Looking For Signs Of A Housing Bubble In California
A pair of reports on the California housing bubble. “Bay Area home values are expected to decline next year because of rising interest rates, a glut of homes on the market and lower affordability levels, a housing economist said Thursday. ‘We’re not talking about massive house price declines but giving up some of the gain we’ve had’ of the last few years, Ken Rosen, chair of the University of California, Berkeley’s Fisher Center for Real Estate & Urban Economics.’”
“In coming up with his outlook for next year, Rosen cited an increase in the number of homes on the market as measured by what’s known as the unsold inventory index. ‘The decline (in home price appreciation) will happen because unsold inventory is getting so high,’ he said. Housing prices have risen dramatically relative to income. ‘Low interest rates and easy credit is what caused housing prices, relative to income, to rise so fast,’ Rosen said.”
“‘Inventory has increased dramatically over the last couple months. It is now in the normal range,’ California Association of Realtors chief economist LeslieAppleton-Young said. ‘Only one factor can lead to a significant decline in prices, and it’s too much inventory.’”
The Sacramento Bee. “Sales of existing homes in the Sacramento area jumped sharply in March from February levels, but the 2,489 homes sold across the four counties were still the lowest for a March since 1999. In El Dorado, Placer, Sacramento and Yolo counties. But home buying still was off 29.5 percent in March 2006 compared with the same month in 2005.”
“A closer look at the region’s performance shows: Sacramento County, with a $359,000 median sales price in March remains below the August peak of $372,000. (In) Yolo County prices fell to $410,000 from February’s $421,500. The county’s median sales price remains below its November peak of $436,500.”
“El Dorado County posted its third straight monthly gain, reaching a median sales price of $451,00, highest since December’s $455,000. The county remains below its September high of $475,000. Placer County, too, showed gains for a third straight month, with median sales prices of $477,000. That’s the highest since December’s $485,000, but still below August’s $502,000.”
“The number of homes for sale in the four-county region continued to swell in March, reaching 10,316 compared with 3,799 at the same time in 2005.”
“‘My guys are telling me we are building 30 to 40 new signs a day,’ said Jim Eggleston, owner of a Sacramento firm that builds front yard ‘For Sale’ signposts for the region’s real estate listings. ‘Where it’s going is the big question,’ Eggleston said. ‘Are we going to reach 15,000? Are we going to reach 20,000? I don’t know.’”
Use the cost of a Uhaul in and out of the state. When I priced for myself - San Francisco to Albuquerque was $3100. ABQ to SF $120. The mover that I had hired said his semi coming into CA is empty and full when he leaves. Meaning - many people like myself (considered priced out of market, although income much higher than median) leaving for a less expensive place to raise my small family.
In Nov ‘05 when I used a U-Haul to move from San Jose –> Ozarks in MO the price was 1/3 leaving CA vs. the other direction. Might be even higher now judging by your comment about ABQ SF.
I like your decision to leave Bay Area. I myself will look for a job in NM or CO.
If I’m not too intrusive - what company do you work for?
I’m lucky as I do independent consulting and run a modestly profitable website, all of which I can do from anywhere in the country. Of course, being over 50 I couldn’t get a “real” job anymore anyway so I figured I’d better pull my cash out the house and get it working for me.
Well, good luck to you sir.
I’m female
I think you made a very smart move. Lots of well educated people in the Bay Area not getting very far ahead as they make a lot of money but have a big mortgage payment, private school and nice cars.
lots of signs in AZ!!! PHX new record 4/21/2006: 43236 for sale
in kingman/goldenvalley realtor.com 2857 propertys for sale. large increases in inventory. many 100s of new for sale by builders not listed on realtor.com.
I think it is more than just cost, but also what you get for that in terms of property, community, and demographics. Even if you could get a 3 bedroom 2 bath home in OC at the same price as what you would pay for one in Kansas, you would have no yard at all, your master planned community would only have 1 or 2 gas stations close by so they can run prices through the roof on you, and sad to say, you would be living in a community of transient people who probably would not make the effort or take the time to get to know each other because they have no plans to settle in, but rather buy up after a short time of appreciation …
“‘Inventory has increased dramatically over the last couple months. It is now in the normal range,’ California Association of Realtors chief economist LeslieAppleton-Young said. ‘Only one factor can lead to a significant decline in prices, and it’s too much inventory.’”
Actually SD inventory is well beyond the normal range, and has verged into the abnormally-high range. Ziprealty currently shows inventory for greater SD at 19,056 homes, just 224 homes shy of the 19,280 figure often cited as the highest inventory level since 2005. The current level represents an increas of more than 5000 homes since January 1, 2006, and does not represent a plateau by any stretch of the imagination. With over 200 homes indicated as “Newly Listed”, it appears that SD inventory will soon surpass the 1995 level, and chart unknown territory. This is made all the more striking given that 1995 marked the end of a five-year unravelling of the SD real estate market, while we have just begun the downhill ride this time. So by Leslie Appleton-Young’s own prediction, I would guess that significant price declines are soon to come.
I’ve been watching the exact same Ziprealty figures as you. I bet you’ve been charting the increase as well. I have, and the increase has been linear (maybe even slight acceleration). Since the beginning of March we’re averaging 37 new listings per day. No signs of slowing, 19,280 is toast. (Yesterday’s increase was 102.)
I love this - thanks Ben. The sign builders are the “guys in the know” at the top of the real estate cycle - always.
Free advice from DC_Too - watch for and listen to the guys in the crate-building business during the next recession. Their phones will be the first to ring as we move away from the bottom….
All of these underlying newly established trends of decreasing sales, rising inventories and rising foreclosures will eventually hit a “critical mass” in California and elsewhere. Right now it seems that people are just noticing that things are different, I can sense a growing nervousness among industry cheerleaders. I have friends that I use as barometers here in SoCal - all of them now speak of RE as growing vulnerability measured against last years view that RE is invincible. I have a feeling that by the end of 06 people will be getting frustrated that sales are still down, inventories are reaching record levels and those damn foreclosures are piling up. Just as those of us who sat and watched in disbelief that it just keeps on going up, I have a feeling it’s now the other side’s turn to sit and watch in disbelief that these downward trends seem unstoppable. The soft landing crowd thinks of the downturn as a tidal wave, tidal wave being only the very top portion of the water that breaks at the shore. What I see right now is a tsunami - a wave from top to bottom that races miles inland and devastates everything in its path. The Economist was right when they said this is the biggest bubble in history.
All of these underlying newly established trends of decreasing sales, rising inventories and rising foreclosures will eventually hit a “critical mass” in California and elsewhere.
Like running with steel shoes into the wind.
Just ran into a housewife/neighbor of mine in the supermarket. Claims her friend/RE broker who works the SF Valley told her yesterday that home prices are going down.
‘We’re not talking about massive house price declines but giving up some of the gain we’ve had’
Translation from econobabble - Duck And Cover!
Rosen’s been bearish on housing now for a couple of years. The sign he saw was a limo driver who described the several homes he had bought as an investment in the central valley.
With all due respect to the limo drivers out there, when the shoe shine boy starts giving stock tips, get out of the market.
Last year a friend told me of his friend who works for MacKenzie Economic Consulting who had “cashed out” of his owner-occupied home to rent until the bubble popped, and also of his hairdresser who was supplementing his income by flipping real estate. Shoe-shine boy stories seem to be in great abundance these days…
3x inventory on zip from year ago, and now about 1 in 3 Price Reduced…
Duplex next to me is on block for $1.1 mil. Rents are $1600 and $1700. Hmmm, do i buy? Hmmm…
Also, my buddy the Flipper has been telling me for years that if my landlord ever decides to sell my house, to call him immediately. Well, we called him like 3 weeks ago, and no offer yet… i don’t understand since he says my house will always go up…
sorry, Costa Mesa
“The reason rents are so abnormally low now is that the market players know collectively that higher and higher prices are yet to come.”
I read that on a local DC blog this morning, Catspit. So don’t be fooled by the doom and gloomers…..
There is no housing bubble because it’s impossible to have housing bubbles and real estate never goes down and there’s never ever been a housing bubble so why should there be one now and everyone needs to live somewhere and look at all the immigrants coming in and they’re not making any more land and the baby boomers are all buying second homes and we have entered an entirely new valuation model and this is the ownership society and there are all kinds of innovative financing methods that help people buy houses and renting is throwing money away and people who don’t buy now will be priced out forever and real estate has always been the best investment ever so therefore there is no housing bubble. And even if there is a housing bubble which is a stupid thing to think in the first place it will pop in other places but not where my house is because where my house is is the absolutely perfect place to live and my house will keep going up just not as fast.
The best!
Jim Cramer gave a speech just like that on tech stocks - in January of 2000. It’s out there in cyberspace - too funny.
LOL…people around me asking “What’s so funny?” Hilarious!
Very impressive. Kudos!
Yep. That’s where I live!
Are you able to say that all in one breath?
KBTC interrupts this blog to bring you the following educational program.
Howdy boys and girls! It’s me Bubbles the Clown back for more zany fun! Hey kids, Bubbles was so happy to see all of you at the Bubbles the Clown Convention at the Budget Inn in Phoenix last week. And a special thanks to all of you that plunked down ten bucks of your allowance to get your picture taken with Bubbles! And to you kids that wrote in to complain about Bubbles leaving early, shame on you, Bubbles can’t help it if the only tee time he could get was in the middle of the show! Anyhoo, are you ready for some craziness! Great, let’s go!.
Now when Bubbles was driving around Phoenix last week he saw so many houses for sale that it made his red nose honk all by itself. Bubbles was so freaked out that he had to write a song about it…would you like to hear it? Yea! Sing along kids!
“Make it Sleazy”
Well, I’m a runnin’ down the road
tryin’ to loosen my load.
I’ve got seven Realtors on my mind.
Four that try to phone me.
Two that tried to bone me.
One says she sees no decline.
Make it sleazy, make me queasy
She tried to hound me into deals,
that would squeeze me.
Wizen up while you still can,
Don’t let ‘em cry “There’s no more land!”
It’s time we all just take a stand.
It’s so easy.
Well I’m a standin’ on a corner
in Phoenix, Arizona.
Such a scary sight to see.
It’s a house, my Lord,
to add to the horde!
Don’t expect to get a dime from me.
She said, “Pay me, don’t say maybe.”
You oughta know that your neat lies
ain’t gonna sway me.”
You will lose, you’ll never win,
If you start to buy the Realtor spin
So smarten up and save your skin
Make it easy.
Well I’m a runnin’ down the road
tryin’ to choose an abode.
Got a Realtor right on my behind.
Startin’ to discover why she likes to hover,
her sales have all declined.
It’s not easy, it’s not easy,
if you let the sound of her home squeals
make you hazy.
Dream on, Baby, not even maybe
You gotta know that your cheap tries,
will never cave me.
Oh ooo oh Oh ooo oh.
Oh they’ve gotten sleazy
They make me feel uneasy.
Yippee! I hope you liked today’s song! Bubbles doesn’t know how the Realtors in Phoenix are gonna sell all those houses! Maybe they should do something totally zany like lower the asking price! Nah! What do I know, I’m just a washed up clown hosting a stupid kids show for community service!
Okay boys and girls, that’s all the time we have for today! Bubbles can just make the 7th race if he hurries! So until our next show remember: Bubbles the Clown is fun, Housing bubbles are icky.
A rainman18production 2006 copyright
BTC#5
Simply brilliant. Can you do a Jimmy Buffet song about the bubble in South FL?
Wasted away again in housing bubble-ville
Looking for my lost note of default
Some people say there’s a (realtor, broker, etc.) to blame
But_I_know, __________________!
You guys are too funny…
Thanks rainman.
Bubblefucius say:
To ‘read about’ a compliment is only surpassed by the melody of one spoken.
Thanks for the kind words everyone!
Rainman!
Absolutely magnificent! Could you do Stairway to New Haven for the priced out Connecticut crowd?
I’m going to be singing that song all day .
Rainman -
You’re very talented. Thanks for the laugh.
Bubbles, do you do birthday parties?
Hate to bust your bubble, Bubbles, but what was…what’s the word I’m looking for…lame. Maybe you could set up your own link to Bubble’s website and let those who are amused by that sort of “humor” visit you there. That is, when they’re not gathered around the bug zapper for their other “entertainment.”
I’m surprised no one has pointed to weather yet in Northern CA for lagging inventories (of course, everyone is point to it for lagging sales).
Inventories have been rising here DESPITE the rainiest March/first part of April that I (or my parents) can remember, and all of us grew up in Northern CA. How many people were waiting to put their homes on the market for better weather?
My guess is that the inventory spike in May/June will be huge.
Yes, I’m looking for the inventory spike in May/June as well. Santa Clara County this week alone:
4/17/2006 3879
4/18/2006 3932
4/19/2006 4004
4/20/2006 4050
4/21/2006 4063
Good one. The San Jose TV weather people said that we had measurable rain in like 28 days out of 31, which was the highest number of days in any March ever recorded, and early April was like 12/15.
People wanting to fix that roof, smarten up the landscaping, and even do interior painting before putting it up for sale have been cooling their heels until just this past week.
I saw a house on ZipRealty in Fremont (Bay area)which said something like ” new paint as soon as it stops raining”. :-). I expect more inventory as the weather warms up. Yesterday was beautiful . However more rain predicted for the weekend.
Does the inventory #s include some large condo projects?
In Richmond Marina, Lennar/Emerald has >1000 units of converted apartments to sell as condos.
San Diego has set a new all-time high for listings recently when it went over 19,000, according to http://www.homepricebubble.com . I doubt that the press will print much about it since it is not positive news for realtors. I think San Diego should reach 25,000 listings in a few short months. We shall see.
Leslie Appleton-Young is a ‘lagging indicator’.
By winter, she’ll be announcing that summer is here.
Does someone actually cut this woman a check?
Amazing.
Leslie Young is so lagging, she still wears bellbottoms.
Leslie Young is so lagging, they study her to see what happened before the Big Bang.
Leslie Young is so lagging, Congress passed the law not to remove her feeding tube.
I wonder whether she’s worried about the Y2K problem.
She’s probably stocking toilet paper as we speak!
Leslie Appleton-Young rates pets.com’s IPO a “Strong Buy”.
“Inventory has increased dramatically over the last couple months. It is now in the normal range,” Appleton-Young said.
Yes Leslie, but are there any signs of it slowing down? You probably wouldn’t know, since you’re an economist for the California Association of Relators who four months ago was predicting reduced inventory. From a Jan. 16, 2006 Palos Verdes Peninsula News article:
“Local areas to see real estate appreciation in ’06
By Amy Higgins Peninsula News
….According to Appleton-Young, the real estate market is in the process of a soft landing, which means that the supply for homes declines at the same time that a downturn in demand occurs. During this soft landing, consumers will take a more cautious approach to the housing market than in years past.”
How’s that decline in supply working out Leslie?
Correction…three months ago.
During the gold rush the guys selling picks and shovels got rich. Selling “For Sale” signs is “the next big thing”.
Capstead Mortgage Corp., Dallas, has reported a net loss from continuing operations of $2.35 million ($0.12 per share) for the first quarter, compared with net income of $2.54 million ($0.13 per share) a year earlier.
Hi Max. My wife is a math teacher. I have been employed in telecommunications - still on that payroll at this time. I got to where I absolutely hated CA, and same with my wife.
Uhaul truck price SF to ABQ went down (was $3000+ in Jan, now is $1800). ABQ to SF went up ($120 in Jan, $670 now). But still big difference.
As far as the rain here, when will all of the rain/snow turn into flooding rivers (levees failing - tell Arnold he might be too late to fix them). And then the next fun things. Rain now means lots of tree/plant growth during spring. Hot summer will dry it all out. Late summer, early fall - no rain, lots of dry vegetation, and voila - lots of fire danger. Especially in the scenic areas where they build the expensive houses. We better organize the firefighting teams now.
Some HELOC and ARM resetting home owners might use summer fire season to ‘accidently’ see their California Nightmare go up in flames so they don’t have an upside down screw you mortgage program. Any other thoughts.
But CA is lucky, we always have the Governator to come to the rescue.
Does that help? Typically, fire insurance covers replacement of the strucure. Say you paid $1M for a $200K structure on a $800K lot. Market prices drive the value down to… $600K. That’s now a $200K structure on a $400K lot. Then it burns. Insurance pays you $200K to replace your structure.
You’re still faced with a $400K loss on the lot.
Maybe I don’t understand all the nuances. It’s the same logic that leads me to wonder why bubble price increases drive insurance rates up- they should rise with building (replacement) cost, not price. There aren’t very many disasters that wipe the lot of the map, and those that do are usually explicitly excluded from typical home-owner insurance policies.
thats why more “insurance jobs” take place on $5000 lots in the south
I remember living in a New England vacation area during the eighties downturn. There unexplained fires during the winter happen and structures are often lost before a response can even get there. Lots of people tried this and as far as I know every one who did got caught eventually. Fire investigators have even better skills and tools nowadays.
LeslieAppleton-Young said. ‘Only one factor can lead to a significant decline in prices, and it’s too much inventory.
Someone didn’t take Econ 101.
But Christine researched this!
Who is Christine? Suzanne’s sister?
“”We’re not talking about massive house price declines but giving up some of the gain we’ve had” of the last few years, Ken Rosen, chair of the University of California, Berkeley’s Fisher Center for Real Estate & Urban Economics, said at a conference attended by dozens of real estate professionals”
What a lame idot! This guy has no clue how the local High Tech economy works. The longer these prices continue to be high, more employers will be leaving to cheaper areas to employee a cheaper labor force. Dont matter if its blue or white collar jobs. Once they leave its over.
Sales volume has headed off a cliff in the San Fernando Valley over the last couple weeks. We are now headed for the slowest April since at least ‘98, probably longer but I don’t have the data. The inventory keeps building, growing by at least 100 per week, about 7-10% a month. Seems to be accelerating now that Spring Break is over. I don’t care what the “median” price around here is doing, sales prices of houses that actually sell are lower than they would have been last summer. Listings still coming out at absolutely hilarious prices, then the reductions start. I think a tighter lending market may finally be starting to bite.
Deb,
Come now, no need to panic or speculate there will be a severe downside. Those “off a cliff” type phrases are liable to scare some people, please control yourself. This is a gradual return to normal market conditions and has been carefully forecasted by Leslie Appleton-Young at the California Association of Realtors. Rest assured, Leslie is quite the little forecaster and would surely let us know if everything wasn’t going to be A-OK. Sleep tight.
Yes, I remember well CAR’s forcasts in the last downturn. They were always good for a laugh if we were feeling down as we watched the RE market fall apart before our very eyes.
Governator rescues for everyone!!!
Is there anything California junk bond issues can’t do?
Fire comment is interesting. With all respect to members of the Hebrew faith, the expression “Jewish lightning” has always cracked me up…
All I know is that a lot of people are going to really be F&CK’D here in CA when the Monopoly money game is up, and it hits them personally. If a fire insurance only protects the structure, then a lot of FBers will still be on the hook, if they are prosecuted for arson fraud when they were in desperation. LOL
That’s an interesting idea: BUBBLE INSURANCE??
Go tto ‘Hedge Street dot com’. You can hedge you house value if it drops by buying PUTS. L-A Young can buy CALLS and sleep in the street.
from the SF Chronicle - will they repair before mother nature floods them, and many newly built McMansions? Will be a suspensful movie this summer, as the snow melts in the Sierras and comes racing down.
President helps jumpstart repair of state levees
Carla Marinucci and Greg Lucas, Chronicle Staff Writer
Friday, April 21, 2006
* Printable Version
* Email This Article
The Bush administration, following scathing criticism from Gov. Arnold Schwarzenegger over funding for levee repairs, said today that the president has directed his cabinet to speed up environmental review and funding that will repair 29 levees on the Sacramento River by November.
To help jumpstart the repairs, the state will forward $23 million to the U.S. Army Corps of Engineers rather than waiting for federal cash for the levee projects. Traditionally, projects involving the corps on state levees are paid with a mix of 75 percent federal money and 25 percent state cash.
State officials say they expect to get federal reimbursement later.
The president, who arrives in California today, will not grant the federal disaster declarations sought by Schwarzenegger. Such a declaration would have triggered emergency federal funding for repairs.
With the announcement, the administration appeared to signal it would take a more aggressive stance in the repair of crumbling state levees.
The administration’s announcement came just hours before President Bush was expected to touch down in Air Force One at Moffett Field to launch his trip with a visit to Cisco Systems. The president had planned to do some party fundraising and appear at public events to stress issues including his American Innovation Initiative, the environment and immigration.
But that agenda apparently took a back seat after Schwarzenegger this week aimed increasingly sharp criticism at the Bush administration for failing to come up with federal funding for levee repair.
The governor this week, taking an increasingly sharp tone, had publicly promised to press the president for more money, suggesting that two recent administration officials who had toured the levees had displayed a serious lack of judgment about the state’s crisis.
But the White House aide on environmental issues this morning announced that the president “has directed his cabinet to expedite” environmental processes and funding with a goal of completing emergency repairs at 29 levee locations, all in the Sacramento Reiver, over the summer. James L. Connaughton, chairman of the White House Council on Environmental Quality said that repairs are expected to be completed in November, barring any other emergencies or disasters.
“President Bush is firmly committed to working closely with Governor Schwarzenegger to conduct high priority emergency levee repairs … identified recently by the Army Corps of Engineers and the state of California,” said Connaughton, the president’s senior environmental and natural resources adviser who has oversight over the Army Corps and natural resource management.
Contact the writers at cmarinucci@sfchronicle.com and glucas@sfchronicle.com.