Something Unique And Intrinsically Valuable
The Sacramento Business Journal reports from California. “In the last three months of 2013, 136 homes priced at $750,000 or above in Sacramento, El Dorado and Placer counties sold, up from 116 during the last quarter of 2012. The median sales price of $920,000 was about 2 percent higher than a year earlier. Homes priced over $1 million sold at 47 percent higher clip. Kris Vogt, president of Coldwell Banker Residential Brokerage in the Sacramento-Tahoe region, said finances play a role in where people with money choose to live, but other factors do as well. ‘At the end of the day, there’s something unique and intrinsically valuable in California real estate,’ he said.”
The Manteca Bulletin. “Ripon continues to set the standard when it comes to home values in the Northern San Joaquin Valley. The median price of existing homes based on closed escrows rose to $300,000 in 2013. Perhaps even more indicative of how popular Ripon is with home buyers is the average time that the 201 homes that sold in 2013 stayed on the market. It was 24 days. Ripon isn’t experiencing the double digit gains that many communities in California experienced in 2013. Manteca, for example, saw the 35.4 percent jump in value last year to a median of $255,000. That meant the median price for existing homes that sold in Manteca during 2013 was up $66,750 from 2012 levels.”
The Marin Independent Journal. “New lending rules being phased in this month could make it harder for some Marin residents to get mortgages, experts said, while many extolled the protection the rules offer for buyers. ‘I see it (the regulations) as a good thing,’ said Bob Ravasio, an agent with Coldwell Banker. ‘We’re hearing people talk about a bubble forming in real estate once again. This is one more thing that will make it more difficult to keep that from happening.’”
“‘I have a concern where protection tips toward prevention. If you have a jumbo investor who is making interest-only loans and we start to see people start filing lawsuits, things might change. The lender will have no legal defense in those cases. That’s the six-million—dollar question. What is going to happen? We don’t know until the first one ends up in court,’ said Rob Spinosa, a loan officer in Mill Valley.”
The Santa Cruz Sentinel. “The median sales price for single family home in Santa Cruz County in December was $618,500, down from $674,444 in November but up from $528,920 a year ago. Gary Gangnes of Real Options Realty observed 21 of the 138 sales last month involved distressed properties, double the percentage from the month before, with 16 of 21 selling for less than $450,000, bringing down the median, which is the midpoint of what sold.”
“The high-end market is soft. A five-bedroom, five-and-a-half bath 2,800-square-foot home, suitable for a family compound, sold for $2.1 million in December to a buyer who had been hunting for three years. The initial asking price was $2.95 million. ‘It was a unique property, it took a unique buyer,’ said Linda Bailey of Vanguard Realtors, noting it was appraised for $3.5 million.”
“Bailey got 10 offers after a single showing of a three-bedroom home on the Santa Cruz Westside, currently rented and priced at $749,000. Six of the 10 are for more than the asking price. Her advice to sellers in this bracket: ‘Don’t wait till spring. Do it now.’”
“‘Anything in the median price range goes,’ said Alex Johnson of David Lyng Real Estate, cautioning against overpricing. ‘Buyers are looking for turnkey properties, a nice kitchen and a nice bath. Those are the ones that are selling fast as long as they are competitively priced.’”
The Signal. “As sales of condominiums posted strong gains in the Santa Clarita Valley and home prices continued rising in 2013, investors pulled back from the single-family home market, a Realtors association reported. One local Realtor said she expects home sales to continue rising as inventory increases this year. Homeowners are beginning to use newfound equity in their homes, which will create more inventory and more sales, said Cherrie Brown.”
“‘Real estate listings are now entering the market at a faster rate than they were back in October through December,’ said Connor MacIvor. The increased inventory, however, slows price increases down a little as buyers have more options, he said. Homes are now entering the market at a faster rate than they are selling. ‘Within the last seven days we have had 59 listings that changed their (sales) prices; 85 percent of the homes experienced a reduction,’ MacIvor said.”
Anybody taken the drive to Manteca? A town whose name means “lard”..
I’ve taken that drive and a more improbable place for sustainable housing growth is hard to imagine and it, along with places like Hesperia and Adelanto in the Mojave, represents the apogee of bubbledom. The fact that the average selling price of those glue and chipboard boxes has recently bumped up an average of $65K, is the best indicator that that we’ve gotten right back to 2008. “She’s gonna blow, Captain”.
Talk about “drive to qualify”. The place is miles from anywhere and there is no local economy other than the retail that serves the residents’ needs for groceries, pizza, and beer. It is just plain sad that thousands of people would be in the predicament of living way out there and commuting for hours every day to jobs in the bay area.
I recall seeing the burnt out remains of new houses in Adelanto back in 2008-10, torched by their underwater owners. Look for that again in a year or two..Manteca too…
Regardless of the price, housing is always an expense and a loss.
The cracker jack boxes that you’re selling? Yes, of course they are.
ALWAYS
‘Northern San Joaquin Valley home values made remarkable gains in 2013, with home sale prices soaring by more than 20 percent in most cities. Denair led the pack, skyrocketing 48.3 percent, while median-priced homes in Patterson posted 40 percent gains, according to DataQuick.’
‘Hughson, Manteca, Delhi and Salida homes also experienced incredible gains, jumping 30 percent or more during the year. Home prices in Modesto, Riverbank, Waterford, Gustine, Los Banos and Hilmar increased 25 percent or more.’
No bubble here…move along folks, nothing to see…
“We’re getting those buyers back who lost their homes,” said Lorrie Mendonsa, an agent for Powerhouse Realty in Turlock. “You can qualify for a new mortgage three years after a foreclosure.”
Nothing sweeter than “other people’s money.”
and a more improbable place for sustainable housing growth is hard to imagine… The place is miles from anywhere and there is no local economy other than the retail that serves the residents’ needs for groceries, pizza, and beer ??
But you miss a couple of critical issues in your opinion…
Manteca/Lathrop have access North, South & West on several Major state Highways that you can be on in minutes…People that live there don’t necessarily commute to Silicon valley…Some go to Stockton…Some to Fresno/Bakersfield..Some to Sacramento…Some to Pleasanton/San Ramon…Some to Concord..Some to Oakland…Yes and even some to San Francisco…There is also Cal-Train…
Along with that, there are close to 100,000 people there which create there own set of synergies…The people that live there may make their money in another community but they spend it in their home town…
And Stockton (just to the north), with all of its problems, has a population of about 300,000 people.
The other thing that people seem to overlook is that CA adds about 300k people per year to its population. If you look at a topographical map of the state, the lowest-hanging fruit of development is the Central Valley/Inland Empire. This is why these places have had the highest growth rates in the state for a long time (and expected a long time to come).
This can make them the end of the whip (boom/bust), which will happen again…especially as development catches back up.
Yes, adding density closer to good jobs is a better idea than sprawl, but existing residents don’t want it (NIMBYism at its worst), and there is a substantial subset of the population that wants to have their own yard.
There was an interesting article in the WSJ this weekend about the City of SF trying to build more housing, but they need to change culturally how they deal with development…it will take a LONG time for people to be OK with growing UP enough to make a difference (instead of growing OUT).
‘This is why these places have had the highest growth rates in the state for a long time (and expected a long time to come)’
This is funny. Let’s take Dallas, Texas. People are actually moving there and make good money. Yet the house prices are higher in Manteca?
This is a perfect example of bubble blindness. Years ago, when I found reports of “investors” buying up say, Merced, there were rounds of laughter here at the HBB, and the new paradigm believers. Now it’s happening again and we have the same bending over backwards to explain why a house in Ripon is “worth” so much. I’ve been there; it’s a hole.
Make sure we are clear…by “highest growth rates”, I mean highest population growth rates.
And it’s not complicated.
I know that Houston and Dallas are different places/different economies, but they are building more homes in Houston than in the entire state of CA. I’m sure Dallas is doing just fine building homes as well.
Dallas and Houston are a great example of how keeping up with population growth when it comes to building housing keeps home prices in check–which can also tend to drive more people to move there (affordable housing + jobs = attractive place to live). A virtuous cycle.
What policy makers in CA fail to realize is that when they don’t allow development to find its natural level, you end up with booms/busts in home prices. AND, there is a direct correlation between high home prices and net OUT-migration from the state.
Let me say that again…in 2005-2007, when home prices were the highest, people LEFT California. Population growth then still occurred due to birth/death, but lots of people left looking for more affordable housing. On the other side, after the collapse, this trend reversed itself…people came to the state.
I’m sure we’re getting to the point where OUT migration will resume (if it hasn’t already). Prices are way higher than they should be if development were allowed with less restriction, like in Texas.
You want another example?
Austin, TX
Home prices there are also out of control…in large part because Austin is more difficult to get new projects entitled than in places like Dallas and Houston.
I’m not “bubble blind”, but I’m recognizing that the reason for the problem in home prices in CA is quite simply terrible management of housing supply by the state and local governments. Restricting supply while being blind to populate growth and demand, is a sure-fire way to drive prices higher.
Case and point?
Ripon.
Ripon has a growth control ordinance that restricts the number of building permits issued per year to no more than something like 200-250 (at least that’s what it was in 2003).
And I’ve been to Ripon too, we invested in a project there about a decade ago. It’s where a state crime lab is located, and in addition, there is a large contingent of police officers who work in neighboring Modesto, but live in Ripon. Last time I was there, I was amazed by the number of very young children walking home from school.
Violent Crime rate 2011: 65.8, US average, 213.6.
Property Crime rate 2011: 175.2, US average, 273.7
The combination of growth restricted housing development, a general push of population to the Central Valley, and a safe community, all serve to drive prices in Ripon far higher than they should go.
If there were a foreclosure moratorium holding back 4.4 million excess empty and defaulted houses in CA, there wouldn’t be a problem now would there.
‘I’m recognizing that the reason for the problem in home prices in CA is quite simply terrible management of housing supply by the state and local governments’
I’m familiar with the argument. But the price levels above can’t be attributed to permit fees, etc. Texas has a pretty big bubble, especially DFW, Austin and Houston. All those new houses they’re selling; it’s zero down loans arranged by the builders. So the central valley is over-priced compared to a bubble market.
What I’m saying is that what people often forget is, $300,000 is a s#@*-load of money. These delusions of “value” sneak into our minds over long periods of time and we begin to think the absurd is normal. In short; it is freaking insane that the houses in Manteca and Ripon cost this much.
I agree. When we invested in Ripon, it was a long time ago, at lower prices (we looked at incomes relative to the our target sales prices, and it actually made sense for the residents at our target sales prices). This was pre-bubble (like I said, about a decade ago…perhaps a bit more).
In addition to low interest rates (which are a major culprit in other parts of the country), prices going too high in many parts of CA are also attributable to:
1. People’s expectation that prices will be higher still next year (which works until it doesn’t…thus boom becomes bust); and
2. Each submarket being subject to mini-land oligopolies (which drives land prices higher than they would go otherwise).
I use the word mini-land oligopolies because it can be so hard to get a project entitled that you may have the only available land to develop in a town (or be one of few). This increases scarcity, which helps perpetuate #1 (too many buyers with expectations of continued home price increases and too few homes on the market).
If supply could react more quickly, houses would sit on the market longer, and the market would be far more balanced (with prices far lower).
For that, you have to reform CEQA (which the legislature tried and failed to do this past year), you need to minimize growth control ordinances (which people seem to love–restricting supply = higher home values for existing residents, go figure), figure out a better way to deal with Williamson Act contracts (which currently take 10 years or a lot of money to escape), and educate people on the benefits of density (as opposed to NIMBYism).
The lack of proper housing supply being built has been going on since the 90’s in CA. Until it’s fixed, CA will be boom/bust galore.
“All those new houses they’re selling; it’s zero down loans arranged by the builders. So the central valley is over-priced compared to a bubble market.”
I’m not sure about the zero-down factor for new San Diego homes priced ‘from the $1 millions,’ but I am almost certain that a conforming loan limit north of $500K is a huge factor in propping up the $500K+ market in San Diego with help from federal taxes paid in Flyover Country.
Caltrain doesn’t go to Manteca. The last stop south is Gilroy
He may be referring to the ACE train…
yes…That is what i meant…
‘At the end of the day, there’s something unique and intrinsically valuable in California real estate,’
One thing I’ve noticed after ten years of bubble watching here with my HBB brethren and sisters: At a bubble market peak, there is always a plethora of shills singing siren songs to the greater fools about how this time is different and how this special asset class (whatever it is) has unique and intrinsic value which guarantees the price will always go up.
CAVEAT EMPTOR!
Ironically, the largest losses occurred….. drum roll please….. In California.
Yep… those California realtors are special.
“The high-end market is soft. A five-bedroom, five-and-a-half bath 2,800-square-foot home, suitable for a family compound, sold for $2.1 million in December to a buyer who had been hunting for three years. The initial asking price was $2.95 million. ‘It was a unique property, it took a unique buyer,’ said Linda Bailey of Vanguard Realtors, noting it was appraised for $3.5 million.”
The unique and intrinsic value of that California home turned out to be $1.4 million less than the appraisal suggested.
Oops…
Here in Marin, our local IJ published a story yesterday regarding a 25% mandatory water usage reduction beginning in April…unless we luck out with some huge storms, which typically don’t happen this late in the season.
And that 25% reduction in water usage could just be the beginning. I remember the scheduled rolling brownouts of electricity during our statewide crisis in the late 90’s. Even San Francisco’s Financial District went dark per the schedule.
So not sure how unique and intrinsically valuable we’ll be if the drought continues.
They’ll just have to drink the water in from all their hot tubs!
“That meant the median price for existing homes that sold in Manteca during 2013 was up $66,750 from 2012 levels.”
That’s a home equity wealth effect in excess of the median Manteca income of $53,037.
Wow, buy a house, double your annual income. You’ve identified a market driver.
“The median sales price for single family home in Santa Cruz County in December was $618,500, down from $674,444 in November…”
Annualized rate of decline:
((618,500/674,444)^12-1)*100 = -64.6%. Booyah!
‘The Bay Area’s roaring housing market appears to be quieting down to more of an inside voice.’
‘San Diego County home prices were nearly flat from October to November…From October to November, home prices rose 0.04 percent on the index, continuing a steady monthly slowdown from the roughly 5 percent gains seen in the peak spring and summer buying season.’
‘James noted that he sold some Manhattan Beach lots last year for about $900,000 each, and now they are worth more than $1 million — without houses on them. The steep increase in prices is reminiscent of the years leading up to the devastating correction in the real estate market that started in 2007.’
“If it’s a bubble, I don’t think it’s going to break quickly,” said James of the current housing price boom. “I don’t think it’s going to fall out this year, but maybe in ’15 we might see some cooling.”
maybe the cold weather in San Diego and so cal
Here’s 1200 defaulted houses in San Francisco alone.
http://www.realtytrac.com/map/ca/san-francisco-county/san-francisco/#cp=37.76456553020361;-122.42429924011229&lvl=13&sty=r&srange=3&page=1&sort=featured,asc&tabs=PreForeclosure,Auction,LiveAuction,OnlineAuction,BankOwned,REO,GovernmentOwned
How many thousands are they not acknowledging?
‘Pending home sales fell a whopping 8.7% month-over-month in December. This missed expectations for a modest 0.3% decline. Meanwhile, they were down 6.1% on the year.’
Yessireeee Jonesy. Some “housing recovery” with demand receding to mid-1990’s levels and the home-debtorship rate in the 90’s too.
As I recall, the definition of a recovery is falling prices to dramatically lower and more affordable levels, spurring demand. Real progress in that department was being made until corruption moved in again and delayed it.
‘(Economist Mark) Zandi says the only wrench in this economic recovery could be a reversal in the mending housing market. “We need to see more home sales, more housing construction,” he explains. “Housing is very interest rate sensitive. If rates rise too far too fast, it short-circuits the housing recovery. Then we won’t get the economic growth I am anticipating.”
‘New York University economist Nouriel Roubini, who earned the nickname “Dr. Doom” for his housing and market crash predictions, argues that economic growth will “disappoint” this year.’
“The question is whether we have gotten to sustainable growth that is not based on bubbles,” Roubini said last month at a Time Inc. event. “Not yet.”
Chairman Mao Zandi is still out there saying building/buying houses will solve all our problems. How come they don’t call Roubini Dr. Accurate?
This bothers me. We’re still sitting here listening to fools who think houses create wealth. They obviously don’t! If it were true, we could drive out into the desert, start building houses and cities would spring up.
“We need to see more home sales, more housing construction,”
Wasn’t this the white guy who got passed over in the search for a new FHFA head?
Richard Green, Contributor
I write about real estate, mortgage finance and urban development.
Business
4/15/2013 @ 7:48PM
Mark Zandi For FHFA Director
On a day filled with bad news, I was pleased with one item in my inbox today–a link to a Wall Street Journal piece that says Mark Zandi might become the Director of the Federal Housing Finance Agency (FHFA), the agency that oversees Fannie Mae and Freddie Mac.
Mark is all one could hope for as a person to go into this job: he knows housing very well, he understands mortgage policy very well, and thinks with the rigor of an academic and the urgency of a business person. He is not an ideologue (I have no idea what party he belongs to) and doesn’t let dogma get in the way of solving problems. I have not agreed with all of his work (in fact he did one piece on lending discrimination that I distinctly did not like), but I have admired the vast preponderance of his work (including his piece with Alan Blinder on the end of the last recession).
He is also a very nice person, and Heaven knows we need more nice people in positions of power.
“…we could drive out into the desert, start building houses and cities would spring up.”
Didn’t they already try that in Las Vegas?
Here’s a case; the bay area. If rising house prices and buying activity boosted the economy, why this?
‘Rachel Dornhelm: The overarching theme of the president’s speech last night was growing income inequality in the country. We hear a lot about tension in San Francisco over Google buses and people being priced out of the area, as well as a housing affordability crisis throughout the area. How does the Bay Area stack up to the rest of the nation on income inequality?’
‘David McCuan: Well, When you look at what’s happened since the Great Recession of 2007, there are elements of the Bay Area economy that have surged ahead. Obviously tech. What we see as the controversy over the Google buses would be a great example of that. However, if you look at what’s happened to the bottom 10th percentile of the population, or the bottom 20th percentile, they’ve been left behind on wages, on benefits, cost of living, housing and so forth, and they’ve been disproportionately left behind since we’ve been measuring these statistics in the late 1970s. So what we’ve really seen is a fundamental disconnect between the top 80th percentile — those folks that are growing in that top element — and those folks at the very bottom. And that is stark, not only in San Francisco, but across different elements of the Bay Area, whether we’re in the East Bay, in the South Bay or the North Bay.’
‘Dornhelm: The president also talked about the minimum wage in his proposal in his speech. Is that a big political issue locally now, too?’
‘McCuan: Certainly. The minimum wage is not only an important issue locally, as we see what’s happening with localities and local governments trying to grapple with increases in the minimum wage, but also within California. The governor (Jerry Brown) signed a bill last year to increase the minimum wage to $10 an hour in California by 2016. And then you have conservative Republican Ron Unz, who also has been promoting a ballot measure to increase the minimum wage to $12 in California. We’ve seen this as well in the Southland and the L.A. basin. But there has been a move to increase the minimum wage to make it a living wage. But the problem there if you look at what it costs a family per month in their family budget to live in San Francisco County, the minimum wage, all these proposals, don’t keep up with just the basic necessities, from child care, transportation, food and so on. And so this disparity has been growing larger and larger.’
Why would the minimum wage need to be raised if high house prices produced wealth?
go to a restaurant-there is no min wage
countries that dump it grow faster
It was estimated pre-2006 that a living wage in the SF bay area would need to be $25/ hour. However, if you take transit and don’t need to own a car and if you live in a rent-controlled apartment that doesn’t get Ellis Act - converted , your livable wage would need to be much less. That doesn’t apply to much of the bay area unfortunately and less and less in SF proper.
Ben says: “We’re still sitting here listening to fools who think houses create wealth. They obviously don’t! If it were true, we could drive out into the desert, start building houses and cities would spring up.”
That’s what they do in China. Whole cities. Completely empty. Including huge malls. Vacant…..but look at all the VALUE they have created for the local government….all the surrounding vacant land is now worth “urban values”.
Ka-boom…..soon.
At the end of the day, there’s something unique and intrinsically valuable in California real estate,’ he said.”
Another guy I work with just drove by me this am in a new Porsche 911.
I looked them up they start at “Selection Starting At $134,175″
This is in California
That’s a shame. My ‘96 Camry still purrs like a kitten. It drives better than any car with payments : )
My sister’s 2005 Sienna did a “sudden acceleration” on her as she was pulling away from her house yesterday. She said that the car had a mind of its own as she couldn’t stop it. She ran into a neighbors brick mailbox and demolished it.
I live in Southern CA and drive a Subaru Forester in case it snows.
Actually it’s handy for the Beach I can pull over on the shoulder of HWY 1 in soft sand which is free parking and not get stuck.
People get their cars stuck there all the time bummer
“This is in California”
So the new Porsche 911 was a convertible too?
“New lending rules being phased in this month could make it harder for some Marin residents to get mortgages ??
Yes…Under the QM rules it will be harder particularly for the self employed…
If you have a jumbo investor who is making interest-only loans and we start to see people start filing lawsuits, things might change…The lender will have no legal defense in those cases..We don’t know until the first one ends up in court,’ said Rob Spinosa, a loan officer in Mill Valley.” ??
Yeah except that Mr. Spinosa misses an important point…The big loans now are being made out of the wealth management arms of institutional banks & private banks…They don’t have the underwriting guidelines that government backed loans have…And there is plenty of money to loan and they are also making a boat load of it…They are the only game in town…
To emphasize the point, QM rules only come into play if you want to sell the loan (to my understanding). My loan is a jumbo, and still held by the bank who made the loan (BofA). The prior loan would also likely have stayed on the bank’s books (Wells). It’s only the origination/selling machines that are going to run into issues with QM.
Watch banks like Wells Fargo and BofA’s mortgage loan business grow in higher-priced markets.
“My loan is a jumbo”
It matches your losses.
Vital Signs: Housing Inventory Remains Spacious
http://blogs.wsj.com/economics/2013/11/06/vital-signs-housing-inventory-remains-spacious/
Public acknowledgement of 14 MILLION excess empty houses. How many more are there they’re not admitting to? Another 10 MILLION? 20?
“Manhattan Apartment Rents Drop for a Third Straight Month”
http://www.bloomberg.com/news/2013-12-11/manhattan-apartment-rents-drop-for-a-third-straight-month.html
Hold your cash close and stay out of debt.
“Hold your cash close and stay out of debt”
- You got that right!!
Veterans can qualify for $0 down with the VA home loan benefit. Competitive rates. No private mortgage insurance required.
add HARP
= harm to taxpayers
The VA program has always been self supporting. No taxpayer contributions.
PLD announced earnings today (ProLogis–industrial REIT). Main news is that their occupancy is now over 95% (up over 1% from last quarter), and that new leases are on average 5.9% higher than the prior lease on the same space (ie. rents are rising).
This is consistent with the view that in-place rents today generally are below levels necessary to justify new development. This kind of rent growth is expected to continue for a while. I’ll be reading the earnings transcript…I’m wondering what management will be saying about the strength of this trend.
The market seemed to like the announcement…stock is up about 5% today. I’m sure some of this was because the market was up, other industrial REITs were up also, but not as much (FR up 2.8%, TRNO up 3%).
Perhaps I should be re-allocating my wife’s 401k heavier to the REIT fund earlier in the year than I previously was planning…more REITs will be announcing soon…
And Blackstones vacancy rate for SFR’s is 50%+.
Relevance RentalPimp….. relevance.
Sorry, I thought I posted in bits, where we talked about this before.
It’s a bet on upward retail sales trends, which is a bet on consumer credit expansion. Timing might just be off, just a tad.
A bet on PLD is a bet on increased trade over time, and a continued move from bricks and mortar retail stores to the internet (where goods still need to reside in a warehouse before they get to you). PLD is constructing warehouses for Amazon.
RW says: “Perhaps I should be re-allocating my wife’s 401k heavier to the REIT fund earlier in the year than I previously was planning…more REITs will be announcing soon…”
Perhaps I should be looking for a wife with a heavy 401k!!!
Perhaps you should have sold that rapidly depreciating house sitting on worthless dirt when you had a chance.