The Miracle Business
The Santa Cruz Sentinel reports from California. “It’s tough for home buyers in Santa Cruz County. In March, the median price was $662,750, the highest in a year except for November, according to Gary Gangnes of Real Options Realty, who tracks the numbers. Judy Brose, an agent with Century 21, helped her client sell a home just under 1,000 square feet for $635,000. Listed for $559,000, it got seven offers. The successful buyer made the highest offer and paid cash, with two of the others asking if they could offer more. ‘I feel like I’m in the miracle business,’ said Brose.”
The San Francisco Chronicle. “Claudia Flores is a 36-year-old professional who has worked in the City Planning Department for eight years. She was booted in October from a three-bedroom condo where she rented a room for $1,000 a month. The rent for the entire place, which is not covered by rent control, was going up to $6,300 a month.”
“The owners said, ‘We would love to keep you because you’re a wonderful tenant, but we don’t think you can afford that rent,’ Flores recalled. They added: ‘Maybe you could find somebody who works for Google or YouTube, and they could take the larger room and that would allow you to stay.’ Now she’s crashing with friends and trusting a space will open up in another friend’s apartment next month.”
The Glendale News Press. “The median price for a home in Glendale dropped below the $700,000 mark last month for the first time since last fall, according to the latest real estate report. The median price for a single-family home was $689,000 last month according to statistics compiled by Realtor Keith Sorem with Keller Williams in Glendale. Diana Walker, a real estate sales agent with Dilbeck Real Estate, said home prices have gradually risen during the past 12 months, but they might have finally peaked.”
“‘I think they’re adjusting now. They’re not just going up constantly like they have for the past year,’ she said. ‘We’re seeing buyers feeling a little more confident.’”
The Desert Sun. “In Palm Springs in March, the year-over-year median price for a home climbed 48 percent to $369,500 in north Palm Springs and rose 44 percent to $325,000 in south Palm Springs. But sales in Palm Springs were slow, dropping roughly 18 percent from March 2013. The high demand for Palm Springs has been largely fueled by retirees and second-home buyers, many from coastal communities, who desire the trendier vibe of the city, said Kevin Stern, a broker for Town Real Estate in Palm Springs.”
“‘Some of the prices are a little too high, and prices are almost back to the point where they were before the fall,’ Stern said.”
“Though prices are rising, the buying frenzy in the rebounding market has started to calm down, agents said. ‘Some of those sellers that were putting their houses at the higher peak prices,’ said Tim Schneider, a Windermere agent in Palm Springs. ‘Now they are sitting a bit longer. Things have leveled out a bit, and some of them have had to reduce their prices.’”
The Street. “Eyebrows were raised all over Wall Street this week, and likely on Main Street, too, after the U.S. Commerce Department released its single-family home sales figure for March. The news wasn’t good for the real estate market, as sales fell by 14.5% for the month, and 13.3% against March 2013 figures. According to Redfin, only 49% of homeowners say they are in a ‘financial position to sell’ their homes right now. That leaves 51% who aren’t ready to sell, for a variety of reasons.”
“‘Competition can still get intense, but because prices have risen so much, my clients and I try to be more discerning about how far we should go to win a home,’ says Minni MacFarlane, a Redfin agent in Orange County, Calif. ‘The past two years we’d compete against people camping out in their cars or entering lotteries to win new homes. This year, a bidding war is more likely to drive the price of a home higher than it’s worth competing for, and I think it will be easier for us to walk away from a situation like that.’”
The Bakersfield Californian. “A climactic chapter in Bakersfield, Calif.’s, long-running Crisp & Cole saga may have closed with last week’s verdict in the trial of Julie Dianne Farmer, but the larger mortgage fraud case is by no means resolved. Still to come are sentencings for nine of the 15 remaining defendants, including Farmer, the former office manager found guilty Tuesday in U.S. District Court in Fresno of five of 12 counts against her. But even those decisions go only so far in putting to rest a case that shook Bakersfield’s real estate industry and which federal prosecutors say cost lenders about $30 million.”
“One of the case’s first whistle-blowers, local real estate appraiser Gary Crabtree, is still asking questions about how the case was pursued. He criticized what he saw as sluggish action on the part of law enforcement he first alerted to the fraud in 2006. ‘When you look back at the case, why did it take 7 1/2 years?’ he asked. ‘I mean, that’s a question that needs to be answered, because the strategy of the Department of Justice and FBI on mortgage fraud was to select the most egregious fraud cases from across the country and prosecute them vigorously in a timely manner.’”
“That strategy was supposed to send a message to the real estate industry, he asserted. ‘If that was the goal, it failed miserably,’ he said.”
“‘Competition can still get intense, but because prices have risen so much, my clients and I try to be more discerning about how far we should go to win a home,’ says Minni MacFarlane, a Redfin agent in Orange County, Calif. ‘The past two years we’d compete against people camping out in their cars or entering lotteries to win new homes.’”
“Win a home.”
I like it, marketing at its finest.
Reminds me of folks who stood in line some years ago so as to win an opportunity to buy a Beanie Baby.
Whatever. Just bring them to me, that’s all I care about.
If they win a home can they get the debt?
The opportunity to “get the debt”, as you put it (I like to think of it as an opportunity to “win the debt”) is automatically granted at the dotted-line-signing-ceremony the moment the ink comes into contact with the paper.
Wasn’t it fun during the days when everyone was so concerned by their FICO scores? Remember those days?
People would strive to raise their credit scores so they could … so they could do what? So they could borrow money, that’s what.
Think about this for a minute:
A person who had a high FICO score probably didn’t pay much attention to just how high his score was because he most likely wasn’t interested in diving deep into debt. And because he was not the sort of person who was anxious to dive deep into debt he ended up with a high FICO score.
On the other hand a person who had a low FICO score was always thinking about his FICO score and always thinking of finding ways to bring his score up, and he did this for one reason and this reason was so he could borrow more money.
“On the other hand a person who had a low FICO score was always thinking about his FICO score and always thinking of finding ways to bring his score up,…”
Either that, or hoping and praying that lending standards would be relaxed to include him among the qualified borrowers…
Apr 28, 2014, 6:47am MDT
Economist: Watch for reduced lending standards
The recent rise in housing prices has been good news for owners, but at least one economist warns that it could lead the way to a loosening of lending standards that brought about the last recession.
Gary Gerew
Assistant Editor- Albuquerque Business First
The recent rise in housing prices has been good news for owners, but at least one economist warns that it could lead the way to a loosening of lending standards that brought about the last recession.
“Whether indicative of rising confidence in the U.S. recovery, a fight to ramp up origination business as mortgage lending falls to a 14 year low, or simply an incredibly short memory, some lenders are already heading down an easier-lending path that some worry is all too reminiscent of the practices that led to the housing market crash,” said Lindsey Piegza, chief economist for Sterne Agee.
…
Obtaining the lifestyle you want is all about winning.
There’s no better way to prove you’ve won than by winning a mortgage in the environs that support your own personal inner concept, whilst also supporting the outer, world-community vision of those you are desperate to identify with and impress.
Incidentally, does anyone have any Grey Poupon?
fixt.
“Obtaining the lifestyle you want is all about
winningwhining.And when enough whine loudly enough, they’re going to give you what you want plus a bunch you didn’t expect.
….. you little communists.
“…but of course”
‘The past two years we’d compete against people camping out in their cars or entering lotteries to win new homes.’
This is old stuff. I remember people doing this in SoCal back in the late 1980’s. I remember people would would hire themselves out to stand in line for would be buyers, and the lines would sometimes form a week or more before the “sales office” (a trailer) would open for business.
“The median price for a home in Glendale dropped below the $700,000 mark last month for the first time since last fall, according to the latest real estate report.”
Thank you Jeebus, thank you! I can finally get into Glendale!!!! Where’s my checkbook?
/sarc
The coming months and years wil be a horribly painful experience for California home-debtors.
“‘I feel like I’m in the miracle business’”
Lol, so do I.
People come to me and borrow from me money that belongs to somebody else.
And if something goes wrong somewhere the taxpayers are the ones who take the hit.
Creating money out of thin air and doling it out to your friends at below-market interest rates is a miracle unto itself.
Calabasas, CA Housing Prices Collapse 24% YoY; Inventory Balloons 90% As Demand Craters
http://www.movoto.com/calabasas-ca/market-trends/
Wow, look at the median house size:
2013 = 4,455 SF at $433/SF
2014 = 4,192 SF at $443/SF
The Calabasas people live in some big houses. BTW, prices are going up on a $/SF basis.
2013 Price-$1,699,000
2014 Price-$1,450,000
A $250k price decline is a nice savings…. but demand collapsed and inventory doubled in that time.
Salinas, CA Housing Demand Collapses 25% YoY; Falls To 6-Year Low
http://www.zillow.com/local-info/CA-Salinas-home-value/r_54288/#metric=mt%3D30%26dt%3D1%26tp%3D6%26rt%3D8%26r%3D54288%252C35767%252C113865%252C27215%26el%3D0
Curious that prices went up 25% last year with this “collapsing demand”.
J._Fraud……..That’s what happens when prices are grossly inflated. Demand collapses.
“from a three-bedroom condo ..The rent for the entire place…was going up to $6,300 a month.”
People in San Francisco must earn ten times what everyone else in the country earn, or it’s a mania.
The tech bubble collapse will be terrible. Man will be hurt, unfortunately. Many of those should look at recent history and know better however.
“The tech bubble collapse will be terrible.”
Those who fail to learn from history are doomed to repeat it.
Those who do will find new ways to err.-Murphy
‘Last night, Twitter released its second earnings report as a public company and the stock is trading much lower than yesterday’s close to around $38/share. This comes after an already precipitous slide from the $73.31 close on December 26th four months ago.’
‘High expectations accompany high valuations, and clearly Twitter is faltering presently.’
‘In addition, stock valuations fluctuate with the mood of the collective market participant. During the fourth quarter of 2013, the home stretch of an amazing year for the stock market and when Twitter IPO’d, investors were filled with greed and chasing stock price momentum. They were willing to entertain best case scenarios and neglect present and future earnings potential. The mood now, however, is much different, and last year’s high fliers without GAAP earnings are getting beaten down everywhere you look.’
Some of these dorks in San Francisco might have to get real jobs.
“fall into the gapp” jingle
Just how many of these new dot-com stocks are there? In the late 90’s it seemed there were dozens and dozens of new companies to where (on the surface) it looked like a whole new economy. Now, the market is being driven by, what, six companies? Linked-in, twitter, facebook, and maybe jumps in existing apple or google? That’s just not enough physical work which is being done or revenue to prop up an economy.
No, there’s a lot of companies that have either already gone public or are pending IPO’s. E.g. Snapchat, Airbnb.
What’s App. FB paid $14 billion for this company serving something like 600 million users world wide of a web based texting service.
I lived in San Francisco in 2000. The people in our IT department were leaving all the time to join a new start up with low incomes, but huge stock incentives. They earned no money today, but big dreams for tomorrow. It was intense. Traffic was unbearable 24/7/365. You could never count on getting to an appointment in a timely manner.
After the bust in 2000-2001, the SF Bay Area cleared out. Young people fresh out of college, who thought they were going to suddenly be gazillionaires went home to Wisconson to live with mom and dad and work at MacDonald’s. Traffic resumed the normal patterns: commute times were still packed, but suddenly you could drive any other time of day without much problem. It was like flipping a light switch.
Temecula, CA Housing Prices Crumble 11% YoY; Inventory Explodes 146%
http://www.movoto.com/temecula-ca/market-trends/
Poway, CA Housing Prices Collapse 22% YoY As Buyers Flee Grossly Inflated Prices
http://www.movoto.com/poway-ca/market-trends/
Canoga Park, CA Housing Prices Crater 11% YoY; Inventory Skyrockets 148%
http://www.movoto.com/canoga-park-ca/market-trends/
Chino Hills, CA Housing Prices Nosedive 13% YoY; Inventory Balloons 140%
http://www.movoto.com/chino-hills-ca/market-trends/
Bonita, CA Housing Prices Collapse 19% YoY As Inventory Balloons 46%
http://www.movoto.com/bonita-ca/market-trends/
“But even those decisions go only so far in putting to rest a case that shook Bakersfield’s real estate industry and which federal prosecutors say cost lenders about $30 million.”
$30 million is p!ss in the wind compared to the scale of real estate fraud perpetrated on Wall Street for which the perps still walk free.
‘The median home price in Lodi at the end of February 2014 was $200,000. This is down 9.1 percent month to month and up 53.8 percent year to year. This is great news as many underwater home owners have recovered their loss and may even have equity in their home.’
‘Homeowners who rode out the real estate crash should be very happy that property values have come back. The Lodi area is seeing a lot of entry level properties come on the market, with sellers wanting to purchase a larger home.’
‘As of April 11, 2014, Lodi has 45 Pre-foreclosure Properties, 15 properties slated for Auction and 8 properties that were on the market as bank owned. So if those 15 auction properties do not sell at auction, we could be seeing them come on market as bank owned properties for sale. This is a slight increase in foreclosures, possible related to the banks finally having time to clean up their loans. With the flood of short sale transactions in 2012 and 2013, banks were overwhelmed and some late loans slipped through the cracks.’
‘A recent report on the state of Orange County’s communities …tracks a variety of factors that contribute to residents’ quality of life, from economic trends to education statistics. Among the report’s findings are that home prices shot up during 2013, with a 16% increase in median sales price, from $582,930 in December 2012 to $677,660 in December 2013.’
‘Meanwhile, fewer families can afford homes, with poverty rates rising from 8.8% in 2005 to 12.7% in 2012, according to the report.’
‘A third of Orange County neighborhoods showed high concentrations of families that are in precarious financial situations. Fewer than 43% of Orange County households can afford an “entry-level” home, priced at about $570,000, which represents a “steep drop” from 2012, when the percentage was 57%, the report found.’
‘Rents, the report concluded, are also generally too high for the low-wage, full-time employees who make up much of the county’s workforce.’
Fewer than 43% of Orange County households can afford an “entry-level” home, priced at about $570,000…
How many fewer households? What percentage of households make about $200 k? OC isn’t all Newport Beach money.
Keep in mind that the real percentage that can swing a 570K house is less than 43%. That of course doesn’t mean that the number is actually 42%, or even 20%. But it is less than 43%.
I thought that the “fewer than 43″ syntax means “42-point-something and rounding up would bring it to 43.” Two years ago it was 57%, so a drop to 42 sounds reasonable. Now, how they define “afford” is a separate issue.
That’s what they want you to think.
How long has this bubble been building?
‘One man told Mr. Livingston he left Kentfield in 1946 because it was changing too much. Although for many years a mix of working-class residents and well-to-do professionals lived there, starting in the 1960s, a number of families moved to Novato and Petaluma because of rising property values.’
My grandparents grew up in SF in the early 1900’s (my grandmother used to tell stories of riding in vehicle that would deliver beer–my family apparently was involved in some bar ownership). They later moved to the Peninsula. After raising their kids on the Peninsula, ultimately, they moved to Sonoma County (north of SF).
My parents left the SF peninsula in the late 60’s because it was getting too crowded…they moved to Petaluma.
My great aunt moved to Palo Alto from SF in 1946, at which time the cost of the home she bought was considered pretty high (something like $26k).
So yes, if you define the “bubble” as high cost of housing in the Bay Area, it’s been building since at least the late 40’s.
Not quite that long (1946), I’m a native San Franciscan and even S.F. was affordable for many until the mid ’70s, large areas of the city were blue collar when I was growing up and many people in them owned their homes…a good steady middle class job was enough. That said by the time I was an adult and returned home from the military in 1978 buying in S.F. was out of the question for me…19 years later I moved 100 miles north to Mendocino Co. and it was no problem.
Is it a “bubble” if the market trend is ongoing for almost 70 years?
My Uncle was an engineer in “Silicon Valley” before there was any silicon in the valley (Varion, Lenkart, Sylvania, etc). When he died in 1986, his house sold in 1 week for $375,000. I remember everyone in my family saying the price was insanity. 1,780 SF. $210/SF.
Here is the house today:
http://www.zillow.com/homedetails/120-Gabarda-Way-Menlo-Park-CA-94028/15601528_zpid/
Everyone is still saying the same thing today: Insanity at $2,000,000. $1,123/SF.
Here is reality: The rate of appreciation over the last 30 years has been about 6%. This SF peninsula market may be in a bubble today, but it is more likely just a long term trend. Wages in Silicon Valley for engineers of his caliber have easily grown faster than 6%/year.
And if you try, you can contort reality some more J._Fraud.
“Metacapital Buys Bad Loans as Home Market Ebbs: Mortgages”
http://www.bloomberg.com/news/2014-04-30/metacapital-buys-bad-loans-as-home-market-ebbs-mortgages.html
This about this for a moment. Housing and mortgages are toxic as they represent massive losses and you have smart money entering?
-Who is paying them to do so?
-What are the fees?
-Who is backstopping the losses?
Think.
Remember the sicilian mobs gas tax scheme back in the 70’s and 80’s? It netted billions back then. Basically they daisy-chained newly formed fuel vendors and distributors (they collect the tax). Co-mingled in that daisy chain were vendors that magically imploded thus opening the door to pocketing all the fuel tax collected by vendors. It kept the IRS going in circles for years.
‘Construction of homes in Gilroy is booming after years of developers sitting on land and opting to not build new neighborhoods. In south Gilroy two projects will bring 2,400 single-family homes. In addition, attached homes and town homes are going up all around the south county.’
‘The hot real estate market in Gilroy has sparked buyers to ink mortgage papers before their new homes are completed.’
‘The high demand is in response to buyers finding no luck in the the tight Silicon Valley housing market. Growing interest in bedroom communities like Morgan Hill is driving up home prices, with an average sale price in April at $842,000 — more than a quarter-million dollars higher than April 2012.’
There seems to be no end to our foolishness. How much of the wealth out there is stock option-derived? I’ve written here many times how I was set to become moderately rich on paper via option vesting, only to have everything dissipate in 2001. The company stock which Wall Street analysts confidently had predicted would continue to rise in value was, in a matter of months, delisted from the applicable exchange. I knew someone who exercised options at the peak and bought a showy, high-end performance car with the proceeds; the very next year those same options were underwater and worthless.
Thank God I hadn’t behaved in a manner consistent with the Fed’s “wealth effect” theory.
I was thinking along these lines recently. How do we end up in a place that a money losing internet business is “worth” $70 billion bucks. (Well, it’s half that now, but anyway). Jumpin’ Jehoshaphat, didn’t we just go through this a few years ago?
One thing I thought of is that people are too numb to see BS anymore. They can see it, but the bubbles and money have made them unable to really see it for what it is. For instance; 60 Minutes goes to China and films an empty city. Leslie Stahl walks around with her mouth hanging open on national TV, and people mostly go, “huh, how about that.”
Of course, Airbnb is worth more than Safeway. Of course, a new house in Gilroy is worth $800k. Of course, a house once bought in Palo Alto for $26,000 is now worth 1.5 mil. Nothing shocks us about money anymore. So we will fall for anything. Oow, let’s watch a guy on TV pretend to be competing to flip houses! Wait, is this a re-run?
Sure, China has millions of people that want to live in an empty city with no jobs. How will they pay for it? Heck if I know, somebody will figure that out.
IMO it can be traced back to the idea that the answer to problems created by artificially low rates and money printing, was more incredibly larger amounts of the same, for years. Bernanke sold us on that one. Once the public snoozed past that one, all it took was time.
The bigger it gets the more fragile it is. One wants to be as far up in the bleachers as possible.
Inflation is an insidious tax, even if it only runs at 2% per year.
Print, print, print.
There is no inflation.
That’s exactly what they want you to believe.
Looking over a long period of time, there is absolutely an inflationary effect to money printing.
That’s not inflation. Learn the difference.
‘Rather astonishingly, Tony Sewell, Property Manager with Ngai Tahu, outlines the high costs of building processes and materials in New Zealand, within a recent New Zealand Herald article by Phil Taylor “House Of The Rising Sun”.
‘Mr Sewell notes California pricing. He should have instead focused on Texas, as the Annual Demographia International Housing Affordability Surveys clearly illustrate the latter is the best performer in the United States, with its open land markets and sound infrastructure financing arrangements.’
‘California is generally regarded as a “basket case”. The major issue is land supply … affordable land supply.’
‘There is a well-known saying in the development business “If you get the land price wrong everything else is wrong”.
‘In essence … the industry has been bureaucratically bludgeoned back in to the Stone Age of a cottage industry. Even the remaining so-called production builders are “marketeers” who farm out the work to inefficient cottage builders… and clip the ticket on the way through.
The reason why this has happened, is because with the artificially inflated raw land values, it is too risky for larger builders to put in place more efficient production systems.’
‘Artificially inflated housing markets are more volatile and hugely risky. For example, when the Irish bubble burst, housing production on an annual basis slumped from 90,000 units a year to just 8,000. They just sent the Polish workers back home.’
‘The young Irish bailed soon after when unemployment hit 14%. Again Ireland had failed its young.’
“The major issue is land supply … affordable land supply.”
And in a part of the country with lots of land (just drive through the central valley), why is this the case?
CEQA
Williamson Act
Sierra Club and lawsuits
NIMBYism reducing higher density infill development
“The Housing Inventory Shortage Myth”
http://smaulgld.com/housing-inventory-myth-shortage/
The market is booming,
but where are the buyers?
Inventory is looming,
Realtors are liars.
is Santa Cruz part of Manhattan ? $800 sq ft?
“Maybe you could find somebody who works for Google or YouTube”
Uh, YouTube *is* Google.
Pretty soon, EVERYTHING will be Google.
United States of Lemmings.
+
Man it’s like groundhog day.
I started reading this blog back in 2005 or 2006, as a young man living in San Francisco and watching the lunacy unfold all around me. All the same factors were there, a phony tech bubble, artificial scarcity, the works.
I had no idea that I’d be sitting here writing this NINE years later, with all of these factors repeating themselves almost to the tee.
It’s unreal. I just left California. There is absolutely no doubt that a tech bubble of epic proportions has been forming there, so big that it’s inevitable burst will be far uglier than 2001.
Are people really this stupid? Are they blinded by optimism? Are they that desperate to go along with the herd? Is it the Democrats doing this because they are so confident when their guy is in office?
I just don’t get it.
On a lark I came back to see if this awesome blog was still here, all these years later. Good job keeping the fires burning Ben!
I estimate that if friends/family in the Bay Area had listened to my advice, largely gleaned from this blog, they would have collectively saved themselves around a million dollars in equity. They ignored me, pulled the trigger on overpriced houses, and lost a ton of equity. But now, they are feeling pretty smug, with the Bubble Part Deux inflating prices and egos in the Bay all over again.
We were admittedly homeowners in the Bay Area back in 2001. That was the point when I initially became aware of a price mania, but I felt no personal pride in the fact. Rather it was a Fed-engineered stroke of luck to own one of the homes on which helicopter drops of liquidity was landing.
so, if they have owned a place for 9 or 10 years, what does it matter if it went up or down in the interim? If they’re living there now, what does it matter what the price is now? If they sell now, they turn that smugness into a sales-price, yes? doesn’t that mean that… they win?
I can ask $50k for my used Chevy truck but where are the buyers at that price?
Remember… housing demand is collapsing in CA and nationally.