‘Adjusting The Asking Price To Fantasy Ratio’ In California
A pair of reports on the California housing bubble. Fresno Bee, “Jeff Davi displayed a cartoon of two men overlooking a sea of people. ‘Is this a rock concert?’ one man asks. ‘Nah,’ replies the other. ‘It’s the swearing-in ceremony for new real estate agents.’”
“One of the greatest real estate booms in recent history has swelled the ranks of licensed agents to nearly half a million, up 56% from 2000. One in every 54 adults has a real estate license — and each week brings 1,000 new applicants, Davi, the state’s real estate commissioner, told a Fresno audience Thursday.”
“Davi said he’s worried that a glut of real estate agents in a slowing market could lead to more accusations of misconduct. Sellers, he said, tend to be more forgiving when they make a tidy profit. ‘A good market cures a lot of ills,’ he said.”
The LA Daily News. “First-quarter numbers are in and the evidence is irrefutable. The residential real estate market is off to its weakest start in years. A whimper heralds the arrival of the peak buying season. And sellers are making big adjustments in their asking-price-to-fantasy ratio.”
“For the January to March period sales are well under year-ago levels across the state, Los Angeles County and the San Fernando Valley. Prices are still posting double digit annual increases not as big as a year ago, though in those three locales, but they’ve have been basically flat for months.”
“In this year’s first quarter 2,153 previously owned houses changed owners, down 22.8 percent from 2,789 sales in the 2005 first quarter. The last time sales were this weak came in the 1997 first quarter 2,120 single-family transactions. Preliminary numbers show a similar trend. Statewide sales fell 18.3 percent from last year’s first quarter. Los Angeles County sales dropped 19.1 percent.”
“It also looks like the long-predicted appreciation softening has arrived. The median price, the point at which half the properties cost more and half less, increased 1.7 percent since January.”
“There are also ample signs of the inventory build up. Neighborhoods are festooned with the most ‘For Sale’ sales signs in years, some sporting ‘Price Reduced’ tags. Sellers can no longer slap 20 percent on top of what their neighbor’s house sold for.”
“Robert Kleinhenz, economist at the Los Angeles-based state association, said that inventory can give us an idea of what directions prices will take. He tracked several decades worth of inventory (and) how many months it would take to deplete all the listings at the current sales pace and its relationship to prices.”
“Not surprisingly, the bigger the supply the more downward pressure is exerted on prices. ‘Probably the reason for the slower pace of price appreciation is the fact that inventory levels increased,’ he said.”
“His research found that when inventory levels are seven months or lower, the state median price goes up 11 percent on average. When inventory stretches nine months or more, the median falls on a consistent basis.”
And Centex Homes has this sales event in the Sacramento area coming up. “What if you could save $100,000 on a new home without feeling like you’re breaking the law? You can May 6th & 7th! Lincoln, Elk Grove, Serrano-El Dorado Hills, Whitney Ranch-Rocklin, Yuba City, Woodland.”
‘His research found that when inventory levels are seven months or lower, the state median price goes up 11 percent on average. When inventory stretches nine months or more, the median falls on a consistent basis.’
Isn’t the Orange County inventory over 10 months?
Here’s a link to some sales numbers. Check out Santa Barbara near the bottom.
OT: There is some problem with blogger today, so for readers of my foreclosure and M&M blogs, please check back.
Doin a quick spin thru ziprealty+ the 2262 sales in the article = 5.7 months. Seems to match for my neck o the woods (Irvine) at about 6 months. Of course, this is a bit of a change from getting an offer as you’re putting the for-sale sign into the ground.
The whole state of california is living way beyond their means. Home equity has been keeping the economy afloat for years. I hope we get back to normal someday.
Harbourton Cites Secondary-Market ‘Turmoil’
Harbourton Capital Group Inc., McLean, Va., has reported a net loss of approximately $2.8 million ($0.55 per share) for the fourth quarter of 2005, in part as a result of “turmoil in the secondary market” affecting its wholesale mortgage subsidiary.
O.T.-does anyone have a link to this article?
Unfortunately, “getting back to normal” means that there will be a boatload of pain involved. Most people in my neck of the woods are in the “Two-thousandaire’s Club” but drive S-Class Mercedes and take vacations to Mexico or Europe every 6 months. Oh, and their job is somehow directly tied to real estate.
Is it just me, or am I seeing lots of For Sale signs in Mountain View. Any Bay Area residents can comment?
Lots in Marin
Quite a few condos for sale signs popping up on the weekends between Del Medio/San Antonio to Rengstorff, especially along Showers Drive (near the shopping center with Walmart). Haven’t noticed too many houses for sale, tho.
well… in sonoma valley over the weekend there were 48 open houses… lots of signs… inventory growing every day. But nobody cares.
Those are just the signs I counted… 48. (have no idea how many were actually held… should go through the paper and look)
I don’t have my spreadsheet on this computer, but if I remember correctly Mountain View had an inventory of around 80 sfh/condos at this time last year. We’re up to 115 as of this morning.
Yes - MV definitely had a LOT of
Open House signs this weekend. This follows a few months of practically no visible signs, compared to San Jose where two to three months ago I counted 11 open house signs at one crossroads (that’s 11 unique signs, probably about 20 total.)
WTF!! 1 in 54 has a real estate license. I am speechless only because I am gagging on bile right now.
As long as you have 2 hours to spare and a number 2 pencil, you too can become a Realtor. I did it five years ago only because it was so easy. I let my license lapse last year though, I don’t see any need for it anytime soon.
Kind of shows you how ridiculous the realtor ad is that touts Realtors as “adhering to a strict code of ethics.” I always vomit at that claim - because I’m an licensed attorney, which is slightly harder to achieve than the realtor designation and yet, I come in contact daily with individuals that I consider unethical - many risking their legal licenses if anybody would enforce the rules.
Karl,
You should see my most recent post about an exchange with an agent related to false information disseminated in my neighborhood.
John Doe
Remember the “Ark” from Douglas Adams’s “Hitchhiker’s Guide” series? It reminds me of California for some reason.
Like I said before in an earlier thread, put them on a ship with the phone sterilizers!
Think of what happens when all the realtors, Loan officers, peripheral bank center employees, appraisers, construction workers are ALL LOOKING FOR JOBS. A 56% increase will go back to the norm this is going to be painful.
“His research found that when inventory levels are seven months or lower, the state median price goes up 11 percent on average”
Hmmm… Since when is an 11 percent YoY gain “average”? Just goes to show you how skewed the bubble has made everyone’s perception about “normal” appreciation.
I live in PIttsburgh, have been here all my life. In 1991, we bought the house in which we currently live, for $179,900. Today, 15 years later, the current FMV is approximately $230,000, maybe $240,000 tops (the property’s tax assessed value is $220,000). Lessee, that’s an annual appreciation rate of … holy cow, that’s low! But here in Pittsburgh, that’s the norm, and always has been. That’s what makes the appreciation rates in the hot markets so incomprehensible to us. 11% annually as the “norm”?? Heck, around these parts we feel pretty lucky if we don’t fall too far behind inflation.
The sample probably goes back to 1996 or so…
bubble tracking has OC inventory at about 4 months. maybe 3.5.
Don’t know why it’s so low. But 14K houses and almost 4K sales in March.
I don’t think that’s a hard and fast rule…maybe in a normal market but this is abnormal. High prices and people are leaving.
The striking thing about OC inventory is the fact it has increased 83% YTD. I don’t see that slowing down any time soon.
Did anybody see the 100k off new homes in Brea this weekend? I saw a half page ad in the LA times on Saturday.
100k off F%)#(% expensive is still F#*%)% expensive, unfortunately. Did a little regression check. Found that the median OC in ‘95 was $219k w/fixed rates at about 7.9%. Flash forward, apply the CPI to that payment, and adjust fixed rate to 6.5%, gives a home price of around $310k. hmmm. Won’t even buy a studio where I’m at.
Could be a whole lotta hurtin comin on.
I completely agree with you asuwest2. It has been out of whack for a long time here in OC and I have a feeling that has made bulls that much more blind and prices stickier, but when it goes it is going to get ugly.
Dude, prices have gone up over the years. To Cali bubble enthusiasts: Just show me the declines. Show me when year over year is negative, and then we’ll talk.
See Santa Barbara in the first post of this thread.
Are you kidding? Look at the early 1990s. Can’t happen again? Why not?
Be vewy vewy quiet…..I’m huntin’ twolls…..
Probably someone born in the 80’s.
Counter intelligence operations are a sure sign it is over.
The photo on the business card is from the 80’s.
Dude, what Ben said…
City, zip, sfh sold, median sales price, YOY median change, $K sq. ft.)
Santa Barbara 93101 9 $822 -0.8% $741
Santa Barbara 93103 5 $775 -33.9% $911
Santa Barbara 93105 20 $1,181 18.9% $808
Santa Barbara 93108 20 $2,433 -17.2% $1,165
Santa Barbara 93109 7 $1,065 -7.2% $986
Santa Barbara 93110 2 $938 -37.3% $681
Santa Barbara 93111 7 $915 -3.4% $600
This was from Sunday’s LA Times…
Volumn is rediculous in Santa Barbara. Five sales do not make a market! Even 20 sales do not make a market. Let’s add 3 or 4 months together to get meaningful volumn, then test the median . The problem is that the month over month decline would be masked.Perhaps it would be better to add all similar neighborhoods in Santa Barbara and Ventura County to get a reasonable sampling for analysis. Just a thought.
“Volumn is rediculous in Santa Barbara. Five sales do not make a market!”
Need more sales to have a decent sample size? Get these greedy bastards to lower their prices!
The homes that sold only show the upper bound on future SB market value, as the ones which are sitting in inventory but will eventually get sold (due to unsustainable flipper cash burn) will sell for less than recent sale prices…
Doesn’t matter…the rally monkeys live by the YOYs (no mater how rediculous), and the will end up dying by the YOYs. The press and public are so enamored by YOYs, so let them eat (even ridiculous) declines.
Not only did prices decline in the early 90’s, but the prior prices and financing were not nearly as foolish as today. This correction will be a calamity.
I’ll second that. The financing schemes the predominate now are a disaster, and rates were not at 40 year lows when the 1990 bubble imploded. This one’s going to be MUCH worse.
Are you ready to talk? Money talks, BS walks. There is an awful lot of inventory for you to purchase.
Here are some of the numbers from a 1995 article …
La Jolla, CA.— Fewer California homes are being sold for less than they were bought for, indicating that many potential sellers have decided to stay where they are, a real estate information service reported.
In 30.7 percent of all May home sales, sellers ended up getting less for the home than what they had purchased it for. That loss percentage was down from 32.4 in April and down from 35.4 in May last year, DataQuick Information Systems reported.
Loss sales accounted for a steadily increasing portion of the market from early 1991 until a peak of 42.7 percent was reached in September 1993.
Large newly-built homes that were bought during the 1989 to 1991 sales surge have been particularly exposed, but the problem has spread into other categories as well, said Donald L. Cohn, DataQuick CEO.
” A lot of homeowners have put off selling during the past few years because of declining prices. So a higher percentage of those homes that were put on the market, were put there because the owner was under the gun to sell for one reason or another ". Many of these ‘have-to-sell’ situations result in a loss.
” We may find it shocking that three of ten sellers lose money, but we need to remember that it still means most people are making money, ” Cohn said.
DataQuick monitors all real estate purchasing, financing and foreclosure activity in California and other states and provides information to lending institutions, title companies and industry analysts. The numbers include all ” arms-length ” resale condo and resale house transactions where current and prior sales prices were available.
The median loss was $23,500 on a house sold for $203,000, originally purchased for $226,500.
Hardest hit were homes in areas that experienced the fastest run-up in prices in the late 1980s. In Orange County, loss sales accounted for 45.3 percent of the last three month’s sales (see chart), in Ventura County it was 38.0 percent.
Resale houses
Sales counts & loss percentages
March-May 1994 and 1995
Mar-May Loss Loss
County All Sales# Pct. 95 Pct. 94
Los Angeles 18,217 31.8 pct. 38.2 pct.
Orange County 5,705 45.3 pct. 49.9 pct.
San Diego 5,803 42.6 pct. 44.9 pct.
Riverside 4,208 35.6 pct. 32.1 pct.
San Bernardino 4,266 35.5 pct. 30.8 pct.
Ventura 1,945 38.0 pct. 58.4 pct.
So.Calif. Total 40,144 37.0 pct. 40.9 pct.
San Francisco 1,026 16.2 pct. 24.0 pct.
Alameda 2,828 27.0 pct. 24.4 pct.
Contra Costa 2,486 32.4 pct. 34.5 pct.
Santa Clara 3,650 22.0 pct. 28.9 pct.
San Mateo 1,353 19.8 pct. 30.0 pct.
Marin 526 13.5 pct. 15.3 pct.
Solano 769 31.1 pct. 35.6 pct.
Sonoma 1,099 26.7 pct. 26.2 pct.
Napa 209 9.5 pct. 22.3 pct.
Bay Area Total 13,946 25.0 pct. 28.5 pct.
Santa Cruz 298 12.6 pct. 19.6 pct.
Santa Barbara 440 20.1 pct. 30.9 pct.
San Luis Obispo 393 12.9 pct. 28.6 pct.
Monterey 391 14.9 pct. 21.8 pct.
Coast Total 1,522 16.0 pct. 24.8 pct.
Sacramento 2,357 35.7 pct. 37.3 pct.
San Joaquin 931 38.8 pct. 31.9 pct.
Placer 562 36.2 pct. 37.3 pct.
Kern 1,142 26.7 pct. 14.3 pct.
Fresno 1,154 14.9 pct. 15.9 pct.
Madera 152 5.0 pct. 8.8 pct.
Merced 259 17.3 pct. 22.1 pct.
Tulare 563 15.0 pct. 11.7 pct.
Yolo 226 38.2 pct. 23.9 pct.
El Dorado 301 12.6 pct. 20.7 pct.
Inland Total 7,647 27.9 pct. 26.0 pct.
All California 63,259 32.2 pct. 35.3 pct.
Source: DataQuick Information Systems
Fifteeen Years to Revert to the Mean
January 20, 2005
“If there is a real shift downward in housing demand, it would have a dramatic impact across the entire economy,” said John Benjamin, a professor of finance and real estate at American University.
Millions of Americans have become dependent upon rising home values to support home-equity loans and mortgage refinancings, which can be used to pay for cars, remodeling projects, clothes and more.
“We live in a consumption economy that is financed by debt,” which in turn largely rests upon our home foundations, Benjamin said.
The labor market, too, depends upon feeding the hunger for housing.
Since the beginning of the economic recovery in November 2001, employment in housing and housing-related industries has accounted for 43% of the increase in private-sector payrolls, according to Asha Bangalore, an economist for Northern Trust Corp.
http://tinyurl.com/q75r9
And take a look at page 27 of this paper
http://www.ny.frb.org/research/staff_reports/sr218.pdf
It shows a simple line graph with real prices from 1979 to 2005. Take note that the real price fell from 1989 through 1995. Fell, went down, retracted, was reduced in value, “declined”.
Talk about what?
REVERSE PRICE APPRECIATION. How’s that?
Sounds just perfect!
The data is here:
http://www.housedata.info/CA/
second graph down the page
I remember the west irvine homes there along the border of Tustin Ranch on Jamboree Road being $220K. These were nice new 2400 square foot homes. Now people are selling the same house for around $750K more than three times (3x) higher!! Yes the insanity has to end one of these days. Bernake sounds more hawkish so it sounds like more baby cranks on interest rates. Maybe one day he’ll realize inflation is really huge and start doing 50 basis point cranks to get it in check (oil, gold, food, housing, etc).
Wow! Just think, $100,000 of instant equity! Sign me up for a dozen!
I’m tracking Sherman Oaks. Since late February, the number of actives (sfh’s and condos) has gone up 33% and continues to climb….
“It also looks like the long predicted appreciation softening has arrived.”
You gotta love the lingo…can’t wait til it’s the long predicted “bottomless pit” for prices.
For a $500,000 2,000sqft house outside of Sacramento I would expect a better exterior building material than stucco.
Lou, You probably already know this so pardon me if you do, the stucco popularity with builders comes from earthquake testing. Seems that stucco on plywood and wood frame are the strongest for quakes. What exterior would you like to see? Bricks and stone are out in seismic zones. Perhaps a brick or stone facade?
Or a very nice wood siding?
so nationwide - 500,0000+ will be out of work by the end of 06
realtors,mortgage and ALL the flippers
recession in 07 ,big time
Beyond Peak. Aren’t you sorry you didn’t prepare when you had the chance?
How would you like to be that pour soul that bought and just realized he lost 100K…. damn, it’s gotta suck!!!
Prices never go down here……yeah right.
“It also looks like the long-predicted appreciation softening has arrived. ”
Think back to when you were 12 and were finally able to get on your first big boy roller coaster…
…you jump into the first car and immediately feel like you’ve just made the biggest mistake of your life…
…your palms are getting sweaty as you hear the clickity-click sounds from the track as the rollercoaster very slowly makes it’s climb to the top of the first crest…
…you’re now at the peak of the crest and now get that feeling you’re all by yourself with nothing to hold onto…
…you now get that bottomless feeling in the pit of your stomach as the rollercoaster slowly begins making it’s descent…
That my friends is where we’re at. The only question is, how big is that first drop???
And who is sitting in the first car?!?
That’s easy. San Diego is in the first car. Followed by Las Vegas.
Orange County resale inventory per MLS is 11,843 as of 5/1/06.
Avg. homes sold March 1 - April 30 = 5,070/2 = 2,535 sales / month
11,843 Listings / 2,535 avg. sales = +- 4.67 months supply
So OC will see at least an 11% gain?
My friend Mr. Watts told me that 15% was “in the bag” for OC.
and Suzanne researched it, and told Mr. Watts herself.
Mr. Watts has never been wrong… he’s a demigod, no, actually a god. No, he’s greater than god. His poop doensn’t stink, and his farts are like a gentle breeze of fresh air. When he speaks, it’s like the most beautiful melodies and the field mice sing along.
“WHOOHOO… RICH PEOPLE ONLY”
You guys are to much………..Bwhahahaha
Strange happenings on ziprealty.com –
Tonight’s SD inventory = 19,463, with upwards of 200 homes showing a listing date of 5/1/06. That is the largest number of new SD listings I have seen in one day for all of 2006. You would almost think the market was crashing or something…
Nooooo……..inventory is boooooming…….love it.
Now for prices………Ka………boooooom
can we hang Mr. Watts by his proverbial “bag” on some high flagpole for all to laugh at?
Mr. Watts’ claims should be criminal. If a securities broker were to make the outrageous claims he does including in his business - he is a realtor, IMPACTE REALT, they would lose their license and possibly go to jail and be fined.
But not to worry, Reators(tm) adhere to a strict code of ethics.
They just don’t tell you what ethics those are
I think a point will come when some in the real estate business serve jail time. The masses will want scapegoats to hang.
Last night I put April charts up for the LAX south bay area and surrounding zip codes. We have a hint of a slump, but nothing snowballing yet.
If you want to look up a specific zip code check the tracker link at the bottom of the post titled “Real Estate $$$ Transacted through April 2006″.