noise things AND condos! Wheeeeeee.
“During January and February, there were 1,084 foreclosures and 1,335 sales of houses and condos in Valley communities from Glendale to Calabasas, according to the San Fernando Valley Economic Research Center at California State University, Northridge.”
Entire SFV is in a RE meltdown. Now the infection is spreading from the less prime areas of the east SFV all way out to the better western parts. The SFV comprises almost one half of total LA City area and housing inventory so it’s effect will have severe negative impacts upon LA city housing prices overall.
Let’s try this one (I really want answers, so please forgive multiple posts if the other one comes through later):
Dear Hoz, AZ-Lender, and Whoever Else Wishes to Comment:
This letter to Ben Bernanke recently appeared in the Wall Street Journal. I was totally taken off guard by some of its contents. According to the author, there are terms written into many of the most recent mortgages (2004 and later) that are extremely disturbing to me. The type of mortgage is called a “first-mortgage syndicated bank loan”. The terms include the following:
-Loan servicers may advance payments on behalf of the defaulting borrower. This mechanism transfers foreclosure funds from the primary security to the junior security (the advance)
-Many of the loans permit the borrower to sell the collateral, keep the proceeds, and invest the money however they see fit
-Many permit unlimited “swap” debt that is either senior or equal to the primary security
Can someone on this blog please explain this type of mortgage and these terms? I don’t really know what swap debt is, and the other stuff is just so weird. Why would any investor agree to any of it? I wouldn’t lend on those terms at any rate.
Thanks for the hand-holding,
Big V
They wouldn’t and didn’t. If such loan instrument exists, there isn’t many of them out there.
These are not terms of the underlying loans but terms of the mortgage-backed security or loan pool in which participation interests are sold. Also, some of what you wrote may have been mangled at some point.
The part about the servicer advancing funds could be a mechanism to transfer cash flow from either the senior tranche or the residual tranche to the junk bond tranche. I’m not sure.
The part about selling collateral means that the bond trustee, or lead lender (not the borrower), can sell some of the underlying mortgage loans and invest in other assets.
I think the part about swaps means the trustee or lead lender can swap loans in the pool for other loans but I’m not sure.
The key thing is that loan pool participations, CMOs and CDOs are not standardized securities like FNMA and FHLMC PCs. Each CMO and CDO can be unique. An investor doesn’t know what he gets until he reads the documents (which are extremely lengthy).
Ah, that explains it.
Snort.
A tranche within a tranche within a tranche…
Ya just can’t make this stuff up!
Leigh
“…local home prices declined a steep 16.8 percent from a year earlier and 21 percent from the peak in November 2005, according to the Standard & Poor’s/Case-Shiller home price index….”
CME contract prices San Diego Housing Futures Case-Shiller
May 2008 186.60
Nov 2012 154.40
The Merc traders think there are at least 4.5 years of downturn left, but what do the traders know. The traders even are betting on a dead cat bounce next spring. FYI
So, you are saying the Merc traders are predicting only 17% further decrease between 5/08 and 11/12. Although SD is ahead of the nation, I believe the Merc traders are not predicting enough of a decline for SD.
it is coming off the dead cat bounce in 2010 and Nov 2012 is the farthest out it goes.
MAY10 —- —- —- —- 194.00 UNCH
NOV10 —- —- —- —- 190.00 UNCH
NOV11 —- —- —- —- 187.00 UNCH
NOV12 —- —- —- —- 154.40 UNCH
Hoz: Are these the same traders that you’ve been following this whole time? If so, they were late to the bubble and their timeline has been too slow this entire time. Am I correct?
No - I do not follow the pit traders a completely different game. The pit traders made a fortune over the last 3 years. This year has made as much for most floor traders as they made in the previous decade. Paper is both ways, not just up. Simple pit trades that had a previous profit of $2K are now profitable for $6K. Not a bad 4.5hrs of work.
The men and women in the pits are for the most part interest rate traders, picking up the basis points on an arb. Housing futures are a new market and nobody knows what the future will be. The pit traders are willing to take a loss to get the contract established. It will be an awesome contract in a rising housing market. Now it is good for those of you looking to buy a house in ‘forgetaboutitland’ , you can lock in a price 4 years fdown the road for a predetermined price. for a current price of a million dollar house you would need to buy 5 contracts. A big if the housing prices continue south you will need to put up more margin moneys. This is a derivative of a derivative of a fictional number. Think CDOsq.
This reminds that maybe a year ago, or maybe 18 months ago, I told an SF realtor on his blog that he could prepare for the coming housing downturn by hedging his future (lower) income with Case/Shiller contracts.
I doubt whether he took my advice.
The best advice you could give! If he had followed your advice, he would be up about $200K on 5 contracts.
Excuse my extreme financial ignorance, but why is that legal, if gambling is not? I can’t see the difference between these guys and bookies.
Gambling is legal in Vegas and Atlantic City and other areas where allowed by the state governments. These derivatives contracts are no different from any other futures or options contracts. These casinos are the CME, NYMEX, NYSE and OTC.
To see how accurate they’ve been, I looked at the trading patterns in the CME housing futures market - concentrating on the composite index (national.) One observation; there’s no doubt that traders have been surprised by the market’s rapid decent. For instance, the near term composite index future (May08) is currently trading at 187.2. However, from June07 through late Feb08 that contract traded well above 200 - as high as 213. The contract made a dramatic downward price correction in late February and continued adjusting lower through March. The contract is now trading at a 12% discount to it’s June07 price. Traders didn’t do a good job of predicting prices here - underestimating the depreciation and then rapidly reducing the futures bid late when the decline was nearly apparant (well after the HBB had priced in this information.)
Where do dead cat bounces in real estate come from? Is the confusion simply a matter of CME traders who are confusing owner-occupied housing price dynamics with that of financial assets?
“‘San Diego has gone through what is called a Manhattanization because there’s only so much land,’ said Nathan Moeder, a principal a San Diego realty adviser firm. ‘You can say (a house payment) should be a third of your income, but that’s not the case for San Diego. It might be the case for the Inland Empire, but if you want to be here in the sun, close to the water, you’re going to have to spend for it.’”
____________________________________________________
Going by this logic, anyone who has a pool in their backyard should be charging a premium of say 20%. Nathan needs to realize that the sun shines in many locations on this planet earth, except for the people who have their head up their @$$. I think this is why nathan made the statement about “only so much land”…all he sees are his anal cavity walls.
If Nathan is saying that you’ll pay more to live within walking distance of the beach, then he is correct. If Nathan is saying that all people living in the entire county (or city) of San Diego should expect to pay more than 1/3 of their income on housing, then he is a wretched twit. People start moving out of San Diego (taking their biotech/medical educations with them) whenever the prices start to get too high. SD is only enjoyable if you can afford a decent house, etc. Take that away, and it’s not worth it anymore.
In theory anyway, those living on the beach are likely in the very high income brackets, and are probably still not spending more that 1/3 of income. The only thing that leads to is more foreclosures if that is the end goal??? In general, salaries in San Diego are a little higher that other areas to compensate and probably allows San Diego a 25% premium over other areas.
Most coastal cities in SD are crowded and skanky.
Tatoos and trucks everywhere.
You are trapped in between the 5 fwy and the 101.
Moving 10 minutes inland from the sea has been good.
La Jolla is lovely is you love traffic jams and no parking.
Del Mar is quaint and expensive is you love euro trash.
Personally, I am very happy with Torry Hills, just east of the 5, yet only a mile from the beach. Nice area, easy freeway access and a decent commute in all directions. Worth a few extra bucks in my book
“Most coastal cities in SD are crowded and skanky.
Tatoos and trucks everywhere.
You are trapped in between the 5 fwy and the 101.
Moving 10 minutes inland from the sea has been good.”
A community close to the ocean is not always exclusive hi-income. Depends on the makeup of the shorefront and the communuty.
Both Oxnard and ventura are fairly close to the ocean yet oxnard is a third world dump and ventura is mostly working to mid class and there are few gilded shoreline enclaves there.
Long beach dwtn is not hi-rent, and condos near the beach are going for under $300,000. The port infrastructures plus lots of inpoverished around dwtn keep dwtn LB from becoming an exclusive hi-rent district. Ditto for San Pedro.
Huntington beach has a 20 mile stretch of white sandy beach but has no exclusive super rich enclaves.
Venice has a semi-ghettoized north area within walking distance of the beach .
Even the Newport beach balboa pennisula i do not consider hi-rent, more like lower- middle class owners of beach front property who think they’re rich. Ditto for Seal and Sunset beach. Often Tacky, wacky shorefront communities abounding with assorted loafers and surf bums.
Trapped between the 5 and the 101 in San Diego? Impossible, as the 101’s southern end is in downtown LA.
GH, you win the award for the place to host the san diego HBB party. Stucco is close!
Even with the price declines, the cost of owning is still twice that of renting for comparable properties. So the “Manhattanization” applies only to purchase prices and not rents? I’m betting that prices fall to historical price to income ratios before rents rise to Manhattan levels.
SD went through more of an “Asshattanization.”
Good one.
Woot.
Santa Clara update-
Despite declining prices there are still plenty of delusional people out there. In my complex there are a couple 2BR/2BA condos for sale, prices at peak around summer of 2005/6 were $424K - $440K.
So guess how much these condos are currently listed for?…$350? $400? nope $468K! One of the units has had open houses each of the past 4-6 weeks. Couple of window shoppers and not much else.
i have seen this in several other complexes in the area. People wont lower prices because either they have been living in a cave or because they cant (owe more than the market rate). This will drag on a long time until people are literally forced from their residence.
sorry about the bold!
Let their mortgage payments eat them alive. That’s the attitude buyers should have.
As long as I put more money in the bank each month, by not having a mortgage, I’m content to sit where I am. In a couple years my savings will have increased significantly, while those idiots will have thrown their money away on interest payments.
AHHHHHHHHHHHHHHHHHHHH, the ‘ol interest payments.
One of my favorite topics. I know dry, boring, dusty. Oh well.
500K home. Over 30 years aside from the original loan amount, you will pay an addtional 750K in interest. NIIIIIIIIIIIIIIIIIIIIIIIIICE!
Even if you were to rent something for an annual inflation-adjusted average of 3K/month, which is top-end almost anywhere, you could have made 250 monthly rental payments, or made rent for 20 years and 10 months. Ouch.
Think about that for a moment. Almost 21 years of rent, just on interest and that’s at the high end, using 3K/month. Don’t even go there if it is 1.5-2K/month. Good golly, I should have been a banker!
But what about property taxes and maintenance? If you didn’t put 20% down, you’re paying mortgage insurance for at least a while. And what about your lack of mobility? What if you get a new dog who doesn’t like the house? You can’t move!
If the new dog doesn’t like the house, I’ll get a new dog!
cayo_ron is a meanie.
Also, 20% down on $500K is $100K. Invest $100K at 5.5% for 30 years = $394K in interest. 11 years of rent at $3K a month - NIIICE!
Those people will be forced or rather, priced out of their house they bought at the top. Only fools will throw away their retirement on a house 3x overpriced.
You’re assuming that rent is stable and never increases. To truly compare, you need to make an educated guesstimate at rent inflation.
Not that your point is wrong, just a little simple.
He did say “inflation-adjusted average” of $3k, so it appears that this was considered.
Rents seem to about double every 15 - 20 years, and there are many advantages to owning, but not at even close to todays prices which are still sky high.
This is the new attitude that I’m seeing that’s diametric to the philosophy ‘J6P’ was taught/fed throughout the past 12-14 years. (Buy NOW, because you won’t be able to save enough in a year to cover the price difference.)
Kinda cool.
Especially so for Cali.
The New York Times. “In 2005, Randolph Harrison and his wife, Pamela, decided to move into wooded Marin County to be closer to her new job. They found a six-bedroom house that seemed ideal except for the price, $1.875 million. The current owner, they knew, had bought the house a year earlier for $1.475 million.”
“So the couple, who both have finance jobs in the technology industry, told their real estate agent that they wanted to offer $1.575 million. He told them that the owner wouldn’t even listen to such a low bid. The owner’s attitude was ‘we’ll just stay here until we sell it for 1.875,’ the agent said, ‘even if it takes years.’”
——————————
Welcome to the Mansion California
Such a lovely place (Such a lovely place)
Appreciation pace!
They livin’ it up at the Mansion California
What a nice surprise (what a nice surprise)
Set expectations high!
Last thing I remember, I was
Paying a million four
I had to make big profit to get back
To dot-com wealth I had before
‘Relax,’ said the realtor,
‘We are programmed to deceive.
You can overprice any time you like,
But you can never leave!’
LOL, and I think I’ll leave it out of boldface. That boldface has caused enough trouble around here.
ROTFLMAO!
bold off
Love the straight talk express from Thornberg:
“That’s totally bogus.”
Should be the thread title.
“‘San Diego has gone through what is called a Manhattanization because there’s only so much land,’ said Nathan Moeder, a principal a San Diego realty adviser firm. ‘You can say (a house payment) should be a third of your income, but that’s not the case for San Diego. It might be the case for the Inland Empire, but if you want to be here in the sun, close to the water, you’re going to have to spend for it.’”
Sigh……..
Can’t believe someone is still using that language.
Listen, close to the water is one thing, but looking at a map of San Diego lets me realize one thing: most of it isn’t close to the water.
Another thing; If you were running out of land, those condo towers in San Diego would be doing really well. But are they?
And if San Diego becomes really expensive, you just won’t have that many people buying there, would you?
Be careful what you wish for. Those expensive locales quickly run out of buyers, and will leave you unemployed.
Not only that, consider that Manhattan is a drain on the rest of the country. Most of the money pilfered out of this whole mortgage mess has been siphoned off in the New York area. The financial district of one city has bankrupted the rest of the nation. Is that what they aspire to in San Diego? As this beast implodes Manhattan may revert back to some kind of reality too. Really, what is there in New York that would warrant such a concentration of wealth? It’s not like they mine diamonds or gold there.
Really, what is there in New York that would warrant such a concentration of wealth? It’s not like they mine diamonds or gold there.
————-
In New York they magically create bonds, securities, notes, options, calls, puts, derivatives, swaps, and more out of mere paper and ink, that make actual diamonds and gold look like cruddy little things dug up from the cat’s litter box.
All without scuffing their fingernails or getting a spot on their silk ties.
Climber
That is so true !!
Manhattanization? San Diego is a far cry from NYC, that’s to be sure. For all its wonders, SD suffers a strain of provincialism driven by Developers’ undue influence on City Hall. We can’t even figure out what to do about our airport, which has been debated for the past 30 years. A mayor of Bloomberg’s calibre would never happen here.
Alchemy city
All you have to do is watch one episode of those NY housewives and you see where the money has gone-superficial, snobby, shallow, social climbing, desperate leeches.
Re those housewives…I saw a trailer for that show…I don’t know where they found those bozos, but they have strange accents…brooklyn or long island or who knows where. I have no idea what social strata they are supposed to belong to, but the upper crust they ain’t.
If you’re not on Wall Street, the next beat job is a Dr. specializing in ‘breast inhancement’. WaHoo
Manhattanization is the big argument for high Vancouver prices (well, other than the Olympics). We have no sun by the way, it’s raining as I type this.
So, to Christopher Thornberg, I send many kisses and thanks for this:
“‘That’s totally bogus,’ he said. ‘The kind of population density in San Diego is nowhere near what you’re dealing with in New York. That you could possibly even pretend that is the case is absurd.’”
aaaah. the truth is so refreshing. I love a straight talker!
Close to the water?
Why you only have to get a conch sea shell and listen.
See, how cheap that was to “feel” the sand.
This analyst has gone through what is called a bullsh!tization.
What I hear a lot of now that the bubble bursting is mostly undeniable to anyone not in the Real Estate racket is “It’s O.K., prices will recover”. I give them a blank stare and ask “based on what ?” Not getting any good answers on that one.
Based on the inexorable decline of the dollar, I would suppose.
Dollar decline DOES NOT EQUAL house-price incline. It equals import-price incline. Houses are not imports, and they have already been built, so materials being imported doesn’t really matter that much either.
No, but eventually all the FB’s will feel better when inflation-adjusted prices catch up in 15-20 years.
Not unless there are also “inflation-adjusted” wages.
Exactly. A falling dollar without wage inflation just means that imports are more expensive and people have LESS money to spend on shelter, hence there is downward pressure on both real estate prices and rents.
Wage inflation is a pretty far-fetched scenario in what looks like it may be a fairly nontrivial recession. Wage *deflation* is not out of the question; see the Bay Area early 2000’s for evidence that it can happen in a downturn.
I agree….prices will recover…..the big question is when???
There were people in CA that bought at the peak in 1990-1991 that had to wait seven years until the price came back up to what they paid.
Next time somebody says that to you, throw that stat at them…..
Prices are recovering as we speak - recovering their senses, that is. They will likely never regain their peak bubble levels again in our lifetimes, in inflation-adjusted terms.
Read an article about people attending a foreclosure fair in Merced, CA. “My payment adjusted to $2000 from $900 mo on my $300,000 mtg. Now I can’t afford my house.”
My reply to that quote would’ve been to direct them to their latest statement which showed, not only an adjustment in payment, but that you currently owe 320K instead of the 300K you borrowed. 900 bones in payment on 300K is almost surely NegAm. Talk about getting boned twice!
Ah yes, the Option ARMers. They’ll have their day in the sun soon (They’re already having it, but the media still stuck on subprime)
“…Ah yes, the Option ARMers. They’ll have their day in the sun soon…”
…and then it will be “prime” time
Alt’A, hey HELOC all the way!
Dang, I’d say weeeeeeeeeeeeeee…but for the sadness.
Sigh,
Leigh
Lest anyone need reminding, aren’t something like 35% of all recent mortgages and re-fi’s in CA option ARM’s? And isn’t it something like 70% of those people making the MINIMUM monthly payment? Anyone out there have some accurate stats?
Which explains a 900K home in Rancho Caca-mucho
Which then begs the question of how you go about bailing these FBs out? Okay, give ‘em the principle reduction…uh-oh….with the neg-am option being utilized the entire time, that just puts them back to the original balance…..okay, fine, just reduce the principle some more. Now, put into a fixed rate….uh-oh…..that fixed rate with the principle reduction is still twice the amount of their neg-am payment….crap!…… Okay, just keep reducing until they can afford it, damn-it!!
Don’t you see the govt football-humpers backing themselves into what affordability really means? Sweet justice!
“‘San Diego has gone through what is called a Manhattanization because there’s only so much land,’ said Nathan Moeder, a principal a San Diego realty adviser firm. ‘You can say (a house payment) should be a third of your income, but that’s not the case for San Diego. It might be the case for the Inland Empire, but if you want to be here in the sun, close to the water, you’re going to have to spend for it.’”
“Christopher Thornberg, an economist with Beacon Economics said he is unconvinced by the theory.”
“‘That’s totally bogus,’ he said. ‘The kind of population density in San Diego is nowhere near what you’re dealing with in New York. That you could possibly even pretend that is the case is absurd.’”
I agree with Thornburg on this one…it’s like the patients have taken over the asylum and no one knows but them.
This is the type of insanity that has been prevelant in California for years…bubble or no bubble…when it comes to California Real Estate rational was thrown out the window decades ago…the closer to the coast the more insane it becomes…
I’ve often wondered if much of CA was in a longer-term bubble and this latest bubble is a bubble on top of that. Is that possible?
“longer-term bubble”
Yes — it dates to 1849 or so…
Anyone else out there keeping track of NODs in their locale?
March is shaping up to be a whopper in the 93552 after virtually identical and record setting months in Jan and Feb. With at least 2 more weeks of recording left we’ve already got 90% of the record amount.
A 4+3 home in 93552 is now on the market for $159K asking. That’s most certainly in the right ballpark for “reasonable”. Will it get snapped up?
dude…that’s still too much for Palmdale…80 maybe 90k is more realistic and that’s if it’s in damn good condition…
I can’t say about location, because Palmdale is a tough area.
However, mathematically, it does work out. I checked one website and it states that the median income is 50K. Using the 3X income, it would work.
Now, about that horrndific commute to LA na dall the gangs out there. Probably snatched up by a meth maker/dealer.
Look at the area in Live Search or Google Maps…it may work mathmatically but that’s about it…you would definitely have to price in the cost of ammo and guns…
Uhhh, check back on that median income in a couple of months.
“A 4+3 home in 93552 is now on the market for $159K asking. That’s most certainly in the right ballpark for “reasonable”. Will it get snapped up? ”
Isn’t that zip area out there past the USAF plant 42. That area is really sparsely populated open desert country. Bet u can get a foresclosed split ranch or trailer on 1-10 acres for $200,000 in that back of beyond part of Palmdale.
Better have barbed wire with gun turret emplacements with all the meth labs and gun toting/hog riding hell angels types out there. Personally i like open desert country but too many loner nut jobs or evaders/escapees of the law also end up in the desert as well.
Bill Platos is one of the head honchos at First Team in Orange County. First Team was one of the big boosters of Gary Watts and would always have him at the annual rah rah spewing his 16% is in the bag. It’s interesting that he said that the market will weed out the unprofessionals when First Team has quite a few Prima Donna agents who have no ethics and would step over their own mothers for a deal. They have one in the Naples/Shore area of Long Beach that would screw Mother Theresa for a deal. The philosophy appears to be market share and deals .
I also read today that Case Shiller leaves out foreclosures in the calculation of prices. Is that true?
Looks like foreclosures are inluded but not the transfer sale to the trust. (below)
http://www2.standardandpoors.com/spf/pdf/index/SPCS_MetroArea_HomePrices_Methodology.pdf
Pairing Sales and Controlling Data Quality
The automated sale pairing process is designed to collect arms-length, repeat sales transactions for existing, single-family homes. This process collects as many qualifying sale prices as possible, ensuring that large, statistically representative samples of observed price changes are used in the S&P/Case-Shiller repeat sales model. In an arms-length transaction, both the buyer and seller act in their best economic interest when agreeing upon a price. When they can be identified from a deed record2, non-arms-length transactions are excluded from the pairing process. The most typical types of non-arms-length transactions are property transfers between family members and transfers of properties from mortgage borrowers to lenders during foreclosure proceedings. Although identified foreclosure transfers are excluded during the pairing process, subsequent sales by mortgage lenders of foreclosed properties are candidates to be included in repeat sale pairs.
Screw Mother Teresa? uh, isn’t she dead?
eww
LOL.
man that is one mean somabiatch RE agent~
“First Team was one of the big boosters of Gary Watts and would always have him at the annual rah rah spewing his 16% is in the bag.”
Jeez, dude, quit exaggerating. Don’t get over the top now. He only said 15% (for 2006) was in the bag.
That Gary Watts fellow, what a guy! I think I’d love to go on a hunting trip with him. I wonder if he likes quail hunting.
Sunnyvale, Northern California.
I went to see a house for rent last weekend. 3 bedrooms, 1 bath, good school district, remodeled in 2001, clean but nothing special. Asking rent was $2150. The picture of the house in the rental ad had a realtor sign in it, and the realtor was the one showing the house to potential rentors. I asked about the for-sale thing.
“They were asking $850,000, they got 2 offers, one at $800,000. They should have taken it, but they decided to take it off the market and rent until the market picks up”.
The house next door had a realtor sign up as well, that was probably part of the reason they didn’t want to sell.
Payments on a $850,000 mortgage are more than twice the proposed rent.
Local TV reports that the housing declines will reverse later this year, and everyone here believes it.
I keep telling myself (and my wife) - nobody knows how bad it’s going to get, but there is nothing to stop this area taking its turn on the rollercoaster.
What are the odds of a reversal in housing decline? 1:1000? And even if this happens, won’t you *still* be better off renting and saving the extra $3000 a month in stocks/funds/options which go up faster than real estate in the long run?
That fool could have made out like a bandit taking the $800k offer. He is subsidizing the rent to some smart, lucky tenant.
Odds? There are no odds on that anymore! The local market is in the process of decline. This was shown in detail by the DataQuick numbers recently released and also the updated Case-Shiller figures. The correction is happening right now.
Well, some people figure the FEDs or government will bail them all out. This will reverse price drops, but will also cause hyperinflation. I guess in real dollars the price will still go down.
What qualifies the local newsbimbo to forecast the progression of the housing debacle?
Is this on Mary Ave, south of El Camino? I ask because I’m almost positive I’ve seen two houses next to each other for sale there.
I’ve checked everything for sale near Sunnyvale Middle School and it’s all above $600/sqft!! Talk about a long way to fall…
The most expensive place I’ve seen was the crappiest (go figure) little 2/1 and still looked it did in the 60s for over $670/sqft. All smokin’ the good stuff.
Rob
Living 2mi from work I rarely leave 94089, housing here is quite weird.
Crapshacks that were $400K in the 2001-2003 plateau zoomed up to $600K and are holding, barely.
Rents in my building that were $1100 in 2002 are being raised $100-200/mo per year now. . . Prolly up to $1650 this year for a small 1B.
Not many “white people” down here. 40% Mexican who are either subprime or have been here for 300 years, 30% Indian techies who find these prices not unaffordable compared to the home country & home salaries, 20% Chinese who are genetically programmed to buy.
“Forty-five percent of all agents affiliated with an active Orange County real estate office had no income last year from commissions, said Patrick Veling, president of Real Data Strategies Inc. of Brea. Of the 55 percent of agents who had a sale last year, half did just one or two transactions apiece.” (average commission $8,900)
Over 70% of OC realtors made less than $19K last year! Can that be, didn’t Suzanne research this?
““‘One of the big issues California was facing was, home prices that were so high that businesses couldn’t attract anyone. Families were leaving the state because they couldn’t afford anything.’””
And people are still leaving. The damage has been done and most won’t return due to illegal immigrants taking over as well as high taxes and socalist crap.
California taxes are about on par with the rest of the states, but I agree that once a family has flown the coop, it probably will not return.
Probably correct unless house prices become very cheap. Once they sell and leave, they lose prop 13 and their low tax advantage. But many don’t care as they give up on California forever.
Illegal immigrants do bring many issues with them, but taking over? Ha! I don’t think so.
As someone living in Nor Cal I would have to agree that SoCal-ist crap is a problem as you point out, but the Santa Cruz mountains keep me protected from all that.
California remains a great place for a lot of high end business. Just look at the job sections of craigslist or other such sites to see. Not only do high paying jobs exist around here, but new products and processes that really matter and change things are being developed. When you die will you be remembered for living your life efficiently or for making the new products that everyone later came to depend on?
““Robert Glinert, a real estate agent in the Los Angeles area, said he has recently been saying no to almost half the sellers who have asked him to represent them. Their initial asking price is just too unrealistic.”
“‘People say, ‘I don’t care about the market — my home is still worth what I paid for it in 2006,’ Mr. Glinert told me. ‘And I say, ‘To you. Only to you.’””
Brings new meaning to “priced in forever” many of those people will be giving it back to the bank as they could not really afford the house in the first place. Those who keep the house will be giving up 10+ years of their retirement. Meanwhile houses bigger and nicer than theirs sell for half the price.
““Back in 2005, after Mr. Harrison and his wife couldn’t find a house they considered fairly valued, they opted to rent instead. They pay $3,250 a month for a four-bedroom home, which is a bargain relative to what their mortgage payments would have been.”
“And that six-bedroom house listed for $1.875 million? The last Mr. Harrison checked, it still hadn’t sold.””
All the smart people are renting for half the cost of buying. So much for “historic low interest rates” when renting is far cheaper than any fixed 30 year mortage. You also don’t need any down(except small disposit) for renting. And with prices falling, the FB’s who rent out the house are throwing their equity away much faster than what they get in rent. Bwwwwwwwwwwwhahaha!
Got chocolate?
Yes Bye, I have one chocolate-covered marshmallow egg remaining. Would you like to share it?
Eat it(if you are a woman) or give it to some sweet woman. Chocolate is like, the best thing to be invented if you are a woman. To say chocolate turns on women is an understatement
““A Wells Fargo document released late February said that in Deschutes County and other so-called ’soft’ markets across the country, borrowers may have to put at least 10 percent down to purchase a home, compared with 5 percent in a ‘normal’ market.””
Wow. 5% down is *not* a normal market! We aren’t halfway to the bottom because 20% down hasn’t yet been the standard in most areas save distressed parts of FL and CA
“‘Some of these price reductions are unbelievable,’ Castellanos said.”
—————————————————————————-
No, it was the price increases that were unbelievable. These price reductions after the Great Housing Scam are completely believable.
“In 2005, Randolph Harrison and his wife, Pamela, decided to move into wooded Marin County to be closer to her new job. They found a six-bedroom house that seemed ideal except for the price, $1.875 million. The current owner, they knew, had bought the house a year earlier for $1.475 million.”
Ok following along so far…
So the couple, who both have finance jobs in the technology industry, told their real estate agent that they wanted to offer $1.575 million. He told them that the owner wouldn’t even listen to such a low bid. The owner’s attitude was ‘we’ll just stay here until we sell it for 1.875,’ the agent said, ‘even if it takes years.’”
Smart to ask for a lower price… after all they are in finance
“Back in 2005, after Mr. Harrison and his wife couldn’t find a house they considered fairly valued, they opted to rent instead. They pay $3,250 a month for a four-bedroom home, which is a bargain relative to what their mortgage payments would have been.”
Lost here, must be some finance thing, $1.575 Million vs $3250 rent… They lost 2 bedrooms that must be it because it must be atleast $2000/month extra per bedroom… see if you are in finance you can figure these things out.
They could rent a 6 bedroom house for maybe $4200 a month, but 4 bedrooms is enough house for them. Going by the rent, house prices are still more than 100% overpriced!
If they were REALLY smart, they’d rent a 3/2 for even less. How big a house does one married couple need? Well, unless they never want to see each other.
The difference is probably very small once you get below a certain price point. In my neck of the woods, you can rent a much bigger, better house for a few percent more a month.
I’m not sure if we are “REALLY” smart. But a 3/2 would be pretty tough for an extended family with elderly and children, and often multi-month out-of-region family visits from other grandparents.
Don’t assume everyone is a dinc couple coveting a McMansion for vanity. Some people have family situations requiring a good bit of house.
Because when we moved here it was 2005, not 2008. At that time the $3250 rent (then $3000) was on a 4BR house that would have easily sold for close to $2mm. I don’t think I ever saw any 6BR homes for rent except executive-relo type places for $10K/mo, short lease.
We chose to trade the 2BRs (one being for home office, the other being for an elderly parent) temporarily until prices come down. That was the risk trade-off decision.
“So the couple, who both have finance jobs in the technology industry, told their real estate agent that they wanted to offer $1.575 million. He told them that the owner wouldn’t even listen to such a low bid. The owner’s attitude was ‘we’ll just stay here until we sell it for 1.875,’ the agent said, ‘even if it takes years.’”
A big Earthquake will fix that problem
““Richard Pleines said it could be five or more years before the local housing market turns around. ‘We’re going to end up with a large volume of property that’s up for sale cheaply,’ he said.”
This means the bottom won’t be before 2013. I will be riding it out in Oil City and waiting for property in north Georgia and east Tennessee to become cheap. Looking at paying $40 to $60 a square foot depending on the house and lot size. Current prices of around $100/foot are bull! So ill be buying in NW PA at around $30/foot and wait it out for other states to approach NW PA’s low prices. I don’t expect prices to match but be close enough to be worth the small premium. a 3x premium is robbery!
“Forty-five percent of all agents affiliated with an active Orange County real estate office had no income last year from commissions, said Patrick Veling, president of Real Data Strategies Inc. of Brea. Of the 55 percent of agents who had a sale last year, half did just one or two transactions apiece.”
Hey realtors:
1) Grab a sign. Should say KB Home, Richmond, Standard Pacific, or some such. Preferably in the shape of an arrow.
2) Start spinning. Spin like your life depends on it.
Orange County real estate agents collectively earned about 13 percent less in commissions from home sales last year than the year before. And their income was down about 42 percent from 2005, shrinking by $645 million in the past two years.”
Sounds like it’s time to short the makers of breast implants.
I probably should. It was in the newspaper one 18 year old woman died from breast surgery. Lawsuits are gonna fly.
Reviewing the basics on CDO’s ect, site on wikipedia had an interesting paragraph
Derivatives such as credit default swaps also create major distortions in the traditional indicators of value of stock and bond markets. Many people wonder why indices like the Dow Jones Industrial Average and S&P 500 seem to go up endlessly. Part of the reason is that big institutional investors no longer sell companies they feel are about to fail, no matter how obvious that impending failure may be. The securities issued by such companies may retain significant paper value up until almost the very end. Instead of selling, investors can buy “insurance” in the form of derivatives and keep holding their investments. This distorts the value of traditional market indices because the decision to remove a failing company from the index can be made well before the paper value drops to zero. This saves the value of the index. It creates the false impression that the index always rises. The underlying markets, for which the index was developed to reflect value, may be far more unstable than appearances indicate. False appearances of stability allow securities markets to appear far less risky than they really are, encourage less knowledgeable players to speculate on derivatives, and allow broker/dealers, financial journalists and some academics to claim that markets are far better investments for the retail investor than they really are. The overall effect is to reduce the perception of risk even though the risk still exists. The reduced perception, however, reduces risk premiums and encourages shoddy loan practices, and may be the cause of runaway financial bubbles, when irrational exuberance gains traction on the basis of inaccurate information.
I’m having a debate with someone about SoCal RE prices. He writes: “Areas along the coast like Newport Beach, Huntington Beach, Laguna Beach, Malibu, Santa Monica, even Hollywood Hills…the desirable areas where there is very little space to add more housing units, remains at all time highs.”
Is this true? If not, can you link me to an article that says otherwise.
I’d be interested as well. I’m interested in Santa Barbara and Montecito. I hear the same thing, but I’m suspicious. I thought RE was priced on the margins.
Jas Jain posted his spreadsheet tracking price changes from the peak. Santa Monica is down 32%. If you go to http://www.dqnews.com, you should be able to get some data. Unfortunately, they have stopped updating most of their charts because the news is so awful. Another option is to call the newspaper and ask them.