Buyers Are Balking At Paying What Sellers Are Asking
The Mercury News reports from California. “Prices of single-family homes were up 17.1 percent in April from the previous year across the Bay Area, according to DataQuick. Although inventory is still low, it is increasing with the summer home buying season, and that may ease some of the pressure. But some of that recent inventory growth may be because owners are overpricing their homes and those homes are not selling. Some are behaving like investors with a hot stock, trying to ‘time the market’ by holding onto their properties in the hope of selling at the peak, said Don Cruz Datanagan, East Bay manager for ZipRealty.”
“Sales of single-family homes dropped 5.5 percent in April from the previous year across the nine-county Bay Area, according to DataQuick. Kabir Chahal, and his wife, Labina Patel, who work at Silicon Valley tech companies, want to move but are reluctant to part with a mortgage with a low interest rate. They bought their Almaden Valley home three years ago for $800,000, refinanced at 3.875 percent.”
“They could sell for about $1 million, Chahal said, but the houses they might consider buying are priced at $1.1 million to $1.2 million, and there aren’t many available that they really like. ‘We are going to keep looking, but both me and my wife realize we are not going to get so lucky this time around,’ said Chahal. ‘If things don’t work out, we’re not going to overpay.’”
CBS San Francisco. “More and more, home buyers are bringing a once-rare tactic to the negotiation — all-cash offers. And, in the San Francisco Bay Area, a lot of those buyers are coming from China. Phil Matier spoke with Mark McLaughlin, CEO of prominent San Francisco real estate firm Pacific Union International Inc. Matier: ‘What is driving the capital here … what’s [causing] people from China to invest this kind of money in San Francisco?’”
“McLaughlin: ‘I think we’re seeing three different phenomena. One is asset diversification, people trying to move money out of China. Two would be education for their families. And three would be lifestyle, this is a beautiful place to live.’ Matier: ‘Are they actually living here or are they just buying houses here the way we might be puttting money in a safety deposit box — it would be safe here, it’s free from any government moves in China and the value would be appreciating?’”
“McLaughlin: ‘It’s difficult to generalize on that but I’d say that probably fifty percent of them are living here.’”
The Santa Cruz Sentinel. “The median price for a single-family home in Santa Cruz County was $625,750 in April on 154 sales, a shift from March with a median price of $662,750 on 114 sales, according to Gary Gangnes of Real Options Realty, who tracks the numbers. The median, the midpoint of what sold, spiked a year ago in April to $640,000, peaked in November at $674,444, fell in December to $618,500, and began rising again.”
“One trend is for smaller condo units getting built in walkable locations. The newest is 224 Laurel St. in downtown Santa Cruz. Investors from Los Altos took over an empty lot that went to foreclosure and put up the 16-condo project that got city approval before the market tanked. The initial investors had hoped the condos would fetch $600,000 each. Asking prices currently are $279,000 for a 400-square-foot studio and $359,000 for a 480-square-foot one-bedroom unit.”
“Home buyers are balking at paying what sellers are asking. That’s the explanation Dave Dawson, an agent with Bailey Properties, offered for the current market. ‘What’s happening, prices ticked up, sellers want more, and buyers are not ready to give it to them,’ he said.”
The Union Tribune. “Q: What advice do you have for San Diegans who are still underwater on their homes? Bill Davidson, president of Davidson Communities: ‘My advice is to ‘hold on.’ Time will heal the problem. The market is stabilizing, people are living longer, babies are born every day and there is modest job growth. Inflation in our industry is running high. Based on all the above, we expect housing prices in San Diego to continue to increase. So hang on.”
“Michael Lea, real estate professor at the Corky McMillin Center for Real Estate at San Diego State University: ‘The time to wait is over. After nearly two years of double-digit house price gains the housing market has started to cool. House price increases will slow to the mid single digits in 2014 and 2015. If you need to move for job or family reasons you should bite the bullet, take the loss and sell the house. Otherwise sit tight and your equity position will slowly improve.’”
The Desert Dispatch. “Motorists driving past the Lenwood Road overpass project toward Barstow see firsthand the results of decades of economic decay: Run-down buildings, businesses barely hanging on, others long closed. There are two major projects on the horizon that put that Lenwood neighborhood at ground zero for a possible economic explosion. Affordability, jobs and housing are all on the minds of city officials, politicians and real estate experts like Carol Randall, VP with Lee & Associates.”
“‘Some people moved out there to be able to see the stars,’ Randall said. ‘If they decide to sell, I hope they get the price they want. The value of their home is very important to them. Lifestyle is threatened. They made these choices (to live in Lenwood) years ago. They may be mourning the loss of the value of their homes and their lifestyle. And I can understand that.’”
The Tahoe Daily Tribune. “Robert and Monique Acosta borrowed $700, 000 from San Diego Metropolitan Credit Union in May 2007 — essentially at the top of the market when life was good and lenders couldn’t give money away fast enough. Case in point: The home appraised for $705,000. Three years later in June 2010, the Acostas’ home had dropped in value and they were facing foreclosure. I’m assuming the Acostas attempted to modify their loan or sell through a short sale without success. In any event, they were upset with their lender.”
“The Acostas moved out of their home after the foreclosure sale but not before taking out their rage by making a few ‘home modifications’ including the following: Cutting down a tree in the back yard and pushing it into the swimming pool; pulling up all plants and the cypress trees; spray painting the interior walls; putting black dye on all the tile; removing a speaker system, shutters, stove hood and three chandeliers; pulling out the wrought iron posts from the staircase; smashing the banister; demolishing the hot tub; pulling out the kitchen cabinets, countertops, appliances and even wooden beams attached to the ceiling; removing the carpet; tearing out the rock facing on the house exterior; removing the garage door and entry gate; removing all light fixtures; smashing all plumbing; removing 12 interior doors; destroying the pool and pool equipment; pulling out the air conditioning units; and throwing almost everything in the pool — after chipping the pool steps.”
“Other than that they left the house intact just as they had found it. The credit union sold the house ‘as is’ for $178,500 after going on title following the foreclosure. Most of that sum was covered by insurance, but overall the credit union took a big loss. It was probably reimbursed by another lender or the federal government, but I’m only guessing.”
“The Acostas were charged with a violation of Section 502.5 of the Penal Code which forbids a borrower from intentionally harming a secured lender by removing or disposing of property that is ‘attached or affixed’ to the premises. By the way, the police found some of the missing items in a storage unit maintained by the Acostas and located a Craig’s List advertisement for ‘cypress trees’ with Robert Acostas’ telephone number. I can see the ad now: ‘One cypress tree and just about everything else you need for your home, some items available for pickup and some to be retrieved from the bottom of a certain swimming pool.’”
“The Acostas were put on probation for five years on condition they serve jail time of 270 days. While it probably felt good at the time, their misguided attempt to get back at the lender cannot have been worth it.”
“McLaughlin: ‘It’s difficult to generalize on that but I’d say that probably fifty percent of them are living here.’”
It is nice of these people to pay property taxes and not draw on any services like schools. Unfortunately, it also removes housing from inventory and drives up prices. Perhaps, after they learn the expense of carrying costs, they will add the homes to the rental inventory.
Did you sell a house this weekend?
‘The Daily Pilot reported in April that the U.S. Department of Justice is trying to force the former president of South Korea and his family to turn over $700,000 they allegedly laundered by buying and selling a house in Newport Beach (”U.S. seeks $700,000 from former S. Korean leader,” April 25).’
‘It was a reminder of what many of us have long known: In Newport-Mesa, houses are not just places to live in. They are poker chips for elite investors from around the globe, not a few of whom came by their stake less than honestly.’
‘Before the 2008 financial crisis, flipping houses for quick profit became a craze that spiraled out of control, nearly bringing down the U.S. economy. Just as Joseph Kennedy is said to have figured the stock market boom of the 1920s was ready for a fall when his shoeshine man offered him a stock tip, I knew the game was up when I overheard a server at Mimi’s talk about how long it was taking for the sale of one of her flip properties to close.’
‘The central bank took the unprecedented step of quadrupling the economy’s monetary base in an effort to help counter the deflationary effect of the waves of foreclosures that followed the bust of the housing bubble.’
‘Rather than fueling sustainable economic growth, however, that new money has largely fed another asset bubble. Flipping is back, as if 2008 never happened. If inflation is a function of too many dollars chasing too few goods, asset bubbles are a function of too many dollars chasing too few sound investments.’
‘House-price appreciation in Orange County has again outraced income growth, suggesting that yet again, something other than economic fundamentals has come into play.’
‘In the meantime, we ought to consider that while millions of dollars are being made flipping Newport-Mesa properties, very little of that money — unlike money made from more productive activities that are subject to municipal taxes — benefits our cities.’
‘Cities can, however, tax the gross receipts of a business. A 5% gross-receipts tax on the business of house flipping would yield $40,000 on the sale of a $800,000 flipped house.’
‘We local residents, whose taxes and concern for our community help make this such an attractive place for international investment, should not be subsidizing money-laundering foreign politicians, fly-by-night flippers and others concerned less with making a home in our community than taking a quick gambler’s buck from it.’
‘The Daily Pilot reported in April that the U.S. Department of Justice is trying to force the former president of South Korea and his family to turn over $700,000 they allegedly laundered by buying and selling a house in Newport Beach (”U.S. seeks $700,000 from former S. Korean leader,” April 25).’
I’m guessing that the odds of that happening are next to zero and that the DoJ’s efforts in the Korean justice system will be stuck in a legal limbo for a long time. Now if the ex Prez has other US assets they could probably nail him there, but I’m guessing he’s too smart for that.
Sometimes I wonder how many shiny new F-250’s bought with easy credit and good construction wages were “self-deported” when the bust dried up the jobs.
All the rich Asians,
Have other options,
Than Newport-Mesa.
I own several older homes in super expensive Newport Beach, Ca locations. They are rented to find people. Yes, I have made millions on these homes. But, I am not flipping them. In fact, I am always ready to purchase another, but only if it is in a special location I am holding out for. While there are a few flippers, they usually make no more than a few hundred thousand on them, and usually they drastically improve the properties which brings the surrounding property values up. But, I am a little worried. The prices are higher than ever, and for better located properties, the demand seems endless. I don’t understand how my old homes are now worth millions. I don’t think fundamentals support this. This is nuts. However, I am not selling. Twenty years from now, I will still own these properties, and hopefully a few more. However, if I was a buyer, I would be very very careful before forking out 2.5 million on properties that could be had for a little more than half of that about 2 years ago. These all time high prices may rise more, but I would bet they will fall below these levels next recession.
That half a million dollar loss would have been enough to prevent deadbeats like this and the deadbeat banks that lent to them from ever joining up again, except Uncle Sam stepped I and made it all good.
Now Mo Credik, Mo Credik, MoCredik and everyone is happy that we are off to the races again.
Buy a house now!
Yes better buy now, underwater folks want a offer or forever hold your piece. If you think homeowners who are not in trouble and underwater folks who can make payments are going to list now forget it.
When the full ecomony comes back and it will,(when the present no growth folks leaves DC,) homes will be on the rise again, if you can’t afford now,then go get a long term lease.
Never ever tell people not to buy on the down trend, homes are not going to be 2008 prices!
Inventory is exploding, like my head after trying to make sense of what you wrote. Homes will be far below 2008 prices like they already were within the last few years. 2008 wasn’t the bottom, that was the year the stock market tanked and Lehman Bros went belly up with no bail out. The bottom happened after that event as it took a while for people to get it in their heads.
Sheesh, so many trying to rewrite history.
GDP is slowly going up, unemployment will probably be at 6% Friday morning, gas prices never hit $5 like many predicted, the stock market didn’t crash at 7,500 instead it is near 17k now.
Where and what are you saying, we are going to a Armageddon, don’t think so?
You sound like one of those tards in 2007 who pointed to high prices as a sign of a healthy market, except that you’re even more stupid because you didn’t learn anything from the recent meltdown.
Yeap I’m stupid. Own two homes paid for, own 4 cars paid for, retired at 45, now tell me what do you got other then blogging that the sky is falling.
I’m anonymous on the Internet! I can pretend to be anything I want!
Doom:
I think maybe you should start reading your comments before you click the “Add comment” button.
Okay, I will take it to heart (not), you see I happen to believe all will be good in this great country. If we and the allies could defeat Imperial Japan and Nazi Germany, then everything else is realitive.
please rejoice that underpayment is down, stock markert is up, and Wash D C will get the message , don’t perform get booted from office?
Unemployment is down correction
Doom:
Stock prices are too high to be worth it. Do you realize that people need to actually receive dividends? Are you aware that higher house prices lead to higher mortgage payments? High prices cause people to be poor, not the other way around.
I can’t remember if you’re a real person or not.
An automated troll would have better grammar and talk in completely formed sentences, so it’s probably real at some level…
doom: “If we and the allies could defeat Imperial Japan and Nazi Germany, then everything else is realitive. please rejoice that underpayment is down, stock markert is up,”
Well I just spit water out my nose. Doom, this is an honest thank you for the funniest thing I’ve read all week! Onward, lets get drunker and talk about underpayments!
Poor Doom. Don’t make fun of him. He’s flying high on the whole, “America is the greatest country on the earth because I can get rich without really having any marketable skills or even a solid command of the language” philosophy. Bless his heart.
Did Obama touch you in a private area, and you’re ashamed that you kind of liked it?
‘Mo Credik, Mo Credik, MoCredik’
‘Congratulations, taxpayers, you’re getting a new house – whether you want it or not. When it comes to the American real estate market, after all, extensive government involvement (Fannie Mae and Freddie Mac back about 60 percent of new mortgages) means we’re all co-signing on our fellow citizens’ loans. And if the new head of the Federal Housing Finance Agency (Fannie and Freddie’s regulator) has his druthers, it’s going to stay that way.’
‘It was precisely this tendency to enable easy credit that was partially responsible for the inflation and subsequent popping of the real estate bubble in the last decade…You would’ve thought that the $187.5 billion taxpayer bailout that Fannie and Freddie required would have provided all the caution necessary to keep Washington from going down this road again. Deterrence is difficult, however, when politicians get all the credit for expanding homeownership and assume none of the liability for the deals that go bad.’
‘Mr. Watt claims that the private sector is not yet strong enough to take over the government’s role in real estate markets. We suspect that, by his standards, that will always be the case. Private markets would price these transactions on the basis of risk rather than on the political calculations that have for so long guided Fannie and Freddie’s decision-making. That would likely mean stricter standards and fewer home loans. Such outcomes, while they may be economically sound, are unsatisfactory for a political class intent on goosing home ownership statistics.’
‘We encourage Mr. Watt to rethink his policy agenda, which runs the risk of reinflating the housing bubble. And we encourage members of Congress to finish the long-overdue work of winding down Fannie and Freddie and placing the mortgage market back where it belongs – in the hands of the private sector.’
There was much debate here in the past about whether the efforts to put low income people in homes (what was that called the Community Reinvestment act or something) was the main cause of the bubble. Repubs were making that claim, but I didn’t agree that it was a cause, but not THE cause.
Now if it happens again, I think Mo Credik Mel and this will be THE cause, because it has already started slipping.
Don’t forget who’s funding this Ponzi scheme. I was reading yesterday that the Fed’s percentage of MBS purchases has actually increased in spite of the taper, because originations have plummeted in the past year. And who appointed Yellen?
It’s like watching a train wreck and you can’t do anything about it. This has gone way past the point of “Oh, buy a house you silly goose!” This is freaking economy crash speed and nobody is doing a damn thing to stop it.
‘While Realtors® from across the country convened in Washington, D.C. last week to attend the Realtor® Party Convention and Trade Expo, members from the Wilmington Regional Association of Realtors® (WRAR) met with U.S. Senators and congressional staff on Capitol Hill to advocate policies that protect and advance investment in residential and commercial property and that are critical to buyers, sellers and investors in the Wilmington community.’
“Attending the Realtor® Party Convention and Trade Expo is an excellent opportunity for Realtors® to influence the public policy decisions that will directly affect consumers’ ability to buy, sell and own real estate,” said WRAR President Jody Wainio. “In hundreds of meetings with elected officials and staff last week, Realtors® demonstrated the strength of the Realtor® Party and encouraged support for issues crucial to their business, clients, community and the future of the real estate industry.”
‘Wainio and other prominent WRAR leaders and staff attended meetings with Senator Burr, Senator Hagan, and Representative McIntyre’s staff. The meetings focused on important issues impacting the real estate market here in Wilmington, including flood insurance, preserving the mission and accessibility of Federal Housing Administration and Veterans Affairs home loan programs, protecting real estate-related tax policies, and reforming the secondary mortgage market.’
‘Wainio also urged Capitol Hill officials to reinstate an expired tax provision that provides relief to individuals following a loan modification, short sale or foreclosure.’
WTF:
‘the strength of the Realtor® Party’
“the Realtor® Party”
Maybe it’s the new name for The Rent Is Too Damn High Party.
We used to call them the 6%ers.
There are rules for the use of the (R) symbol. Those rules are being broken right now. The symbol is overused in today’s barficle about the Realtor Party. Even the word “party” is being destroyed through incorrect capitalization. It is making me feel queasy.
‘the strength of the Realtor® Party’
I pledge allegiance
to the real estate
of the United States of America
and to the Republican and Democrat politicians,
who receive campaign contributions in exchange for political favors,
one nation, under the NAR, with liberty and justice for Realtors®.
“The Acostas moved out of their home after the foreclosure sale but not before taking out their rage by making a few ‘home modifications’…………….
One man’s trail of destruction is another man’s pot of gold. This story is just like the situation with the home I purchased from B of A in 2010. My wife almost refused to go along with the deal, but acquiesced reluctantly. It is now appraised at $200,000 over our purchase price and renovation costs.
Timing is important, only secondary to location! We were lucky on both counts.
You were lucky Uncle Sam stepped in like never before. Hopefully that property is now sold.
“…their misguided attempt to get back at the lender cannot have been worth it.”
I’m missing the logic here. How was their purchase decision the lender’s fault?
Same way crack addiction is the dealers fault?
YAWN.
‘The San Fernando Valley’s housing market scored a trifecta in April with the median price, sales and inventory all increasing from the prior month, according to the Southland Regional Association of Realtors.’
‘A year ago this month the median hit $520,000 and April’s was just $1,000 under it. “Price increases are slowing down,” association president Roger Hance said. “Buyers realize it makes no sense to wait if the future holds higher prices and probably slightly higher interest rates on home loans.”
‘Inventory made another big jump, increasing 43 percent to 1,599 properties at the end of April.’
A year ago this month the median hit $520,000
500K “starter homes”. I’m sure everyone can afford one.
Buyers realize that it makes no sense to hurry when inventory is steeply increasing and specuvestors are running like old panty hose.
‘Chris Thornberg, founding partner of Beacon Economics, was commissioned by the East Bay Economic Development Alliance to study the local economy. He told the group at a meeting in Oakland on Thursday that the outlook is bright, with more jobs, higher home prices and increasing business and trade investment.’
‘Thornberg said that is in part due to what is happening on the other side of the Bay.
“All the heat in the West Bay right now is causing home prices to go up, affordability to go down, and you’re creating a situation in which office buildings are becoming more and more expensive,” Thornberg said. “There will inevitably be, and you’re starting to see, the beginning of what I would call the backlash or reaction to that. For example, suddenly, more and more folks are moving to this side of the Bay. They may have jobs in San Francisco or San Jose, but they’re starting to live here – quality of life, affordability, issues like that. Businesses will eventually follow as well.”
‘Thornberg said the rising real estate prices are not a bubble, that they’re a function of low inventory and high demand, and that pressure will remain one of the greatest economic challenges.’
There was a similar dynamic in play in the East Bay circa 2000, thanks to spillover from Silicon Valley.
Except that, viewed through the lens of history’s rear-view mirror, it turns out that there was a real estate bubble.
“was commissioned by the East Bay Economic Development Alliance to study the local economy.”
He’s on the inside now. Bread buttered and all that.
Maybe i am terrified to buy a house because I think I will turn into a REIC cheerleader like so many who have crossed over have done.
I bought more than one house, and I am not an REIC cheerleader. Becoming a cheerleader only benefits people who are directly paid to cheer. Otherwise, it’s an exercise in self-soothing. I can take a pill for that.
“He’s on the inside now.”
If Thornberg found himself shoveling chit at Auschwitz he’d say, look here, this person ate scrambled eggs, so better days are just around the corner. Thornberg’s benefactors want to read glorious stories of prosperity, and so do the upside-down homeowners and unemployed masses. Miss Kitty of Gunsmoke, disheveled and hungover, wants to hear that she looks better than the first slice of creme cheese.
‘Lawrence Yun in many ways is the voice of residential real estate. As the National Association of Realtors’ chief economist and forecaster, his predictions are followed, analyzed, praised and criticized by real estate professionals across the U.S., and noted in Congress when legislation involving residential real estate is being considered.’
‘Q In the Bay Area, prices are skyrocketing again, and some fear there’s a new bubble forming.
A It’s a little different this time, compared to 2005. Underwriting standards are much tighter. People who get mortgages are meeting very strict standards. Second, there are large cash transactions. People are cashing in stock options and Asian buyers are coming in with all cash. Any time there are cash transactions and higher down payments, the risk of potential decline is reduced. That is even though the price increase is fairly rapid and clearly not sustainable.
Q What happens then?
A The question becomes: Is it going to reverse and decline, or flat-line and taper off? I would say that first, prices are not setting new highs yet. The market is still in recovery mode. Together with tighter lending standards and crash transactions, that means there’s less risk. A decline in the tech economy would be the primary reason for a crash. I’ll add that any economic data that’s seeing a strong upper movement could have a temporary push downward before going up again. Prices in the San Francisco Bay Area might have a little volatility, but I don’t see a sustained decline.
“Any time there are cash transactions and higher down payments, the risk of potential decline is reduced.”
I don’t get this logic. What will happen when the historically unprecedented share of all-cash transactions dries up?
I can remember when Californians swept across the country with HELOC money, buying everything they could.
It seems pretty obvious something similar is in play with respect to cash flowing out of China into all-cash investor purchases on North America’s West Coast.
And that the eventual popping of China’s bubble will end this dynamic in a heartbeat.
Let’s review:
‘People are cashing in stock options and Asian buyers are coming in with all cash…the risk of potential decline is reduced. That is even though the price increase is fairly rapid and clearly not sustainable’
That last line is kinda thrown in there. And cashing in stock options? That money tree can’t possibly end, eh?
From the article:
‘Q How long will it take for the housing market to get back to normal?’
‘A The housing construction activity taking place is insufficient in relation to job growth, so I’m afraid that prices may continue to rise, though not so rapidly. Hopefully, they’ll begin to flat-line and give people a chance to save up for a down payment.’
Ah yes, the old plateau routine. Prices climb back to bubble era levels but not to worry. “People” will save every penny for decades to put a down payment on some 70 year old crap shack to keep prices high for these absentee Chinese buyers. After all, they are highly educated.
‘I’m just going to say it: The market is in a bubble. It’s not just stocks or housing this time. It’s a broad swath of assets, starting with government bonds, corporate credit and stocks.’
‘This is no ordinary business cycle. And this is no ordinary bull market. The Federal Reserve and the other major central banks have embarked on the greatest deluge of cheap money in human history.’
‘The Chinese have gorged themselves on credit, expanding their banking assets over the last few years on a scale roughly equal to the current size of the U.S. banking system. The Europeans have convinced folks to lend money to Greece again, which still carries a near 30 percent unemployment rate and just elected a bunch of anti-euro zealots. The Japanese continue their kabuki dance on the edge of sovereign insolvency.’
‘And here at home, the Fed is doing all it can to inflate stock prices — and worsening the gap between rich and poor in the process. But some evidence shows the game has entered its final phase.’
I think it will make the Movie “Inside Job” a film short you watch before the main attraction.
‘People are cashing in stock options and Asian buyers are coming in with all cash…the risk of potential decline is reduced. That is even though the price increase is fairly rapid and clearly not sustainable’
That last line is kinda thrown in there. And cashing in stock options? That money tree can’t possibly end, eh?
I think that what the author is trying to say is that all cash buyers will just sit tight when prices fall and not dump their houses on the market.
Even if that is true, they own only a minority of properties, even in places like silly valley. If the slave wage crowd realizes that they might end up underwater and panics, those all cash buyers won’t have much of an effect.
‘all cash buyers won’t have much of an effect’
Yeah, speculators never run for the exits when prices fall.
Don’t forget the Canadians, HELOC’ed to the gills, buying sight unseen in Phoenix. Have you seen the Phoenix inventory numbers lately?
To understand how distorted asset/commodity prices have become, how disconnected from fundamentals they currently are, one need only refer to the $103 crude oil trading price in contrast with the CRATERing demand for gasoline. That chart which Housing Analyst posted yesterday says it all. The Fed is throwing gasoline on a fire.
Don’t forget the Canadians, HELOC’ed to the gills, buying sight unseen in Phoenix. Have you seen the Phoenix inventory numbers lately?
Last I heard, those inventory numbers were on an upward climb. Same thing’s happening here in Tucson.
‘I’m just going to say it: The market is in a bubble. It’s not just stocks or housing this time. It’s a broad swath of assets, starting with government bonds, corporate credit and stocks.’
When Eugene Fama starts making similar statements, you will know it is time to sell all your financial assets and park all the proceeds under the proverbial matress.
I remember that too.
Matter of fact, I think the house behind me was purchased with CA HELOC money. Owner is now on his fourth selling attempt in seven years.
A couple of important questions to ask:
1. Will prices go back down?
The answer is yes. They always do, cycle after cycle.
2. Why will prices go down?
Could be lots of reasons. Three big ones:
a. Result of overbuilding (too much supply);
b. Bad economy/recession (decreased demand);
c. Tons of people are forced to sell through defaults on loans they should have never been given (increases in supply regardless of price).
In 2008 we had ALL THREE.
If there are lots of cash buyers or larger down payments, it diminishes the numbers of forced sellers (described in “c”).
BUT, you can still have “a” and/or “b” without “c”.
d. People walk away when they are underwater. I know, it’s a crazy idea.
Sort of a corollary to “c”–something that is made worse with more aggressive levels of borrowing…but also diminished with higher down payments.
“d” doesn’t really start the decline in prices, but can certainly accelerated the downward move and keep it going.
The other thing that people overlook is that higher numbers of underwater borrowers increase the number of distressed transactions for reasons OTHER than people walking away.
If you have equity in the house, and lose your job (have a medical catastrophe, major other family expense, etc.), you can sell the house in a traditional manner (normal marketing process to people who can borrow to buy).
If you don’t have equity in the house, and the same things happen, you have no choice but to be foreclosed, at which time the sale will only go to someone with the cash to buy (foreclosure auction).
We’ve never really gotten rid of ‘c’. It’s just been papered over by the trillions of toxic debt monetization.
e. The rubber band snaps in China. The biggest credit expansion in history ends abruptly. Loans are called in. Executions for fraud and theft begin en masse. Chinese with overseas assets have their relatives jailed to force a return of capital. A million houses go on the market in one week in California and British Columbia, accepting any offer. A million more simply stop paying Real Estate taxes and are never heard from again.
e. The rubber band snaps in China.
You paint a pretty picture.
f.
The NY State Attorney General gets national political aspirations and doesn’t use hookers. Despite the lawless activities of the Federal Reserve, he starts suing NY banks for accounting malpractice and holding delinquent mortgages on the books as “good”. The banks start hiring again as they begin to process millions of foreclosures.
The “cash” buyers are largely buying with cash that they borrowed. See, for instance, Blackstone.
“…with cash that they borrowed.”
Does it have to be repaid?
http://www.corelogic.com/blog/authors/kathryn-dobbyn/2014/05/institutional-investing-where-are-they-now.aspx?WT.mc_id=crlg_140602_l3hk2&elq=4fa233f2479c4eb09060360a8e54522c#.U4ylCfldV8E
This graph is interesting…you can see where institutional investors are still playing.
So they are fleeing Phx; that’s good. Phx should drop now. Interesting that at first, the investors were buying mostly REO, but over time, they started buying a larger percentage of normal houses. Then they started to leave. Maybe you can use that as a crystal ball for yourself.
” …but I’ don’t see a decline.”
That statement is overused. Yes, you don’t see a decline right now because now is the present. Declines are something that happen in the future. You will see the decline, don’t worry.
The specuvestors will lose money.
“in the future”
over time.
‘Marin County residents join citizens across the Bay Area in regarding the cost of housing as a regional crisis, but don’t think local government should focus on building more homes, a new survey indicates.’
‘Based on interviews with more than 1,000 Bay Area residents, the Bay Area Council, a business advocacy group, reported that 79 percent feel the region faces a “housing cost crisis” and 52 percent believe officials have not built enough housing to support economic growth.’
‘Marin opinion tracked the Bay Area at large, with 77 percent in Marin agreeing that the cost of housing is a crisis. But “among a long list of issues that residents feel government leaders should be focused on, building more housing comes in dead last” in the Bay Area, the council reported.’
‘At the same time, and in accord with Marin County planning policies, 64 percent of all surveyed believe new housing should be built in local cities, instead of in open space or farmland. But just 55 percent said they supported new housing in their own neighborhood.’
“When it comes to finding solutions to our housing problems, it’s hard to tell whether we need a home builder, a psychologist or a magic wand,” observed Jim Wunderman, the council’s CEO. “There is a fundamental disconnect among the region’s highly educated residents about the relationship between supply, demand and price.”
“There is a fundamental disconnect among the region’s highly educated residents about the relationship between supply, demand and price.”
Small wonder, given the crazy fluctuations in prices over recent years, especially in high-end areas.
Marin Co. probably has some of the highest levels of NIMBY-ism in the U.S….I have lived nearby most of my life and worked there for a few years recently. The perception that many of the residents are self absorbed goes waaay back, a highly amusing novel based on this premise was published in 1977
http://en.wikipedia.org/wiki/The_Serial
Maybe Bay Area residents should move to China.
‘CNN, the television news network, offers a handy website calculator that allows a user to compare the cost-of-living differentials among the nation’s towns and cities. It reveals, for instance, that someone contemplating a move from Austin, the capital of Texas, to Sacramento would have to pay 22 percent more for otherwise identical basics such as groceries, housing, utilities, transportation and health care. And that doesn’t take into account California’s substantially higher taxes.’
‘Using CNN’s calculator to make various comparisons essentially confirms what most Californians already know – this is a relatively expensive place in which to live. It’s the reason, for instance, that the Census Bureau, using an alternative method of calculating poverty that includes cost of living, determined that California has the nation’s highest rate with nearly a quarter of its 38 million residents impoverished.’
‘Housing is especially expensive in California, as the CNN calculator confirms – 52 percent higher in Sacramento than in Austin. And with housing usually a family’s highest expense, it really bites those on the lower rungs of the economic ladder, even if it’s not bothersome to those at the top.’
‘The evolution of California into a two-tiered society – a huge impoverished subpopulation at the bottom, an incredibly rich overclass at the top and a shrinking middle class – makes the state a poster child for income disparity and generates no end of political hand-wringing.’
‘Liberal legislators propose all sorts of remedies, ranging from increasing the minimum wage and welfare benefits to raising taxes on the wealthy. However, they never examine how their own policies may be contributing to the syndrome by raising the costs of living.’
So let’s see; highly educated, concerned about the little guy, and:
‘nearly a quarter of its 38 million residents impoverished’
Housing is 52 percent higher and that is the biggest expense but COL is only 22 percent higher? That is possible, but doesn’t sound right. I know there is a math equation in there somewhere, but I’m lazy.
Here ya go:
Suppose housing costs Sacramentoan’s 40 percent of their budgets, and is 52 percent higher (as claimed). Your equation is
40*52 + 60x = 100*22, so x = (100*22-40*52)/60 = 2. If other costs besides housing are 2 percent higher than elsewhere, the math works out.
Food, water, and utilities are cheap in CA.
‘The evolution of California into a two-tiered society – a huge impoverished subpopulation at the bottom, an incredibly rich overclass at the top and a shrinking middle class – makes the state a poster child for income disparity and generates no end of political hand-wringing.’
Sounds like a Democratic politician’s dream come true!
Sounds like?
Washington, D.C. is no different. How does the Washington, D.C.-area tend to vote election after election?
85%+ progressive.
The evolution of California into a two-tiered society
Is nothing new, this has been discussed as far back as the 1990’s.
Goes back further then that, in 1976 my parents listed their Northridge CA. home for 100k. The agent flip out nobody every approach that number, but 6 weeks later sold for 97k.
The agent at closing told them this will set a snow ball of $150k here, how I ever to be able to sell a home for the crazy price of $150k. Just two months ago my parents old house sold for under $1.2m
and a shrinking middle class ”
is he talking about us ?
Sorry, can you speak louder? You seem much smaller than normal; I think it’s affecting your voice.
It’s the same in Washington, D.C.
All that hand-wringing…
‘They could sell for about $1 million, Chahal said, but the houses they might consider buying are priced at $1.1 million to $1.2 million’
Funny thing about that, isn’t it -
The conventional wisdom is that, when housing prices rise, you’re better off. But that’s only true if you can realize your gains, either by moving somewhere that hasn’t seen those increases, by buying smaller, or by shifting to a rental property.
For everyone else, you still own the same house, nothing more. And all those nicer more expensive houses that you lust after? They just increased in price by the same percent as yours, so they are now more unaffordable in dollars than they would have been if prices had stayed flat.
Rising prices mean that most everyone is worse off, this is just one of the ways. The only ones better off are the lenders, those who directly feed off the tax base, the UHS folks, and a few regular people that were lucky by circumstance.
+1
Or as a Brit friend once said: When your rung on the property ladder goes up, all of the rungs above you rise even faster.
The only winners are the flippers, until the music stops.
People talk about selling and moving somewhere cheaper, but almost no one in my old San Diego social circles did that. Most traded up when interest rates dropped but very few cashed out and left. When we announced our departure we were told we were crazy to leave “paradise”.
We also left CA. for Denver I think I told you this before. All fiends and relatives said,I give you 5 years at the most and you will head back to warmer more consistent climate , they were wrong, we lasted 7 years then moved to more consistent climate.
Climate change will be helping adjust that. Norther Cali climate is starting to feel like So. Cal more and more every year.
“Climate change will be helping adjust that. Norther Cali climate is starting to feel like So. Cal more and more every year.”
+1 Indeed, witness Shasta and Trinity reservoir levels.
Not to mention that, in order to move up to the new digs, the typical transaction costs to the movee are on the order of 10% or so (on the sell side transaction, %5-6 to the UHS and 3% for all the title insurance, fees, etc, then on the buy side, probably another percent or two). YMMV but the basic numbers are going to be in that ballpark.
That 10% expense wipes out the first 5-6 years of principal paydown on a 30 year mortgage at typical rates these days. For subprime rates, maybe 7-8 years of principal.
And people seriously wonder where all the non-cash buyers have gone?
‘Buying a house is expensive. Everybody knows that, but even people who work very hard to prepare for the cost of owning a home are often surprised by how much they end up paying. That’s particularly true among consumers whose loans require private mortgage insurance (PMI). A study released last week by TD Bank showed 65% of homeowners with PMI caused them to pay a higher-than-expected monthly mortgage payment.’
‘Among people who purchased a home in the past two years, 35% said PMI impacted their decision of which house to buy. It’s also pretty common for people to make down payments of less than 20%: 45% of those ages 18 to 34, 37% of homebuyers ages 35 to 54 and 23% of people older than 55 required mortgage insurance on their loans over the past decade, the TD Bank study showed.’
‘PMI costs an average of $100 a month, according to the report, and FHA loans now require mortgage insurance for the life of the loan. (The Federal Housing Administration insures these loans, which can require as little as 3.5% down. Here are some details on how to get one.)’
PMI seems like just another shell game to me, particularly if it’s not an option. I mean, why not just factor it into the lending rate? Oh that’s right, then the rate would be maybe a percent or two higher, and those remaining few marginally potential buyers would be scared off.
In the end you’re paying a higher rate, and more per month. It’s like discounted air fare tickets where you pay extra for your bags and/or reasonable seat assignments. All part of the racket to disguise costs.
Yes I understand that PMI goes away once the accrued principal reaches 20%. Except that, in today’s FHA-dominated 3.5% down world, 30 year terms, and 10% costs for every buy-sell round trip, no one is going to reach 20% anymore. They’ll FC or die first.
Ben…. Some folks can swing the payments but then you move to a gated area, HOA fees can be very high and go up from their. Then, many have these special district and utility fees taxes ( like mello ).
Don’t forget the neighbors, want to do a high dining club so you must come, another burden. Harry just bought another BMW, we look silly in a Kia around here.
It all adds up to more then just a mortgage, all in all I want folks to have a house rather then rent (if it makes sense) if it doesn’t, then you may have a problem going forward in this country.
‘then you may have a problem going forward in this country’
We’ve got a problem alright. We have a serial bubble problem. How many trillions did the stock bubble destroy? Same with the housing bubble. Yet here we are again. How many got their head handed to them just on this one stock?
http://finance.yahoo.com/q/bc?s=TWTR+Basic+Chart&t=1y
This problem is obviously systemic. It is distorting many markets all over the world now. And hundreds of millions of people are making decisions within these distorted markets that will come back to haunt them.
I wanna cheap house.
Another BIG factor in Calif. is that if you have owned a place for a few years and bought at a relatively good price moving on to even an equivalent house (let alone one that is better and more expensive) could easily double your property tax bill thanks to Prop 13…so even if your financial situation has greatly improved over the years there is a powerful incentive to stay put and maybe make improvements rather than find a new place that suits your current needs and wants better.
So Cal property taxes will neuter you!!!
Scratch that…So. Cal home prices will neuter you!!!!!
After having lived in Silicon Valley for about six years, I can honestly say that it’s a nasty place to live. Anyone who is facing high housing costs in Silicon Valley (buying or renting) should start applying for jobs in more affordable places. You do not have to live there.
I agree, I don’t know why anyone would want to live there, other than proximity to work and proximity to Santa Cruz. But San Jose has bribed BART into extending service there. They refused to pay into the BART system back in the ’60’s, when they had the chance to opt in. Now it seems that the train lines will run into Silicon Valley in a few years. Making it easier for those who work there to live somewhere else.
check out howmoneywalks.com and you’ll get an idea of how much taxes will go up in your county
I just found out the city where I am moving charges tax on rent and water. The water is provided by the city, so it makes no sense for them to charge tax on it. I am paying them for the water.
Has anyone here ever heard of taxes being charged on rent and water?
lots of midwest cities have 120-140 rent to buy ratios
pre-bubble rates
So. Cal property taxes are a beyoch.
Yeah, 1% is real huge (not).
Awwwwwwww. How cute.
What is that supposed to mean?
I appologize, I thought you were trying to be cute. I have family that is paying WAAAAAAY over 1% to “own” (lease) a piece of property in the LA confines.
The maximum legal property tax rate within the state of CA is 1.25%. The 0.25% may be charged by the city or nabe or whatever, not the state. Increases in property tax are limited to 2% per year, and only happen if the property value goes up. So if your property value doubles, then your taxes don’t.
California has very low property tax rates.
The rate may be low compared to some other states but when prices are high the tax bill is significant for most people…it would be roughly $460/month on a house purchased for $500K assuming the typical rate of about 1.1%
Yes, that’s probably what pug is referring to. We should all be railing against the prices, not the relatively low tax rate.
That is correct. I should have said “what they pay in taxes based on the outrageous price of their home”
Balking? Definitely not true in Berkeley.
2/1.5 house in acceptable neighborhood with legal 1/1 cottage in back. Would share laundry w/ main house. Cottage very nice. Small but well-kept lawn between the two.
Main house: garish painting, 1/2 bath in basement so tiny it probably violates code, small kitchen. Windows in bedrooms face directly into windows of house next door. No garage but basement is more-or-less finished, easily spruced up. No garage.
But, overall, a nice house in a nice neighborhood. Nothing fancy. No view.
Asking price of 850K.
Sold for 1.4M 4 days after 2nd Open House.
This is typical.
I’ve seen a dozen houses in past 2 months. All went pending or sold w/in days of 2nd open house. All sold for $200-500K over asking price.
Nothing like watching stunning losses get built in before your very eyes eh?
‘Balking? Definitely not true in Berkeley’
There was an interesting progression a few years ago on this blog. It went like this; “prices may be falling in San Diego, but they’ll never fall in LA” then “prices may be falling in LA but they’ll never fall in the bay area” then “prices may be falling in the bay area, but they’ll never fall in Marin.”
The only thing that matters is, do you have a bubble? What you describe sounds like a bubble to me.
What especially baffles me re this last sale is that it must have been cash (3 days from offer to sale). Yes, the house and/or cottage could be rented out but even at Berkeley rents, after property taxes (effectively close to 2% on that 1.4M), the ROI must be less than current stock market.
Besides which, if I had 1.4M in cash just lying around, I’d at least get a house with a view.