Some ‘Big Declines’ In San Diego Home Prices
The Union Tribune has this update on San Diegos’ housing bubble. “San Diego County resale housing prices began the new year inching moderately upward, but a record drop in new housing prices pushed the overall median down from December levels, DataQuick reported today.”
“The January median stood at $490,000, down 5 percent from December but still up 2.5 percent from year-ago levels, the lowest year-over-year rise in nearly seven years. Sales dropped from 4,262 transactions in December to only 2,763 last month.”
“But, in the new-housing category, which included newly built homes as well as apartments converted to condos for sale, there was a $104,000 drop from $539,500 in December to $435,000 last month. That dollar decline represented an all-time record change, based on DataQuick reports back to 1988; while the 19.4 percent decline was the second biggest after a 24 percent decline recorded in July 1997.”
“On a neighborhood basis, there were some big declines as well as big increases in January, compared to January 2005, in single-family-resale prices. Big declines among actively selling neighborhoods occurred in Scripps Ranch, which was down 14 percent; La Mesa-Mt. Helix, down 9.4 percent; and western Rancho Bernardo, down 5.8 percent.”
But, in the new-housing category, which included newly built homes as well as apartments converted to condos for sale…
Might this just be due more crapola condos and conversions for sale? I’m not waiting on the sidelines for one of those, that’s for sure…
I’ve had this place bookmarked for a few weeks now, and this is my first post - hope this gets on.
There are definitely a ton of apartments being packaged and sold around town (I live in Rancho Bernardo). However, I’d try not to peg the entirety of the price declines to them. The mass production of cookie-cutter homes - as well as true condo developments - that have sprung up in the past few years have to come into play as well.
Simply put (and, yes, I believe it’s simple), expectations of appreciation have turned negative, and the developers are more willing than homeowners to drop prices. Of course, my wife and I can’t take an evening walk without tripping over all of the “for sale” signs on the front lawns of homes surrounding our apartment. I don’t think these people will be able to hold their ground in the price war for much longer.
I do agree, though, that many of these conversions in San Diego are exactly that: crapola.
“The January median stood at $490,000, down 5 percent from December but still up 2.5 percent from year-ago levels, the lowest year-over-year rise in nearly seven years. “
When the blood eventually dries, I predict San Diego housing prices will fall 40% from their peak valuations.
Wait until the speculators start running out of cash and starting dumping.
I think SD downtown condo’s are going to be ground zero for the worst of the carnage. I wouldn’t be surprised a 50% drop downtown.
Robert Campbell
Robert:
Are you predicting nominal or real (inflation corrected) declines of 40%?
I am in the real declines of 40-50% in OC.
Nominal.
Robert Campbell
Where the 40% fall is nominal or real, my prediction doesn’t change much.
That’s because I don’t think Inflation is going to be the problem some people think it is in the coming years. The U.S. economy is slowing down and will continue to do as the housing bubble implodes. This means lower inflation, not higher inflation.
Robert Campbell
A deflationary RE guy!
I feel better today.
Thanks for your comments and keep coming back!
I’m also deflationary. I think all the dollars that can flood back into the US can’t touch the mountain of debt we’ve created.
Then the fed will monetize the debt and bring inflation back, but the deflation comes first.
I own gold… but only for the short-term… and then back in later for the long-term.
I’m deflationary, too, in the long run. The wealth that will be vaporized by a housing melt down will not create inflation.
In the short term, inflation is here. It’s just hidden.
I agree, deflation is coming.
Robert. I just want to say thanks!! Your book was the first thing that opened my eyes to the real estate bubble. I got your book from amazon.com and it is the best(I have also real John Rubino’s and John Talbott’s books). You definitely saved me from financial ruin as a thought I would be priced out of the market forever if I did’nt buy a home. Now I wait, watch and smile as this is all unfolding here(San Diego / El Cajon)
Thanks for posting with us! This is AWESOME!!
I think I got suckered. Was that really thee Robert Campbell?
If you mean the Robert Campbell that wrote the book Timing the Real Estate Market, that’s a roger.
Thank you for the nice words. I’m glad I saved you from potential ruin. Believe me, I’ve been there.
I predict that the drop will be sufficiently quick and large, against a backdrop of low inflation at best or deflation at worst. Thus the real versus nominal distinction will be moot.
Hey GetStucco, glad to meet you.
Give me your reasons why the SoCal housing crash will happen fast.
>>Are you predicting nominal or real (inflation corrected) declines of 40%?
This reminds me of the story of the college professor who told his students that the sun will die off in another ten billion years. A student asked him to repeat the number and when the professor did, the student said, “Thank God — I thought you said ten million years!”
Glad to see an insider voice here, Robert.
With all the liquidity (excess credit) that’s going to vaporize due to this housing collapse, I too, think, that inflation will not be the problem that so many think it will be. This is not the 1970’s-1980’s, though the Federal Reserve thinks it is still fighting that last war.
Thanks. Glad to contribute.
I don’t know what the Fed is going to do. I doubt it will let this housing bubble collapse under its own weight. Even if the Fed starts air-dropping dollars, it may save the economy a bit but it won’t save this credit-induced asset bubble.
All credit-driven booms go “ka-boom” in the end.
Correction.
I meant to say “I doubt the Fed will just sit back and allow this housing bubble to collapse under it’s own weight.”
Robert Campbell,
Bottom will be 2009/2010 due to:
1) Mortgage stress due to resetting of exotic loans set to begin a tsuanmi like increase this spring and last for the next 3-5 years.
2) Relatively tight monetary policy in the U.S. due to a potent mix of deflationary forces coupled with lack of maneuverability by Fed due to already low level of interest rates and dollar instability - real rates will not fall as easily as they have in the past and it is highly questionable whether the Fed will be able to get to negative rates again as they did in the early 90’s and 00’s.
a) inability of Fed to manipulate yield curve to thwart credit unwind as hunt for safe yield pushes investors into long-dated US treasuries; expect sub-3% long bond before decade is out.
All of the above are of course in conjunction with complete lack of affordability and supply overhang which is clearly obvious based on inventory levels despite “record” sales. All credit bubbles occur because there is a perceived lack of supply; whether it be semiconductor gluts, fibre optic cable or dot.coms…and yes, housing as well.
A dollar crisis, which if it occurred, could create the crash scenario some believe.
California will see nominal declines of around 33% while the East Coast will see declines of 25%. Let no one be fooled, these are devastating numbers: A 33% drop wipes out what was a 50% gain.
These are aggregate numbers, of course, so certain areas could see even bigger drops while others may see smaller drops.
>>>>>California will see nominal declines of around 33% while the East Coast will see declines of 25%. Let no one be fooled, these are devastating numbers: A 33% drop wipes out what was a 50% gain.
Oh yeah. Devastating for certain. How did you arrive at your 33% and 25% forecasts?
Wild guesses. Let’s be honest here.
This is what I call a New York snow job, not analysis.
Robert,
33% drop is based on approx 60% overvaluation in CA currently. Something that is 60% overvalued needs to drop 40% to get back to fair value. Subtract a few points for inflation and you get 33%.
>>>>>33% drop is based on approx 60% overvaluation in CA currently. Something that is 60% overvalued needs to drop 40% to get back to fair value. Subtract a few points for inflation and you get 33%.
Hedge
How did you arrive at 60% overvalued? What data are you looking at? Thanks.
Robert,
I find that National City’s survey matches quite closely with my methodology so I have relied on their data with periodic spot checks on the analysis.
http://www.nationalcity.com/corporate/EconomicInsight/default.asp
Hedge,
>>>>>I find that National City’s survey matches quite closely with my methodology so I have relied on their data with periodic spot checks on the analysis.
I don’t follow their work super closely, but its been my observation that %overvalued for cities seems to jump around quite a bit on a quarter-by-quarter basis. Correct me if I’m wrong. If thats true, even though NCM may be on the right track, I am somewhat suspicious of their methodology.
Don’t get me wrong, I’m not trying to make economic forecasting an exact science … but I’m trying. (grin)
Robert,
Are you a Berkeleyan?
This time is different. This is the first real estate collapse since AL GORE created the internet. The Wisdom of Crowds has a voice on blogs like this one which the mainstream media cannot suppress. Busy-week can print their straw man caricature, and RE boosters can refer to us as Bubbleheads, but at the end of the day, as the crash accelerates, the media will have no reputation left with which to repudiate our favorite warning to would-be buyers: “Don’t catch a falling knife.”
I went to Berkeley.
GetStucco,
>>>>Are you a Berkeleyan?
No, I went to UCLA. I didn’t have the brains to get into CAL. (grin)
Robert Campbell
Hedge,
Are you for real? I mistook you for the silver spoon / Andover / Ivy League type. My apologies.
Yes. Lived on Dwight and College.
That has been my guess for a while. John Karevoll, are you reading? Would you care to weigh in on the discussion?
Getstucco,
Too bad you can’t back up your “guesses” with real analysis.
Sometimes a “guess” is just a “guess.” I like supporting data too, but where are you going to find data that will predict the behavior of those governors who control the money-supply? You just have to go on their behavior or the past.
Robert Campbell, wrote to you above.
In reading your analysis above - housing collapse, falling interest rates - you reminded me of the Gary Shilling article in Feb 13 Forbes. Did you read it. It was titled “Into the Darkness” or something. FWIW, I think you and Shilling are right.
OK hedge, I agree with you ‘09 or ‘10. The question remains: Will it be an orderly, linear retreat, or a rout followed by a regrouping in ‘10.
I am of the school that it will be a rout, slow decreases in Q1 & Q2, accelerating into ‘07. End of ‘07 will be the worst.
Buying anytime between ‘08 and ‘10 will be a good move for those who want a home.
Same thing I see, except 2008 may be a little soon.
I wrote in my blog:
I think once housing is seen as a bad investment then comes the pain. The lending situation exacerbates that. The fact that this has been underpinning the economy dogpiles on top of that. But we’ll survive, go to work, make stuff, laugh, cry, love, eat tacos, etc… life goes on. And if a “fat tail” event occurs, well there’s not much point in worrying about that aside from keeping a few Krugerrands in the closet.
My favorite measurement is price/rents. Based on that, I would say that 25% to 50% drop in prices is due (depending on the market). Additionally, the affordability index and price/income ratios are way above long-term trendlines. It is an odvious bubble.
Obvious bubble - absolutely. They don’t get more obvious than this.
Bingo. Rental equivalency doesn’t lie. Renters are the real rulers of the market once the speculators leave. That’s what happened last time. They can crowd together or spread out as the local job/economic situation dictate much faster than any home price can correct.
So according to that rule we are due at least a 40% haircut here in San Diego based on today’s numbers. And since we likely overshoot on the downside in proportion to the overshot on the upside…. well, let’s just say I’m battening the hatches. I am preparing, however, to look for some choice salvage after the storm. Expecting 2010/11 based on previous cycles. While Japan took much longer, I think there situation was a little different than our, though it is a discussion point.
Getstucco does tend to be a bit… enthusiastic… in his opinions, but we always need to take what we read in these forums with a big grain of salt.
I
Rents are the “VALUE” of RE. The rule of thumb used was 10xrents(yearly).
A $600/mo. rental was worth ,$70k give or take, ie 600×12=72000.
Here today that same rental would yield $1,300/mo.
ie. 1,300×12=160k (give or take), these class of homes peaked at $300k last year and are now listed (and sitting) for about $270k.
I havent seen this many listings since the early 90’s and the inventory is exploding here.
I see home after home that sold in the last 2-3 years come back onto the market and many coming back that pulled their signs last year in hopes that this spring would “pick up”. The allready high number of listings we have now will be amazing come this September and this will concurr with NOT A BUYER IN SIGHT.
I have been an agent here in nor-cal (Stockton) since 92′ and ran our property management and owned my own rentals. The 10times rents might move a little depending on interest rates, but is non the less valuable. It will net an all cash buyer somewhere aroung an 8% return on their money with bubble appreciation as the kicker.
The last decent purchase here was a very nice 2 bedroom in a blue collar hood for $120k in 02′. It was a little high then, but a screamin deal compared to other inventory. Since then the market has been unhinged from all semblance of reality.
At the last bottom they were selling the foreclosures at the courthose at between 1/2 and 2/3 of their market value (around 35k-50k for 70k property).
I have full confidence (and cash in the bank) that property worth $150k will be sold in auction for less than $75k, there are just too many foolish mortgages out there now.
The rental value of property allways determines the true bottom. Someone will allways be willing to step up to rentals at the bottom. I can not see rentals ever initially yielding more than 10% after cost, they are just too attractive there when you start factoring in leverage. At a 10% yield you can break even with a pretty high interest rate on a mortgage, anything bellow 10% would make the property free and give you any upside appreciation and tax bennefits to boot.
The rental value of property allways determines the true bottom. Someone will allways be willing to step up to rentals at the bottom. I can not see rentals ever initially yielding more than 10% after cost, they are just too attractive there when you start factoring in leverage. At a 10% yield you can break even with a pretty high interest rate on a mortgage, anything bellow 10% would make the property free and give you any upside appreciation and tax bennefits to boot.
And yet people will not buy because RE will be a “bad investment”. It will be difficult to get loans unless you have cash, immaculate credit, and a note from the Pope.
Oh I can’t wait.
There are many people out there with the cash and credit that will be happy to pay for the 10% yield. The note from the pope may be difficult to obtain.
My point is that the RE will only fall so far before smart money will move in.
It is just to juicy to obtain yields far in excess of other investments with: a built in inflation hedge, increasing yield (rents), tax bennefits, extreme leveraging ability and very little risk.
It is exactally when everyone thinks “Real estate is a horrible investment” that it will be picked up and the bottom will be made. Just like the flip side last summer when everyone thought “Real estate is the greatest investment” and it was the absolute worst time to buy.
A good friend and self made millionare told me long ago “If your standing in a long line to buy anything your making a mistake”, this has proved accurate in all my investing: RE, securities, bonds, businesses, etc. Nothing has ever made/saved me more money than appling this to any substantial purchase.
RE is certainly a shitty purchase now, but if you hold that distortion in your heart it will cloud your judgement in the future.
Once the cost of RE added with its holding cost falls bellow renting an entire new pool of buyers will emerge and the cycle will start again. Sheeple will eventually figure out that renting for the price of owning is not good and the heard will again move RE beyond its investment value to absurd levels.
The investment value never NEVER changes, it may fall bellow for a short time but will bottom there only to eventually rise.
To think that RE will be a poison pill forever for any reason is the flip side of “RE never loses value”. There are buyers and sellers markets, just make sure you choose the appropriat one depending on your side of the transaction.
A good friend and self made millionare told me long ago “If your standing in a long line to buy anything your making a mistake”, this has proved accurate in all my investing: RE, securities, bonds, businesses, etc. Nothing has ever made/saved me more money than appling this to any substantial purchase.
Great philosophy for ASSETS. However, I just got an awesome deal on some ski boots last weekend and I definetely had to wait in line;-)
Your time must not be worth anything, or else you would subtract its value from however much you think you saved on your “awesome deal.”
Wow, hedge, you and I think more alike than I realized! You beat me to the punch on this line.
Too bad your guesses are not educated.
I bet you never even took real analysis. Anyway, what does real analysis have to do with real estate?
Of course the UT had to headline “Prices Up” even though they dropped 5% from December and 20% for new homes.
Two economists enter an elevator at the elevator at the lobby level. When they reach the 50th floor, the cable breaks and the elevator plummets toward the ground. As it passes the second floor, one economist looks to another and says, “Well, the good news is, we’re still twenty feet higher than we were sixty seconds ago.”
We should adapt that story to reporters who tell us how much home prices have gone up since this time last year, ignoring the 10% drop since last month…
If you look at that chart, as well as the Dataquick chart from Orange County, you’ll notice it resembles something:
A rollercoaster plunge…
…from ten stories up…
…but this time it really is different…
…since none of the riders are securely strapped in.
The UT can spin it whatever way they want - but those numbers ‘aint good - couple that with rapidly rising inventory and still no buyers showing up - people are starting to get nervous - another 4 months and it’ll be a full on rout.
“On a neighborhood basis, there were some big declines as well as big increases in January, compared to January 2005, in single-family-resale prices.”
OH GOODY… this will be perfect for REALTORS who “WILL SPIN AVERAGES” and figure out any other COCK + BULL story to stay on their bandwagons and soapboxes… propping up their trendy realtyspeak…
“SOFT LANDING” and “RETURN TO NORMALCY” superduper!!
The January median stood at $490,000, down 5 percent from December but still up 2.5 percent from year-ago levels
________________________________________________
YOY CPI was an increase of 3.4%. These homes are now in negative territory on a CPI adjusted basis!
And don’t forget you have to pay your friendly neighborhood agent 6% to sell it.
Of course I guess you can just refinance to grab your equity gain. Ok, now I really feel gross.
OT. Sydney prices fall for 2 years running, more expected.
http://finance.news.com.au/story/0,10166,18137550-462,00.html
Sales dropped from 4,262 transactions in December to only 2,763 last month.
If you look at the seasonal adjustment factors on the NAR site, a 50% sales drop-off between December and January is normal.
The numbers over the next few months will IMHO be quite unequivocal. We don’t need to gild the lily.
This is the tip of the ice berg.
Yeah, when you have a bias you need to force yourself to look for data that DENIES your belief.
I like to pretend I’m stupid. It makes it much easier when it turns out I wasn’t pretending.
Bad arithmetic in my previous post. I should have said 33% drop, ‘cos December is normally about 50% higher than January. Gain and loss percentages are not reflexive :(.
Does the NAR also have a seasonal inventory adjuster?
LOL.
You could probably work one out :D.
Inventory is the number at the moment that can’t be explained away, it’ll be prices as well by mid year.
If we want to get a clear picture of what will happen to Condos in San Diego’s downtown we need to turn the clock back to 1991. The Harbor club across from the convention center (the black condo highrises) were the first residential highrise condos built in downtown San Diego. They happenned to finish construction at the same time as the last housing crash. The towers went bankrupt 3 times and the units couldn’t be sold for 100k. The HOA fees had to be split by the 20% that were left in the tower, and those costs snowballed and became a burden on the remaining owners. As more owners foreclosed, the bigger the problem. Guess what? We have 20 + new residential high rise towers this time around with another 20 planned. Only the top 1/2% San Diego families can afford these condos…and why would you pay 1 Million for a condo downtown when you could live on the beach? The school districts are horrible downtown. A 2-income family (the top 1/2% of San Diego families generally speaking) would never buy one of these. The HOA fees are already 750/month for a 2 bedroom in one of the “cheaper” towers.
>>>>Guess what? We have 20 + new residential high rise towers this time around with another 20 planned.
The ones that are planned will never be built. How many condo tower buildings are now under construction?
At a minimum there are 20 that have been built and another 10 are just coming out of the ground and another 10 are about to start….
I remember sitting in Cafe 222 looking up at those eating breakfast and hearing that the entire building was vacant. The things people can convince themselves of now is just… bizarre.
I know the exact situation you are talking about. The Union Trib did a great story back then on a few of the owners (the very few) who were living in the building when it was only 20% occupied. It has stuck in my mind because it was hilarious reading about how one guy could roam the hallways in his boxer shorts because his floor was empty except for him and he had never run into any neighbors. I remember those days well as I had house fever and really wanted to buy in the spring of 92, but I got scared off as almost every property I looked at was some deperate owner who was upside down and trying to get out of his situation. Luckily I did buy in 99 and ended up selling in mid 04. I’m 46 and what has happened in the housing market has defied all logic and goes against every fundamental that I learned in Business School (same reason I never bought in to the Dot Com craze…lack of underlying fundamentals. Unfortunately I put my money into a “good” company with great fundamentals - WORLDCOM! Damn you can’t even trust the numbers.)
TommyD,
Your story sounds alot like mine. I too followed what they taught me in Business school. Haven’t made much, but haven’t lost much either. I am still a believer in the fundamentals so I hold cash. Common sense will return. Unfortunately, I think there will be many fools who get burned…
I heard an ad on the radio today here in Vegas from First Option Mortgage that talked about the housing bubble and how you could “…loose 50% of your house value overnight! So call and see how we can protect the equity in your home”…..LOL…love to see the look on the realtors face when that comes on the air with a client in the jumpseat…LOL
You are kidding right?? I would love to hear that ad
Nope, I kid you not!!!! I went on their website hoping that they had a written ad but they didn’t
They seem to be a subprime lender -what a surprise
I’m just dying to know how a mortgage company (or anyone else for that matter) is going to “protect the equity” in anyone’s home.
Get it out now before its all gone!
The only way they could ‘protect the equity’ in someones home is to buy it from them, now.
Don’t think that’s what they had in mind.
A couple gallons of gasoline and a match?
Didn’t think of that. Still stuck with falling land value though so hardly a complete solution.
Tell me if I’m wrong But have the prices In the City of Orange, In Orange County, Ca dropped 50k? I been watching the market wanting to buy a home, to live and rasie my son, but been waiting for the market to tank just like you guys. Living In Huntington Beach seeing Condo’s going for 600k for a 2bed-1bath condo just dont seem right. So I been looking at the home’s out there for the last couple of week and prices seem to be at 699k for Single family home 3bed-2bath. Today I punched up the same listing searches I look for and all these homes I looked at last week have droped to 650k nice!!!
I know not all have dropped there price, some are still at 699k but soon they will have to follow the heard again! I think the Realitors are listining to you guys.
Save your money, buy in 2009, spend more stress-free time with your son, and send him to private school with the money you save.
Just FYI — check out the DQ numbers for Jan 2005:
http://www.dqnews.com/RRSCA0205.shtm
Last year, there were 3,324 San Diego home sales. So it’s not just a 35.2% plunge between December and January, which may be reflective of seasonality, it’s also a major 16.9% drop from the same month a year ago. There is NO way to explain away YOY drops as seasonality. Sorry RE bulls.
The chart at the bottom of that article is old….I was really confused there for a second!!!
Markmax, the article is dated 2005, not 2006. I was confused too
The agents don’t have the experience to deal with this, and by the time them and the sellers figure it out, it’ll be too late to lower the price because everyone will be doing it. If they dropped enough right now to look like a bargain, comparatively, they’d stand a chance of selling. Here’s my stats for North SD County bubbleinfo.com
A decline is a decline, 5% off means prices are dropping, yes they may be higher than a year ago, but prices are also higher than 20 years ago so what, down is down you RE spinners, and buy the way all we read now is inventory up, prices going down, builders given big discounts, etc, etc oh yeah I forgot this is a normal market Baaawwwaahhhhhh
Yeah, but to be intellectually honest we must look at the trend and even in these crazy years prices have dropped at this time. Granted by not quite as much.
I agree 2006 is going to be the year of the hurt, but if we push the numbers where they don’t belong then we are as bad as “they” are.
Where the heck is Nestor?
This page is now 404 - Not Found
I have noticed that many of the articles which discuss price declines have been taken offline.
For example - there was a great rticle titled ‘Inverted Yield Curve to Cool Housing Market’.
It has been taken offline.
Is this a NAR conspiracy, or are websites / newpapers just afraid of losing their advertising revenue?
Ben, can we do a post on the missing pages? Can we contact the posters and see why they were taken off? It is uncanny - I have noticed it a lot.
Has anyone else noticed?
The link works just fine for me. Apparently the NAR/CIA/NSA conspiracy was thwarted this time.
Yes, it does work now. Last night, it went offline for a while at work.
I say “San Diego condos for everyone!”
Man don’t stick me with one of those! You think I want to pay property taxes and HOAs on that albatross? What have you got against me man?
I say “San Diego condos for everyone… ELSE!”
From the article on Fortune about Gary Watts:
“But Watts’s favorite indicator is housing inventory. Orange County has only about a two-month supply (compared with the national average of five months). “That’s just going to get sucked up,” says agent Debbie Ferrari.”
15,500 homes is not a two months supply.
Source: http://www.ocrealestatfinder.com
Looking inventory figures that only include SFR’s is misleading.
You have to see the whole enchilada.
Land, leases, new homes, old homes, new condos, old condos, mobile homes- to get the real picture for what is happening in both OC and San Diego.
That Ferrari looks like it’s missing a wheel, to me.
And Mr. Watts is cashing out, in my opinion. Heading for the cashier’s cage, he is.
Sorry, that’s http://www.ocrealestatefinder.com.
Median prices are going to mean less and less as the condo glut arrives. Times like these call for better metrics like $/sq ft broken out into condo/townhouse/single family. We are going to see the same dynamics in the northern Va area with median prices falling further than the actual market as a whole do to an influx of condos.
The realtors haven’t been honest with their numbers recently, I don’t think the housing bears should be tempted into the same numbers manipulation, it will cause us to lose credibility. If the median house is now a 1300sq ft. 2BR condo and it was an 1800 sq ft. townhouse a year ago then comparing the prices of these two is apples and oranges.
I agree, we need to keep this apples to apples. But I haven’t seen these types of numbers in years. It looks like alot of inventory is hitting the market. The slow down is obviously here, now comes to what degree. The foundation for most people buying these homes at these prices with stupid loans is they will continue to appreciate. We will see how much sense these loans make when home prices flatten then fall.
And this has also KILLED people on the way up.
If they think a 2/1 attached is worth $500K, they go buy based on that. But they end up with a shoebox condo with a covered space vs a townhome with a separate dining room and 2-car garage.
I could care less about credibility. I’ve followed property for a long time. I like the business and just want to behave in a financially sound manner.
“But, in the new-housing category, which included newly built homes as well as apartments converted to condos for sale, there was a $104,000 drop from $539,500 in December to $435,000 last month. That dollar decline represented an all-time record change, based on DataQuick reports back to 1988; while the 19.4 percent decline was the second biggest after a 24 percent decline recorded in July 1997.”
Whoa baby, -19.4%! Who’s your daddy! We’re talking a full-blown rout here!!
I’m pouring a nice glass of cab right now.
I was browsing through craigslist and it’s amazing how many homes are vacant. They are desperate!!! Let them pay 2 plus mortgages. White Zin is good too
At this rate maybe I can scoop up that 1.2M SD condo from that psychotherapist for a
At this rate maybe I can scoop up that 1.2M SD condo from that psychotherapist for lees than 500K next year! …With the 2 plasmas, of course. Yahoo!!
“That dollar decline represented an all-time record change, based on DataQuick reports back to 1988;…”
Wow! They sure have a long time series on which to base their measurement of the “all-time record change”!
Hey RE Bubble bloggers:
We have made the White House’s radar screen. They had to talk about it.
Check it out.
http://tinyurl.com/8nddu
Good article. Did you watch 60 minutes last night? We are in a world of hurt in so many ways.
I see this bubble crashing harder and faster than we’ve ever seen before.
No I didn’t catch 60 minutes.
Ok this is HILARIOUS. I Tivo “Cops” and just got around to watching last Saturday’s episode. Yes, I like to watch idiots running around in other situations besides housing.
Anyways, in Las Vegas, this cop pulls over to check out a girl who’s going to second base with another girl on the strip and who then walks up to apparently a strange guy and starts doing the same thing!
She’s dressed like a stripper (got the body to go with it), a piercing under her lower lip, and a big old tatto on upper right arm. The tattoo on her upper chest was tastefully smaller. I didn’t get to see any others unfortunately. She claims she’s gay and the girl was her girlfriend, who has since disappeared into an SUV and we do not hear of her again. This young lady was completely unaware that her girlfriend was gone and quite distressed by the disapperance when informed of it by the cop.
Sooo… conversation ensues:
Cop looks at license: “You’re from Washington?”
Girl: (Nods)
Cop: “How do you know her? She from Washington too?”
Girl: (Nods)
Cop: “And you’re staying in Polo Towers?”
[Looks like an on-strip timeshare.]
Cop: “What do you do for a living?”
Girl hesitates for first time in conversation, eyes flicker right and then back, starts to lean in, but then the cop is distracted by her male “friend” for a moment. She then tries to get his attention by grabbing his shoulder… real smart.
Cop (brushing away her arm): “No no…”
Girl (at the same time as above): “I sell homes.”
Cop: “Huh?”
Girl: “I sell homes.”
Cop: “You do? You in Real Estate?”
Girl: (Nods) “I’m in Real Estate.”
Girl: (Nods)
Cop: “So why are you out here like this? You’re a mess.”
Girl: (Shrugs)
Oh God. Hilarious.
Well, it’s good to know she probably has other assets to sell on the off chance her high-flying RE work dries up.
ROFLMFAO!!!!
Read about Once-torrid housing market cools.
“It is a little disconcerting to drive down some of these streets and see every other house for sale,” said Brad Westover, owner of American Harbour Realty in Jupiter.
Even if there’s no crash, area sellers will have to get used to the idea that their homes are not the gold mines they once were. Westover said one of his clients recently accepted $650,000 for a home listed for $750,000.”
Every other house is for sale, but no crash here…. hehehehe
This is getting funnier by the day.
Notes from Aussie housing bubble’s bust
When bubbles break, the aftershocks don’t just hit the speculators and the fools. They hit everybody. Check what’s going on in Australia and could soon happen here.
By Bill Fleckenstein Posted 2/13/2006
++++++++++++++++++++++++++++++++++
This year is shaping up a lot like 1987. Back then, we saw speculation in commodities and stocks in general (though in a much, much milder form than exists now). We also had a new Fed chairman — Easy Al Greenspan succeeded Paul Volcker as chairman that summer. And, ultimately, we had a stock-market crash.
Longtime readers know that I have been expecting a stock dislocation to mark the end of our long-running mania. I can certainly make the case for that happening this year (though I could also see how it might have happened in a few of the last several years). Just because a dislocation hasn’t happened doesn’t mean that it won’t. (See “The odds of a crash are higher than you think.”) To me, in fact, the probability has only ratcheted higher.
Taking into account an ugly confluence
For such an event to happen, a number of market forces will need to align themselves in a certain way. Given the impossibility of predicting when that alignment will occur, we can only try to position ourselves as it develops — though, in the very short run, I have almost no shorts, as the path of least resistance seems higher for the moment. (For a detailed explanation of why, please see my Feb. 8 daily column.)
Turning to one potential catalyst in that alignment — the unwinding of the housing bubble — we have been given hints. Homebuilder Toll Brothers (TOL, news, msgs) provided one last Tuesday when it cut its forecast for home “deliveries” and said that signed contracts declined 21% in the first quarter from a year ago. Thus, more evidence of what we have been seeing: The housing ATM is slowly creaking to a halt.
Housing harbinger from another hemisphere
And last week brought evidence of how the problem has affected Australia. This, from “Slump hits home,” a story in the Sydney Morning Herald. As writer Matt Wade chronicles, the slow unwinding of that country’s housing bubble is starting to hurt a bit, after having been somewhat benign last year:
“The casualty list from Sydney’s property boom is growing. First, a generation of first-home seekers found itself priced out of the market. Then, as house prices finally sagged, thousands of overstretched investors and owner-occupiers fell into trouble.”
He goes on to point out the insidious nature of bubbles, which I railed at constantly in our last equity mania — and which is why I detest the Fed so much, because of its role in aiding and abetting idiotic activities that ultimately harm society:
“Now, even vulnerable people who had nothing to do with the fluctuations of property prices could be hurt. As the State Government struggles to repair the holes in the budget caused by stagnant property revenue, the aftermath of the boom could be painful for bystanders like the old, the sick, the disabled and the poor. The suffering would occur if the Government were forced to cut services and lift charges for these groups as it covers the shortfall in property taxes.”
Unfortunately, that’s what governments do. The spending rises to meet the level of the income they receive, and they never recognize that the “windfall” is in the form of ephemeral bubble revenues. We also saw this happen in the wake of our last stock bubble.
Continuing on, Wade’s article cites last year’s record number of mortgage defaults, whose emotional impact is described by attorney Katherine Lane of the Consumer Credit Legal Centre:
“Investors are part of this, but in my experience from advising people here at the centre, it’s mums and dads as well. The cost to these families is horrendous — there is great financial loss, there is stress, there is the embarrassment of losing their house and then they have to move out of their community.”
And, from the director of a social-services organization: “It’s a terrible irony. The low- and modest-income earners who were not able to build up the value of their assets through the housing boom, and who have not been able to reap the benefits of more than a decade of growth, are the ones who will experience the pain of cuts.”
The long arm of ARMs
The point being: No one is shocked when speculators and people who acted like fools get hurt in a bubble. But as I have said, the cost to society is far higher. Australia and the United Kingdom are canaries in the coal mine, as they have been raising interest rates longer than we have. We are behind them in the unwinding process because we acted later. We’re also behind them because of the lag effect of all the floating-rate mortgages that were used at the end of the boom.
But I believe that the prospective pain for us will be far greater, due to the absurdity of our lending practices and the sheer number of people doing the speculating — which will unfortunately insure a horrendous fallout. Furthermore, if the timing of our real-estate bubble’s unwind coincides with other bubbles’ unwinding, it doesn’t take much imagination to see how the financial environment could get extremely ugly.
“Now, even vulnerable people who had nothing to do with the fluctuations of property prices could be hurt.”
Just wait until it comes to light that much of the subprime market demand was constituted by soon-to-be-bankrupt low income households taking the bait of govt policies designed to make us all homeowners…
As an Australian allow me to point out that governments here may have a bit more wriggle room than I understand to be the case in the US. 2 years after housing peaked our Federal Government is running a surplus of 1.2% of GDP, for example.
Robert:
I’ll up your 40% to 50%. It’s been totally crazy here. The hangover is going to be a doozy. I’ve lived in San Diego about as long as you have and been through the last 2 booms/busts but haven’t seen anything like this one. This one went way out of control for much too long. The major questions will be how long the drop and how drastic. I’ll put my money on 50% when it’s all said an done.
Me too Pete. The realtors keep denying the obvious. Why would they be so defensive if it wasn’t so?
Thanks, Pete. You’re the first person that has called me an optimist in quite a few months.
A 50% drop sounds a little crazy and I think it will be more like 25-30%. But hey, let me do a quick calculation with the 50% drop scenario for actual longer term homeowners. I bought my home in 99 (an upper level home on the golf course, decent lot, great view, upgraded i.e. double ovens, 6-burner cook-top, etc) for 282K. I remember thinking that was a TON of money and some people thought I was nuts. Had to put my 20% down, etc. Well I remember for the first couple years hoping for a job promotion, but also knowing that meant I might have to transfer out of the area. All I was hoping for with the house was to clear enough on the sale to cover the realtor commission and recoup the 5K I put into a patio cover. Anyway the point is, I ultimately sold in 04 for 700K (crazy)…if you took 50% off of that that drops the house down to 350K. If I was still in the house I would be depressed at the huge paper loss, but the fact is, all owners who were living in there homes prior to the bubble will still be ahead even with a current 50% drop. This is the same thing that happened during the last bubble. Anyone who bought during the bubble run-up (speculation) will simply need to stay put for about 6-7 year and wait for prices to eventually work there way back up. Unfortunately (for them) a lot of people just bought their homes as “investments”, not for a place to live that fits in their budgets. Those are the ones that will lose big time and probably end up foreclosing.
A 200% appreciation sounds a little crazy, too. What goes up, must come down…
RELAX, YOUR FEARS ARE UNFOUNDED
The President has conducted an Air Force One fly-over of the economy and housing market and has proclaimed “all is well.”
Nothing to worry about with that negative savings rate either, the equity in American’s homes wasn’t counted!
This president needs to be evicted, pronto.
Yeah, that’ll fix everything. I guess it would take a couple weeks though.
Which will drop first? Homes prices or bombs in IRAN??????
home prices, of course.
Apparently, we’re going to drop McMansions on Iran, from helicopters. They’re less valuable then bombs. We’re going to fill them with crap from Pottery Barn and drop them right on Tehran.
sales in sonoma county plunged in january! http://rereport.com/sonoma/
This is pretty amusing. Check out the name of the owner. I’d say Mr. Toker has been toking on some rad stuff with this asking price.
http://sandiego.craigslist.org/rfs/133729816.html
Genghis Toker??? LMAO, that has to be some kind of pseudonym. He’s a well-known realtor in disguise. He’s gonna be smoking more than weed by the time this is over.
Wow, offering to pay closing costs haven’t seen that in awhile
Jeeps, that’s gotta be the ugliest condo i’ve ever seen. Doesn’t appear to be any windows. Good luck with the new job, Genghis.
Downtown San Diego Condos will make for nice military housing over the next 5 years, the boys deserve nicer accomodations then the barracks.
That will mean a return to strip joints, $2 beers, and drunken street brawls in downtown San Diego, I sure do miss those.
I am also wondering if a pacific hurricane and major earthquake has ever hit downtown San Diego or if this is even possible because my intuition tells me something like this will happen as the real estate bubble busts.
I hear you Avenger, though the problem with an earthquake is that it would give the RE industry a scapegoat. They don’t deserve one. The history books wouldn’t do justice.
Turns out it is possibel for a hurrican to hit downtown San Diego, I believe right as the real estate bubble crashes a “100 year” hurricane will hit San Diego in Sept. 2007 - God just loves that kind of stuff.
Hyacinth was a Category 3 major hurricane. It headed out to sea. After weakening to a tropical storm, it recurved and headed straight for California. It made landfall in the state as a depression and dissipated September 7.
I’m surprised, didn’t think the ocean temp. was high enough. Guess it’s more and more likely every year now.
If it happens on top of a burst bubble you could pretty much write off downtown San Diego for 10 years.
ha ha ha ha - Southern California is Due - So many non-believers living along the coast, I hope I live long enough to see that day.
“For years, meteorologists had heard rumors about a San Diego hurricane, but there was not any solid evidence easily found,” said Landsea. “But Mike found newspaper accounts of the hurricane and its damaging effects as well as a first-hand meteorological observations by an Army surgeon named James Mulholland who was stationed at the New San Diego fort in 1858.”
One such account begins: “One of the most terrific and violent hurricanes that has ever been noticed by the inhabitants of our quiet city, visited us on Saturday, the 2nd at daylight.” Reports were made of gradually increasing winds, “ominous-looking clouds,” and “impenetrable clouds of dust and sand,” until about 1 p.m., when “it came along in a perfect hurricane, tearing down houses and everything in its way.”
As with Atlantic hurricanes, the conditions were right. Coral evidence suggests an El Niño event may have occurred that year, which would have kept ocean waters warmer than usual near California. Warmer waters and a conducive atmosphere allowed the hurricane to sustain Saffir-Simpson Hurricane Scale Category 1 intensity (wind speed of 72-95 mph) as far north as southern California. Available evidence suggests that the hurricane tracked just offshore from San Diego, without the eye coming inland, but close enough to produce damaging winds along the entire coast from San Diego to Long Beach.
Nice. They could call it Hurricane David, after that Lereah wanker. Or may Leslie, after that washed-up tramp ‘Appleton-Young’.
Leslie and our hedgefundanalyst are both former Berkeley students. (Leslie graduated — not sure if Hedge got that far before Wall Street snatched him up.)
Berkeley or not, Leslie is a trollop.
lots of new home sales stories out! check out quinhouse.blogspot.com, with sites cited!!!
Uh-oh Bush says no worries about the high flying housing market. The economy is not at risk from a price meltdown. This is the same guy who declared victory in Iraq. maybe i ought to sell my condo — ten blocks from the the White House — before its too late.
http://www.dcbubble.blogspot.com
Sorry — too late. Unless you bought a few years back…
under Bush and Cheney’s leadership, everything is rosy. Hah…..
It’s official. The #1 news morning news program in Las Vegas is the SPANISH broadcast on Univision.
Gracias el presidente Bush!
cheney’s alright…he shot a lawer over the weekend. cut him some slack
Cheney obviously didn’t shoot the lawyer on purpose. Texas law requires at least 12 gauge during lawyer season. They’ve extended that season and the bag limit as well. Turns out not only are there far too many of these vermin but they tend to infest government buildings.
Er, ever tried living in a country without the “vermin”?
It’s decidedly less civilized.
John Stewart cut him something tonight, but it was more like flack than slack…
Stewart made fun of Cheney? Good to see he’s branching out from Bush.
http://biz.yahoo.com/ap/060213/bush_economy.html?.v=5
This is when you know we are at the zeinith of a housing bubble. I think this statement was made in desperation to comfort the masses.
Bush says that housing will be ok because homebuilders will be building more houses because prices are so high. This will sustain high prices.
Sounds like false hopes of WMD’s and many more good paying jobs to me.
>>>>>>Bush says that housing will be ok because homebuilders will be building more houses because prices are so high. This will sustain high prices.
Too funny. High housing prices is what got us into this mess. Now we need more?
Prof. Piggington will love this comment by Bush
Well, this administration let the oil industry write their energy policy and let the timber industry write their environmental policy.
How do you think they got their real estate report?
remember, what eventually happens is the opposite of what this guy says. he is pretty accurate.
The whole Yahoo piece was a great read. Housing comes in for a soft landing. Don’t worry about the negative savings rate because it doesn’t count all the gains people have in real estate. Well, I wouldn’t count the gains in real estate unless you can unload the overprice POS, and right now, few are buying at these prices, Mr. President. Good luck with the resiliant economy this year. Hurricane Katrina only took a few days to develop, this housing bubble has been brewing for five years.
Wow — the White House is following the bubble! This is going to end soooo badly!
Check out this Seattle Craiglist listing:
http://seattle.craigslist.org/rfs/133759557.html
Quote:
“Due to recent marketing efforts, I now have way too many houses than
I could handle. As the result, I’d like to flip this house to
someone who’s looking for a nice home in Federal Way.
“
Hope he has cash to burn, he’s going to be holding that awhile. That ad is borderline insanity. The only thing he’s going to attract is bottomfeeders at 60% LTV offers. Another smart guy on his way to crashin and burnin
if bush says it, you can pretty much guarantee it’ll turn out wrong.
The Robert Campbell threads are great but disjoint. Ben; Can we break out some of ideas and follow up? I’ve detailed my Silent Spring (-20%) and -7% per annum for 3-4 years previously but I’m sure it will get lost in the current maze.
Robert Cote,
I’d love to learn more about your analysis. Can you give me some links?
Robert Campbell
Robert Campbell,
Great book! Read it last year and you solidified my suspicions about the housing bubble…
That said, any thoughts about the correlation between monetary supply and house booms and busts or bubbles in general? Seems to me that this might be the greatest predictor of when booms and busts will occur. It would be nice to see a chart (I can’t find one) comparing M3 and house prices…might show the lag time from when moneys being pumped in and boom and when money is being taken out and busts.
ca renter,
Thank you. The data doesn’t lie, does it. It’s always about supply and demand, and if you track the key trend indicators in my book you’ll be ahead of the curve.
Robert Campbell
Waiting in Las Vegas,
I’m glad you liked my book. I haven’t done a thorough study of the correlation between money supply and housing booms and busts. The real biggie is that drives the cycles is the expansion of easy credit and the willingness of consumers to borrow money, which may or may not be directly tied the money supply.
Robert Campbell
Robert Campbell
Robert Campbell,
I thought there was a bubble in SD in 2001/2002. In early 2003/late 2004, things were so out of control that I started doing some research on the housing bubble. Your book was one of the first things I saw. Thanks to your writing, I realized it was not just a vague feeling I had, but there was indeed a housing bubble. I took note of all the leading indicators you pointed out, and could see the end of the bubble coming in summer/fall 2004. THANK YOU for your thorough work and for trying to inform “the masses” about the housing bubble.