A Drive For Higher And Higher Profits
The Mercury News reports from California. “Imagine paying $1 million or more for a home — and then destroying it. That’s what’s happening in some upscale Bay Area communities as homeowners and wealthy buyers have no interest in upgrading aging houses but instead want to start from scratch and build all-new custom homes. Investors are responsible for some of the scrapped lots. Mark Wong, an agent with Alain Pinel Realtors in Saratoga, said a Cupertino tear-down that costs $1.2 million can be replaced with a 3,500-square-foot custom home for about $1.9 million, he said. ‘Eventually, they can sell it for $2.5 million to $2.6 million and make $500,000 to $600,000 profit in 6 months or less. Not a bad return, and they will repeat this flip process over and over again.’”
The Associated Press. “More than 2.3 million adult children are living with their parents in California, a 63 percent increase since the Great Recession began seven years ago and a phenomenon straining budgets and pushing some families to the brink of poverty. Researchers from UCLA and the Oakland-based Insight Center for Community Economic Development say job losses, home foreclosures and divorces are among the factors driving hundreds of thousands of adults to return to their childhood homes. In many cases, those homes are headed by parents who are approaching or in retirement and are living on fixed incomes themselves.”
“‘There were 433,000 older adults, age 65 and over, who housed approximately 589,000 of those adult children,’ the researchers said in the report released by the UCLA Center for Health Policy Research. Those figures were generated from federal census statistics, said the report’s lead author, Steven P. Wallace.”
“They estimated that an older couple living with one adult child would need about $54,000 a year to live in San Francisco. In Southern California’s Orange County, the cost would be about $52,000, and in San Diego County it would be $48,691. In less expensive areas like San Bernardino and Riverside counties, it would still be about $35,000.”
“Wallace said California residents shouldn’t expect adult children will move out any time soon. ‘Right now the economy isn’t generating jobs fast enough to soak up a lot of the people who have either lost their jobs or are coming into the job market,’ he said. ‘The near future looks like the numbers are likely to remain stable or grow.’”
The Signal. “Following a statewide trend, sales of existing Santa Clarita homes slowed in January, according to numbers released by the Southland Regional Association of Realtors. ‘Investors played a big part of our market last year, but in mostly short sale opportunities. As we saw a decrease in short sales, the return on investment has decreased,’ said Cherrie Brown of HomeSmart.”
“While home sales in the Santa Clarita Valley were the slowest since 2008, median prices were just $27,000 shy of the prices recorded when the market crashed that year. ‘We are still riding the 16-22 percent increase in prices that we observed between February 2012 and October 2013,’ said Connor MacIvor with Remax. ‘Buyers that did not or were not able to buy in 2012 and 2013 are not too excited about the increase in prices and many have been ‘priced out’ as a result in the current market.’”
The Press Enterprise. “Investors bowed out of the Inland Southern California and national homebuying scene in January in bigger numbers. According to RealtyTrac, California’s percentages of institutional investors fell to 2.1 percent from 7 percent in January 2013. Real estate transactions in January across the Inland region of Riverside and San Bernardino counties had a big hand in driving those numbers down: The pool of buyers who were institutional investors fell in January to 1.4 percent from 11 percent in December.”
“RealtyTrac VP Daren Blomquist said the January sales numbers offer early evidence that large institutional investors backed by private equity are starting to wind down purchases of homes to rent. ‘Median prices are too high in the Inland Empire, and inventory is scarce,’ Blomquist said. Another reason for the sizeable percentage drop was the 62 percent decline in foreclosure activity in 2013, Blomquist said, in part because of the hiatus in take-backs as lenders reacted to the new Homeowner Bill of Rights.”
“‘We expect to see a rebound in foreclosure activity from those artificially low levels,’ Blomquist said.”
“This headline definitely caught my eye: ‘The Boomerang Veers Off Course.’ It appeared in a March 4 newsletter by Irvine-based John Burns Real Estate Consulting, as Sean Fergus makes the point that of the 5.3 million households that lost a home to a foreclosure or short sale from 2007 to 2013, many are regrouping to become homeowners again.”
“But with FHA loan limits falling $144,650 in the Inland region to $355,350 this year, he predicted that renters hoping to become a boomerang buyer in 2014 and beyond could be disappointed. FHA-backed loans are common in the boomerang buy-pool, he says. Many in the industry agree the limit that was lowered from $500,000 could keep that boomerang moving in a straight line across Inland Southern California for some time.”
“Organizations led by the California Reinvestment Coalition say the frothy homebuying activity has dredged up new concerns. The coalition is afraid that private equity, federal agency-led bulk sales of foreclosed homes and distressed mortgages and all-cash investor purchases are squeezing out first-time buyers, displacing tenants of multi-family housing units and causing neighborhoods to undergo dramatic change.”
“Kevin Stein, associate director with the coalition, called on federal regulators to take action to get ahead of this problem. ‘There are some eerie parallels between what’s happening now and the mortgage meltdown,’ he said in a statement. ‘In both cases, the overarching similarity is a drive for higher and higher profits.’”
The Desert Sun. “The short supply of houses and condos for sale in the Coachella Valley, a squeeze that was typical over the past year, gained breathing room in January, two new housing reports show. Inventory increased to 2,948 single-family homes and 1,289 condos for sale in January. The swell is an uptick from 2,690 homes and 1,269 condos in December, according to a report from the California Desert Association of Realtors. Last year, the supply across the desert had hit a low point of 1,950 homes and 866 condos in July.”
“The median price of total homes and condos dipped 4.6 percent to $260,000 in January. But that figure is still a 17.6 percent spike from a year ago in January 2013, according to DataQuick. Total sales across the valley sank to 761 in January, down 12.8 percent from December and 4 percent from January 2013.”
“Clark Hallren, a HK Lane luxury real estate agent, said many $1 million-and-up property sales were improving but not robust. Depending on the neighborhood, luxury homes could sit for 90 days or up to six months, he said. Some luxury buyers may make decisions based on a property’s value to a financial portfolio, as opposed to it being a primary residence.”
“As home price appreciation slows, more people may put their homes on the market to take advantage of more equity, Hallren added. ‘Looking year over year, listings are up a bit, because people may believe the strong increases we’ve had over the last year aren’t likely to continue,’ Hallren said.”
a Cupertino tear-down that costs $1.2 million can be replaced with a 3,500-square-foot custom home for about $1.9 million, he said. ‘Eventually, they can sell it for $2.5 million to $2.6 million and make $500,000 to $600,000 profit in 6 months or less.
I’ve seen this happen in a couple upscale neighborhoods in the DC area, in a similar price range. Invariably, the tear down had some architectural character and the new house is the usual cookie-cutter McMansion.
You saw a demo and rebuild.
You didn’t see any of the math showing the losses.
‘they will repeat this flip process over and over again’
So why not just flip the existing house for 500k? No one would buy it. This looks to me like an elaborate form of flipping, where a stupid price increase is hidden in a perceived increase in value of the newer house. Of course the only reason someone would hand 500k to a flipper is the expectation they can sell it for even more.
If this is a valid transaction, why doesn’t Blackstone buy swaths of Cupertino, tear it all down and build giant houses? Why are they messing around trying to get a few hundred dollars in rent on a house? Because there are a limited number of these suckers.
Any rational real estate action should truly create value. But by the logic we see here, you could just as well then tear down the new house and build an even bigger one, for bigger profits. And then do it again, and again. This is classic bubble thinking, which we saw BTW several years ago all across the US.
“Any rational real estate action should truly create value.”
Your idealism in the face of financial folly on a massive international scale is truly admirable.
Here’s an example. Las Vegas has an apartment vacancy rate of just over 9%. Yet developers have permits for 3,000 apartment units in 2014 alone. I’m sure they are able to get the land cheap and borrow money cheap. So what if they end up flooding the market for a 5% return or less? That’s better than nothing, right? This is the result of many distortions, one of which is the abandoned 4-plexes all over the city.
get the land cheap and borrow money cheap
Borrowing and building for cheap even if there’s no endgame… Is it just me, or does the buidlers sound like the kids who keep getting more college. What’s the prognosis 5+ years out for the students or for the builders? They don’t care. They are just trying to survive this week.
‘even if there’s no endgame’
This is one problem with market distortions. If these guys had to pay market rate on borrowed money, all sorts of things would be different. Another example is treasury bonds. If savers could get a reasonable return there, we probably wouldn’t see hedge funds buying houses, or Twitter stock soaring when they have no profit. IMO, the years of central bank intervention combined with government programs and FASB rule changes have distorted these markets to the point that we don’t really know what anything is worth.
it’s big gov love
anything they touch turns to sht
even collitch
‘At the Morgan Stanley technology conference in San Francisco, analyst Scott Devitt asked Google Chief Business Officer Nikesh Arora how Google might generate revenue from its Android mobile operating system other than through advertising and sharing revenue from apps.’
‘Arora asked Devitt for suggestions. The analyst mentioned mobile messaging apps, which are especially popular in Asia. Arora was skeptical. “$500 million per employee? Is that a good use of our money?”
‘WhatsApp has 55 employees, meaning Facebook’s acquisition works out to $345 million per employee.’
Yet developers have permits for 3,000 apartment units in 2014 alone ??
I was just in Vegas…I drove around a bit…It did not take long before I saw a couple of very large apartment complexes under construction…I would say 300 units or so….
Spoke with a gentleman that was in the drywall business…Met him at a little place called “Steiners”…(you would like the place Ben)…Anyway, he moved to Vegas 15 years ago from Virginia to help his father who was building in Vegas…
He said that he had not had a gap in work for 6 months…I asked him what was helping the construction market and all he could point to was the “wealth effect” of the stock market…He said that people are just willing to spend money..
REITs are building huge Apt Buildings with amenities up the ying-yang. I have also noticed lots of downtown redevelopment projects in downtowns w/ “Loft Homes” starting at $400K. I am attending meet and greets with REITs.
This is one problem with market distortions. If these guys had to pay market rate on borrowed money, all sorts of things would be different.
+Infinity.
But I would add that if they ever have to pay market rates for borrowed money again in the future, the CAP rates that the market will require will increase to match, and the result will be that we will have a huge adjustment in the purchase price that an investor will be willing to pay.
5% sounds pretty good today, but has historically not been a reasonable CAP rate for an RE investor to accept.
REITs are building huge Apt Buildings with amenities up the ying-yang.
+1. I know some folks who are—really no other way to say it, and I saw it with no intent to offend—poor. She is currently unemployed, and has barely worked in over a decade (raising one child who is now 11, a bit of part-time work here and there); he rides his bicycle doing deliveries for a fast-food place. She also has a history of getting some help from her mother.
But they moved in recently to a place that has pretty amazing amenities: really nice gym, shared media room with an amazing system, roof-top deck with an awesome view, etc, etc. They’re paying a below-market rent, due to a city ordinance that requires that all new developments set aside some units for po-folk. Their unit isn’t big, but it’s really really nice.
It’s a little surreal to see them enjoying a standard of living that looks on the face of it to be higher than mine, considering that I’ve worked at what most people would consider a very well-paying job in a strong industry for the last two decades…
Course, I wouldn’t actually trade places with them, ya know.
“They’re paying a below-market rent, due to a city ordinance that requires that all new developments set aside some units for po-folk. Their unit isn’t big, but it’s really really nice.”
I just did a tour of such places, and you nailed it. I saw newly built sprawl in the burbs and urban refurbished buildings.
Some of the buildings I saw downtown were refurbished (late 1920’s-1940’s built) are pieces of art, now loft homes. Copper Doors, Stainless Steel Elevator Doors with an Art Deco design, floors with inlaid stone work. Absolutely stunning stuff. The units (loft homes) were so nicely done as well. 1,400 st ft units.
All the 200+ REIT upscale apt houses I saw (burbs), had playgrounds for the kiddies, a kid’s pool area, a homework club house and more. I grew up poor, and was happy for my hammy-down bike repainted. Times have sure changed.
Any rational real estate action should truly create value.
I hate to disagree with you, Ben, as I very rarely do.
But the demo/rebuild describe could be viewed as creating some true economic value. If there is sufficient demand for newer, nicer/fancier homes in a particular area, due to its location (access to jobs/conveniences/etc), then realigning the housing stock with what the demand-curve is actually demanding IS adding some economic efficiency. Or at least, it looks that way to me.
Any rational real estate action should truly create value.
And to clarify: I do agree 100% with the quoted statement; what I disagree with is your unstated apparent assumption that a demo/rebuild can never “create value”. I think that is can—not always, but sometimes, depending on the available housing stock and what the buying population desires to buy.
” Mark Wong…tear-down that costs $1.2 million can be replaced … for about $1.9 million…they can sell it for $2.5 million to $2.6 million and make $500,000 to $600,000 profit…”
Mark’s math couldn’t be more Wong. Is he one of our HBB posters?
I guess the $1.9 million includes the $1.2 million purchase price. Using HA math, you can build a 3500 sq ft custom home for about $200K. But I’m sure that the flipper would build something with higher quality and finer finishes… is that enough to bump the build cost up to $700K? Maybe. But yeah, I can see making a half-mil on the deal…. IF you can find a GF to buy the end product.
“custom home” then “higher quality” then “finer finishes”.
Here’s your challenge for today
-Define these terms as they relate to material types
-Develop a price differential based on your definition
Go!
3500 sq ft custom home for about $200K ??
Maybe in “HA Land” but not around here….
Plans, permits, fee’s & infrastructure would be 150k alone for that size of a house…If it was truly semi-custom (Not Lowe’s) then your likely looking at around $200. per foot+…Basic box will run you $150.
Now you’re up to $150k building permits?
I build more dollar volume in a single contract than you will in 10 lifetimes. Building permits aren’t $150k.
Wouldn’t demolition also cost $50-$100K??
The cost to demo depends on how smart you are and resources you’re connected to.
Mark’s math couldn’t be more Wong.
+1 LOL!
You see the occasional tear-down around La Jolla, too.
10/17/2013 @ 5:29PM
Mitt Romney Gets Green Light To Tear Down And Rebuild La Jolla House
By Laura Vecsey, Zillow Z -0.8% Contributor
Mitt Romney did not win the White House. He will, however, score a big, new beach house.
On Oct. 11, Romney and his wife, Ann, were given the green light by the California Coastal Commission to build their dream house in La Jolla.
The commission ruled that despite an appeal by a former neighbor, the Romney’s oceanfront property on Dunemere Dr. in the sunny enclave just north of San Diego was suitable for expansion. The Romneys plan to tear down the existing 3,000-square-foot home that they bought for $12 million in 2008 and build an 11,000-square-foot spread in its place.
The size of the lot had been at issue in an appeal filed by former neighbor Tony Ciani following initial approval of the Romney redevelopment plan. However, after reviewing complaints about the Romneys’ plan, the CCC panel determined that the project met standards because “the vast majority of the square footage will be contained in the basement and first floor.” It found that the new home “will not have adverse impacts on public views to and along the beach, as the existing ocean views are down the street and not over the subject property.”
…
Good thing he wasn’t elected. He calls himself a businessman? His losses will be incalculable.
Chump change for that guy…
I know.
Of course there’s Larry Ellison, who spent hundreds of millions buying his own Hawaiian island and fancies himself a real world Tony Stark.
He also has a house in southern California with its own private golf course (the water bill!!). Ellison owns a boat load of pricey houses. I understand that he’s trying to unload one in the Lake Tahoe area.
Yeah, I think he bought four side-by-side houses in Malibu causing a stir among the hollywood elite…
“The Romneys plan to tear down the existing 3,000-square-foot home that they bought for $12 million in 2008 and build an 11,000-square-foot spread in its place.”
In touch with the environment. Green.
http://www.redfin.com/CA/Los-Angeles/237-N-Tigertail-Rd-90049/home/6837414
Bought for 3.9M rebuilt ground up for ~3M sold for over 12M ( over 1000 a square foot).
That’s a flip
my hood has it’s first tear down= sweet
hope we have a skyscaper too.
“More than 2.3 million adult children are living with their parents in California, a 63 percent increase since the Great Recession began seven years ago and a phenomenon straining budgets and pushing some families to the brink of poverty. Researchers from UCLA and the Oakland-based Insight Center for Community Economic Development say job losses, home foreclosures and divorces are among the factors driving hundreds of thousands of adults to return to their childhood homes. In many cases, those homes are headed by parents who are approaching or in retirement and are living on fixed incomes themselves.”
Californians are rich.
It seems to me that doubling up would impact the household budget positively, as shelter costs were diluted across more people. Surely these adult children are earning at least enough to contribute for their food, utilities, and even a tiny rent. What kind of loose thinking is this?
Considering this;
California Most Impoverish State In The US
http://en.wikipedia.org/wiki/List_of_U.S._states_by_poverty_rate
Uh … according to the table at that link, California’s rank is #35 (where #1 is best), which while not enviable, is not the worst. 13% of households are in poverty
Utopian Texas, meanwhile, is #46, with 16% of households in poverty.
New Hampshire, which is ranked at #1 (lowest rate) has 5.6% of households in poverty.
You didn’t adjust for COL.
DC is number1, CA is nu!ber2.
Found it. Arizona and Florida are right behind it. Texas is still #10
Do those numbers include illegals? If so, then the data is really just recording the relative percentages of illegals… NH, not so close to the border; TX and CA, very close to the border.
“It seems to me that doubling up would impact the household budget positively,…”
It also means fundamentals-based housing demand is toast. Good thing those all-cash Chinese investors are ever present to snap up foreclosure deals!
Californians are rich.
They have to be. Ellen gave the Pizza guy a $1000 tip.
“….a Cupertino tear-down that costs $1.2 million can be replaced with a 3,500-square-foot custom home for about $1.9 million, he said. ‘Eventually, they can sell it for $2.5 million to $2.6 million and make $500,000 to $600,000 profit in 6 months or less….”
So the “land” cost $1,200,000 ($120/SF for a 10,000 SF lot?) and the builder adds a 3,500 SF house for $700,000 ($200/SF). Then they sell the whole project for $2,500,000 ($714/SF).
Wow, that won’t make HA very happy, since he claims he can build the exact same thing for $55/SF, or $192,000! Well, maybe it will make him happy, since he can make $2,308,000 in profit…..if only people wanted to buy what he is selling…..or maybe he cannot really achieve what he is claiming.
And they can make whatever claim they want…. just like you do every day J._Fraud.
You are quoting a real estate agent and assuming what he is saying is true. Why would you do that, jingle fraud?
I am trying to help HA. He can build a house for $55/SF including land, permits, and construction….so he could clear $2,300,000 on each house he built in Cupertino. Should be easy money for him……unless HA’s claim is untrue.
Nobody here is interested in my your ‘help’ J._Fraud.
Nobody here is interested in my your ‘help’ J._Fraud.
Is your Freudian slip showing?
Your ‘help’? We’ll pass on that one too.
… relevant post of the day.
California Foreclosure Starts Skyrocket 57%
http://www.realtytrac.com/images/reportimages/california_foreclosure_starts.jpg
That’s unpossible, as there is a foreclosure moratorium and a California Homoaner’s Bill of Rights to prevent foreclosures from skyrocketing.
realtors are liars
“But with FHA loan limits falling $144,650 in the Inland region to $355,350 this year, he predicted that renters hoping to become a boomerang buyer in 2014 and beyond could be disappointed. FHA-backed loans are common in the boomerang buy-pool, he says. Many in the industry agree the limit that was lowered from $500,000 could keep that boomerang moving in a straight line across Inland Southern California for some time.”
Where’s the logic behind ‘affordable housing’ loan limits of $500,000+ to encourage homoanership amongst people who won’t be able to afford a pot to p!ss in once they start making the monthly payments?
It only causes short term affordability issues (as defined as the ability to shoehorn themselves into housing), but in the long run the prices on commoner shacks will come down to match the new FHA limits and suddenly things really will be affordable.
With sales near ZERO on houses in the upper price ranges, the weight of them will crush the price structure in the lower ranges.
Really affordable…$400,000…
Maybe you can write a check out of your petty cash account, but unless the average family there makes $200K then it isn’t quite so really affordable. I suspect that for the average Californian way over a decades worth of total take home pay. Triple that to cover the XYZ. Twenty or thirty years working with not a penny to spend on food or anything else but the blessed house. Beyond comprehension.
“…but in the long run the prices on commoner shacks will come down to match the new FHA limits and suddenly things really will be affordable.”
What I have never understood is, if the goal is affordable housing, why were so many policies created that have the exact opposite effect?
It’s Orwellian speak. Go back and read 1984.
Don’t mistake REIC lies for propaganda.
“What I have never understood is, if the goal is affordable housing, why were so many policies created that have the exact opposite effect?”
Because the goal is NOT affordable housing. That’s the lie. The goal is the enrichment of politicians, bankers, and insiders in general. Laws are constructed to benefit these cronies, but sold as a benefit to the masses. It’s all one GIANT sham. And it’s completely transparent, yet ignored.
‘In both cases, the overarching similarity is a drive for higher and higher profits.’
It just amazes me the greed pigs could reflate the Housing Bubble so quickly after the Fall 2008 financial collapse. Who could have seen it coming?
‘Organizations led by the California Reinvestment Coalition say the frothy homebuying activity has dredged up new concerns. The coalition is afraid that private equity, federal agency-led bulk sales of foreclosed homes and distressed mortgages and all-cash investor purchases are squeezing out first-time buyers’
These people were the first to whine about foreclosures. Well, you got your moratoriums, you got your HARP/HAMP loans, you got your high loan caps. And now they are worried about this frothy market?
All these housing “advocate” groups, whatever the hell that means, don’t understand how markets work. They think the government can engineer a perfect world where houses make everyone rich, yet houses will be affordable. Foreclosures and distressed sales are how prices are set after a boom. No one voluntarily takes less money for anything. There has to be some sort of pressure to get prices down. And that’s what foreclosures do. Mess with that, and you mess with affordable housing.
These particular advocates appear to be smarter than usual. From the text, it appears that foreclosures are available only for cash purchase or only available in bulk. Is this true?* This DOES squeeze out the general public. Yes, the people got their HAMP and their moratorium, but when the prices did drop, they can’t take advantage of the low price because they would need a mortgage. And the wild card is the condition of the house. Are these houses habitable?
“There are very sophisticated entities that are deciding where they want to invest, what strategy they want to employ, whether they want to hold onto the property for the long-haul or flip it,” Maeve Elise Brown, Executive Director of Housing and Economic Rights Advocates (HERA), a California consumer group, told ConsumerAffairs.”
“HERA and 77 other wide-ranging groups have signed a letter to federal regulators, asking them to address the issue of first-time homebuyers being outbid, tenants being displaced, and neighborhoods undergoing dramatic changes as private equity and investor cash continues pouring into local housing markets, buying up homes.”
“While a foreclosure is a traumatic, disruptive event in a housing market, a new owner purchasing the property and moving in can be a healing action. But all too often, Brown says, the property sits vacant for years.”
“One problem has been the withholding of properties from the market,” Brown said. “After the properties have been foreclosed upon, the banks, servicers and investors are not promptly turning those properties around. This has been going on for years. And what they’ve done is artificially shrunk the market.”
“…asking them to address the issue of first-time homebuyers being outbid, tenants being displaced, and neighborhoods undergoing dramatic changes as private equity and investor cash continues pouring into local housing markets, buying up homes.”
Wannabe first-time homebuyers, meet your future landlords.
“There has to be some sort of pressure to get prices down. And that’s what foreclosures do. Mess with that, and you mess with affordable housing.”
I agree with this statement 100%. And in CA, from the foreclosure activity, prices fell to a level where cash buyers bought homes based on rental yields. However, the flow of foreclosures now is pretty slow, and has been for a while.
Is this due to simple lack of distress (ie. the bad loans have already been flushed)? Or due to government stopping all release of distress into the system?
From what we saw, the new laws shifted distress from foreclosures to short sales, but the distress still made its way into the system.
At this point, per Corelogic, CA has a 90+ day delingency rate of 2.8%, vs. the US as a whole at 5.0%.
Per the NY Fed, corroborating the data, CA’s 90+ day delinquency is well below the national average (below 3%).
The NY Fed also notes CA having the LOWEST percentage of loans that are transitioning to 30+ days late (ie the first stage of distress)–the current rate of new delinquencies is at about the same rate it was in 2003.
Per LPS, CA’s non-current loan rate is now at 5.2% (pretty close to “normal”).
In other words, while I agree with you that NOT holding back pending foreclosures would tend to push prices farther down, opening the floodgates at an empty reservoir won’t do anything. If you add in the homes held the lenders (41k per Foreclosure Radar), you don’t move the needle…still 5.2%.
Now if they open the floodgates for FL (non-current rate of 13.7%), NJ (rate of 14.1%), NY (12.2%), etc….different story.
There are 14 states with non-current loan rates over 10%.
THIS is where the distress is being hidden.
In CA, the problem is a lack of supply at this stage, NOT foreclosures being held back.
With over 4 million excess, empty and defaulted houses in CA, there is no “lack of supply”.
Worse yet, there is no demand in CA given the fact sales continue to fall across the entire state.
There are 6.7MM mortgages in CA. Your numbers are nonsensical.
The number of mortgages is nonsensical and has nothing to do with the growing excess, empty and defaulted inventory.
You cite 3 categories:
Excess
Empty
Defaulted
Excess and Empty really mean the same thing…vacant. By definition, if people are living in a house (ie. using it for shelter), they are not “excess”.
CA Vacancy Rates per the Census:
Rental: 5.0% (vs US as a whole at 8.2%…CA brings this average down)
Homeowner Vacancy: 1.1% (vs US as a whole at 2.1%…CA again brings this average down
Clearly per the Census (who you previously noted as a good source), with total of 14MM homes in the entire state means that these vacancies total about 3% of the total housing stock…or about half a million homes (there is approximately a 50% ownership rate in CA).
This is 500k MAX, since some level of vacancy is normal for a properly functioning real estate market (regardless of property type).
So, the bulk of your 4MM “excess, empty, and defaulted” homes must be in defaults, right? That’s the only category left.
So, does 3.5MM defaulted mortgages out of 6.7MM (over 50% default rate) make ANY sense what-so-ever in the context of the 90+ day delinquency rate as reported by the NY Fed and Corelogic both at less than 3%, and the non-current loan rate as reported by LPS at 5.2%?
No. It makes no sense.
And thus…nonsensical.
Just to be sure I understand, HA: are you arguing that houses WITH NO MORTGAGE can still be in the “defaulted inventory”?
If not, then surely the number of mortgages is relative to the size of the “defaulted inventory”, as it is the limit on it (e.g. at 100% default rate, defaults cannot increase).
Census says the US has 15 million empty homes as of a couple years ago. I’d expect the poorest state in the country, California, to have its fair share at least.
The defaulted inventory is set aside and not counted.
CA has about 14MM homes, the Census estimates a total of 133MM housing units in the entire country. So, CA has about 10.5% of the US housing stock.
So, 10.5% of the 15MM empty homes would make it’s “fair share” about 1.6MM homes.
HOWEVER, CA has a population of about 38.3MM people vs. the US population of 316MM (from 2013 Census estimates), or about 12% of the US population.
Question: What should you get when you have 10.5% of the US housing stock, but 12% of the US population?
Answer: Below average vacancy rates.
And this is what the Census reports show.
Question: How many homes would CA need to build in order to have 12% of the US housing stock?
Answer: solve for (14+x)/(133+x)=12%…2.2MM homes
Question: What was the highest annual number of housing starts in CA since 1990?
Answer: 213k (2004; 2012 had 60k, 2013 had 84k)
Question: What should you see in the data when you have too few homes relative to physical need (ie. lack of supply)?
Answer: High home prices (check), low vacancy rates (check), overcrowding (check), poor affordability metrics (check), low homeownership rates due to poor affordability metrics (check), etc.
THE PROBLEM IN CALIFORNIA IS LACK OF SUPPLY, and at current rates of new housing development, the problem isn’t going away any time soon. The market will be volatile in CA for a long time…boom, bust, boom, bust, as the shortage feeds housing bubbles until they burst under their own weight, only to start the cycle anew.
“The defaulted inventory is set aside and not counted.”
This is precisely what Corelogic, the NY Fed, and LPS IS counting.
Are there millions and millions of homes that are not reported as “in default” because of the suspension of accounting rules by the Fed? The “shadow inventory” that we used to discuss.
Blue, I think the answer is “no”.
The mark-to-market accounting rule suspension to my understanding related to how the loans are valued on the books of the banks (to determine whether they are solvent or not), not whether they are able to characterize those loans as in default or not. It had to do with whether, during the worst of the crisis (where defaulted loans were valued at cents on the dollar), the defaults caused the banks’ balance sheets to go upside down.
During the worst of the downturn, loans were generally trading at something less than the collateral value of the secured real estate, so without the suspension of MTM accounting, banks would have been forced to write down their delinquent loans to below the collateral value of the security.
Once the rule was suspended, even though loans were delinquent, banks could mark them to whatever value they reasonably determined…and thus were able not have problems with capital requirements (ie. stay in business).
In other words, the suspension of MTM accounting makes it easier for banks to have delinquent loans on the books–they take less of a balance sheet hit…if there was still MTM accounting, banks would have a big incentive to hide the delinquencies (to justify the value of the loans on their books).
LPS gets their default data from the loans they service. They don’t own the loans, and so the mark-to-market accounting doesn’t impact them one way or the other, they just know who is paying current, or not paying current. They service about 71% of all loans in the US, so they extrapolate based on that insight into the market (which is a pretty good picture).
“The worst of the downturn” is still here…. as is the excess empty and defaulted inventory.
“The defaulted inventory is set aside and not counted.”
Statistical lies are a useful support for end-user lies.
“Question: What should you get when you have 10.5% of the US housing stock, but 12% of the US population?
Answer: Below average vacancy rates”
It ain’t necessarily so.
Two million Calif. adults living with parents
A new study finds job losses, divorce, and home foreclosures have more than two million adult Californians returning to their childhood homes to live with their parents.
By John Rogers, Associated Press / February 28, 2014
A new study finds that more than two million adults in California have returned to their childhood homes to live with family, citing job losses, divorces, and home foreclosure among the biggest reasons. A man crosses Stockton Street in San Francisco, Wednesday, Feb. 26.
More than 2.3 million adult children are living with their parents in California, a 63 percent increase since the Great Recession began seven years ago and a phenomenon straining budgets and pushing some families to the brink of poverty, according to a study released Thursday.
…
“It ain’t necessarily so.”
But it IS so.
I’m not trying to conjure data or guessing…the Census presents us this vacancy data on a quarterly basis…CA’s low vacancy rate can be seen right there.
By the way, the article notes that 42% of the 2.3MM adult children living at home are employed (a bit over 950k).
The kid across the street is one of those 2.3 million adult children living at home (college grad, has a job).
Reason?
Can’t find a place to live.
This is worth stating again (slightly differently):
In a state with a total of 14 million housing units, there are nearly 1 million employed adults who are still living at their childhood home. I guarantee you that the kid across the street who would rather live on her own is not unique among that million.
“But it IS so.”
It’s NOT so.
There is no “shortage of housing” in CA with millions of excess empty and defaulted houses. Furthermore, demand continues to fall across the state.
Look at the data and see for yourself;
California Housing At 4 Year Lows and Falling
http://www.zillow.com/local-info/CA-home-value/r_9/#metric=mt%3D30%26dt%3D1%26tp%3D5%26rt%3D4%26r%3D9%26el%3D0
Build it and the GFs will buy it, with Mr. B’s most generous help.
It just amazes me the greed pigs could reflate the Housing Bubble so quickly after the Fall 2008 financial collapse.
That’s what happens when the Fed circumvents the learning process that should have accompanied the bust.
It’s fascinating to watch the hacks and writers in action.
Never been a better time to make a living as a porcine beautician!
Santa Clara Co, CA Housing Demand Craters 8% YoY; Now At 4 Year Low
http://www.zillow.com/local-info/CA-Santa-Clara-County-home-value/r_3136/#metric=mt%3D30%26dt%3D1%26tp%3D6%26rt%3D6%26r%3D3136%26el%3D0
CRATERS!!!
Lol you are such a loser.
You’re angry. Is collapse more accurate?
Not angry, I just despise stupidity, and you sir are stupid. You seem intelligent, except you just insert the same word(s) over and over to describe very different things. A dip of 8% is not “cratering,” but you know that.
The real question is why do want to spread such nonsense? We all know you can’t build a real house for $55/sq. ft., for instance - so why do you continue saying that?
We all know that real estate does not depreciate “rapidly.” At least not a real house. Maybe the $55/ sq. ft. cracker jack boxes that you sell. So why do you continue saying that?
*Insert one liner from HA that answers nothing and is completely off topic.*
Oh J._Fraud…. your whining is unmistakable.
You can’t build a house at any price. You’re not a “general contractor either. But the reality remains we build in all 48 states at $55/sq.
This isn’t anyone than Furlow. Joshua Farrow, living in San Diego. I’ve posted before under “Josh” but I like Furlow better. You’re getting completely owned in this thread from top to bottom. Maybe it’s time you come up with a new username and a new schtick. Everyone here is on to your stupid game.
No J.Fraud. Housing is a deprecating asset just like all man-made items. They always have been and always will be. And yes, that’s why we continue to build them.
The fact is resale housing is priced 250% higher than reproduction costs (lot, labor, materials, profit).
I didn’t say that housing doesn’t depreciate, of course it does. But it does not do so “rapidly.” There are houses that are 100 years old in this country that are still standing and providing shelter. So the question is, how long does it take? And how much has the land increased in value during that time?
You’re constantly trying to sell everyone that renting is always better when that is not the case. But you go ahead and keep waiting for the 1800’s to come back.
Of course housing depreciates rapidly. And land doesn’t “increase in value”.
Yes, it does. As the population grows land (near the coast anyway) becomes more scarce and thus, more valuable. At minimum, it keeps up with inflation.
Let’s just go along with your silly fantasy and say that a house is fully depreciated after 30 years. The person who bought now has a piece of land to rebuild on. What does the renter have?
Again, if one can buy/own for the same cost as rent, they don’t lose.
I will admit that I too feel that real estate is overvalued and is going to come down. The entire world economy is in a state of deflation that even $4 trillion couldn’t and can’t reverse. But that’s not what you talk about. You spew nonsense about building for $55/s
No J._Fraud. There is no “scarcity” of land.
orwellian gov statement- as most are
http://news.investors.com/030614-692291-negative-equity-rate-rises-in-fourth-quarter.htm?ven=yahoocp&src=aurlled&ven=yahoo
‘There are some eerie parallels between what’s happening now and the mortgage meltdown,’ he said in a statement. ‘In both cases, the overarching similarity is a drive for higher and higher profits.’”
2008 came along and taught greed mongers a lesson. They payed attention and cried for all about one year - then started the whole gig all over again. Money is finite. This thing will end in tears. STAY IN CASH.
2008 came along and taught greed mongers a lesson.
Then the Fed came along and taught them a _different_ lesson—a very unhealthy one…
Well of course. The medicine was just to harsh.
LA County, CA Housing Demand Sinks 6% YoY; Demand at 4 Year Lows
http://www.zillow.com/local-info/CA-Los-Angeles-County-home-value/r_3101/#metric=mt%3D30%26dt%3D1%26tp%3D5%26rt%3D6%26r%3D3101%26el%3D0
“Sinks” there you go! (clap, clap, clap)
new highs” a new high for the S&P inflation adjusted would be 2250?
http://www.cnbc.com/id/101472045
Interesting to see where the institutional buyers were most active.
With 25 million excess empty and defaulted houses still out there, they better get busy.
Monterey County, CA Housing Demand Caves 14% YoY; Craters To 5-Year Lows
http://www.zillow.com/local-info/CA-Monterey-County-home-value/r_2444/#metric=mt%3D30%26dt%3D1%26tp%3D4%26rt%3D6%26r%3D2444%26el%3D0
I spoke too soon. SMDH…
‘Nearly 40 percent of households in San Diego County do not make enough money to meet everyday expenses, leading them to rely on public assistance, double up on housing with roommates or relatives, and cut back on necessities from auto repairs to medical costs and childcare, according to an annual survey released Thursday by San Diego’s Center on Policy Initiatives.’
‘For workers with children, even the working wage would be too low. Two workers with two young children would each need incomes of $20.06, totaling $84,739, the CPI study suggests.’
“We’re talking about households where people are doing as much as they can in terms of work — sometimes holding down two or more jobs at once — and still not able to pay for basic needs. And of course it’s worse for people who can’t find steady full-time jobs,” said City Council President Todd Gloria.’
California; poorer than Mississippi.
“California; poorer than Mississippi.”
Especially when you compare incomes to housing expenses. I’m guessing there is no comparison here — i.e., Mississippi is wealthier after adjusting for living expenses.
San Diego’s affordability index: 28 (CA Association of Realtors)
San Diego MSA’s Rental Vacancy Rate: 4.4% (US Census)
San Diego MSA’s Homeowner Vacancy Rate: 0.9% (US Census)
San Diego County’s Median Household Income: $63k (US Census)
San Diego MSA’s 90+ day delinquency rate: 2.3% (Corelogic)
San Diego MSA’s unemployment rate (December reading from BLS): 6.4%
Let’s see:
Relatively low unemployment
Decent median household income
Low vacancy
Low affordability
Low levels of distress (2.3% 90+ day delinquency is about 50% of the national average)
What’s making us poorer than MS?
Not enough housing to keep prices in check.
Ehhh…. no.
-CA labor force participation rate is at 5 year lows.
-CA Household Income has been falling since 2006
-Census Bureau Vacancy rates exclude defaulted housing
-The lack of affordability is a direct result of current foreclosure moratorium in CA
-CA Foreclosures starts are up 57% YoY
This is what happens when 4.4 million excess empty and defaulted houses are “managed”. It’s intentional.
See there you go again. RentalWatch was talking about San Diego specifically, and then you reply with thoroughly debunked “figures” about California as a whole. How can you expect to be taken seriously?
Awww…. what’s wrong. Mom the realtor starving again?
Ben and I were talking about California. How can you expect to be taken seriously?