‘End Game Of The Cycle’ In California
Annette Haddad writes at the LA Times, “Southern California homeowners, say goodbye to your good friend: Double-digit price appreciation. For the first time in 4½ years, the region’s median home price rose less than 10% year over year, data released today showed. It was the most dramatic sign yet that the Southland’s housing market is coming to the end of its long-running boom.”
“What’s more, sales in April declined 21.3% from a year ago and were down 16% from the previous month, according to DataQuick. It was the fifth straight month of declines”
“The housing market ‘is moving in the direction we thought it would,’ said John Karevoll, DataQuick’s chief analyst. ‘It’s all part of a normal end game of the cycle.’”
“The year-over-year sales decline was the steepest since April 1995, when home purchases slowed 24.0 percent. Last month’s sales count was the lowest for any April since April 2001.”
“‘March and April have shown us that the boom phase of this cycle is behind us, so now it’s just a question of how the cycle ends,’ said Marshall Prentice, DataQuick president.”
“Orange County home sales activity hit an 11-year low in April. Just 3,276 homes sold last month, down 28 percent from a year ago. That’s the slowest April since 1995 and the sixth consecutive month that sales fell on a year-over-year basis.”
“The number of houses for sale in Bakersfield topped 3,000 in April, the most the market’s seen since the mid-1990s when the state was steeped in a recession. Roughly 3,200 houses sat on the market last month, up from about 770 at the same time last year, according to appraiser Gary Crabtree. That’s compared to about 2,480 homes for sale in 1994, shortly after the market took a drastic tumble.”
“With so many new homes built in recent years, the number for sale at any given time is also bound to be higher, Crabtree said. Existing house prices dipped about 6 percent during the winter months. Prices picked back up in the first few months of this year but have continued to fluctuate. The market has leveled off, and ‘it’s taking longer to sell,’ Crabtree said. ‘That’s no surprise.’”
“‘Looking to buy it’s great, but looking to sell it’s the pits,’ said local agent Mary Ann Mallory. Sellers are accepting offers lower than what they asked for and sometimes helping buyers with $4,000 or $5,000 in closing costs, Mallory said.”
“New construction homes are still in big demand, which is contributing to the glut of houses, said agent Chuck Dawson. ‘They’re just cranking them out as fast as they can,’ Dawson said.”
“Many new-homebuyers are moving up from existing houses that they then put on the market, he said. As older homes continue to languish on the market, the prices of new construction will likely also go down, he said.”
“Homebuilders hate to cut prices for fear of torching everyone’s property values and setting off stories about weakness in housing. But they know real estate is cooling, so they are advertising goodies galore. And now there are signs that the taboo against price-cutting is lifting.”
“In Sacramento, local builders say that at least one of the big national outfits is done playing ‘the incentive game’ and will shortly cut prices.”
Thanks to the readers who contributed to this post. Here is an alternate link to the Times piece.
Test
Question?
how is the West Jordon UT (Salt Lake area) residential market holding up?
“Homebuilders hate to cut prices for fear of torching everyone’s property values and setting off stories about weakness in housing.”
Says who? They should say recent homebuyers/neighbors hate it when builders cut prices, not the builders themselves. Homebuilders don’t give a rat’s a$$, especially as long as they’re making money hand-over-fist on every transaction. Sure, they’d like to make the biggest margins possible, but they’ve got PLENTY of room to drop prices before profitability itself becomes an issue.
I disagree. They dislike cutting prices (even though they can) because recent homebuyers get all pissy and even start talking litigation. It also makes a development look like it’s LOSING value to prospective new buyers, which may depress future demand. It also can be a problem for financing issues. If they sell a house to someone, and then sell to someone else for LESS, then the comps are screwed up and the first house’s financing may fall apart.
It is better to give incentives for several reasons.
1) the “value” of the incentives is often higher than what the builder is actually paying for them… e.g. they give you a 20k pool that costs them only 10k to build
2) comps stay high and neighbors are happy, and yet the new buyer feels like they “got a deal”
3) this keeps the development “appreciating” for future comps/financing issues.
4) it looks better to Wall St.
this is why we’re seeing so many freebies from the builders right now, but not many developments with actual price declines.
But you’re right, when push comes to shove, the builder’s will drop prices super fast, at least as long as their cash flow situation will allow/mandate
clouseau
And for each company their target return varies. At some point, all builders would cut prices - but almost no one has. I would guess that the first break in that dam will cause a flood of reductions, especially if it’s a major player.
The reason they don’t want to cut prices is because of the backlog. They risk losing all of their older orders (via cancellations) if it becomes cheaper to purchase now than in the past. Most of the large builders still have a healthy backlog and will try to play the incentive game until they’ve cleared out a majority of the it.
BINGO!!!
Point taken, but when that pre-construction backlog is cleared –look out below!
I also doubt that builders will be too intimidated by f@cked borrowers threatening litigation over falling comps. Who has more lawyers and deeper pockets –the homebuilders or the FBs? Leveraged to the hilt borrowers are paper tigers at best.
Beat me to it. Yes to all. Next will be a sneaky trick. the subsequent phases will be “renamed.” What was the Veron model will be the “new” “value priced” Monticello. Then the corporate denial phase of bargaining; they will approach municipalities with “modifications.” Meaning higher density, fewer public amenities and defered contributions. The stupid municipalities like Oxnard will actually do it. Even stupider places like San Buenaventura will step on the acellerator and go screaming off the cliff. The more commonly known places like Ontario and such will do the weirdest form of hunkering down. They’ll see monster increases in traffic and school enrollment but the retail and commercial aspects will echo with a big empty. Too complex to explain, just trust me. ;-o
A side note on threatening litigation over falling comps; a builder may be sued, however sometimes the individual subdivision is all that a builder is on the hook for.
Lets say I register a subdivision, and sell the homes, buyers sign a form saying that the parent company (KB, Horton, etc.) are not liable, however the individual subdivision itself may be. Very tricky wording, these guys have A++ lawyers to protect them.
Basically, if one subdivision causes major lawsuits, the parent company in some cases may simply walk away.
If you accept an incentive (granite counters or plasma TV or whatever) from a builder instead of demanding that he lower the house sale price by the value of the incentive, you are in effect committing to pay property tax every year on that incentive for as long as you own the house. That seems stupid. Why do buyers agree to such terms?
I have no idea. And $50K in incentives is probably worth only about $10K to someone (the buyer would much prefer $50Kin cash/price reductions, and I assume that there is tax on those incentives).
Yes there most certainly would be.
The buyer pays property tax, at least in California, on the purchase price of the property. So if the seller gives an incentive instead of reducing the purchase price, the buyer now is stuck paying property tax for that new SUV or whatever they are offering as “freebies” with the purchase, for life of the purchase.
If anyone has info to the contrary, please share it.
Thanks
Los Angeles Friends In Deed
Los Angeles Friends In Deed yahoogroup
Because many are incapable of making that deduction.
I would take an incentive, but I don’t like all this granite swimming pool nonsense. What I could use is a briefcase. A really nice one, leather, cushioning for my laptop, space for pens, the works.
With $200,000 cash in it.
Granite is the new Formica.
By the way, there are some interesting reads out there about granite counter tops having radon and crap in it. Granite is cut from the side of a mountain (from who knows were) then we eat cook our food on it.
http://www.vincistone.com/library/radon.htm
China for most of it.
Simple, because people are stupid…
Said like an economist, clouseau.
As you point out, the actual value of the incentives (e.g., a car valued at $25K) to the owner is generally less than stated, but certainly greater than $0 by a wide margin. The price used-home sellers must beat in order to make a sale is one that does not show up in published comp data — the stated HB sale price less the buyer’s subjective valuation for the incentives (what he would have personally been willing to pay to buy the included goodies). This confers stealth market power on the builders relative to the clueless used home sellers, who cannot figure out why their homes never sell after listing them for many months at or lower than the recent official sale prices for comparable new homes.
disagree. They dislike cutting prices (even though they can) because recent homebuyers get all pissy and even start talking litigation. It also makes a development look like it’s LOSING value to prospective new buyers, which may depress future demand. It also can be a problem for financing issues. If they sell a house to someone, and then sell to someone else for LESS, then the comps are screwed up and the first house’s financing may fall apart.
Let me get this straight….. Who said you had to protect previous buyers? This is not RE always goes up. Buyers of any product should be aware of what they are paying for anything. Try bring litigation against the department store or car dealer when they lower prices. YOU CANNOT WIN!!!! Bye Bye….
I think sellers have another trick up their sleave.
They just put the unsold condos or townhomes up for sale in auction when the development company goes belly up, after the CEO and their crew loot the company of all their cash and other valuables.
Los Angeles Friends In Deed
Los Angeles Friends In Deed yahoogroup
They hate to cut, but that has not stopped them from using incentives worth $50K and up to move that growing pile of inventory.
Actually, “hate” is the wrong word here. I agree, HB’s only care about profit. But they will be “nice” for a period before it becomes apparent that the market is hosed, and then the price cuts begin. We’ve called this out on this blog for some time now that the HB’s will only play Mr. Niceguy so long and then out with incentives and in with price cuts. That time is here. All it’s going to take is for a couple of the big players to start cutting prices to force the rest to do the same.
This thing is playing out exactly the way it’s supposed to. So much for “it’s different this time”.
I agree! The builders, that swore they had inventory under control took “option write-offs” rather than “pay-up” on land for their next project. Seeing the “tagging” on the wall, they build out their latest committed projects/ subdivisions BEFORE the banks say “no” or for the spring fling!….That didn’t arrive. Now built inverntory is higher than ever! Who knew?
Well at least their undocumented workers can go home now!
My question is when they move away from incentives is it all or nothing? If so the median home price, which currently doesn’t reflect incentives, will crater.
Is the “unstated company” in question Centex?
There have been some pretty impressive Centex sales in the north-of-sacramento area (discounting nearly 25%) as special price cuts, but only in Bay Area (not Sacramento) papers.
Although Sheh homes in their ads in the merc also claim “sale prices up to $100k” (albeit probably on the far more expensive McMansions) and “free mercedes”
I heard today that their price cuts were in the $100k range–what you say seems to track.
A about a month ago I saw a subdivsion add from Centex in the Sacramento area. on certain models! The timing was near their last earnings release.
Home prices are softening here in South Orange county, at the lower end, prices are pretty much the same, however, there is a house at the end of the street from me for sale for 679K that has a nice yard, no one behind it and a pool. That is much more for your money than last year.
This is why I think the Median price hasn’t fallen yet, better homes are selling for less, so people are going into better homes thus rasing the median, while the lower end without reductions goes unsold.
P.S. I thought Gary Watts said that 15% appreciation was “in the bag for Orange County”. A number of realtors on Realty Times still have his “economic outlook” posted on their “reports.”
Realty times is actually a good gage because the more belligerant they get on their “reports” about not “getting fooled, there won’t be a crash” the more you know the market is softening.
It is “in the bag”. You aren’t still “holding” the bag, are you? Uh-oh. You were supposed to hand the bag off to someone else! Then it would be “in the bank”. Like his.
Standing in line at the Crown Valley Costco this afternoon the guy behind me is talking on his cell phone:
“I’ve got a couple of houses out there and nothings moving. It’s dead.”
Listens.
“Yeah, the last one only appraised for 20k over what I bought it for.”
More silence. Perhaps the friend asks–what do you need to make?
“65″
The conversation continued about other things.
This guy is screwed, won’t get to play golf or go to yoga in the mornings anymore (part of the conversation.)
I don’t want to gloat, but it was hard not to laugh.
Myth of the Median. Learn it, live it, love it. All 3/2 are not the same!
LOL
The housing market “is moving in the direction we thought it would,” said John Karevoll, DataQuick’s chief analyst. “It’s all part of a normal end game of the cycle.”
Yeah, Dataquick sure had this cycle pegged from the get go. It’s amazing how smart folks feel looking in a rear-view mirror.
DQ what a joke. They move with the direction of the wind!
You are right — it is easy to predict in hindsight.
They knew. They just were not telling.
Backstage gets my vote.
They knew they just wouldn’t tell the public about it.
As a matter of fact in March, he was on OCR’s blog. See link.
He wasn’t talking about RE cycle end games then. He has to produce public comments that he made describing this endgame otherwise he is just another RE industrial complex shill.
http://blogs.ocregister.com/lansner/archives/2006/03/insider_qa_the_dataquick_dude.html#comments
Soo, DQ, what’s the normal end game of a cycle such as this… soft landing? (hehe)
They don’t know much about “normal”, because the data they talk about barely makes it back through one oscillation of the cycle; any statistician will tell you a sample of size 1 is pretty much useless for making statistical generalizations.
End game….
We are moving to the end game! Gee “end game” books on chess are all about survival {draws} or check mating your opponents.
Well it sounds like check mate…..
Overnite Fannie paper sells for 10 beeps above Farmer mac & Fed Home Loan paper….. When FNM spreads to + 20 bps. or more I’ll post again…if before 5/23/06…. the scheduled release date for the oversite report.
Mudd (FNM CEO)told Ruetors - “The day the report comes out it will be a very bad day!”
Gee after years of the banks unloading all their “crap” mortgages onto Fannie Mae… the perverbial sh.. is about to hit the fan?
“In Sacramento, local builders say that at least one of the big national outfits is done playing ‘the incentive game’ and will shortly cut prices.”
Centex? They are quite active in Sacto, and have been offering staged ‘discounts’ for months now. Sacramento has dived down to high pressure terrritory, and the unloading is due.
Probably will be Centex, they are already offering up to $100,000 discounts and being publicly traded will need keep sales and their stock up.
Wow. What is up with CNNMoney.com?
It almost seems like Chris Isadore, the person writing stories on the housing market for them is one of us:
Housing slowdown to be widely felt
Slowdown in residential building and home sales will be felt throughout the economy; weaker jobs and consumer spending expected
By Chris Isidore, CNNMoney.com senior writer
May 16, 2006: 3:25 PM EDT
http://money.cnn.com/2006/05/16/news/economy/housing_impact/index.htm
Jobs recession on the way followed by consumption recession and serious buyer’s strike (we ain’t seen nothin’ yet).
Jeoff Hall, the chief U.S. economist for Thomson Financial, said that for every 1,000 single-family homes built, there are about 2,500 full-time jobs created, $80 million in payroll and $45 million in local, state and federal taxes paid.
This can’t be for real. 2.5 full-time jobs are created for every house built?? Even assuming that every house is paid for by a dual-income household, that means that those two incomes are supporting 2.5 other people’s full-time jobs?! No wonder “home” “owners” are so strapped for cash!
A sightly different way of looking at it would be that the bagholder gets a loan for 500k and throws that money into the economy by buying a home. 500k would employ 2.5 people for several years, especially low wage jobs like construction workers and home depot cashiers. Add taxes and money spent on upkeep and the figure doesn’t look that far off, in the short term at least.
half the cashiers at home depot are self service machines.i dont shop at places that wont even employ a human being.
Sounds reasonable to me. Remember, the funds to pay for this employment & materials is all borrowed from the future to pay today. That’s why all those jobs are created. They go away once the demand dries up… already started in financing… even Home Depot reported weakness today in connection with the declines in housing. It’s building. I don’t think anyone is going to like what consequences this bubble bursting will have…
i’ve been noticing that too. money.cnn.com has had a real estate crash headline almost everyday. when it was a theory, they didn’t write much about it. now it’s a reality and hb’s stock are below 52 week lows etc….it’s a story. and as it gets worse and family’s are being kicked out of their mcmansions….i think they will be all over it. they seemed to love people fleeing their homes in katrina….i can’t imagine how they’re going to respond to people leaving their mcmansions with a sweaters tied around their neck.
“New construction homes are still in big demand, which is contributing to the glut of houses, said agent Chuck Dawson.
If there was a demand, they wouldnt be added to the glut??
Bakersfield story - lets see inventory up 315% and sales down 30%. NO BUBBLE HERE. Move along…
Try Merced. 6/1/05 - 157 SFH. 5/15/06 - 970 SFH. My punch box says 517%. Like you said, move along, no story here.
These numbers obviously indicate that cities in the central valley are ripe for healthy 6-10% gains this year. Those numbers just reflect the natural return to normal. It is good to see that the market is target for a soft landing. Any experienced realtor will tell you that there is no better way to clear out excess inventory than 3 months of smog-choked 105 degree weather.
Bakersfield’s weak employment picture will further add to the bubble. Salaries at the local retail distribution hub will not be enough to cover the median price of a home in Bakersfield today. Low unemployment does not mean great paying jobs.
Seriously. Every article ends up sounding the same. I can’t wait for those numbers to start expanding, but with the same retoric attached to it. “Housing starts fell 55% this month, and inventory of existing homes is up 600% to a 27 year high of 14.5 months. But economist Jim Daily said this represents a return to normal for the once booming real estate market. Now that we have a balance of supply and demand we’ll probably continue to see a softening of the market for the next few months and price gains at a more normal 5-6%.”
Actually, its not a good time to buy in Bakersfield. That is just realtor BS, coming from an individual with a vested interest. Prices are still far too disconnected to the local economic principles that support them. Crabtree was quoted back in August of 2005 in an LA Times article saying almost the exact same thing. The complete and total disappearance of buyers, and the prolific rise in inventory have been putting the pressure on the flippers, realtors, and So-Cal speculators, but as of yet, the big correction just isn’t happening. Perhaps easy refinancing and equity lending are relieving some of that pressure?
I don’t think we have felt the impact on the economy yet. That is crux of the debate between soft landing and hard landing. If the economy remains healthy during the housing downturn then you won’t feel the imapct of higher unemployment and everything that goes with it. IMO the big correction will occur with increased layoffs. As AZ_Bubblepopper stated above “I don’t think anyone is going to like what consequences this bubble bursting will have”. Mortgage companies are laying off people, RE agents are obviously hurting, construction is slowing down, Home Depot is taking a hit on their stock due to future guidance, and HB’s are crumbling. This is only the beginning. I don’t think the California much less the national economy will escape a recession. To be quite honest this thing has me on edge lately.
i think you missed the sarcasm.
770 houses a year ago and 3,000 now…
For the first time in 4½ years, the region’s median home price rose less than 10% year over year, data released today showed.
Does it really matter what has transpired 911 or so and that sales are not going up as fast they have.
Can’t someone just say “sales are way down and there is no reason on earth in foreseable future why they will increase at rate they have in last 4.5 years?
Ventura County reporting in. Sales down 41%, forty-one percent, not a typo. Anyway, were we to believe the reported numbers up 10.4% y-o-y for median prices then there’s something else going on. Without speaking for the rest of SoCal the thing going on is people are sitting on their lower priced homes hunkering down, all the high end ultra-luxury units and new houses are selling off of old commitments made many months ago and there’s no cheap property left to buy in an exausted speculative market. Here at the end of the upside cycle it appears that our restrictive zoning laws are making things worse but in a few months our sighs of relief will be audible in the San Fernando Valley. “Relatively” tight inventories will delay and stretch out the decline but it will eventually catch us as well. The OC hovever has gone from serious to critical IMO. The failed immigration proposals and service economy bias heterodyne to scary levels. People forget how very dense and urban OC has become. They won’t have suburban woes, they will have urban woes and are in no way equipped to those forces.
Any update on that local mortgage company? Mooretech or something like that…the people with a hummer and off shore racer on their web.
Moretech financial at mortgagemadness.info
Gotta love the url!
No direct word from Dan or Mike and the two Hummers are still drivin’ around. See ‘em almost every day. I expect any problems if/when will be of the wake up one morning, doors locked variety.
Same story here. For example, in Calabasas the median price is soaring. Not because houses are selling for more money, but because the only things selling are the giant mansions in the gated communities, while the mid-level (800-1.1M) and low end (500-700k) are dead.
Sometimes the median can be a pretty crummy gage on the market.
People buying in Calabasas take many months to close on those top end properties. You are correct this is just a time series delay from the general slowdown we’ve been predicting.
Robert, here’s the new “urban” OC….
Tuesday, May 16, 2006
Anaheim high-rise plans set to go before panel
The second phase of Lennar Corp.’s development near Angel Stadium could start in July.
By SARAH TULLY
The Orange County register
ANAHEIM – Three high-rise towers alongside a shop-and-bistro alley leading to Angel Stadium could be under way as early as July.
The second phase of the Lennar Corp. development, called A-Town Stadium, is set to go before the Planning Commission within the next 60 days, said Rich Knowland, Lennar’s division president.
Altogether, the developer is planning 3,813 condos, lofts and townhouses, including 14 towers surrounding the stadium – creating the largest project in the Platinum Triangle, which the city is trying to convert into Orange County’s future “downtown.”
Lennar’s homes will make up more than half of the 7,300 residences planned in the triangle.
On Thursday, Lennar Corp. will celebrate the beginning stages of both A-Town projects with a groundbreaking ceremony.
Already, about 3,000 people have called to inquire about everything from buying a loft to putting in a beauty shop.
“It’s a huge amount of interest. It’s all over the place when I read what they are asking about,” Knowland said.
our restrictive zoning laws are making things worse
Robert,
Are you suggesting that they are not making ‘unrestricted’ land amymore?
Snigger, no. Ventura county has a law known as SOAR, save open space and Agricultural mumble mumble… Anyway, this rule requires a public vote instead of a council or supervisors vote to change ag land into urban zoning. So, in effect, yes, we have stopped making more developable land. It is a common misconception about zoning. More zoning control makes things worse. Think about the places with the greatest problems, they are also the places with the most restrictions.
The zoning argument doesn’t really hold up, at least not in any direct sense. The areas with the greatest zoning controls are the areas that have had the most growth and the most complete land use. The cost of the land is going up because the rate of use of the most valued urban centers is going up as a result of the density and issues related to that density.
There is a lot of accumulated data about this as well. It is extremely unfortunate that we trust the USGS to find oil and mineral deposits, but not to analyze land use. Oddly enough the oil companies that listen to the USGS are fantastically profitable and the developers who do not are about to fall in a huge hole. Coincidence? I think not.
For the Central Valley, along with the 105F smog choked heat and air, won’t the flooding of the nearby rivers be a big help in moving along those homes to the next wave of greater fools? What happened to all of Arnold’s help? Will his famous line, “I’ll be back!!!” not refer to a 2nd return as the Governator? LOL
Fannie cancels speeches ahead of OFHEO report
By Damian Paletta
Of DOW JONES NEWSWIRES
WASHINGTON (MarketWatch) — Daniel H. Mudd, the chief executive of Fannie Mae (FNM), skipped his scheduled keynote luncheon speech Tuesday at the UBS Global Financial Services Conference in New York because of a looming report from the mortgage giant’s regulator.
The Office of Federal Housing Enterprise Oversight, which regulates the safety and soundness of rivals Fannie Mae and Freddie Mac (FRE), said Monday that it would release its three-year investigation into Fannie Mae’s accounting and management problems May 23.
“In light of yesterday’s announcement, the company has decided to cancel any presentations to investor conferences until the release of the report on May 23,” Fannie Mae spokesman Brian Faith said Tuesday.
Faith said Peter Niculescu, Fannie Mae’s executive vice president of capital markets, has cancelled a Friday speech at the Bear Stearns Mortgage Finance and Housing Markets Conference in New York.
Since OFHEO began its report in 2003, multiple Fannie Mae officials have resigned or been forced to leave. It has spent the last three years trying to recover from the accounting scandal that caused $10.8 billion in errors.
Last week, Fannie Mae estimated it would spend $800 million this year in connection with its restatement. This figure is not believed to include any potential fine from OFHEO in connection with the report.
Fannie Mae is already reviewing OFHEO’s findings, and late Monday the company said that it wouldn’t issue any medium- or long-term debt until the report is released.
Companies can’t sell debt into the market if they have material information that is not available to investors.
The regulatory agency’s examination is expected to be very critical of Fannie Mae and go further than an independent review commissioned by Fannie Mae’s board. That examinaion, led by former Sen. Warren Rudman and released in February, found that Fannie Mae’s “accounting systems were grossly inadequate.”
A spokesman for Senate Banking Committee Chairman Richard Shelby, R-Ala., said the lawmaker was hoping to set up a meeting with OFHEO acting director James B. Lockhart before the report is released to review the findings.
“We are actively working on setting one up in advance of the release of the report,” Shelby spokesman Andrew Gray said.
Shelby met with Lockhart last week but not about the report.
Lockhart is scheduled to meet Thursday with Rep. Barney Frank, D-Mass., the ranking member on the House Financial Services Committee, a spokesman for Frank said. Lockhart is also planning to meet with House Financial Services Committee Chairman Michael Oxley this week, a spokeswoman for Oxley said.
The Senate is working on a bill that would create a new regulator for Fannie Mae and Freddie Mac, and the House passed a bill last year. Lawmakers have not agreed, though, on how much power the new regulator should have.
Don’t be surprised when the the oversight report comes back with no real trouble found. FNM is the biggest ticking timebomb ever, except maybe Social Security or the dollar itself, but most of the politicians won’t touch it. They can never show what a cesspool of corruption it has become because this will, by extension, show how corrupt the government itself has become. This is why shorting it is so futile and I gave it up.
I like to think of FNM as similar to Enron, just 1000X larger and supported by the Gov. Is it too big to fail?
That is all we need another corrupt regulator…
Next they will create a regulator for that regulator…They will be called Fuk Mae and Eat
Mae.
Not one politician has the balls to stand up to this nonsense. It is very sad.
The politicians ARE the nonsense.
That’s like expecting Al Capone to stand up against crime!!!
Truer words never spoken …
coming soon in an announcement from fannie mae:
“we regret to inform you that fannie mae will not be profitable in this century. We will continue to deficit spend in an effort to uncover just how big our blunders have been, but we don’t anticipate being able to give a full accounting until 2110. Thank you for your patience.”
The workings inside Fannie Mae do predict that they have a staggeringly large cushion of assets that they can convert into cash should they have to. It will set them back if they get smacked around, but it won’t hurt them long term.
At this moment Fannie Mae could be profitable for at least a decade even if they walked away from issuing new MBS. The holding in their portfolio and hedge funds would ensure that (my informed opinion).
That being said, I think Fannie is going to have to pay the piper very soon. The public flogging may actually be the triggering event that iTulip is looking for.
California is running out of land. They are not making any more, you know. Backstage and Robert - let’s have these developers take care of everything - build on top of every hill, in every canyon, don’t miss the flood plains. Let’s clear out all of the Sequoia’s in the SNL and Yosemite and make room for hundred’s of thousands of McMansions there. Wipe out the natural beauty at Point Reyes for more McMansions. Move the sand at all the beaches, we can get prime prices for houses even closer to the beach. To heck with the sheeple with beach views now. New McMansions in Joshua Tree. Flatten all of the mountain on the peninsula heading up to SF. Bulldoze Neverland since Michael left. I am sure the Centex could cram at least 1000 $1M McMansions there. Hey, $1B. Not bad. Etc. LOL
CALIFORNIA MCMANSIONS FOR ALL - AND THERE WILL STILL BE ROOM TO BRING ANOTHER 10 OR 20 MILLION FOLKS UP HERE FROM SOUTH OF THE BORDER!!!!!! LOL
Rant of the week, my compliments.
Wipe out the natural beauty at Point Reyes for more McMansions.
Dude! We can build McMansions RIGHT ON the San Andreas fault!! And as a bonus, with global warming, people will want to gradually move north, just as Point Reyes is doing. Best to buy now before you’re priced out forever!
The 200-mile long 101 corridor from San Jose to San Luis Obispo could fit a looooooot of homes in the future, with pretty decent weather to boot. (What the heck is this valley’s name BTW?)
>The 200-mile long 101 corridor from San Jose to San Luis Obispo
Have you driven that stretch lately? It’s ALREADY happening.
The buildup in inventory in the southern San Joaquin Valley is amazing…and this realtor has the nerve to say it is a good time to buy a house?
Let’s see…there are more houses on the market in Bakersfield, Visalia, Fresno, Madera, and Merced than back in the mid 1990s, when the market was undergoing a major correction. I remember in Palmdale when this happened, and builders had neighborhoods they couldn’t sell. Luckily for them, a Hollywood outfit came in, bought the houses for a dime on the dollar, and then bombed the $hit out of them for a movie. Maybe Visalia will end up similarly? Like the article said, the builders (mainly McMillin and Centex) keep building, but, unlike the article said, there isn’t any demand for these new homes. Centex & McMillin are paying a buttload of money to realtors to sway any dumbass prospective homebuyers to these new homes, rather than “settle” for a resale house. My former realtor from when I sold my house in Visalia in the fall said Centex was offering 7% realtor commissions and other incentives so that realtors would steer homebuyers to their homes. Interesting, because these homebuyers (along with greedy speculators) are the ones who created this mess…now the realtors are in bed with them to try and help them out of it. Oh well, anyone who bought a house recently in that godforsaken part of the world deserves the crash that is unfolding.
Off Topic - but I’m not sure if anyone has seen this - it’s the latest cover for Harper’s Magainze - it’s rich! The title under the picture reads - “The New Road to Serfdom” - the picture is of a person kneeling under the weight of the house on his back.
Here goes:
http://www.harpers.org/MostRecentCover.html
Sweet
Robert - thank you for the weekly award. The faults will be great. Maybe Hollywood will help bring the quake. Need more homes (uckily for them, a Hollywood outfit came in, bought the houses for a dime on the dollar, and then bombed the $hit out of them for a movie.) Then all of the illegal aliens will have a roof over their head. LOL
I am also sure we could fit quite a few McMansion in the Mohave Desert. There are hundreds of miles of empty desert mixed in between a few hellholes along 15, 40, 58, 10, etc (Barstow, Baker, Boron, Needles, etc - just to name a few).
Amboy will be the next boom town…get your kicks on route 66.
But they aren’t making any more desert! Or are they (desertification)?
That exactly the point David. Socio-economically, Bakersfield is unique in CA. Private sector employement is bleak, similar to many of the depressed midwestern industrial cities. Kern has the 2nd highest poverty rate in the state (after Imperial), has one of the highest homicide rates in the nation, 40 days per year over 100 degrees, failing schools, and 300 days per year of air quality rated “unhealthy for sensitive…” or worse. There is a good middle class employment base in law enforcement, corrections, and taxpayer assisted healthcare facilities, but I would hardly call this stable. Poor, dysfunctional, drug addicted, criminal, uneducated people are the resource from which the best jobs subsist.
The private sector employers, most notably State Farm, Wal Mart, Ikea, and several others moved here largely under the premise that land and cost of living were cheap. They just don’t pay much. In 2002 you could by a nice suburban tract home for 160K. In 2006 that is no longer the case, and new employees to these companies would have to rub shoulders with the tweekers, Okies, parolees, chollos, “3 Strikes Widows” and their 12 kids, and squatters living 10 people to a 3 bdrm house if they were going to bank on cheap housing.
This community cannot support median home prices over 300K.
Agree with most points, except the oil base. All the majors and 2nd tier oil companies are here (Chevron, Exxon, Haliburton, Oxy, etc…). These jobs both in the offices and in the fields pay quite well. However, like we saw in 1997, when the price of oil drops those jobs evaporate very quickly.
In fact, there was a headline in 1998 in the LA Times which prounced Bakersfield as DEAD and DONE! Well, home prices are up 300% since then.
Don’t get me wrong, this town is in for some serious pain. However, everyone here is in LA LA land and thinks things will go up and up and up. Except, ME!!
Great indicator for a good investment opportunity.
When a major media outlet (newspaper, magazine, etc.) says a market is finished and done, it is very close to the bottom of the market. E.g. Businessweek 1978 - “The death of equities.”
Works the same way on tops such as the recent Time cover in June 2005 on the Great RE market. Looks like that was a great call on the top for RE.
Goog thing that Harper’s cover wasn’t about home prices being dead, but rather a burden.
Bakersfield oil is junk, difficult to process. One major deep water oil platform in the gulf can pull out more crude than all of Kern County combined at a fraction of the cost.
The price actually runs $10-$15 bbl below WTI.
Maybe Flying J’s expansion of its recently purchased oil refinery will save Bakersfield’s housing market. However, Bakersfield oil is low grade steam recovery crude. High gas prices have helped I’m sure. However, have the oil companies pumped as much money into that area as they did in the early eighties then jumped ship? My understanding is that the majors pulled a lot of the high paying jobs back to corporate. No need to pay admin and non field personnel to do the job in Bakersfield, if they can do that same job in Texas. Maybe I am wrong. It is weird that Cal State Bakersfield does not have a full engineering program.
Bakersfield, CA
Text Version About the data
Data Series Back
Data Oct
2005 Nov
2005 Dec
2005 Jan
2006 Feb
2006 Mar
Unemployment Rate (2) 6.9 (6) 7.6 (6) 7.8 (6) 8.6 8.9 9.0
Why does Bakersfield unemployment rate have such a large jump from Oct-05 to Mar-06? Maybe I am reading this wrong. Does the Bakersfield Californian report this stuff?
U.S. Department of Labor
Bureau of Labor Statistics
More like the 2002’s 160K. If any thing, wages have fallen - and the costs of owning in this entire valley are totally dependent on IO/ARM/Neg Am financing. Can’t last, won’t last, will fall long and hard.
There is a good middle class employment base in law enforcement, corrections, and taxpayer assisted healthcare facilities, but I would hardly call this stable. Poor, dysfunctional, drug addicted, criminal, uneducated people are the resource from which the best jobs subsist.
Whew !!! That is friggin ugly…..
Well,
I agree that Bakersfield is a poor town,and real estate should be priced accordingly, but not so decrepit as depicted in all the stereotypes above.
It is actually much more diverse economically than a number of other central valley towns. I cannot speak for all the speculators that have run up the prices (may they dangle by the short and curlies), but I agree that most of these folks can least afford a real estate meltdown.
Armchair, agreed!
What is it about Bakersfield and Oklahoma? Everybody who lives there, except for the illegals, either was from Okie or was descended from someone from Okie.
How much bigger a failure could you be? These people deserted Oklahoma because they had a couple of bad years when precipitation in Oklahoma was only 20-30 inches per year. They move to Bakersfield, which gets only 5″ of rain a year, thinking that they can do better??? Maybe in rock or dirt farming, Valley Fever spore harvesting, or dually pick-up sales.
“When the dust bowl Okies moved to California it increased the average intelligence of both states.” - Will Rogers
Tough crowd here. But a lot truth on the RE market and the very overpriced but soon to fall Central Valley. At least the weather is good on the coast.
What really galls me about the new SoCal Dataquick numbers is that last month the touted how the median price passed the $500K mark for the first time. Now this month it’s “Due to a calculating error, the regional median was misreported last month.” The “revised” median for last month is $486K. Of course no retractions that SoCal medians never actually hit $500K. On the other hand I’m suspicious of this revised median, because if it wasn’t revised it would show that SoCal home prices dropped $16K between last month and this month (3.2% not the .2% now claimed).
Where did you see the downward revision attributed to a calculating error?
hello,
I placed a bid yesterday on a $146,000 house in rural nc. The bid was rejected by the my agent as being to low. I bidded 75,000, but the seller’s agent and my agent talked and she stated that my bid was to low. This house has been on the market for 667 days and it is located in a development that has been foreclosed on. I will wait 3 months and place my bid with another agent. the agents are scared and now they are the gatekeeper of the housing bubble.
bid $1K less for each month wait. F ‘em!!!!!!!!!! Good luck.
Tell Spitzer to get them on racketeering
Good one. The agents can f..k right off. They have an obligation to presnt any offer to the seller. If I were a seller I would insist on seeing all offers and decide myself what is too low.
I agree. Contact the seller directly as well and let them know what happened. You may even suggest that they may sue thier agent for in civil court for damages in addition to the criminal prosecuter going after the agent for violation of law.
Those agents may find themselves with a pair of new bracelets, and a new home, and perhaps if their lucky, “3 hots and a cot”.
Los Angeles Friends In Deed
Los Angeles Friends In Deed yahoogroup
Make sure you ask for a SIGNED refusal from the seller as I believe you have a right to receive (assuming yours was in writing).
” Homebuilders hate to cut prices for fear of torching everyone’s property values and setting off stories about weakness in housing ”
Kind of like the Dollar holders at this point. Everyone looking each other up ,and down to see who blinks ,and runs first. The central bank looks like they cut a back roon deal last week ,and the dollar stopped falling for a few days. How long? Someone is going to blink soon,and it isn’t going to be pretty.
A little geography might help. The Central Valley is big. You can lose whole states in it, and still find room to piss. The Cental Valley is also AG capitalized. Most jobs owe their existence to what is grown here, and home values are completely detached from the ground. The ‘investor class’ has successfully screwed the home-owning aspirations of people here to the wall. Good Lord, what I wouldn’t give for an LA basin/SF Bay jolt of reality - say the 8.5 reality. Maybe then they would have something useful to do with their time and money.
“You can lose whole states in it,…”
Whole countries even (not that any particular ones come to mind…)
Crispy– I actually did think about the petrolem industry as I was writing this, but I think the picture here is that most of the high paid professionals in that industry are not from the area and tend not to stay here too long. None of the local schools have an engineering program.
Anthony- the central valley was an anomally during the Great Depression, we actually had decent economic growth and a huge need for labor during those years. The current attraction would be the possibility of hitting the California lottery– you know, getting a job in the oil fields, suffering a severe but non crippling injury, taking your employer to a liberal California court, suing the pants off them, collecting Social Security benefits for life, and then buying a Chevy 2500 Diesel, an RV, an overpriced rental house, a custom Harley, and enough methamphetamine to keep your engine running for the next 10 yrs.
Please note that is a jaded/sarcastic remark that applies only to a small but noticeable minority.
LMFAO. You must have lived here??
Grew up in upstate NY and Salt Lake City UT. Moved here in ‘96 to finish school and to be closer to my grandparents and parents who live and are stuck here. Have family who’ve been here forever.
My fiancee and I still rent. Rent is still dirt cheap here, its a bad time to buy, and there’s the possibility that we might not stay forever.
Classic.
I think they moved to Grover Beach.
Its a bubble:
http://biz.yahoo.com/prnews/060515/lam134.html?.v=14
We are housing addicts:
http://www.marketwatch.com/News/Story/Story.aspx?guid=%7BF8B9E8DB-7503-4719-8378-0E6A5729C3C2%7D&siteid=netscape
Bubble will hurt the whole economy:
http://money.cnn.com/2006/05/16/news/economy/housing_impact/index.htm
http://www.oftwominds.com/blogmay06/shiller-housing.html
thanks. Same conclusion that I came to on target decline. Adjust for inflation and interest rate delta…SHAZAAM. $310k (for the OC). Assuming we actually decline to that level, everyone that bought post 2000 will be underwater. Ouch.
http://www.fredericknewspost.com/sections/news/display.htm?storyid=48929
Heh heh, even the main stream media nowadays is quoting “..End game of the cycle..”
How many more different ways will they find to communicate, that today’s sellers are the bag holders?
I can’t believe the volume of articles on the housing bubble and it hasn’t even popped yet.
I only want to know one thing: how far will it fall and how fast ? When are we going to hit bottom ? People point to past bubbles and say a slow decline for 6 years. I say it IS different this time. Much more dependency on housing as an employer, much more debt, ARMs and I/Os, no docs, faulty appraisals and inventory piling up like mad.
So… when will it hit bottom and what will the bottom be ? 1994 price levels ? 1999 levels ? 6 months, a year ? I think things are really going to move (or not… ) this summer.
Something else I’d love to know is what is going to happen to the price of oil and gold through all of this…
Channel 4 news Los Angeles just ran a very negative story on real estate
Said that sales are WAY down and this could be the beginning of the end for the housing market. They also interviewed an analist from UCLA who basically said low sales are the first sign in a collapsing market and they are expecting sales and prices to begin declining rapidly 
I’m sure you could catch the story again later this evening.
Now if only Alan Mendalson from channel 2 and 9 would come around and stop trying to fluff up the market.
Alan Mendalson is the most disgraceful “economy reporter” in television. How could this guy get that job?
After Cinco de Mayo, and now that the number of listings on ziprealty.com has breached the 20,000 mark, the pace of new greater San Diego listings has picked up, with many days with over 150 new listings (170 on May 16, 2006) and some days (like Cinco de Mayo) with over 200 new listings. So it looks like the Easter slowdown is morphing into the May panic…
Just wait Charlie Brown the Great Pumpkin will arrive. You will see. ARGHHHH!
Noticed the exact same thing here in the SFV as you are noticing in SD. The actives no longer dip and climb back up…they’re only climbing now.
I took a look at Craigs list listing for Los Angeles Real Estate “for Sale” and it was something around 650 listing for the day. a couple weeks ago it was a 500 per day. and a few months ago it was about 150 per day.
Los Angeles Friends In Deed
Los Angeles Friends In Deed yahoogroup
Here’s the bottom line for me: when I can buy a SFR, 20% down, fixed rate loan, and actually have positive cash flow. Don’t think we’re there yet, but this is a great start.
check out my valuation spreadsheet
http://www.files.bz/files/11251/RealEstateValuationMethods.xls
2005 illegals are biggest buyer group= american nightmare- they’ll be underwater for years
That’s OK, they’re judgment proof and can always slip back to MX. Or rent out all the bedrooms and garage to tenants, as we’ve said.
Illegals can just walk away from the purchase…it doesn’t matter if they’re underwater: in fact, if they go to Bank of America, they can take out a home equity loan and then wire the proceeds back to Mexico for free (yes, BofA charges $30 if you want to wire funds to a domestic bank, but if you wire it to Mexico, it’s free). What a great country we live in!