The Housing Bubble

“…the booming housing market in the San Francisco Bay Area appears to be finally impacting Calaveras County as Bay Area residents take the equity they have in homes there to purchase investment properties, second homes and vacation homes here.”

Long-time readers here will recall how Californians buying investment properties on margin was one of the factors that set up the previous crash.

“‘Realtors get very frustrated for their buyers,’ she said. ‘Now you have buyers who want to get into the housing market but are priced out.’”

For their buyers, realtors get frustrated for their buyers.

Oh, the pain!

Pain for the realtors in that sales volume has to pick up in order for them to make commissions. But it doesn’t look good to realtors to spin it that way so they spin it another way.

‘Increasing housing prices and stagnating wages in the San Diego region are harming the area’s economy, according to a study released Thursday by the National University System Institute for Policy Research.’

‘With families having to spend a larger percentage of their income on housing, less money is available for discretionary purchases like cars, health care, education, food and entertainment, said NUSIPR economist Kelly Cunningham.’

‘That means more cash is going to financial institutions based out of town, rather than local car dealers, restaurants and entertainment venues, he said. “Rising housing prices are further straining the region’s already pressured household budgets,” Cunningham said. “Housing costs are a key impediment to regional growth and greater economic prosperity.”

‘A study by the National Association of Home Builders said San Diego County was the 10th least affordable metropolitan area in the U.S. in the fourth quarter last year, with just 25 percent of households able to afford a median priced home.’

‘While the $430,000 median price of a home in the fourth quarter of last year was 59 percent higher than the recession-era low in 2009, the median household income of just under $73,000 was actually lower by a couple thousand bucks.’

‘Housing prices were six times that of the median household income, well above the historical average of four times, and nearing the eight times seen during the housing bubble in the last decade.’

‘Surrounded by golf courses in La Quinta, a patch of plowed desert is being preparing for construction. The property’s developers conceptualize the first phase of a neighborhood there — 78 houses with designs named “Italian Farmhouse” and “Tuscan Villa.” A handful of them will back up to a lake big enough for boating. It’s called The Estates at Griffin Lake.’

‘This is just one of many visions for future neighborhoods in the Coachella Valley. Another scheme, the Section 24 Specific Plan on land near the Agua Caliente Casino Resort and Spa, proposes 2,400 homes, plus retail and office space, on 577 acres of open desert beside the freeway.’

‘And then there’s La Entrada, a proposed Coachella development so big it would require two new freeway exits. The project would bring almost 8,000 houses to the city and, according to the project’s draft environmental impact report, use as much water as 65 percent of the city did in 2010.’

‘For months, residents have wondered where the water required to support all this development will come from. “We already know we’re on critical for water, but we’re always adding new homes, we’re always adding new condominiums. And no one ever equates it to water and what is it going to do to us with regard to water,” said Ronald Zimmerman, a retired airline employee who lives in Palm Springs. He said that when he drives around the valley and sees new construction underway, he feels a sense of helplessness because local officials don’t seem to be taking a hard look at assessing the water supplies.’

“I can understand why they want to draw more people, but it’s not like we’re in the Midwest or the East where they have plenty of water,” Zimmerman said.’

‘Millions of Americans will soon see monthly bills shoot up on home equity lines of credit (HELOCs) taken out during the housing boom, because HELOCs are going to start making homeowners pay both interest and principal, not just interest. That’s bad news because many consumers are already underwater, meaning they owe more than their places are worth, a RealtyTrac study shows.’

‘A RealtyTrac analysis of public property records across America found that at least 3.3 million homes still carry HELOCs from the 2005-08 era, with 1.8 million of these residences — or 56% of the total — considered “seriously underwater.” Consumers who own those homes owe lenders at least 125% of a property’s current market value.’

‘RealtyTrac expects the biggest problems in California, Florida and Illinois, which have not only high levels of boom-era HELOCs in general but lots of loans tied to seriously underwater homes.’

‘For example, the firm found that some 646,000 California residences carry 2005-08 HELOCs, including 424,000 linked to properties whose owners are deeply in the red.’

‘Mark Hughes of First Team Real Estate near Los Angeles expects many underwater homeowners simply to “walk away” from their residences, moving out and letting lenders deal with the problem.’

“I think a lot of people will say: ‘Not only can I not afford the higher HELOC payments, but do I even want to try? Am I just throwing good money after bad?’” he says.’

‘We may have a lot of homes available, but people are still wary of buying versus renting. Rents are low because many people still don’t have money to purchase a home and property owners know it.’”

Well Becky Otwell let me tell you why no one buys. The High Desert is the dumping ground for the poor, would you buy a home next door to a Section 8 rental with 8-10 people living in it ? Your days (and nights) are filled with blasting music (Rap and that god awful Mexican polka music), barking dogs, parties every weekend plus stuff starts turning up missing (garden hose, shovels, Christmas lights). Yeah Honey lets buy this house and raise a family here in the High Desert. I used to live next too such a house and I think every Realtor should be sentenced to live next door to such a house. Everyday I see the U-Haul trucks pulling into my area and let me tell you they aint buying. I’m counting the days till I kiss this place (High Desert) goodbye.

‘The current project has smaller floor plans than originally envisioned. Tom Warren, head of Holland Partner’s Southern California development, said that is a response to slow turnover of the bigger apartments in nearby residential complexes. ‘What we know is that the larger units in [Apex] are struggling. They are still several that are vacant at the top of the tower,’ Warren said.’

The LA Downtown News is a booster site, but I follow it because it zeros in on that area. This is the first crack I’ve seen in the many years boom, since the last debacle. (Usually the only negative thing you’ll read is, ‘what are we going to do with all these bums?’)

A while back it was a lot of Vancouver developers. Now the Chinese are throwing billions into towers. It went so well last time:

‘Astani had completed the seven-story annex and was in construction on the 30-story tower when the recession hit and he encountered trouble with his lender, Corus Bank. Corus went bankrupt and a heated legal fracas ensued.’

From the links above:

‘Longtime PB resident Larry Emlaw noted STVRs are a “citywide issue.” He added some areas of the city, like PB, are “much more heavily impacted.” Emlaw warned that the continuing proliferation of STVRs could forever change the community’s character.’

“STVRs can cause the destruction of neighborhoods,” Emlaw said, adding, “This is not a police matter, it’s an incompatibility matter. If you live next door to an STVR, you will be forced to move. That property (hence) will not be able to be purchased by families raising children but will only be purchased by an STVR investor.”

‘Emlaw cited Mission Beach as a case in point – a community that once had a significant number of single-family households, but now largely is an enclave for STVRs. He pointed out that Mission Beach Elementary School had to be closed because of declining attendance as families were displaced by STVRs.’

And:

‘In San Diego, an overflow crowd showed up to a city-council committee meeting on Wednesday, April 22, to voice their opinions, both in favor and against any new regulations. Airbnb representatives, who contacted customers who use their service to advertise units for rent in an attempt to drum up attendance, handed out stickers outside the meeting room.’

‘Enter Senate Bill 593, a measure penned by senator Mike McGuire (D), whose district covers the state’s northern coast from San Francisco to the Oregon border.’

‘The bill would require operators of residential short-term rentals to file quarterly reports with local municipalities, including information on the addresses where rental activity is taking place, length of guests’ stays, and total rental fees collected. It could also allow cities and counties to compel property owners to collect and remit transient occupancy taxes, as is currently required of hotel and bed-and-breakfast owners.’

‘The measure passed through the senate’s Transportation and Housing Committee on April 21. Once again, Airbnb rallied its customer base to fight further regulations.’

‘Airbnb, a San Francisco–based company reportedly valued at up to $20 billion, has vowed to continue the fight, launching a website to mobilize owners to lobby for reduced regulation of the vacation-rental market.’

I’ll say it again; these people aren’t lovin’ the black-market hotel biz. They are betting on higher house prices. And when it stops booming, this $20 billion company will take a hair-cut.

‘Gaye Rainey, president of Southland, has a more tempered outlook. She believe the market won’t reach a fever pitch like the one that helped trigger the market collapse in 2006. Last month, the median price of a Valley house was $536,000, according to the association, up just 4 percent from a year earlier and 2 percent from February. Those kind of moderate increases will likely be the norm for a while.’

“Prices are not skyrocketing — which is good — interest rates are down, and more people are purchasing to live in their homes,” she said. “I expect this will continue.”

‘Prices have been in the same range for more than a year now, and that suggests a ceiling has been reached, at least for now. This should serve as a signal to potential sellers: Don’t overprice a home in the current market environment, Rainey said.’

‘And there is some anecdotal evidence that an inventory response to market demand is in the offing. Kozman is among several Realtors who are now fielding calls from potential sellers as well from clients wanting to buy.’

‘Robert Kleinhenz, chief economist for the Los Angeles County Economic Development Corp. said a sales uptick in 2008 and 2009 reflected investors flooding the market, buying up bargain-priced foreclosed homes and fixing them up to flip or keep as rental properties.’

‘By 2014, those kinds of properties and investors were gone, and home sales in the Valley sank to a record low. “The thing about 2014 that set it off from the prior years is we saw a significant dropoff in investors, and that void was not filled by anyone else,” Kleinhenz said. “What was missing was the repeat home buyer and the new home buyer (both) coming into the market.”

‘Now there are a few factors that may attract both more buyers and sellers, he said. People who lost a home during the recession have seen enough time pass that they can become owners again if their credit has been sufficiently repaired. And owners with equity might realize prices are not going higher any time soon and take advantage of their gains.’

‘Since 2000, new Asian immigrants have been on the rise in Southern California while Hispanic newcomers have dwindled, said Gary Painter, a USC public policy professor specializing in immigration and housing. Six years ago, for the first time, the number of new Asian immigrants surpassed those coming from Mexico.’

‘While there is a long tradition of creative shared living arrangements, the illegal boarding house issue is complicated by the fact that incomes have not kept up with rent increases, Painter said.’

‘Resident Chi Cheng didn’t realize his next door neighbor was a house full of boarders. The people there didn’t do anything to draw his attention, he said. “They live in an illegal boarding home, but they didn’t do anything illegal,” he said in Mandarin. “If they can’t earn money in China, we should give them a chance.”

‘Ding, though, didn’t gripe much. After staying in Monterey Park for two weeks, he found a job as a handyman in Los Angeles, where he now lives. His new boarding house has seven other people, he said, so the place is cleaner and better kept.’

‘He earns $7 per hour — below California’s minimum wage — and works 10-hour days. Aside from rent and food, Ding budgeted $100 for cigarettes and will send nearly half of his $1,820 salary home to his family. Ding hopes to get a Green Card but said that’s probably not really in the stars for him.’

“I will live in America until I’m 70 or 80 and can’t work anymore,” he said. “Then I may have to return to China.”

‘Monterey Park is trying to address a problem that is widespread in many cities in the San Gabriel Valley. When single-family houses or condominiums are converted into illegal boarding homes, the commercial enterprises disrupt residential character and place undue burden on code enforcement as well as police and fire departments, city documents report. At issue is the quality of life for an entire neighborhood, City Manager Paul Talbot said.’

“When they convert a two-bedroom house into a residential motel which is now housing 30 people on mattresses laid throughout the floor with illegal plumbing, illegal electrical outlets, illegal partitions, they’re creating a health and safety hazard for themselves and the entire community,” he said.’

“It’s an underground economy because mostly they’re all cash dealings,” he said. “The neighbors there are very affected by the noise, the overcrowdedness, the sanitation problems. There’s trash all over, smoking, cigarette butts all over. They’ve complained to the city many times. It’s a fire hazard. It’s a health hazard.”

But, the weather is great!

wow, searching construction data base
office buildings seem to be extinct