The Housing Bubble

The Los Angeles Times reports from California. “The overflow from China’s economic high tide is transforming the housing markets of suburban Los Angeles. Affluent Chinese home buyers are driving prices past boom-era peaks, spawning a subset of property brokers and mortgage lenders that cater to their distinct needs. ‘People are getting money out of mainland China and sticking it here,’ said Mel Wong, president of the West San Gabriel Valley Assn. of Realtors.”

“But it’s getting more expensive quickly. Heavy demand pushed the median home sales price past $1.32 million last quarter in Arcadia’s 91007 ZIP Code — 30.5% above its peak in 2007, during the housing bubble, according to DataQuick. Next door in the 91006 ZIP Code, prices are up 23.7%. Other areas with prices exceeding their peaks include Walnut, Temple City, San Marino and parts of San Gabriel and East San Gabriel, all hubs for Chinese investment.”

“The Chinese buying spree sometimes borders on recklessness, said Dominic Ng, chairman of Pasadena’s East West Bank, the largest Chinese-American bank. Unwary buyers accustomed to urban China’s $1-million-plus luxury flats take ‘housing tours’ and snap up homes east of Riverside or in Arizona without considering the cost of property taxes (China has none) or maintenance of homes with pools and yards. ‘They look at the dinky little apartment in Shanghai or Beijing — you know, like one-fifth the size — and they say this is affordable,’ said Ng, who fears prices will appreciate less than the buyers expect. ‘They are buying for speculative purposes.’”

“Others want the prestige of a San Marino or Pasadena mansion, even if paying for it means working in China and rarely visiting. One of Ng’s neighbors bought a Pasadena estate, then lived there for just two days out of the two years that followed. ‘He was not renting it out,’ Ng said. ‘People have so much money, they just say, ‘What the heck. It’s a nice neighborhood. I might as well just buy one.’”

“It’s a story echoed by Patti Hahn of Arcadia, gesturing to the house next door, which sold for $2.45 million last year, up from $1.55 million in 2006, the last time it changed hands. ‘No one lives there,’ Hahn said.”

The San Francisco Business Times. “The troubling news out of China could have an even bigger impact on the Bay Area’s hot housing market. As with the U.S. financial crisis that hit with full force in 2008, the weakest players are the first to succumb. Clearly, the Bay Area’s frothy real estate market is also enjoying a big lift from the gusher of cash flowing into technology startups and the subsequent wealth creation that was on full display this week with Airbnb reportedly hitting a $10 billion valuation, or more than the price being paid to take Safeway private.”

“Tom Perkins, speaking to the Commonwealth Club last month, said plenty to stir controversy. But one of his observations was on the money: the amount of capital flooding into the hands of Bay Area venture capitalists and entrepreneurs is being driven by the Fed’s low-interest-rate policy that pushes everyone to take more risk to generate the returns they need, whether that’s grandma or the managers of grandma’s pension fund.”

“The money coming into Bay Area real estate from China and other countries includes not only the widely publicized deals, but also the world’s wealthy quietly looking for safer places to stash cash. As one real estate expert, commenting on rising condo prices in places like San Francisco and Miami, recently told Bloomberg TV, ‘We’ve become very good at building safe deposit boxes in the sky.’”

The Daily News. “The short supply of homes for sale in the San Fernando Valley eased in February as inventory increased 37 percent from a year earlier. At the end of last month there were 1,419 houses and condominiums listed for sale, up from 1,033 a year earlier, said the Van Nuys-based Southland Regional Association of Realtors. At the current sales pace, that would be enough homes on a market for 3.2 months versus a 1.9 month supply a year ago. That’s the longest amount of time since February 2009.”

“‘The coming months may show that buyers and sellers reassessed the changing market during February,’ association president Roger Hance said in a statement. ‘We’re confident that deep demand for housing will yield increased home sales, although minus the multiple-offer frenzy of 2012 and 2013 and with prices rising at a much slower, unhurried pace.’”

“During February the median price of a Valley house increased 13 percent to $475,000 from $422,000 a year earlier. But the median price fell by $10,000 from January. Sales of previously owned homes dropped 16 percent to 320 from 381 a year ago and fell 8 percent from January. In the Santa Clarita Valley homes sales fell 22 percent to 119 from 153 a year ago. The median house price rose 16 percent to $439,500 from $379,000 a year earlier.”

The Signal. “A California appellate court has ruled in favor of developers planning to build 21,000 homes on the banks of the Santa Clara River and has tossed out a 2012 court decision opposed to the project. The first phase of Newhall Ranch was approved by Los Angeles County supervisors in February 2012 after exhaustive studies. The project calls for developing 422 lots on about 295 acres. That would produce 270 single-family homes, 744 condominiums and 430 apartments.”

The Manteca Bulletin. “Developers are betting Manteca is going to go boom. There are 14,310 housing units either making their way through the approval and entitlement process at city hall or have lots that are ready to build. The housing units on the table have the potential to add more than 40,000 residents to Manteca. The city’s population at the start of the year was estimated at 72,000 by the California Department of Finance.”

The Daily Press. “City Councilwoman Angela Valles stepped up her support this week of a proposed major shift to less-dense housing districts, urging planning commissioners and fellow council members not to ‘bow down to developers and the building industry.’”

“The proposal has been met with staunch resistance by several from within the development industry, including Building Industry Association Baldy View Chapter CEO Carlos Rodriguez. A key outspoken opponent to one of the most controversial components of the proposal — increasing minimum lot sizes for new single-family residential districts from 7,200 to 10,000 square feet — Rodriguez said on Thursday that it could be ‘the most significant proposed change in a quarter of a century in the city of Victorville.’”

“‘All eyes in Southern California are on the city of Victorville right now in the building communities,’ he said, referring to an interested 1,500 or so BIA member companies occupying the lower half of the state. ‘I feel so alone (on the dais),’ Valles said. ‘I have to remember it’s the people that voted me up there. … The BIA is not shy about going after politicians who stand up to them.’ Rodriguez declined to respond to that allegation.”

“Mayor Jim Cox said on Thursday that he didn’t want voting on the recommendation to drag on, but appeared less willing to throw full support behind a 10,000-square-foot minimum standard. Nonetheless, he said larger lot sizes, in general, were the way to go. ‘We have the small lots because of builders in the past (who said) ‘here is a way to build housing for your populous they can afford,’ Cox said. ‘This council does not agree with this. We don’t need to promote low-cost housing, we have an abundance of supply.’”

The Santa Cruz Sentinel. “Buyers are looking but there’s not much to look at. As of the first week in March, there were 455 listings in Santa Cruz County, the fewest in nine years, according to Gary Gangnes of Real Options Realty, who tracks the market. Home prices tend to drop in the winter, but the median, the mid-point of what sold, stayed in the $600,000s this year after reaching $674,444 in November. In February, the median price was $622,500, Gangnes said.”

“Glenn Fuller, a full-time appraiser since 1983, considers interest rates of 4.5 to 4.75 percent ‘a heck of a generous loan.’ Yet, move-up buyers are rare. ‘The availability of money turns out to be a bigger thing than I ever thought,’ Fuller said. ‘Most people are saying, ‘What’s my monthly payment?’ If they raise interest rates, no one will be able to qualify (for a loan).’”

“If he bought a home for $1.3 million, he said, his property taxes would jump from $3,000 a year to over $13,000 a year. ‘Once you get your property taxes set, it makes a lot more sense to remodel your house rather than buy,’ Fuller said.”

“Tom Brezsny, an agent with Sereno Group, recalled how in 2005, the inventory of homes for sale was low, but there was a robust move-up market because it was easy to borrow money. Homeowners would get an equity line of credit to fund a down payment, then shop around. Loans were easy to get, borrowers did not have document employment, assets, and income sources, and once they found the home they wanted, they could easily sell their old house, which was worth more because of rising prices.”

“Those easy money days are gone, homeowners haven’t forgotten how the market blew up and ‘they’re not willing to take the risk,’ Brezsny said.”