A Housing Market Detached From Reality
The Ukiah Daily Journal reports from California. “Worried consumers, investors and home owners are looking at today’s economy and pulling back on financial adventures. One of those adventures is real estate, where the risk factor was considered nil just a few years ago. Now, local Realtors are seeing not only a drop in prices, but a drop in people ready to buy - fueled in part by a lending system that has retreated to strict financial rules. ‘We’re back to income, assets, credit and long-term job stability,’ as requirements for a home loan, said Ginny Richards of Mission Hills Mortgage Bankers at Park Falls Plaza in Ukiah.”
“Richards said the days of getting a loan with no money down and no proof of income are over. If you’re buying, Richards advises, ‘Get a preapproval now.’ Trying to get an approval while you’re standing in the house you want is not going to work anymore. The days of one-hour loan approvals are gone.”
“If you’ve got the wherewithal, it’s a good time to buy. ‘Absolutely,’ said Realtor Russ Tow, noting that lending rates are competitive, although ‘mirage financing is pretty much gone.’”
“Lenders have suffered under the ‘buy and bail’ syndrome and will now likely be requiring anyone who is looking to leave one home for another to have at least 25 percent to 30 percent equity in their current home in order to get a loan. Richards explained that ‘buy and bail’ is what happened when a homeowner with little equity saw a home across the street for a better price, got a loan for the second home telling the lender he or she planned to use the original home as a rental, bought the second home and then simply walked away from the payments on the first home, letting it go into foreclosure.”
“According to the County Recorder’s office, some 135 homes have gone through foreclosure since Jan. 1 in Mendocino County. According to local Realtor Dick Selzer, there is a glut of housing in the Ukiah Valley at the moment, with some 65 percent of available housing the result of foreclosure or some phase of foreclosure.”
“Selzer says he believes the boom in prices in this area - which began to turn about three years ago - sent home prices much higher than they ever should have been. He said a home in the Oak Manor subdivision in Ukiah, which was selling for $420,000 three years ago, probably should have been priced at about $325,000 and is selling at about $275,000 now. He said when you talk about depressed housing prices you have to discount the $420,000 price, which was unrealistic to begin with, and think only of the difference perhaps between $325,000 and $275,000.”
The Contra Costa Times. “While San Mateo County is not seeing a lot of foreclosure activity, short sales are common, said Patricia Lindo, a Realtor in Burlingame. ‘There are tons of them going on all over Redwood City, a lot of them in Half Moon Bay, lots in Daly City; South San Francisco is not doing so good,’ said Lindo.”
“‘Sales are definitely up, but prices are down because of the foreclosures. The banks are pricing them very, very low,’ said Steve Dhillon, a Realtor with the Fremont office of the Realty Experts. ‘Some people will sell low and some will buy low.’”
“Sandy Mann recently did a move-up buy that allows her to live in larger house in Union City than her current home in that community. The three-bedroom, two-bath home was listed as a bank-owned foreclosure for $439,000, or about $300,000 less than similar homes were going for two years ago, Dhillon said.”
“Mann said she would not have been able to afford it when home prices were higher. While she still has to sell her current home, Mann expects to rent it out until the market improves before selling it.”
The San Francisco Chronicle. “‘I always dreamed, but never thought I would be able to swing it,’ said David Prazniak, a United Airlines flight attendant. He is days away from closing on a two-bedroom stucco home near the Oakland Zoo. He’s paying $170,500 - about one third of the property’s $495,000 price in early 2007. His monthly payments of around $1,100 for principal, interest, taxes and insurance will be less than his rent.”
“In a sign of the bargain-hunting competition, Prazniak was outbid on four foreclosed homes. ‘If it’s in a good neighborhood and it’s a decent house, and it lists at $200,000 or below, it goes in five days to a week, generally over asking with multiple offers,’ he said, sounding like a veteran of the bubble years - except for the price reference.”
“Washington Mutual Inc., the Seattle bank seized by federal regulators and sold to JPMorgan Chase in September, said Thursday that it will shutter its Pleasanton campus and cut hundreds of San Francisco positions, eliminating 1,600 Bay Area jobs in all.”
“In addition to setting about 1,600 people scrambling for work, the consolidations will dump around 350,000 square feet of commercial space onto a local market already awash in sublease space. The news comes on the heels of Citigroup Inc.’s announcement earlier this week that it would cut 53,000 jobs, which is likely to translate to at least hundreds of lost positions across the Bay Area. ‘Next year, we’re going to have the sublease swap meet of the century,’ said David Klein, a partner with San Francisco brokerage firm NAI BT Commercial. ‘Sublessors competing for the same tenant (will) all say, ‘I can do the deal cheaper than you,’ and the landlords will be playing catch-up. It’s the harsh reality of a recession.’”
Inside Bay Area. “Job losses in California’s mortgage, banking and related sectors won’t abate any time soon, warned Dan Hamilton, director of the UCSB Economic Forecast Project. The big problem is that the housing market has yet to hit bottom, by most measures. ‘Foreclosures will probably increase in 2009 compared with 2008,’ Hamilton said. ‘We just don’t see how housing can come back next year. That means the financial sector can’t really recover and grow until the problems in housing are pretty much taken care of.’”
From Bloomberg. “Downey Financial Corp., the California thrift crippled by bad mortgages, and smaller PFF Bank & Trust were closed by regulators today and taken over by U.S. Bancorp. Downey Financial, based in Newport Beach, California, lost about $680 million on mortgages in the past five quarters. The lender is the last of the five biggest sellers of option adjustable-rate mortgages to fail or be sold.”
“‘With the deterioration in the economy and especially the California economy, it suggests even more losses are coming’ in Downey’s portfolio, said James Barth, former chief economist at the Office of Thrift Supervision and professor of finance at Auburn University, in an interview before the takeover was announced.”
The LA Times. “If the Inland Empire is one of the birthplaces of the current recession, it is also at the forefront of the nation’s growing pain over joblessness — with the highest unemployment rate of any large metropolitan area in the country. The region’s troubles are set against a backdrop of growing unemployment throughout the nation.”
‘The downturn has all but erased the glow of optimism the Inland Empire enjoyed only two years ago, when newly minted mansions and an array of upscale retailers fashioned parts of the region into a more affordable Orange County in the making. In many cases, those developments are now symbols of the decline, from the sparsely populated outdoor malls to the rows of repossessed homes — victims of housing price plunges of 35% in Riverside and 37% in San Bernardino in the last year.’
“John Husing, who heads Economics & Politics Inc., an economic research firm specializing in the Inland Empire, says 2008 will be the first year the region has failed to increase its job base in the 44 years he’s studied the area. ‘This is an interruption in the economy caused by a housing market detached from reality,’ said Husing, who traced 95% of the Inland Empire’s lost jobs to the residential construction industry.”
“‘There is real pain almost everywhere you turn. My daughter is a counselor at Riverside Community College and she told me she met a [student] whose house was up for foreclosure. Her last resort would have been to move in with her parents, but their home is up for foreclosure,’ said Riverside Mayor Ronald Loveridge.”
The Press Enterprise. “The Inland region’s population was considerably smaller in the summer of 1993, when 158,000 people were unemployed. There were 175,100 idled workers in October, the state Employment Development Department reported Friday, 61,500 more than a year earlier. California’s unemployment rate of 8.2 percent is the highest in 14 years. One worker in 10 in Riverside County is now unemployed.”
“‘The core of the problem is we’re not building any houses right now,’ Husing said. ‘Whether you love the homebuilding industry or hate it, it was the main source of outside money that came in and drove our economy.’”
“Husing said this is much worse than the recession of the early 1990s, a period where the Inland area, for all its problems, continued to see job growth. Much of that unemployment was local people who lost jobs in Los Angeles, he said. ‘This is going to be really ugly, and we’re just getting started,’ Husing said.”
“As owner of a Riverside-based job placement company, Audrey Loera said she’s constantly talking to very worried people. ‘We keep telling people to try back after the first of the year, but some people call us every day,’ she said. ‘We’re able to get some people work, but the employers are being very selective right now.’”
“Loera said she recently spoke to a laid-off manager who had earned a six-figure salary but is now willing to take a warehouse job paying, at most, $10 an hour. ‘That’s all we’re getting,’ she said. ‘It’s so slow.’”
The Daily News. “The Santa Clarita Valley housing market should recover by next summer, an economist told local business leaders Thursday. Mark Schniepp delivered that message to a room full of business leaders, Realtors, commercial real estate brokers and developers at the Hyatt Valencia ballroom Thursday morning.”
“‘That housing recovery will start to boost economic growth,’ Schniepp said before his presentation. ‘No longer will it be a drag on the Santa Clarita Valley economy and it will start to lead this area as well as the rest of the nation out of recession.’”
“Although home sales are up slightly in the Santa Clarita Valley, the median price of a home was down nearly 24 percent compared with last October. Developers have delayed building new homes so they won’t have to sell them under these distressed conditions. The average price of a new home declined 13 percent from a year ago.”
“Fewer than 600 units are expected to be built this year, the lowest annual total since records on the Santa Clarita Valley have been kept, according to Schniepp’s report.”
The Tribune. “One day after a study ranked the San Luis Obispo-Paso Robles region as the second priciest in the nation for housing — behind New York -— the California Association of Realtors has released data showing that 38 percent of county households can now afford to buy an entry-level home.”
“That figure is up from 20 percent of San Luis Obispo County households in the third quarter of 2007, according to the association. To purchase a home at the entry-level price of $356,120, a county household would have to have a minimum qualifying income of $69,300. The figure of $356,120 represents 85 percent of the county’s prevailing median price, the level at which most first-time buyers purchase a home.”
“The county is the second least affordable in California behind the San Francisco Bay Area. The most affordable area in the state was the High Desert region at 73 percent. San Luis Obispo County’s real median family income, which has fallen in three of the last four years, stands at $50,668 in 2008, according to the UCSB Economic Forecast Project.”
“Robert Kleinhenz, an economist with the California Association of Realtors, said the near doubling of affordability compared to a year ago is a ‘very good sign’ for the county’s housing market. ‘At some point in the future, one of the necessary ingredients for the housing market to turn around in San Luis Obispo County is for affordability to get back where it was earlier in the decade before everything went through the roof,’ he said. ‘Homeowners may not be so happy, but prospective homebuyers find now that a house that was out of their reach two, three, maybe five years ago is maybe now something they may be able to buy.’”
The Desert Sun. “Real estate professionals Thursday were told to prepare for a housing market in 2009 that is frothy, but built on a dune of shifting economic sand. There will also be an outcrop of what’s known in the housing industry as the SPQ: Seller Pain Quotient.”
“‘It’s the variable that occurs when they see equity eroding in front of their eyes,’ Patrick Veling, president and founder of Brea-based Real Data Strategies Inc., told the California Desert Association of Realtors at its 2009 industry forecast.”
“‘This is not the market in which sellers should be testing the market,’ Veling said. ‘It is not the market in which good real restate pros should allow potential sellers to test the water.’”
“With the predictions, Realtors and brokers were told there are silver linings. ‘Bank influence will continue to drive price,’ Veling said. ‘But 2009 will be the absolute best purchase opportunity in the desert that we have seen for a long time.’”
“‘Mortgage availability is at serious risk due to speculators who drove lax standards,’ Veling said, noting that it has all come back to haunt the industry. He warned, ‘Be careful of blame: You can’t blame AIG, Wall Street, Lehman Brothers or anyone else because no one was blaming anyone when all this fueled the record price run-ups that we saw. … We’re as culpable as everyone else.’”
‘Loera said she recently spoke to a laid-off manager who had earned a six-figure salary but is now willing to take a warehouse job paying, at most, $10 an hour. ‘That’s all we’re getting,’ she said.’
OK, I’m getting aggravated about the lack of common sense in this country at a time when it has never been more neccessary. Just think; we just had a presidential election, and the biggest financial event of our lifetimes was hardly discussed. That is the mania called the housing bubble.
The media will use the words, politicians will say them, but there isn’t a real acceptance of what it was.
A lot of what I know about this stuff comes from my experience in Texas. We had a real estate bubble that collapsed starting with oil prices. But the same elements were everywhere; speculation, overbuilding and people living beyond their means.
Trust me; we went through this period of thinking it would all come back. But institutions kept dropping, foreclosures mounted and jobs went away forever. Ultimately, what we faced was a need to change the economy into something that relied on something other than oil and real estate.
That’s the real issue today, IMO. This country spend well over 10 years evolving into a system where we built and sold each other houses. It’s over - gone - and it ain’t coming back. And trying to jump start a mania is like Texans thinking we could bring back oil prices by driving more!
Early 80’s right Ben ?? I attended a one week instructional class in Dallas at that time…It was eerie…The hotel and restaurants were like ghost towns…
That’s the problem (or evidence that Ben is so right) the restaurants in Riverside are far from empty. There is slowing in some of the shopping centers but Marie Callendar’s is still offering their thanksgiving pumpkin cheesecake for $33 a piece. The Grapes of Wrath it ain’t.
Dallas hasn’t changed any. The retail area surrounding the AA Center in downtown that was all the hype 1 1/2 years ago is failing as all of the stores are failing and restaurants closing.
Next up will be all the foreclosures of those high priced condos and townhomes.
“But institutions kept dropping, foreclosures mounted and jobs went away forever.”
This is what the future holds for us. That’s why I’m the “Cash is King” guy. Those who have cash will rule over those who don’t.
It’s really that simple.
Wow!
That is a pretty darned scary statistic of 8.2 percent unemployment this early in the recession. I can only imagine the pain people would be feeling, being out of work in such a high cost state.
Going to be some major attitude adjustments going on in CA, and soon to follow in the rest of the US.
I agree with Combo. Cash is King, and it will buy far more toys and other crap in the very near term.
“Loera said she recently spoke to a laid-off manager who had earned a six-figure salary but is now willing to take a warehouse job paying, at most, $10 an hour. ‘That’s all we’re getting,’ she said. ‘It’s so slow”
so, is an underemployed former exec, forced to work a menial job, an asset or a liability to his new company?
I’ll play, I’ll play.
Most are going to be so bitter that they should never be hired but there are some who are going to figure out that what happened was a one-time event and those people would be assets.
But I like the cash better!! Do I have to buy the toys and crap if I’ve got the cash??
I get sick of buying crap. (Seriously, even if we need it I get tired of dealing with stuff…I wish things would magically appear in my house and have the money deducted from my bank account.)
I’ll go one step further.
I wish stuff would magically disappear when I don’t need it so I don’t have to deal with it.
I wish stuff would magically disappear when I don’t need it so I don’t have to deal with it.
I apparently caused quite a bit of angst with 1 of my more stuff oriented relatives by asking that people focus on quality rather than quantity when giving for the kids this Christmas.
In their short lives, we’ve thrown away pounds of toys, some of them the day after Christmas because they broke. We donate where we can but because of all the lead paint scares our local thrift stores are refusing toys. They can’t/don’t recycle toys, either.
I want just a few nice things in a small space. The kids seem happy, generally, with few classic toys, a keyboard, some art supplies, and the Looney Tunes on TV.
I’d be happy with the excess magically disappearing, too.
When I’m in the East I deal with unwanted holiday gifts by giving them to toll collectors. In particular, one time I drove from Phila to Boston on Xmas day. I would drive up to a toll booth, quickly try to determine the gender of the toll collector, and if it was a woman, give her one of those miscellaneous scarves, gloves, bracelets that some well-meaning relative had stuck me with; if a man, it had to be candy or like that. Merry Christmas! said I, and they seemed genuinely surprised.
That’s why I’m the “Cash is King” guy. Those who have cash will rule over those who don’t.
Maybe in the short term. But you might want to google “Weimar Republic” and “hyperinflation.” With Uncle Sam taking on all these insane financial obligations, then cranking up the printing presses to issue enough fiat currency to cover them, that’s where we’re ultimately headed.
If you really think we’re entering hyperinflation, you should run out and buy as much land as you can on margin (= debt.)
Not really. The deflationary collapse is eating up far more than the government could hope to “print”, i.e., loan. The stimulus packages are just drops in the bucket compared to what has been and will continue to be written off.
You make far too much sense.
Stop before the gold-dealer troll stops by to preach fear.
> The deflationary collapse is eating up far more than the government could hope to “print”, i.e., loan.
Perhaps you’re underestimating the government.
Poof! The Fed just created another trillion out of thin air!
The question is, how do we recognize the switch back from deflation to inflation when we encounter it. I believe the answer is, when the yield curve for US Treasury obligations steepens a whole lot. THAT’s when you want finally to commit cash to RE, gold, and other inflation hedges.
I’ll give you a better hint.
After they commit to “quantitative easing” (= printing money to buy intermediate- to long- term Treasuries), if the yield curve continues to steepen, get the f*ck out.
That’s a very long time away. You’ll have years to make that play.
We already have inflation in food.
I think the Fed is pretty close to trying quantitative easing.
And with the short end of the curve at zero, it already looks pretty steep to me.
Things are moving faster than I though possible…
Preach it, Brother Ben!
And the HBB faithful cried out “Amen!”
Amen!
Amen! Can I get an Hallelujah??
Hallelujah, brother and sister, Hallelujah!!!
Praise the Lawd!!!
Verily, shout it from the top of Lookout Mountain!
If I say Amen and repent…do I get an extra cookie after all the housing trolls are dead ?
And the ECV Brothers cried, ‘ Satisfactory’ in unison.
The media will use the words, politicians will say them, but there isn’t a real acceptance of what it was.
My estimate for “real acceptance” is, oh, about a decade or two.
If I don’t want to discuss the reasons why we rent after owning (like to a prospective landlord), I’ll just say that prices got too high and that we’re saving for another house.
People get seriously weirded out if you say that what you’re actually waiting for prices to come down. Like alot. Like $100K or so. It’s fun, of course, if you are looking to weird them out, but if you want to cut down on the chit-chat and leave a good impression, it’s best not to discuss the global mental “lapse” of the last decade.
“People get seriously weirded out if you say that what you’re actually waiting for prices to come down. Like alot.”
I think that’s half the reason why I stopped going to open houses.
Its still early. Buy and bail is still going on. The FBI isn’t getting pressed to peruse the fraud. Still seeing the price jump up and hose selling after a month on the market (cash back fraud) going strong in the south bay.
Its a mess right now but still in the early phase. If it was a base ball game, we are in the top of the fourth inning.
Entire demand side economy, financial, advertising,marketing, sales, RE etc will be impacted by massive downsizing, particuliarly hard hit will be women who during the past 25 years have found good paying jobs as these sectors have been the employment growth area’s.
San Luis Obispo-Paso Robles region as the second priciest in the nation for housing — behind New York ??
I decided not to buy down there and instead will just visit a lot…The monarchs are returning right now and it just doesn’t get any better then running my GS on Avila beach with beer in both hands
I love Avila beach, Cayucos, the whole area really. Figures that my favorite CA coastal community would be the most expensive.
Avila Beach is sweet. Used to be a great seafood palce out on the pier.
Yeah, it is. And, the nude beach to the south was even sweeter, when I was 17 and in the company of six beauties who decided they wanted to disrobe in front of myself and my best friend. Oh, to be young again…
The beach is still there! :>
It’s not the most expensive, it’s a helluva lot cheaper than Santa Barbara, Carmel, or Malibu. But I guess there are some high incomes in SB. I believe prices in Cayucos remain elevated because outsiders come in and buy for cash. They may not even have super-high incomes, they are just OLD. Personal anecdote: Harvard Club of SB wanted to do a party in SLO County and I agreed to organize it (there are 180 H alumni/alumnae in SLO Cty). Several dozen folks showed up but the median age was about 75. Wow.
What’s a GS?
Goldman Sachs? German sheppard? GulfStream?
German Shorthair Retriever…Sorry for the abreviation…
‘Be careful of blame: You can’t blame AIG, Wall Street, Lehman Brothers or anyone else because no one was blaming anyone when all this fueled the record price run-ups that we saw. … We’re as culpable as everyone else.’
Admission of guilt?
“‘There is real pain almost everywhere you turn. My daughter is a counselor at Riverside Community College and she told me she met a [student] whose house was up for foreclosure. Her last resort would have been to move in with her parents, but their home is up for foreclosure,’ said Riverside Mayor Ronald Loveridge.”
This made me laugh loudly. Is that wrong of me? Probably. But I don’t care.
I do wish he’d said what this student was studying. If it was ‘economics’ then it would become an even funnier story.
This comment just confused the heck out of me.
So the student at a community college had a house and that house is going into foreclosure? And then her parents also had a house and that was going into foreclosure?
If she had enough money to pay a mortgage on the house and go to school how is renting not an option?
Mayor Ron ought to be telling his daughter to position herself for her own upcoming layoff rather than making confusing comments to the press about the “real pain.”
well, see, she didn’t have a down, so the parents got it out of their place by HELOC…and the rest is history.
That’s the kicker. Layoffs haven’t really begun. Everything I’m hearing shows they really will not gain momentum until 2Q and 3Q 2009. What the heck will we do then?
As Ben notes above, the economy was based on having too many sales people. We don’t need them. Its slowing down.
Ugh… Community college student with a house. Silly! Ok, in past downturns, I know of students who bought homes and then rented out the rooms to make the mortgage. Not a bad deal… but wait… that was back when prices were sane! Its not possible today to pay the mortgage with rent. We’re looking to rent a place and newly purchased foreclosures are being offered with $900/month subsidies! Those are properties bought for $300k less than the peak!
The insanity isn’t over yet.
Got Popcorn?
Neil
When I was in college 1971-1975 at UCSC, one of the guys in my dorm bitched to his dad about hating dorm life. His dad sent him a check for $10K and said, “so go buy a house”. At the time a 3/2 cheap house out by lighthouse point was about $30K IIRC. The student took in some roommates, which almost paid for the mortgage, and when he graduated his dad sold the place for enough profit to have paid for my friend’s education plus some.
This wouldn’t work today for the obvious reasons.
My dad offered to do this (when it made sense) but I couldn’t be bothered.
And no, I don’t regret the decision. If anything, the opposite.
ah… but back then it was a decision. In 2005 is was a ‘no brainer.’
We’ll be back to a decision in 2011.
Got Popcorn?
Neil
I totally agree Neil, the layoffs haven’t really started yet…..but the cut backs on hours, programs & projects are in full swing. This is the round up in my extended family: I’m in the flora culture business. This was the mandate handed down last month: absolutely positively NO overtime, no bonuses and probably no wage increases this year. This month our sales have fallen off a cliff.
My husband works for a non-profit, while they are not, by any means, entirely dependent on state funds, the CA budget crisis is having the effect of programs (new & current) being put on hold and no new hiring or filling vacant positions. They are not talking about lay-offs but they are micro managing every expenditure.
Our youngest son is a Hotel GM in San Diego for mid level hotel. Bookings are down a good 20% for Sept./Oct. Nov is looking dismal. He heard through the grapevine that the owners are looking to sell. Another son works in commercial construction in Phoenix. The owners of his company have been anticipating this down turn and stockpiled cash and cut back across the board last year. Everyone has been on a straight 40 hrs/week. They are seeing competitors go out of business left & right and hope to purchase some their equipment and have picked up a couple of their contracts.
Last but not least, my sister is a project manager for company that is building a waste water treatment facility in the central valley. They started this prelim stuff back in August. By Jan 1st, if the state budget issues go from bad to worse (most likely) they will not be proceeding to the next phase of construction and the job will be shut down. Worse, her firm has NO requests for bids on any future work beyond this project. In their 40 years in business they have never seen that before.
Yep the spring & summer of 2009 are going to be harsh I’m afraid.
“‘There is real pain almost everywhere you turn. My daughter is a counselor at Riverside Community College and she told me she met a [student] whose house was up for foreclosure. Her last resort would have been to move in with her parents, but their home is up for foreclosure,’ said Riverside Mayor Ronald Loveridge.”
Cry me a river, losers. For “real pain” you’d have to go to someplace like Chechnya. Community College students owning houses? Unless this is a 40-year-old divorcee returning to school, this chickee had no business “owning a house.” I’m guessing this is one of those cases we used to mock in here, circa 2004-2005, where the Bubble-worshipping parents not only mortgaged themselves to the hilt to get their Garage Mahal “American Dream,” but also talked their empty-headed spawn into doing the same thing because, as their realtor chirped, “Real Estate only goes up!”
Let the whole family move in together under a bridge while they contemplate their greed-fueled speculative binge gone wrong. And let more creditworthy, deserving homebuyers move into those forfeited homes instead. It’s called, “reversion to the norm.”
Perhaps if the student had lived with her parents and paid them some rent like non-real-estate-addled families do, none of them would be losing their house.
I think the student was a renter who was losing the house because the landlord was being forclosed.
Then where is the pain? Just rent somewhere else. To quote Eddie Murphy in Trading Places: “Beef Jerky? Have some. There’s plenty you know”
I know it is a pain in the A** but hardly tragic. If she prepaid rent months in advance, then that was …
“Selzer says he believes the boom in prices in this area - which began to turn about three years ago - sent home prices much higher than they ever should have been. He said a home in the Oak Manor subdivision in Ukiah, which was selling for $420,000 three years ago, probably should have been priced at about $325,000 and is selling at about $275,000 now.”
Probably should have been priced at $325k, huh? Ukiah?! HAHAHAHAHA!!
Probably he’s from the Planet Brainiac™.
BWAHAHHAHAHAHHAHAHHAHAHHAHAHHHHHHHHHHHHHHHHH!!!
Bantering, didn’t you buy a house earlier in 2008? How’s it going? (If it’s going well, don’t hesitate to say. Nobody considers you a troll in any case.)
Early 2007.
“How’s it going?”
I always find this a curious question as it pertains to a home purchase. Do you mean am I happy with it? It’s exactly what I was looking for (a fixer on small acreage, suitable for business). As any bubble blogger knows, the house is rapidly depreciating. But I had just sold a house before, which was purchased pre-bubble, so essentially I invested bubble gains, and moved into a cheaper market.
That’s good - I’d say that’s the best possible scenario you can hope for given the bubble.
funny to see someone mentioned here I’ve actually met, Selzer is a friend of a friend….anyway, you are right, an average house in Ukaih should be about half that, maybe $140 k or so…that is about what they cost when I bought there in ‘97 and they will be back there eventually. Thanks to what I learned here sold it early last year just in time…
“To purchase a home at the entry-level price of $356,120, a county household would have to have a minimum qualifying income of $69,300.”
Bullshit. This is still purchasing at 5x annual income. Good luck qualifying for a mortgage with today’s strict debt to income ratios.
Its technically possible if you have no other debt Zero CC no student loans car fully paid off and safe drivers insurance. Or you use mass transit and no car…..figure how much that saves per month.
ok 4x income
You’re absolutely right, and it’s the first thing I thought of as well.
I don’t know how many times we can try to educate these fools, but the historical norm is pretty clear - 3x annual income with 20% down.
So…to back-calculate, this means that either the minimum qualifying income must come up to ~$119,000 per year with a $71,000 down payment, OR the median house price should fall to ~$208,000 with a minimum down payment of $41,500.
Want to guess which one is more likely?
3x annual income with 20% down and stable incomes.
It should be 2x without the stability.
And the second salary should be used to aggressively pay down the house.
NYdj is right, throw in a couple of car payments and credit card payments must be considered, it can’t always be just a straight 3x annual income.
throw in a couple of car payments and credit card payments
I love being a saver. I feel like I’m walking over the bodies of those who could not delay gratification.
We’ll do 4X and be ok. But wait, we can eat in and be happy! I know that’s typical on this blog, but man is it rare out there…
Got Popcorn?
Neil
with all the 2nd home purchases virtually stopping in san luis obispo county the fall has occured.The people who live there are either retired,dot com millionaires our state assisted people,there are no real jobs to speak of.. This area will be affordable once again.It may take 5 years,but patience your beach house may still be affordable….Make mine in PISMO…..
san luis obispo county became on of the most speculated areas in the nation because 2nd home buyers from all over bubble rich calif fueled the boom in that county,it sure wasnt fueled by the locals,we have no job opportunities and we all are blissfully underemployed,living on fresh air and sunshine.This real estate crash was the best thing for us,it will keep the speculators out,no one will be able to afford that 2nd home in Pismo,and affordability will return.it may take 5 years,but the prices are falling slowly,it is rather sticky in paradise,but this bubble is bursting too.it already has in all non coastal areas of slo county…..
Yes, and persons from all over who happen to have cash are watching that paint dry (falling prices on Central Coast). I agree with you, they are falling. Drip by drip. Forgive mixed metaphor
I should look up the stats on 2nd home purchases in VT. Nothing would make me happier than to have those fall as close to zero as possible.
My parents had a second home in Vt.
Half my soul is still there. On a knoll overlooking a beaver pond, watching a great blue heron and listening to bullfrogs.
Still have peeps around Underhill, so I am not a complete outsider, though my current life course has me in Fresno.
Biggest difference besides the climate?
Racial composition being cast aside as an obvious, the real answer is that Vermonters make things. People around here specialize in making trouble.
“‘The core of the problem is we’re not building any houses right now,’ Husing said. ”
This has to go down as one of the dumbest f*%#ing quotes ever.
No, the core of the problem was that we were building TOO MANY freaking houses the past few years, all based on funny-money-no-standards-lending-bubble-financing-gooseing-false-demand.
Which went Poof.
You bet. Husing and his minions can BUILD as many houses as they like, they just can’t expect anyone to be able to BUY them.
The US lost jobs, manufacturing jobs, lots of jobs in the past several years or more.
Since the lovely Reagan.
That is why we got so many folks in the construction business. No other jobs.Offshoring.
Well it isn’t the only reason but when ‘we’ have no jobs to offer the ever increasing population, then it became the jobs/careers du jour/ano/decade.
Here’s a good opinion piece.
Why buy a house?
Behold, one of the biggest myths of the American Dream
http://www.sfgate.com/cgi-bin/article.cgi?f=/g/a/2008/11/21/notes112108.DTL
The American dream is to live life on your terms, without deference to kings, dictators, or the constraints of the culture you were born into.
A house is large box with plumbing problems.
Amen, Sister.
“A house is large box with plumbing problems.”
Not to mention a death pledge (aka mortgage). Do you think many folks consider the implicit rent they pay on a $500,000 mortgage? For starters, at an interest rate of 6%, one would pay $30,000 or so in interest, before considering tax deductibility. For someone in the 15 pct tax bracket, knock the figure down to 0.85 * 30,000 = $25,500. Add in insurance, maintenance, depreciation, price declines, HOA dues, Mello-Roos and whatever value you put on the time it takes to care for the yard and you are talking some real money. By contrast, for our $2300/mo ($27,600 in annual rent), we get lawn care, maintenance, no need to purchase homeowner’s insurance, and depreciation and price decline avoidance. I don’t feel compelled to put pencil to paper in order to conclude that buying does not yet pencil out.
Batten down the hatches, bee-yatches! This ship be goin’ down.
Fantastic! Best post I’ve seen this week, Vermontergal, among several good entries.
. “‘I always dreamed, but never thought I would be able to swing it,’ said David Prazniak, a United Airlines flight attendant. He is days away from closing on a two-bedroom stucco home near the Oakland Zoo. He’s paying $170,500 - about one third of the property’s $495,000 price in early 2007. His monthly payments of around $1,100 for principal, interest, taxes and insurance will be less than his rent.”
There hasn’t been much focus on the victims of the bubble — those who were “priced out forever.” To me this is good news. The apartment Pazniak used to live in is still there. The house he bought is still there. The former homeowner, who lied about their income, is in the apartment, and is better off. Prazniak, who didn’t, is in the house and better off.’
This is what we have to stop?
To me this is good news
Yes! Affordable on a flight attendant’s salary too! I love how the former homedebtor trades places. Good for Prazniak.
This made me smile. The world is returning to balance.
Then I realize all of the
coworkersscum who are walking away from bubble mortgages after closing on low cost foreclosures. Always nicer properties… sigh…But I’m happy for another coworker. A manger who bought the 2 bedroom condo he wanted to retire in at a reasonable price. He’ll put in a natural gas connection for his CNG car and be happy. This is what we should be focusing on! Return to normal!
Got Popcorn?
NEil
Neil-
We’re all going to pay for the actions of your scum coworkers, but I have a feeling they will pay more than anyone. The interesting thing about this bubble burst is the way the guilty have, in great measure, been punished brutally. Maybe the government will pass clawback laws wrt/ buy and bail. Maybe buy and bail will become a permanent fatal wound to the defaulters’ credit rating. I suspect their “escape” will be fleeting, even if I can’t quite visualize the delivery of the punishment at this time.
I sold my San Jose house to a FB back in May 2006 for $670K. He defaulted. Now a nice young couple bought the foreclosure for $540K. That may still be too much but they are probably in better shape to live there for the “long run” and prosper in the valley.
Observations and trips around town today:
open houses…
no one is going in, ‘cept gal pal and me. RE professional said we were the only ones to visit. The owner had totally reno’d the house-gorgeous, had two full offers of 697k but they fell through+ good credit but couldn’t get loans.
Traffic all over town is enormous. Guess that comes with suddenly $1.99 per gal gas. Wooohoo!
Rents not dropping, and 1/4 developed area on HWY 111 has one butt ugly “home” for lease, $2,597 per mo. I don’t think so.
Driving around other neighborhoods, I step out of car to get the RE flyer for “game of price guessing” and RE agent runs out of house across the street to talk to us in our car. BUT he won’t lower his price on his home….
Auto Dealership visit: checking out hybrid vehicles. We worry they will harass us for our Drivers licenses as they have in the past. But not to worry, we let them drive us all over, then we go to the TOY dlrshp and check out the prius/camry hybrids. Then the big gun( turns out to be nice guy) comes out to sell us on 2007 10 mile turn in-sad story Highlander hybrid for get this…29k vs 40k original.Only 3,200 miles on odometer now, and it is a steal. All bells whistles etc. Gal earlier tells us of car sold that day for 10k when it should have been 25k.
Well, we were ONLY people there at all.
I did like the highlander hybrid, but seriously want to keep my cash close to hand, my hands.
“If you’ve got the wherewithal, it’s a good time to buy. ‘Absolutely,’ said Realtor Russ Tow, noting that lending rates are competitive, although ‘mirage financing is pretty much gone.’”
I apologize on behalf of all Russes.
Other post was eaten up..
Palm Springs is being bitten by low gas prices mania this weekend.
$1.99
My suggestion for economy is that the powers that be, lower gas prices to UNDER .25 per gal. for a full year. Let the US consumer drive all over the place. Seeing as how the gas co’s raped and pillaged for Billions over over over net per quarter.
Well, this is an interesting thred like all have been for me since I started reading this blog in 2005. I did recently buy a shortsale in Oceanside, California. I do think that I did alright. It is a 3000 sq. foot house on a 11000 sq. foot lot. It has an ocean view and is very close to beaches, harbor and shopping. I paid 290,000 for it and will have another 40,000 into it after some excellent upgrades like new windows, siding, and decks and balconies where none existed. I do fear that prices could go down more, but I am starting to notice that things are leveling out. Markets and the economy have a certain pulse to them and a rythm. Usually this in not perceptable to sheeple because they are followers and not independant thinkers. I love the phrase “be scared and sell when ever everybody is buying and buy when everyone is scared. Well, what I am noticing is that the Home Depot where I shop is definately starting to be busy again. People are buying the short sales and the foreclosures and they are putting money into fixing them. That is going to go back into the economy. Sure it will take some time, but it is in the process. Tradesmen will go back to work eventually. It is the beginning of a new business cycle. Other people out of work will recreate themselves. It is inevitable. Sure we are in an obviuos recession and many are calling it the beginning of a depression and they are comparing it to the 30’s. I do not think so. That was a different animal. We have all taken hits on our retirement accounts and our home equitey, but we are a nation of people that are very resourceful and I know that once the dust settles that we are going to climb out of this. We may not see 15-20 percent appreciation per year like we did, but we will see appreciation that keeps up with inflation and also compensates reasonable upgrades and sweat equity. I guess what I am basically saying with my post is that I do see a bottom. I may be a bit early, but it is near. I have always been an independant thinker. I was when I sold my last piece of real estate in California in 2005 and everyone told me I was crazy. I did not start reading these blogs and studiing markets until after I made my own decisions based on what I saw. I guess I started reading this blog because I wanted to reaffirm my actions and to justify them to myself. It proved right on. I sold a home that was less than 1000 sq. feet and then 3 years later bought a home that is 3000 sq. feet on a lot twice the size for half of what I sold the other house for. I am not a troll. I am a devoted fan of this cherised site. It has been a great education, but I do think that it has become negative and now mainstream in thought. For the record :we are there. We are exactly where we all new we would be in 2008. Now lets talk about how to get people back on their feet and out of this negativeness. That is what this blog should be about now. It is the turning point. This blog is housing related. Well, tell the electricians that there are light bulbs to fix. Tell the roofers that there are leak to fix. Tell the plumbers that there are pipes to thread. Sure it may not be new construction, but the need is there. And don’t forget to tell the realtwhores and predatory lenders to take a hike. This is a new market for those who are able to buy a mome for their families at 3-4 times their wages and they should not pay 6% to someone to push some keys to list their house when they want to sell. This is a new cycle. It is going to be sweat equity now folks and why should anyone make an easy 6% off of someone elses hard work. I am tempted to give you all my name for the record, but I too many family and friends would be upset. I hope you all have a Happy Thanksgiving. Enjoy life. Go catch a wave or hit a ball or paint a picture. Spend time with loved ones, not money on loved ones. Life is short and there is more to life than only thinking about money talking about how bad things can get. Make it better. Ben, please post this. Out.
Nicely said.
Well a simple calculation can show that you may not lose a lot of money as you get down close to sane prices.
First lets assume we are not entering the next great depression personally I think that assumption is false but.
290*.30 = 87k Still a chunk of change but not the end of the world.
I’d say a further 30% decline in your area is debatable under ordinary recessions. A 15% decline which is a lot more probable is 40k.
A 40k loss if it happened would hurt but its not life threatening and I’m assuming you paid 20% down which is 58k so you would not lose all your down payment even in this case. A further 30% drop would mean bringing 29k to the table. All I would suggest is you keep 29k stuffed away as emergency sale money. These amounts hurt but they are readily survivable unlike 200-300k
Now if your like me and assuming we are on the verge of the next great depression then either pay cash for a house or don’t worry about it. Either you keep your house or you don’t its not really something to fret over. Basically if you have a large debt like this and all hells breaking loose either your going to get caught in the crossfire your your not. Its pretty black and white. And finally even if you did you would only lose your down payment if houses dropped 50% from historical norms like they did last time. And I’d suspect you would have a lot more to worry about then losing your house.
Personally I’m going to hold out for a few years not because of house prices but because of economic concerns and I don’t want to buy my first house and lose it 1-2 years later because I’m unemployed. I’d rather rent and pass on the experience.
Hey house hunter, did you buy in fire mt?
househunter,
You did what was good for you and your family. Hope you and your family has a happy Thanksgiving.
‘We’re back to income, assets, credit and long-term job stability,’ as requirements for a home loan
[snark]
Wow, the end of civilisation as we know it
[/snark]
“The Santa Clarita Valley housing market should recover by next summer,”
Right. Since the average resident is only spending $100/week (and dropping) on gas now the housing market should recover in the big firetrip 40 miles north of Los Angeles known as the Santa Clarita Valley even as house prices near jobs and civilization drop to levels that compete with that exurbia. That is, in economic terms. That is, the ratio of median home price to income in the Santa Clarita Valley had dropped substantially in the last 18 months, but it is about to jump back again (you see, incomes are falling because unemployment is increasing rapidly). Thus that ratio of home price to income will soon be back to 2005 levels and, when incomes are derived from hawking the Hummer and selling plasma, even beyond. And even if the price of gas doesn’t drop anymore, thousands of residents will no longer have jobs to drive to so their gas expenses will drop substantially. They will probably use that extra $100/week to go eat out at Red Lobster. And they will have that extra $50 from selling plasma! Therefore, in a very real sense, the housing market there is going to recover. And the consumer economy too. The Red Lobster Effect. Allll that plasma money flowing into the economy. Just think of it! Total recovery by next summer. In economic terms. I’m an economist now I guess. Yay. Me feel good. Go eat lunch in bathroom now.
I love that real estate shill from Ukiah… pitching a tract home in some subdivision on the outskirts of a cowtown as really worth about 325 grand. Anyone ever been to Ukiah? There are no jobs, so no one who lives there can afford 300 grand for a typical home. And there’s no great reason to move there, so it’s not like some rich guy from the city is going to set up shop there. Honestly, I’m not angry at the real estate hustler. He’s just doing what he does. But as a professional journalist I’m offended that that made it into the paper unchallenged… It’s that sort of lame reporting that’s made this whole ride so much worse than it had to be…
true, what few jobs there are in Ukiah generally don’t pay well, though it is a nice enough small town and the westside has a lot of charm….but Oak Manor is a long ways from there, has no charm, and is also subject to serious flooding from the nearby Russian River and should never have seen residential development …..$325 K is a joke for that neighborhood
well, there’s a lot of fear and misery out there. but not enough.
we need more.
we need more stories on tv and in our dying newspapers that list the stupid decisions that put a family out on the street.