‘Market Is Soft And Homes Aren’t Selling’
The Daily Bulletin has this from California. “In a sign of the cooling housing market, KB Home has laid off nearly a tenth of its work force at its Inland Valley office, officials said Wednesday. The company let go 25 of the 275 employees in its Pomona office, said KB Home spokesman Ray Gomez.”
“‘It’s a normal part of the business cycle,’ Gomez said. ‘The past few years have been red hot in the Inland Valley in terms of new home construction. The market is normalizing now, and the staffing levels have been adjusted.’”
“The move by the Los Angeles-based home builder comes amid difficult times for the residential construction industry. Several companies’ stocks dipped earlier this week when brokerage firms downgraded their ratings for the industry. Wachovia Securities predicted a ’substantially more negative’ demand for new homes in a recent report that downgraded KB Home and other home builders.”
“Home sales dipped less in the county than any of the other six Southern California counties. KB has also made recent layoffs in its Las Vegas and Phoenix divisions. ‘It’s unfortunate when you have to cut positions,’ Gomez said. ‘It’s been so strong; it’s been record-setting levels (of new home construction) for the past few years.’”
“The company’s stock closed at $45.44 Wednesday, a 52-week low and down 47 percent from its high of $85.45.”
From Inman News. “The number of foreclosures have jumped 29 percent in Southern California since January 2006, according to a real estate research company. Riverside had the highest increase of 56.5 percent, followed by San Diego County at 49 percent and Los Angeles at 16.2 percent.”
“‘The real estate bubble continues to deflate in Southern California,’ said Serdar Bankaci, president and CEO. ‘This is not surprising at all because home prices are leveling off.’”
“About 76 percent of the foreclosure activity involved single-family homes, while 12 percent were condominiums and 4 percent were duplexes and triplexes, the company reported.”
“‘To add insult to injury, the job growth in May was the lowest it had been since October 2005,’ said Bankaci. ‘Combine that statistic with the rising interest rates, and you see that the average family suffered financially two times, putting a tremendous strain on families already stretched to the max.’”
‘When buyers decide to buy, they choose cream-of-the-crop, ready-to-go properties in the best neighborhoods to hedge their bets against any market softening’
Are these realtors really blind to the fact that median prices are a lagging indicator? The median even went up in Denver last month, as inventory moves toward levels seen in the last recession.
I really think they are Ben. How else do you explain this statment?
“Inventories are up, sales are down and prices are rising. ”
How in the hell - except by statistical mirrors - can prices rise when sales are down?
There’s some lag time. Or someone is fixing the #’s. There’s got to be an explanation. I’m also starting to question the NYSE. Did you see it tank this morning and then at the bell it was positive 7.5 or something. (Close to “no change”) WTF. Buy backs?? Who is saving the NYSE??? I’m totally speculating but really who is trying to save the economy. Ben has no control by raising or lowering interest rates. He’s along for the ride just like us. I’m sold on the recession idea. Just waiting for everything (RE and stocks) to crash and burn.
I’m building a concrete bunker in the backyard. No really. Just kidding.
Right on. Everyone likes to chew on some tecnical words to figure out what is going on and some can’t get enough shop talk. But hey what is really going on? I like that bunker talk because it describes instinctive sense of alarm better than the shop jargon.
How could Fannie Mae be up today? How? That company, if you can think of it that way, but that entity is an Enron to the tenth power. I submit that Fannie itself could be a triggering event for some really bad down days in both the equity and bond markets. But someone or something is propping it up. I know this sounds like grassy knoll talk, but Fannie just makes no sense.
Maybe gold is a safer place for your money…
From today’s The Daily Reckoning:
” *** Daily Reckoning correspondent, Lila Rajiva, finds a scoop…in India:
“After years of being called crackpots in tin - or gold - foil hats, GATA
(the U.S.-based Gold Anti-Trust Action Committee) seems to look saner by
the day, next to the thorough-going loopiness of the financial
establishment. The latest evidence is an IMF report that shows how IMF
rules wink - if they do not actually blow kisses - at central banks that
double-count the gold reserves they’ve lent out for sale in the open
market. Apparently, being a central bank means never having to say you’re
short.
“Aha, says GATA, which has charged all along that the IMF along with the
U.S. Federal Reserve and other central banks have tried to hold down gold
prices. The shady rules suggest that when they lent gold out for cash, the
banks actually got to double their reserves by counting the leased gold as
an asset on their books, as well as the cash. That was pretty sweet both
for the lenders - the central banks, who got a small return for their gold
- and for the borrowers, the bullion banks who got to sell and reinvest
the proceeds for a higher return in what’s called a ‘carry trade.’
“Even the IMF report admits, delicately, that IMF rules have encouraged
‘overstating reserve assets because both the funds received from the gold
swap and the gold are included in reserve assets.’ But except for a lone
article yesterday in The Financial Express in India, (Sangita Shah, Double
counting of gold may have aided the price suppression, June 7, 2006), the
mainstream media has ignored the story.”
So much the better. If people really knew what was going on, the price of
gold would already be over $1,000 an ounce. We tip our hats and bow in
thanks; the manipulators give us an extended opportunity to buy at deep
discount.”
********************************************************
Experts estimate that there is a short position in gold of about 15,000 tons. That compares with about 3,000 tons annual production and annual demand of 4,000 tons. Not hard to see some powerful upward moves in gold in the near future as the shorts scramble to cover.
Who is saving the NYSE? Good question…
Here is the latest on the PPT from tonight’s MIDAS report at lemetropolecafe.com:
“While The Gold Cartel was making their move on gold and silver, the PPT was gearing up to keep the US stock market from cascading lower. We now know why the PPT held off on their Hail Mary rally play late yesterday and let our market drift off late.
Stock markets around the world were trounced. The Nikkei was off 3%. The European bourses were all down around 2%. This time the US futures were called much lower a couple of hours before the NY opening bell. No matter, the PPT had a variation of the standard modus operandi waiting in the wings. The S&P and DOW futures cut their losses in half going by the bell. Soon after the opening, the DOW was up more than 30.
However, this time, they met their match. The selling of assets worldwide was too much for them. The market was pounded with the DOW falling 130. Yawn, it was only a matter of time before the PPT showed up with their Hail Mary play late in the game. What a boring script. DOW zoomed late, closing up 9 to 20,932. How remarkable. The DOG fell 6 to 2148.”
This set of conditions is not so paradoxical as it seems if you reflect on the fact that demand has fallen off after a period when homeowners were brainwashed into believing that prices always go up by 10% a year or more. Sellers are still trying to price a gain off of last summer’s comps, and there is the lone greater fool here-and-there still willing to pay bubble prices and able to line up a loan to facilitate the purchase; the growing inventory pile represents the group of homes which are unrealistically priced and for which no greater fool has yet been found. This is why you see “prices” (meaning the average price of whatever recently sold) still increasing at the end of a mania, even though volume drops, as the supply of greater fools dwindles rather severely as the bubble deflates.
I understand the math but it seems like the realtors believe it.
Well you just have to work at the FED.
The median price has little to do with the prices of individual homes rising and falling, and even less to do with sales volume. That’s because buyers generally start with a budget and then see how much house they can get at that price. So even if the market craters, and every house in the neighborhood drops 50% in price, the buyers will simply get a house that’s twice as nice as what they would have gotten pre-crash, and the median price isn’t affected.
So really, what determines median price is the average budget that home buyers set for themselves, and that number tends to go up as the economy grows, and goes up even more when interest rates fall, credit standards loosen, speculative mania takes hold, etc. As we’ve seen.
For the median price to fall, conversely, there has to be downward pressure on the amount of money that buyers in the aggregate have available — things need to happen like a weakening economy, job losses, higher interest rates, tightening credit standards, etc. Of course, all these downward pressures are happening as we speak, so median price will soon decline in most places, just not as far as you would think given the bloodbath that will be taking place.
That’s why inventory is such an important indicator — the inventory number tells us about the aggregate demand for housing vs. the aggregate supply. Basically if inventory rises it means a house of a certain size, shape, and location is getting cheaper. Of course initially there’s some mispricing due to a variety of factors (e.g. denial), but the only way inventory goes back down is you and me getting more house for our money, regardless of what the median price does.
Thanks LT that was a new-to-me way of understanding the median price game.
“The median price has little to do with the prices of individual homes rising and falling, and even less to do with sales volume. That’s because buyers generally start with a budget and then see how much house they can get at that price. So even if the market craters, and every house in the neighborhood drops 50% in price, the buyers will simply get a house that’s twice as nice as what they would have gotten pre-crash, and the median price isn’t affected.”
Except interest rates are going up, credit standards are tightening, down payments are required. The first time home buyer, buying the lowest price house, cannot qualify because of income. Now the trade up buyer, who has equity, from a few years ago purchase, can buy a higher priced home, and let the older home go at a lesser price so not to carry 2 mortgages. The 1st time home buyer is more sensitive to interest rate and credit requirements.
True, but in the long run, it’s the first time buyer that is the most important to a market.
“How in the hell - except by statistical mirrors - can prices rise when sales are down?”
It may appear that sales prices are up but what is really happening is the people who are still willing to buy in this market are getting a lot more home for their money.
Rumors is INTEL will Shit-can 15,000 on June 15 - This should help SV prices?!?!?
I need to start proof reading what I type!
Do you know anything else about the Intel cuts.
I found this article. 15,000 would be 15% of their workforce.
Those cuts won’t be made in India. Sacramento should suffer as well.
http://www.computerweekly.com/Articles/2006/04/28/215724/Intel+job+cuts+loom.htm
California it’s official, is being moved to India. And British Colombia to China. Have a nice nightmare. George W. you are soo great. We love you! It’s a joke!
And Bush is responsible because . . . . .
because it’s stylish to hate GWB for everything he does or says. You are not cool if you do not blame GWB.
I like to lag in placing blame…I hold Clinton responsible for screwing everything up, causing the stock market bubble which escalted into all the other problems and then passing the mess to the new administration when he “escaped”.
George W cuts taxes of the rich so that they can ‘increase investments’, but those investments are in foreign countries. So can people partly blame Bush..yea!
I don’t think it is so much about Bush, as it is about “national sentiment”. I have this theory that in general, public sentiment changes depending on how it voted. Marketers know for example that horror movies sell good during Republican rule, while mystery sells during Democratic rule.
The same about economic (and other) policies. If people decisively chose Republicans in 2004, this sends a signal that it is OK to practice Republican economic ideals to the fullest. And since Republican agenda contains a great deal advocating free-market with a supply-side, corporate bend, companies feel it is OK to practice them. Hence - job relocations and outsourcing, lending the profits instead of raising the wages, and so on.
That’s my little theory.
(I also noticed that during the GWB term, poker gambling, and other forms of gambling became popular).
We will rue the day we let out manufacturing go to distant shores. We could have made it a lot easier for companies to stay in the homeland. However, we have enabled companies to off-shore by giving fat tax breaks and incentives.
It’s disgusting. Working in the technology field, I have witnessed this first-hand.
There is no pride in buying anything American. Shame.
Didn’t i read where median goes up because there are now zero entry-level buyers, so very few houses at the bottom are selling at all. Move-up people leveraging their Equity into even more bubbly property raises median, no?
Yes-
If 10 homes sell for 500K each the average is 500K
If 2 homes sell for 600K and 1mil the average is now 800K, even though sales are down 80%
From Intels sight
About Intel Folsom
” Intel Folsom, near Sacramento, California, employs 6,500 engineers, technicians, sales and support staff at this research and design campus. ”
These jobs are definately headed to India.This couldn’t be at a worse time for Sacramento real estate. The construction and mortgage industries are about to cut jobs. A big hit in the tech industries should send this market into a tail spin.
Can’t celebrate this developement though.
I have no inside info. I know what the blogs are reporting. Most were right on about SUN’s layoff - so I think this # is solid. I bet most of the jobs go to INDIA. I was making reservations on Expedia today and had to call to change and guess what - INDIA call center.
Intels poised for the shift to India. Operations over there have been expanding for awhile.
They can get Competant, hard working Engineers for 1/4 of the cost, and their not young kids cutting each others throats to advance in the company.
Intel has 15 U.S. locations 8 are considered major. http://www.intel.com/jobs/usa/sites/
This could mean thousands of jobs will be lost in Sacramento. This is a huge hit.
Intel is the largest employer in OR.
Hillsboro/Beaverton.
It will hurt Portland, OR it is all the same MSA.
portland retirement homes for everyone
“There is a fair number of first-time home buyers spending $800,000,’ she said”
This statement, in a nutshell, summarizes pretty much almost everything that is wrong with this ridiculous bubble in SoCal and elsewhere.
Tell me about it. That’s the way I felt when I first moved to San Diego in Fall ‘04. What kind of median income is required for a 1st time buyer for even just an I/O loan let alone a conventional fixed mortgage with 15 to 20% down???!! It’s utterly ridiculous and they wonder why the inventory keeps growing.
A niece of mine and her husband bought a 850K 1800SF home in 2005. Their IO loan was $3700/month. Asked them why not going to conventional loan. “we can’t afford it”. Well, sorry to say that they will be in a world of pain.
Ouch. What are they going to do when that payment adjusts to $6000/mo?
I don’t know. Hate to be in those shoes.
$800,000.
It makes me wonder if the government will start beefing up first time homebuyer programs, and I wonder if housing will some day be as regulated as medicine. Society deems healthcare a “necessity” and pays for Medicare/Medicaid and has strict laws so that providers and insurers can’t easily turn patients away. The result is no true free market for medicine.
Well, shelter is also usually perceived as a “necessity,” so is government control of housing next? At $800,000, I can’t ever see myself becoming a home owner.
Those first time homebuyers paying 800,000 are financially dumb. They are effectively paying for and working for someone’s retirement. On the supply side we need to write to county officials on giving out more permits so atleast supply increases. there’s too much regulation. I’m sure some folks here have contact info of right authorities whom we can email. they should post it here.
Yes, exactly. I’ve said at least a dozen times here, but I’ll say it again. No way in hell will I fund the retirement of some greedy flipper Clownifornian by buying their overpriced stucco box. No Way.
some dumb bast-rd funded mine i sold last year
Good for you…no offense intended
$800k is enough to buy a shitbox in California or to retire comfortably in Costa Rica.
You do the math.
Used to be, you could retire in total, obscene luxury in Costa Rica with that much money.
Cripes, I thought I did reasonably well in my middle-class life and my net worth never approached $800K. Nor my borrowing ability, prior to 2001 or so.
You can’t retire on the coast in Costa Rica for that.
At least not in Tamarindo. RE costs the same as coastal RE in the US.
Food is more expensive and way too many gabacho’s.
Not just Costa Rica.
Applying the 5% rule (or even 4%) to US$800K would give an above-median income in both Australia and the UK.
I thought median income in the UK was in the GBP 30000 range. 5% of that stake would only be ~GBP 20000. The dollar has fallen pretty steeply against both the AUD and the GBP.
I think median household income might be around GBP 30K as you say. I was thinking of individual income, where I am fairly sure the median is in the low 20’s.
I have a cousin who lives near Edinburgh in Scotland. He is retired, but has 4 sons and a daughter who are all married, so there are 10 children and partners (plus another 10 grandchildren). 7 of the 10 either work fulltime for wages or as subcontractors, and none of them get more than about GBP15K a year.
And what do you get for $ 800K? A plain 1500 to 1800 square foot house on a small lot. This is how unaffordable it has gotten in Norcal and Socal near the coast.
So why do people stay in these bubble areas? The prices have risen because people are agreeing to them instead of moving to where they can have better cashflow situations. Some of it is about job availability but I also think some people think the cheaper places are below them.
San Diego and Vancouver developer BOSA is going to break ground on a new high-rise before any sales are recorded. BOSA projects dont’ need financing because the owner finances the projects from his own pocket…
This will be one of the biggest high-rise condos in San Diego…
241 units just 7 units smaller than the largest project in downtown San Diego, the Electra
Wow! This takes… I’m not sure what to say.
Just for perspective, what is the square footage of these codos? How many parking spots? Are they at least within walking distance of the train station in downtown SD? View?
How any rational person thinks they’ll make a profit…
Well… I want to buy. So I’m all for more housing.
Neil
BOSA is the developer of the Marquee Park Place project on Michelson in Irvine, Ca (where Jamboree meets the the 405/5 Freeway. approx. 232 units transferred by BOSA to initial purchasors the first 3 months of this year.
right now there are 78 resale listings and 37 rental listings available in the MLS. askin prices range from the high 600s to over 2,000,000 for units ranging from approx. 1,275sf to around 2,000sf. 7 units have been reported resold over the last 4 months. Based on this resale rate there is an approx. 3 year supply.
doesn’t look like too many of the original purchasors want to live there. don’t blame them, what with $1,100 monthly association fees and not being able to have any pets.
That’s interesting.
Sounds like they’re anticipating doing the construction during the downturn while subcontractors and materials are nice and cheap, and then being in place ready to go for the next upswing.
Nice if it works, but you gotta have big bucks (and big cojones) to apply THIS strategy.
“‘The real estate bubble continues to deflate in Southern California,’ said Serdar Bankaci, president and CEO. ‘This is not surprising at all because home prices are leveling off.’”
Explain to me how a bubble “deflates” when prices “level off”. Am I the idiot here?…..’cause I don’t get it.
The spin is getting so much more difficult. I don’t think believe it anymore - but they have to say it. “The sky is GREEN, it will turn Blue maybe or maybe not or maybe it will stay RED”
I am waiting for Liar-erah to land on an aircraft carrier of the Florida coast and claim “Mission Accomplished - Soft Landing”.
There’s no such thing as a soft landing on a carrier
That’s right…a carrier landing is a “controlled crash!”. I think the soft landing promoters have already missed the #1 and #2 wire, are hoping to catch the #3, and will be lucky to hook the #4. Probably will crash and slide off the deck.
Too funny! Unfortunately, the RE aircraft is appoaching to high and hot to make the arresting gear, and doesn’t have the fuel to go around. It will hit hard on the last third of the flight deck, skid off the bow and into the drink, and get run over by the carrier
Oops, …too high and hot
You don’t have to get it, mind you. At these prices I prefer owning nothing. Owning nothing is much better that owing these golden prisons of debt. Might as well become a beatnik. That way you will end more rich!
“golden prisons of debt”
Wonderfull comment, they are turely prisons for maney. Which one is more important to live in a more humble place and sleep well at nights OR to live in an expensive and fancy house and always worry about your payments.
I’d vote for semi-fancy, bought on a short sale, and sleeping reasonably well. When I can’t sleep, I’ll get back on the blog.
An almost 30 year old friend of mine just finally decided he was going to go to school to become a welder after spending most of his life making nearly no money doing odd jobs… I figure he’s way ahead of a lot of the population who had jobs… and bought overpriced housing. Being worth nothing is better than being worth -300k…
“Being worth nothing is better than being worth -300k…”
VERY well put.
Tell me about it. That’s the way I felt when I first moved to San Diego in Fall ‘04. What kind of median income is required for a 1st time buyer for even just an I/O loan let alone a conventional fixed mortgage with 15 to 20% down???!! It’s utterly ridiculous and they wonder why the inventory keeps growing.
“The company let go 25 of the 275 employees in its Pomona office, said KB Home spokesman Ray Gomez”
Let go? I hate this phrase. You ‘let go’ caged animal, not employees. These employees were laid off or fired.
Ray Gomez probably has large glasses and with his hands together at KB, “Hey you, howz it going. Yeah. Listen… I’m gonna go ahead and let go of you guys, so why don’t you guys…go ahead and take the rest of the day off” - Officespace style.
But leave your red Swingline behind….
LOL — do modern-day employees even know what a Swingline is?
That Ray is real concerned about the people he is throwing out on the street!!
“‘It’s a normal part of the business cycle,’ Gomez s
Yes, you know you win some and you lose some. This true for the rank and file.
But not for the upper exec’s. The title CEO should stand for Cash Every Outcome. In good and bad, the CEO says “I have got mine, how about you?”
At a lot mid to large publicly traded corporations, you’re right. Smaller startups, not necessarily.
“The title CEO should stand for Cash Every Outcome. In good and bad, the CEO says “I have got mine, how about you?” ”
They then add insult to injury by making statements (unofficially) that the rank and file deserve their fate since they and not the executives made bad choices. I hear these comments locally all the time.
Yes it’s called a bust and a later a depression.
1996 - Downsizing
2006 - Rightsizing
Being rightsized is sooo much better.
Buisness speak 101.
I used to work at a Lockheed plant, their term was de-selected. I always thought it was lame.
You read it here first (Russia is diversifying its reserves)
“A couple of weeks ago, I noted that the US data wasn’t registering a pickup in Russian holdings of US debt, even though Russian reserves were rising fast. Given all the holes in the US data, that wasn’t enough to prove that Russia was diversifying out of dollars – Russia could have just been shifting dollars from short-term dollar accounts in the US to long-term dollar accounts with London custodians.
“But it did hint that something was up – it was a change from the “rising reserves/ rising Russian dollar claims in the US data” pattern typical of 2005
“It turns out Russia was shifting out of the dollar, at least at the margins, as it increased its euro and pound holdings. See the FT.
“And with Russian reserves now at $247b – up over $20b in May and up $65b in the first five months of the year, we are talking real money. I guess Russia didn’t like Cheney’s tone during his recent trip … as I have noted before, creditors usually don’t like being lectured by debtors.”
Yea, Thats like your drunk uncle who owes you
500 toadskins telling you how to manage your
money.
Who’s the drunk uncle, US or Russia?
I’m assuming U.S.
US is not drunk. US is on cocaine and meth. Financial cocaine and cristal meth. The withdrawal symptoms are just starting. The desintox has just begun. Doctor Ben is there at the rescue.
dont you mean “Coastal Meth”
Great wit tonight.
if they where the bond yields would go way up
http://www.ccdc.com/index.cfm/fuseaction/projects.printableList/category/residential
new projects in San Diego…non of the BOSA projects are pre-sold
Exxxxcelllllent (rubbing my hands together with a evil grin), after it is constructed we can use it as a monument, honoring all of those that will have suffered after the bubble pops. It would be a great reminder of the housing collapse, and it would probably cost less than Qualcomm stadium to maintain.
We could put up a huge banner that says “remember the past, and let the past guide you in the future”
We could store all of the repossesed Hummer’s in the parking garage.
Man, if they finish all or most of those projects, I’ll be buying a pied-a-terre in San Diego for $150K in a couple of years, just to have one.
suppose somebody has all the info on somebody else, such as properties bot, sold and owned. are there any restrictions on posting that info to a public blog - or is this just recyling public info?
it’s all good. You can get it from local records….
You got some good info Cereal?
yup
what do you guys think about somebody in a public position who comes across as an altruistic servant, speaking on behalf of the multitudes, and yet is preaching in order to save his (or her) own butt?
You have some info on Lereah?
how ’bout we test some of you guy’zes research abilities.
i say -
alexandria
you say…(?)
i say fairfax station
you say….(?)
i say washington dc
you say….(?)
have at it hot shots
Looks like Wendy and David have made about 4 different real estate investments in the past 3-4 years. Looks like he has made some money too.
Nice work cereal I am impressed, let me know when you want me to fill in the masses here.
What a dumba$$ tell me you weren’t able to find real estate transactions on who I think that is. Tell me he use’s trusts and llc’s to transfer his properties no matter what they are. How can you be in the national media and not take cover like that. What a dumba$$!!
That is the great thing about public record. I do not want to steal cereal’s thunder.
Well for pete’s sake, do we have to beg? Start with the dish already!
he lives in fairfax station…
OK, so we know its David Lereah
http://www.realtor.org/Research.nsf/Pages/LereahD
So what’s up?
looks good! no thunder needed for cereal.
let’s see the list!
Cereal — nice scoop. Yet again, value-added for Ben’s blog.
I will post some info on the weekend bits section, if it has not already been posted. We can all send him some fan mail.
“‘To add insult to injury, the job growth in May was the lowest it had been since October 2005,’ said Bankaci. ‘Combine that statistic with the rising interest rates, and you see that the average family suffered financially two times, putting a tremendous strain on families already stretched to the max.’”
My father whom I have been warning about the economy and housing market to no avail lives in Dana Point and yesterday told me there is a marked difference he noticed. He went out to eat and they were the only patrons in the restaurant. The whole time not 1 soul in sight. He says he is noticing people are looking stressed and the high end malls not quite as bustling and is now finally admitting there is trouble brewing. I wish he had sold last year but he wants to tough it out and feels he is too old to up and move to another state.
So many there with enormous debts to keep up with Jones’ I suppose the Hummers and Mercedes will be the first to go!
Where is Dana point in reference to a nearby metro?
it is on the coast in Orange County nearest major city would be LA I suppose…it is close to Laguna Beach, Newport Beach, San Clamente, etc.
Actually, it’s about as far to LA as it is to San Diego. Put it right smack in the middle of the coast between San Diego and LA downtown. Nice spot, if ya gotta live in So Cal. Your also in the southern most portion of Orange County.
Dana point is a rocky high bluff of land projecting out into the ocean. It lies south of Laguna beach/newport beach. Back in the 70’s and even up to the 80’s it was a somewhat isolated little village with a beautiful state beach and park and tiny Marina. It has been completely inundated since then with expensive homes and coastal development.
South Orange county, where Dana Point lies, is a collection of expensive mid-size communities such as Laguna Beach, Alsio Viejo. Laguna hills, mission Viejo, SannJuan Capistrano,Sanclemente, Newport beach, Lake forest, Rancho San Margarita, Irvine. ect. One cannot Categorize each of these commuities as a really major city, but as most of these communities all merge and abut each other one can probably classify them as a single seamless Metropolitan region(Metropolitan Statistical area of south orange county?) A really expensive region with prices almost as high as San Francisco.
To get to Dana point the slow scenic way just take Pacific coast highway from Newport Beach past Laguna Beach(s)to Dana Point. If traveling along 405 frwy in irvine exit hwy 133(Laguna hwy) go south all way till you hit PCH in laguna beach, then continue south to Dana point.
> … it was a somewhat isolated little village with a beautiful state beach and park and tiny Marina. It has been completely inundated since then with expensive homes and coastal development.
Your description sounds like the state park has been abolished. Has it?
Tt is still there.
Dana Point! If I win the lottery that is one of the places I’d love to move to!
the beach boys sing about Doheny beach in “Surfin’ USA”. A great swell was destroyed when they built the Marina. (I’m not old enough to remember.)
I’ve lived in Silicon Valley for 10 years.
As the article discusses, I think the housing bubble caused other less desireable areas to “catch up” with Silicon Valley madness. I think this goes beyond just the neighboring counties though. It applies to the rest of CA as well.
For example, butt-ugly $500K homes were common in Mountain View/Palo Alto/etc in 2000–way before the housing bubble inflated. The same house would have been maybe $100-200K outside the Bay Area.
Now $500K will get you a decent home in…. Fresno or Modesto… heaven help us. Nothing against those towns (well maybe), but there is just not alot of people who *want* to move there.
The Silicon Valley will always have a 25-33% premium over other areas of CA because it has:
1) near-perfect weather
2) relatively good air quality
3) huge amount of business opportunity
4) high percentage of high-paying professional jobs
5) desireable location (proximity to SF, bay, Mountains, beach, etc)
Although astronomically high, I just don’t see prices here falling like I anticipate they will in other areas.
Personally, I’d rather pay for a $700K home here, than a $500K home elsewhere.
Keep Dreaming! Check back in 2-3 years. You could use those same 1-5 for 30 other areas of the country!
Prices can certainly soften in SV, they have before and will again. I think there will always be a premium as well, but only in certain neighborhoods. There is a lot of old money there and many Asians have brought large amounts of wealth to certain areas with highly rated schools such as Cupertino. Some have bought out entire shopping centers and converted every shop into Asian shops. Saratoga, Los Gatos, Monte Sereno, Cupertino will always hold up better but San Jose, Milpitas, etc can fall much harder. Certain pockets of SJ such as Willow Glen will hold up better. It is all about the neighborhood/schools in SV.
Prices can certainly soften in SV, they have before and will again. I think there will always be a premium as well, but only in certain neighborhoods.
=============================================
Log gatos toke a big hit of 35-40% in Early 90’s
I was there… it was nasty
Wow, first real troll in a long time. You go ahead and buy that 700K house there sucker.
He may not be a troll, he was pointing out the premium which will always exist there. Prices will soften but the premium will remain compared to Fresno, etc. Even the earthquake in ‘87 couldn’t penetrate the premium…now an 8 or 9 earthquake might be a different story! The affordability factor will eventually hurt the economy there in deep ways, but the premium will remain
I agree. I dont think he’s a troll. He may be willing to pay too much, by our reckoning, but that’s different than being a troll.
It’s true…a lot of sheople have gotten numb to the prices.
No, I am not buying a $700K home in today’s overpriced market.
Yes, I might make that purchase within 2 years if prices fall 10-15% (more house for the $; larger down payment built up).
Not everyone wants to relocate in order to save a thousand dollars a month in mortgage payments. Particularly if you take an equivalent cut in your take home pay…
There is the big myth. You do not need to take a salary cut to move. You do not need to send you kids to worse schools to move. There are plenty of great jobs and great cities in flyover country, where you can still send your kids to great schools, live in gorgeous SFH inside the cities and still make the same or more salary. I did and my company is still hiring bigtime.
I have no sympathy with people who won’t move out of NYC/FC/SF and then cry a river about how the cost of living is horrible or commute is long. Solve the problem and MOVE - its your choice.
I agree that you do not have to take a pay cut to relocate.
I looked into this last year and what I found that there were universities in places like Nashville, Lawrence, Chapel Hill, etc that not only met my salary here in bubbleland but exceeded them! My fiance works in the tech field and that was the only area where we didn’t see equivalent salaries. But for most white collar admin or managerial postions, the heartland states were matching CA dollar for dollar.
It’s my belief that the migration of tech jobs out of CA is what will be the nail in the coffin for housing prices in SV.
You are kidding right? You cannot be serious. I can say the same thing for San Diego, and I am sure most people would agree with me that we have better weather, and a more desirable location. Anyways, I am not going to try to change your mind. Have fun paying for your 700K house, which from what it sounds like is below the median for that area.
Since the area’s job market is so healthy you probably will not have a problem coming up with the 70K to 140K for the down payment (10% or 20%). Enjoy your enormous mortgage payment, and please do not post until you have learned enough from this site to present a good argument.
No. I am not foolish enough to buy now so soon after the historic price appreciation of 2001-2005.
Like most others on this blog, I have been watching the market closely for some time, and will continue to watch the market for the next 1-2 years; all the while building up a considerable down payment.
The 20% down is not a problem. It is my hope that within a year or two, I can apply that 20% down (or maybe 30% down by then) more judiciously to a lower overall price point. Of course, I’d love to see a haircut of 20%+ on going prices. And I expect we will.
Keep in mind, though, that inventory in SV is not growing as fast as other locations.
My point is that SV was at $500K price points pre-bubble. Let’s be realistic, prices will not drop to 1999/2000 levels. There has been too much equity created for that to happen. Too many people willing to throw around that equity.
And, many other buyers (besides myself) are willing to pay a premium (which I estimate to be 25%-33%) to live/work here.
Not when the high tech jobs keep moving to India they wont. Suggest you read the earlier posts on this thread.
I expect prices to be below 1999 levels in less than 5 years. This bubble has been building for 12 years and all previous bubbles have lost a lot more than you predict. Look at the Japanese RE burst, in 1987 Tokyo RE was valuable in 2000 it had lost 60% of its ‘87 value and by 2005 it had dropped to 80% of value (in many areas). The first uptick in Japanes RE happened earlier this year. 15 straight years down. What possible reason can any reasonable person make to say “It can’t happen here”?
“all previous bubbles have lost a lot more than you predict”
The previous cyclical low roughly 15 years ago is the basis for my expectation of a 20% price decline in the Bay Area. Of course prices could go down more but I’m not getting my hopes up.
You’re correct about the lack of inventory build. At least that’s what I’m seing on the northern half of the SF peninsula. And I agree with you about prices as well. There are plenty of folks around here with the will and the means to step up and buy after a 20% reduction in prices.
Saratoga prices are inextricably tied to the Chinese economy. Ditto for Cupertino.
“Saratoga prices are inextricably tied to the Chinese economy. Ditto for Cupertino.”
I don’t think it is closely tied to current economy…,huge wealth was taken out of China and brought to these areas starting about 10-12 years ago. I only lived there for 35 years but SV is very different than Southern Ca. In certain neighborhoods there is virtually no speculater buying and the demographics are not i/o paycheck to paycheck people but old money or high level execs. SV as a whole is in an enormous bubble. Our primary reason for cashing out and leaving state was we want our children to be able to live near us. It is a huge problem there and many families are driven apart due to the affordability. I know tons of people whos children has had to move out of state due to the housing or are suffering and struggling. There is no quality of life for families, you will not find too many stay-at-home mom’s. We had the choice to continue making 25%+ more than other areas but at the cost of our children and family down the road. I would never want my child to be “stuck” struggling in an enormous bubble area, never being able to own a home. It was about priorities for us.
Regarding the premium….it exists in San Diego as well…even in a housing crash San Diego/Carlsbad will have a premium over Temecula, etc. People on the coast will be better off than inland.
Jamie — many of us, myself included, fully expect prices to retreat to 1999-2000 levels, sans inflation, if indeed they don’t overshoot temporarily.
And, many other buyers (besides myself) are willing to pay a premium (which I estimate to be 25%-33%) to live/work here.
——————————————————-
Lame comment, as a LT resident Im floored… Where do you come from?
“The Silicon Valley will always have a 25-33% premium over other areas of CA because it has:
1) near-perfect weather
2) relatively good air quality
3) huge amount of business opportunity
4) high percentage of high-paying professional jobs
5) desireable location (proximity to SF, bay, Mountains, beach, etc)”
…and so does, Miami, Sest Palm Beach, Melbourne, Daytona, St. Augustine, Jacksonville, Brunswick, Savannah, Charleston, Myrtle Beach, Wilmington, Norfolk, Virgina Beach, Hampton, DC, Providence, New Bedford, Boston, Portsmouth, Portland, Bar Harbor, Fort Myers, Sarsaota, St. Petersburg, New Orleans (everything is destroyed, prices only can go up), San Diego, Long Beach, Los Angeles, Santa Barbara, SAN JOSE*****, San Francisco, Santa Rosa, Sacramento, Point Reyes, Seattle.. and on and on
*****This area is very special because it is “difrent”
get my point?
Sorry to bust your bubble.
>The Silicon Valley will always have a 25-33% premium over
> other areas of CA because it has:
> 1) near-perfect weather
OK.
> 2) relatively good air quality
OK.
> 3) huge amount of business opportunity
Lots of cities can say that.
> 4) high percentage of high-paying professional jobs
Except for the fact that the Bay Area has seen a net JOB LOSS, and area cities like San Francisco are seeing serious population declines. In fact, only Detroit has seen more people flee over the past 5 years.
> 5) desireable location (proximity to SF, bay, Mountains,
> beach, etc)
That’s great if you have a high-paying job or you are wealthy already. What about the 95% of Bay Area residents who don’t?
“That’s great if you have a high-paying job or you are wealthy already. What about the 95% of Bay Area residents who don’t?”
Some of them are renters with rent controlled housing. Some others managed to get themselves into a home by drinking the I/O Option ARM w/100%+ downpayment; I expect some of these guys are wondering whether they made a mistake about now…
I lived in San Jose for a year, 1996-7. The food and city are boring. Palo Alto is marginally better. Yes, you are about a 1-4 hour drive from all sorts of neat things, but close location to the tech industry is the sole reason to live there.
I’ve been living in San Francisco since 2000 and go to the California Theater in San Jose for the occasional opera, so I know that things haven’t changed very much.
The East Bay– Pleasanton and Walnut Creek area– are the most happening places in the Bay Area right now.
P.S. I’ve lived in San Diego 1992-6 and 1997-00, and it is in nearly every way a nicer place to live than Silicon Valley. San Jose is close to Santa Cruz and San Francisco though, which San Diego doesn’t have or any equivalent of. Further more, living in the Bay Area I miss the food from San Diego… most people don’t think of San Diego that way, but it has really nice places to eat that stand up to or exceed all but the very finest restaurants in San Francisco.
Skiing? I once drove to Tahoe from San Diego, while my friends drove there from the Bay Area. We left at the same time. Because traffic was so bad on Friday evening, we got there at the same time!
Anyway, I’ve lived up and down the coast of California. I grew up in SLO, and have lived in LA, SD, and SF, and of all the places, Silicon Valley is the least of them in weather, culture, and things to do.
That would decribe Westside LA and Southbay region(LA county). Also South orange county.
What drives Westside LA Economy is Entertainment/media sector. Santa Monica has some high-powered Media Ent companies such As Lions gates ent., revolution studios, ect
Sanat Monica really needs more supply of upscale condominiums but there are controlled-growth factions in SM who resist having tall condo Towers in their city. Really bad because SM has all the favorability factors which SV has.
Another city is Huntington beach in Sorange county. It has all Favorables factors as SV, and if there isn,t a single large hi-tech employer/sector in HB(except for boeing)there are an abundance of hi-paying professional/htech jobs a short commute away in Irvine/Lake forest.
Huntington Beach has seen a rapid build-up of condo/townhomes recently near the coast but they are still relatively expensive at average $600,000-$800,000 as is the rest of South OC.
“In a sign of the cooling housing market, KB Home has laid off nearly a tenth of its work force at its Inland Valley office, official…..
However, the market in the Inland Valley looks to remain strong. While home prices have slowed their increase across Southern California, information from DataQuick Information Services showed home prices in San Bernardino County went up higher than elsewhere. Additionally, home sales dipped less in the county than any of the other six Southern ”
There has been an incredible amount of new housing tract,commercial buiding and shoppinf center construction all over the inland empire last few years.( for example :The Marketplace on grove off the 60 fwy(shopping center).
In the unincorporated area between Rancho cucamonga and Fontana as you drive along foothill or arrow highway east of the 15 there are gigantic construction yards and nothing but construction field operations such as Universla truss INC, Cal Mesa steel supply, ect.
What is driving IE new home sales is all those folks being pushed out of the unaffordable coastal communities in LA/oc where there is a shortage of large SFH’s on large lots. The IE has no controlled-growth policy: developers have complete freedom and are in process of grading and paving over every last bit of open space into endless housing tracts and shopping centers.
Are they overbuilding and will this push SBernardino RE Market into a phoenix/Scacramento-like RE bubble-pop?
Just seeing all the vast amount of building and construction all over the IE I would venture to guess that A RE Boom and bust scenario is very likely within several years.
I lived in the IE for years and saw 2 housing downturns while I was there. Once L.A. and O.C. become more affordable watch all the marathon commuters pack up and leave. You couldn’t give hardly away a house in San Berdo or Moron Valley during the early to mid-90s.
I have to agree that the IE will face an even bigger bust in RE this time that in early-mid 1990’s. The amount of new building and construction is mind-boggling. The area along the new frw 30 between the 15 and the 215
The IE is the armpit of SoCal. Fontucky (Fontana) is a collection of crack houses and scum bags. Most people that cannot afford a home in LA or Orange County settle for the Inland Empire. The 1-2 hour drive into work everyday is horrid. It’s smoggy and 105 degree heat during the three summer months. There has been an explosion of home building. The unchecked developement has crippled the 50 yr old freeway and road systems. You wait in a line for everything. Buying gas, shopping at Costco, driving local roads takes forever. Back in 2000 a used 3 bedroom would cost under 200K. Now it’s 550K to 700K. The blue collar economy does not support these prices. During the last RE cycle (1996-97) this area was hit extremely hard. This time it is more extreme. It is certainly going to be a lot worse.
The Developers have been given basically a blank check to completely bulldoze and razed over the IE into new housing tracts and shopping centers. Fontucky(Fontana) is ground zero for the huge construction yards and field construction companies. Formerly rural homesteads and shacks are being literally torn out and replaced by the new housing tracts( The village at Heritage right off 15 on Foothill for example).
The IE is a mess. Haphazard, laizze-faire unchecked rapid develpoment will have serious consequences if the RE Market tanks.
Ah, yes the “Inland Empire” where LA smog goes to stagnate. Looking down from the pass heading out it looks like someone poured French Onion soup over San Berdoo and Riverside. How can you breathe that stuff?
The weather in the Inland empire is actually pretty fair and moderate , and the landscape turns green, right after the early winter rains. This period lasts from roughly november to April . This is the time to sell IE real estate so that foolish buyers have no inkling of how smoggy and miserably hot it gets from May to october.
Newcomers or new homebuyers of IE homes have to be really desperate to obtain a “reasonably”priced large SFH, or are completely fooled by initial impressions. The negatives of buying in the IE are many, the first being the long nasty commute(which have been aggravated by the recent high gas prices). Another is the long hot stifling summers mixed with brown soupy smog blowing in from LA. Still another unpleasant surprize is the large numbers of low-income families bringing their teenage gang-bangers into the IE.
The IE is importing LA street gangs as well as LA bubble RE prices,
Fontana does have a blue-collarish appalachian rustic look, expecaiily all those truck and construction yards intersprinkled among the rural crackhouses. Ditto for rubidoux and mira loma. What also impacts the IE frewway commute is the hugh big-rig truck traffic snarling the 10 and 60 freeways. On may 26th during the mad per-hoilday friday getaway commute a tanker truck overturned spilling 3000 gallons of fuel onto the 60 frway, causibg a 6 hr virtual halt(sig-alert)in eastbound trafic.
It is funny to see all that rural rustic homesteaded land and 100 year old victorian clapboards being replaced by hugh ugly truck and construction yards in a haphazrd fashion.
The entire 15 frway from San diego all way up to Barstow seems to be the big treetrunk from which all the new IE developments are branching out. The epicenter(ground zero) for the IE explosive urban development seems to be in Ontario near where the 15/10/60 freeways meets.
The IE does have ample land to meet the demand for housing. especially SFH’s on large tracts, problem is that IE is least desiable of all SCal counties to build homes. Road/freway infrastructures have not kept pace .
Corona area is a natural bottleneck which creates nightmares along the 91 and the 15. 215/60/91 junction in riverside another problem area.
Back in the 60’s when I was at Berkeley and later through 71 when I lived in SD pricing was about the same. When I moved to Bakersfield in 1973 I found prices just slightly lower. Sometime around 1973 pricing down in OC started going wild (mission viejo) with people camping out to buy houses. My FIL was one of about 2000 people trying to buy in a development of 50 lots (you got the choice of lot but the house for that lot was already assigned). He didn’t get one so he went to a nearby development and bought one of their houses that day….he said, “nobody is going to tell me I can’t buy a house.” This was the start of the ponzi-builder manipulation into the housing market. Things just spread from there. Let high tech depart for greener pastures and SV prices will be in free fall. Between SV and SD, SD wins hands down.
If I were a governor of AZ or another overbuilt state, I be lining up businesses to pull out of CA with every incentive I could muster. You got the housing just start filling it when the bottom hits and that means relocate the businesses to your area.
BINGO!! I know the start up company I work for in San Diego is already eyeing up Phoenix because the wages are so much lower there.
NV has been buying billboards soliciting business from CA.
Here are the links.
http://www.missingbear.com/
http://www.nevadadevelopment.org/
I know the game, I watch it unfold.
That all makes sense. The only part I don’t understand, and this is rhetorical, is why people-ticians, who already have what they consider a great state, want to recruit Californians. If I were a Nevadan, I’d be delighterd if they stayed home ro went elsewhere. This is not California-specific, but applies to influx of anyone from a welfare state. All will be well until these pilgrims miss the freebies the other taxpayers paid for “back home.”
I realize it is rhetorical, but I will give my 2 cents.
I spent time in OR.
Most of the neighbor states to CA, have weak business foundations.
CA contrary to popular opinion has a robust business creation machine.
Neighboring states want to catch some of that spin off.
Hey, anyone notice the front page of MSN today? It shows a graphic with a falling house and the title “Deflating Home Prices.” Excellent! Someone said once on this blog that it’s time to buy in a few years when TIME magazine has an issue with a graphic of a house falling off a cliff. Looks like MSN is on it earlier than we expected.
It’s getting closer but the magazine cover stories I think we’re looking for would have the title “RE Worst Investment Ever–Don’t Buy!”
They sure removed that quick! I did not see it! Worries too many of these idiots!
BAE Systems (big defense contractor with large San Diego footprint) enacted a 5% reduction in staff today. Rumor is its the first of several, all to be kept small to avoid some of the need to report it / make a press release. Several large scale programs they were doing for the government have been scaled back or are at the end of funding life.
Does this tie in with Duke Cunningham’s demise? I thought BAE had long term big legacy contracts. I head a lot about their staffing problems a couple of years ago.
Now there’s an interesting piece of news. Across the Atlantic, the spin is that the BAE sale of its Airbus stake is to increase their US defense contracting, not reduce it.
I wonder if BAE need money :twisted:.
http://www.iht.com/articles/2006/05/24/business/bae.php
Good point. With a lot of defense money being diverted to pay the tab on the Iraq War, a lot of the high tech “future” programs will probably be taking cuts, at least for the next several years until the war is over and we can start funding future programs again. I’ve toured BAE and a lot of work was on those type of Navy programs. Now the focus in the military is on the “ground pounders” and even the Navy is having to send people to ARMY training and send them to do ground duty in Iraq and Afganhastan. I think it is completely wrong. If you want to go long on a defense area, find out who makes tanks for the Army and Marines, there will be a LOT of basic hardware that needs to be replaced when this war ends.
“The company let go 25 of the 275 employees in its Pomona office, said KB Home spokesman Ray Gomez.”
“‘It’s a normal part of the business cycle,’ Gomez said. ‘The past few years have been red hot in the Inland Valley in terms of new home construction. The market is normalizing now, and the staffing levels have been adjusted.’”
That’s right, Ray, layoffs are a normal part of the business cycle; when there are lots of layoffs, we call it a recession. And another normal part of the business cycle is falling home prices, which normally follow the layoffs.
It seems like the 25 KB positions lost represent the tip of an iceberg. I wonder how many construction/mortgage co./RE agents, etc. this number translates to?
Why is there so much attention on how many layoffs are occurring in Defence and RE related industries? Actually that is a rhetorical question as I know it is intended to support the premise that the economy will tank, RE will tumble, flippers will be I a world of hurt, ect………
Maybe for those priced out of the Silicon Valley and Orange County, better move to the Central valley or to So Cal Inland Empire. Or escape to Salt Lake City
Now come the wise cracks about Fresno and Fontana and how you drove through once and you wouldn’t dream of living in such a hell hole and #%^^&…………..
The fact is these pricey markets are not going to be an option for someone with no equity to trade in and these are move up markets. A starter home is just that, to get your foot in the door. And no one disputes that prices may take a tumble or experience years of zero growth, but maybe not. Anyone expecting 1999 prices is living in a dream world.
“The fact is these pricey markets are not going to be an option for someone with no equity to trade in and these are move up markets.”
There is no RE market that can survive w/out 1st time homebuyers. Think about it. If 1st time buyers are taken out of the market, then the next level can’t “move up”, and so on & so forth. The pyramid collapses. This is theoretical, of course; but I welcome a logical argument about how there can possibly be a RE market without 1st time buyers.
How much of a drop do you foresee in west coast bubble areas?
There is no RE market that can survive w/out 1st time homebuyers. Think about it. If 1st time buyers are taken out of the market, then the next level can’t “move up”, and so on & so forth. The pyramid collapses.
Yeah amen. I get tired of these smug idiots lounging around starbucks with their bluetooth headsets acting like “oh, pity the little people”. I’m an engineer with a good salary, work-ethic, spending-habits, and the savings to match. I haven’t been able to buy a home for years due to these weenees - but they somebody to keep buying their overpriced crap. If I can’t buy, then there’s truly a problem. Burn baby burn.
Right on! My husband and I make close to $200k a year and we are renting! We just moved to LA 3 years ago due to a job transfer. I sure as hell will not make these gloating boomers rich by buying their overpriced pieces of crap! I’ve went to grad school struggled and lived lean for years to live comfortably. I am not going to hang myself to make them rich! If they will help me make the payments then I might consider it, but not until then!! Let them ROT!!
>The fact is these pricey markets are not going to be an option for >someone with no equity to trade in
You base this on what? C’mon, at least give us a reason or two why you think that SillyCon Valley and The OC will be forever out of reach for first time home buyers.
He heard it from Gary Watts.
No citation or facts to support either of their assertions.
I don’t know what you’re basing your theory on.
I can tell you from personal experience that when we bought our 2000 sf, 4 bd/4 ba panoramic ocean view home in San Diego in ‘98 it was less than what it originally cost when it was built new in ‘90 and it didn’t cost that much more than our 1300 sf 3 bd/2 ba home we sold in Riverside.
But this time it’s probably different.
This really did happen but we actually got very, very lucky in our timing and the fact that this house was on the market at the exact time we were ready to buy. Prices were just starting to edge up in SD at the time.
Agreed a housing market needs starter market. In California those markets exist in the inland and central valley.
Granted a 350K starter home is a tough pill to swallow. But this is California after all.
“How much of a drop do you foresee in west coast bubble areas?”
As for how much coastal will fall, my guess is 10% to 20% off (maybe already has happened) following by several years flat.
“As for how much coastal will fall, my guess is 10% to 20% off (maybe already has happened) following by several years flat. ”
This sounds reasonable; flat for several years could be another 10-20% if inflation is considered.
However, the jobs issue is key; and I have heard through friends of two unpublicized upcoming layoffs (albeit smaller companies) in BA just in the past week (this on top of SUN 5K, plus the Intel rumor).
One thing, though, lots of condos in the works. I noticed about 5+ acres of empty business suites were suddenly enclosed by a cyclone fence the other day (milpitas/so.fremont area). Then I found out they’re going to be demolished for condo construction.
I think there’ll at least be plenty of “starter condos”, even in BA proper, by the time this all unwinds.
I once had a starter home, my first home and that was my last home (so far). I hated it. it was boring. Its price in 1990 was $96,000. I bought at the bubble burst in California, and its dropping value made it a sad place to live. To buy a $350,000 starter home in a place you really don’t like at a peak R.E. time like this is idiotic. A roof over your head is a roof over your head, whether you pay rent to a corporation or rent to the government (in form of property taxes). In the former case you have a short term obligation - a lease. In the latter case, you are a slave to the economy to pay for something that you live in only for hopes of its price to keep going up. Where I live, rents are increasing. But the riff raff already moved out and there is no longer ghetto blasters in the apartment’s parking lot. Well worth the extra rent.
>Granted a 350K starter home is a tough pill to swallow.
>But this is California after all.
How does “But this is California after all” explain anything? “But this is Las Vegas after all”. “But this is Florida after all”. “But this is Seattle after all”.
And if “this is California after all”, why do you forsee ANY drop in prices? Just wondering…
>Why is there so much attention on how many layoffs are occurring
>I know it is intended to support the premise that the economy
>will tank, RE will tumble
>Maybe for those priced out of the Silicon Valley and Orange County,
>better move to the Central valley or to So Cal Inland Empire.
And Maybe they won’t have too. You seem to get a bit protective when the topic of significant real estate price drops is brought up. Do you have a lot to lose from a decline in real estate prices in California?
How can we have several years of “flat” prices as inventory continues to grow and we have $2 trillion worth of idiot loans that are going to re-adjust in 2007??? All I see is down, down, down!! Look out below! Dream on about “flat” prices! It’s not going to happen!
Agreed a housing market needs starter market. In California those markets exist in the inland and central valley.
Ummm, seem to act like couples can start out in Bakersfield, and then move-up to the coast. And the fact that there’s no work out there and you can’t commute from there?
Even the coasts need some form of entry-level housing, big-guy. Though I guess I’m just a wild dreamer, all those BS/MS degrees have put all sorts of silly ideas in my head about being able to buy something I’d actually like to live in, after saving for years and years…
Help! reinforce my belief in the bubble again!
I had a friend call me up asking if he should refinance his mortgage into an interest only fixed rate loan. I guess he’s lender is trying to convince him that it is a good idea so he can lower his monthly. I told him not too because its like renting from the bank.
He is convince that the the Inland Empire is diffrent from other places. I don’t know why. He seems to be cracking from the pressure of seeing his ex-girlfriend making money buying and selling properties and still making money. I’ve been telling him about the bubble since last year but all we see here is still the same, houses being bought, though inventory is up.
What do i tell him? it’s bad to take a fixed IO loan?
HELP!!!
Your frind is an adult. Give you advise once, then let it drop. You are not his dad, and besides, experience is the best teacher.
I had a similar experience yesterday — a friend told me he’d just paid $540K for a 2 bdrm townhouse in Gardena — over an hour’s drive from his office, in a suburb once associated with gangs. I asked him, point blank, did he have a fixed loan, seeing as how interest rates are going up? He did. Was he comfortable with his monthly payment. He was, and he insisted he was planning on living there for the next ten years.
He also waxed rhapsodic about the stainless appliances and granite countertops. I reminded him that ALL new developments these days seem to have those.
I let it drop. But damn, how I wanted to ask him if he’d be comfortable with half the townhouses in his new “development” being rentals (at less than his cost of ownership) and if he’d also be comfortable with the place next door to his selling for $300K in a couple of years. But I didn’t.
I/O loans and buying a place for more than it would rent are an indication of what I like to call “bad money values”. Some people have to learn these lessons the hard way. I’ve owned two different apartments now, made a lot of money selling the first one, and in both cases the first thing my husband and I looked at before we purchased was the cost of renting in the same building. If that was more than our monthly cost of ownership (after putting 20% down on a fixed mortgage), we bought. If not, not.
If we were in the market for housing at this time, we’d rent. No question.
Gardena is somewhat bland. Lots of Japanese living there make for decent neighbors. However, it does have some deteriorating sections and there are gangs and hoodlums in neighboring Hawthorne and south central LA.
As a counterbalance, there is also nearby torrance, which is a descent upscale city. Gardena kinda sits between the good and bad areas Of LA. It is also close to, if not considered part of, the jobs-rich southbay/LAX area and 20 mimites from dwtn LA. 35-45 min from LA westside.
yeah, why does he have to drive over an hour to his office when he lives in Gardena. is his office in Palmdale?
Robert Toll sez that home prices will soon accelerate again, and that will bring back demand (as people fear “getting priced out forever”):
http://tinyurl.com/z8nhs
“At a meeting with analysts in New York, Robert Toll of Toll Bros. Inc. said pent-up demand would drive the housing market after the current housing slowdown passes. Demand will be driven by buyers who are biding their time waiting for better incentives or lower prices.
Once they see growth in home prices start to accelerate again, they will come back, he said.
The next great story is pent-up demand,” he said. “Once the natural balance is restored in the market, you’re going to see prices go up again. Prices are going to go up quite a bit.”
Of course, if this doesn’t happen, it’s the Fed’s fault:
“Toll based his optimism on the strength of the economy, but cautioned that it was contingent on the Federal Reserve keeping it healthy.”
No, he is right. Prices will go up quite about….about 8 years, AFTER coming DOWN over the next couple years. In about three years when prices finally become “affordable” again, the pent-up demand will show itself as renters who have saved up their down payment money finally are able to start buying. Then after about another 4 years of stable prices we will see the cycle of prices going up again. Toll just isn’t using any time frames and trying to trick us into thinking prices will start going up later this year….not 8 years from now AFTER they go down.
You can explain to him that the lender’s motivation is to transfer the risk of the loan to the homeowner, since rates are going to go up, and that the lender will also make money on the fees, and/or closing costs associated with the new loan.
John T. Reed said something to this affect on his website.
If you don’t have a fixed mortgage, and choose to get an ARM, you are no longer a RE investor, you are an insurance company selling interest rate protection to the lender.
Any additional cashflow that you can get from going to an ARM is a premium payment on that insurance policy, protecting the lender.
Definition of a Recession:
When your neighbor loses his job
Definition of a Depression:
When you lose your job.
DQ’s median for May in OC will be about 630K per Lasner. Sales down avg 25%. YOY % inc was like 8.5% or something. I thought 15% was in the bag, baby. Wasnt the median in Aug 2005 something like 617K…Wonder how that will play out.
Im moving to Laguna for a new job(NOT RE related if you can believe that) and I dont want to buy and am planning on renting for a bit but I keep on getting told that come tax time Im going to get bit in the arse…
Later JF
Oh, does anyone have a good link to a buy vs rent calulator…I did a quick google search for one then I realized that it may be some bogus site and I thought I could get a good one from you guys…
thnx
JF
dinkytown.net has good calculators for just about anything you want.
The tax thing is a strawman argument. Your effectively paying 10 to 3. When you factor in all other costs to ownership at the current price levels, the tax savings doesn’t justify the risks.
The Silicon Valley will always have a 25-33% premium over other areas of CA because it has:
1) near-perfect weather
2) relatively good air quality
3) huge amount of business opportunity
4) high percentage of high-paying professional jobs
5) desireable location (proximity to SF, bay, Mountains, beach, etc)
Although astronomically high, I just don’t see prices here falling like I anticipate they will in other areas.
==================================
I have been in SV even before the first computer. …
The weather and etc etc have always been here.
The prices were fueled by Tech Booms
the declines, which have been many were caused by many busts.
If you purchased a home in 1989 it would have declined to 40%.
It broke even 10 years later with the network/internet boom.
The crazy purchasing was done due to stock options.
That game is over. There wont be much of that going on any more
thanks to SEC rules on expensing options.
Most of the buyers today are from elsewhere. Like the east coast.
Odd enough they are educated and make good money, but frankly do overpay for a 1500 sq ft home… up to $1M. Somehow they beleive the valley will come back. There is no basis for that claim.
For the past 2-3 years, we have produced the Ipod and Google. But these products are nothing compared to past inovations. Still we have major layoffs happening today… HP, Sun, Intel, and many more to come.
While you may feel paying $700K to live here, many employers are unable to subsidize your dream. Its just too expensive to employee here if consumers are paying for $1M homes. SV has and always will
produce deflationary products like WalMart.
Somepeople need to step back and look at the real picture with all it history in Busines and Economics of Silicon Valley.
so what ISN’T deflationary? Waikiki Beach? Yosemite Valley? Maybe coal isn’t deflationary. That’s why everyone wants to live in West Virginia…