‘Pendulum Is Now Swinging The Other Way’: California
The LA Times looks at the new UCLA report. “The UCLA Anderson Forecast said in its latest quarterly outlook to be released today that home prices probably would not fall much from current levels. ‘Absent a recession, the price of a home five years from now is not likely to be substantially lower than it is today,’ UCLA economist Ryan Ratcliff said.”
“The slowing housing sector has placed California’s economy ‘at a tipping point,’ UCLA economist Ratcliff said. Because real estate has been a major driver of economic growth, its retrenchment is bound to have some consequences.”
“Nonetheless, the latest DataQuick data was the strongest indication yet of how the balance of power in the region’s real estate market has shifted from sellers to buyers in recent months. ‘The pendulum is now swinging the other way,’ said David Burger, an Encino-based real estate agent. ‘A year ago there were lots of offers. Now we have more homes and fewer deals.’”
“He should know. For the last five weeks, Burger has been trying to sell a three-bedroom house for a client in Burbank for a recently reduced price of $875,000. The house on Olive Street is competing with 94 other listings in the vicinity, about four times what was for sale there a year earlier. ‘This house a year ago would have sold in about two weeks,’ he said. ‘Two years ago, in a day.’”
“This year 50% more homes have come on the market regionwide versus the same time a year ago. The number of transactions that closed in May fell 11.7% from a year earlier, the slowest May since 1999. It was the sixth consecutive month that sales volume declined, DataQuick said.”
“All but one county saw a drop in sales last month, with Orange County posting the biggest year-over-year decline at 31.6%. The markets that were first to see their prices skyrocket six years ago are now showing the weakest price gains. San Diego County, for example, gave up a year’s worth of gains in May.”
“Tiprin Follett knew the housing market was downshifting when she put her South Pasadena home on the market nearly three weeks ago. So she listed her four-bedroom house at $1 million, which was below the neighborhood’s average price. She figured that tactic would attract loads of prospects. It did. More than 150 people have streamed through Follett’s home since it was listed. But not one offer.”
“‘It’s as if they’re waiting for something better or less expensive to come up,’ Follett said.”
“Wes and Brooke Gavins have been shopping for a home for the last six months but are reluctant to make an offer. Prices seem too high, they say, and with more homes to choose from, there’s no pressure to act hastily. ‘But it’s still tough to find deals,’ said Wes. ‘You don’t want to be the one to overpay.’”
“‘It’s as if they’re waiting for something better or less expensive to come up,’ Follett said.”
duh.
This UCLA economist should stop the taking of the weed. Not fall much? wow.
Here is how I check the bubblehead’s with their forecasts. What was their forecast about real estate prices say around December of 2000. In other words, was their crystal ball predicting a 200% increase in sales and prices in the next 5 years, from dec 2000 to Dec 2005. If they couldn’t get it right on the upside, what makes me think they know anything on the downside. Seriously, I don’t remember to many research reports and no water cooler talk in Dec 2000, when I invested in my first rental house. All the reports I read, and all the real estate seminars were not really positive about investing in SFR, and I specifically remeber UCLA and the other idiot, Jack Keysor, predicting doom and gloom for the LA market. Ask the next “guru” what he was reporting in Dec of 2000, and watch him squirm. This crash will be worst than dot.com.
Citations please.
Yes because real estate is held by about 69% of people.
The NASDAQ crash was containable because it affected only a small part of the population. You are soo right. And you know what? The real estate bubble is not just a yankee phenomena. It happened in Europe where prices are completely crazy. It happened in China. It happened even in places like Nicaragua!
You can thank all these morons called Central Bankers. Who controls these people anyway? Now they are tightening and the results will be much much much more dramatic than the high tech wreck.
This bubblehead went under contract with a precon in July 2000 and closed Jan 2001 for a 4bd/2.5ba SFH. (Sold Oct 2005)
Actually, I can remember encouraging a bunch of my friends to buy back in 2000, because we’d done the math and figured out that if you could scrape together a downpayment, the cost of owning on a month to month basis, even before taxes, was lower than the cost of renting in Los Angeles. By 2002 or so we’d stopped with that, since prices were out of control and rents hadn’t moved. But it was a nice opportunity while it lasted, and even if prices revert to the mean, I think people who bought real estate in Los Angeles back in 1999-2000 will be in okay shape.
I read the article in the local paper this morning and my overall impression was that the folks at Anderson were trying to put a positive spin on what may still result in recession and a significant drop in prices. The “tipping point” comment was really key — we’re just teetering on the brink of…something, and rather than incite panic they appear to want to couch their comments until the statistics prove otherwise.
Not sure if it’s been quoted before on this blog, but still relevant:
“Predictions are very difficult, especially about the future.” Niels Bohr, Danish physicist.
Yes Ms. Follett, they are. They are looking for value, something obviously not offered by your overpriced POS. After more than 100 lookers and no offers, maybe you should trim a little off that greedy price tag of yours. People don’t want to be paying for your vacations and life of luxury for the foreseeable future. I am sorry to report Ms. Follett, that you are no million dollar home owner. Time to pull your head out of your you know what and accept that. Buh bye now!
You see her foto in Times? i would like to be the one to pull my head out of her ***… o my…
Do a search for her on google and write her an email…daddy gave her the money for that house…
I think that they are being conservative this time around, seeing as how they went out on a limb the past 4 years. I actually see the same thing in myself. I have been fanatical in my predictions to people the last two years, telling them what is to come. Now, as I clearly see the dominoes start to fall (yield curve spread gone –> risky lenders feel pinch –> no appetite for risky bonds –> etc.), I am much more mellow in my ‘housing talk’.
It’s happening now, so we can all sit back and let it unravel.
I agree, waiting in LA. I’m much more mellow in my “predictions” now. If people didn’t want to see and prepare for this a year ago, why would they want to hear about it now, when it’s right around the corner and kind of “too late”?
The only people I talk to about it now are ones who are “toying with selling” in certain Seattle neighborhoods where they still have a chance of getting out this summer with the shirt on their backs.
People in neighborhoods where it’s already slowed, I just agree with them now that “it’ll probably be fine, who knows what will happen, etc.”.
A bit late to “scare” somebody into action.
Who financed this UCLA report????The NAR?
powayseller was nice enough to devote a lot of time to writing a detailed rebuttal analysis in regard to the UCLA report on San Diego. I have the 4 parts all posted.
Part I
Part II
Part III
Part IV
btw, SD inventory officially passed the population adjusted inventory record last night, currently standing at 22,203.
Bubble Markets Inventory Tracking
I am curious, does the population adjusted figure reflect the new US Census information in the news last night? The city of San Diego was said to have lost 0.7% of its population. The City represents about 35-40% of the total county population.
Neh… probably not much impact anyway. It only indicates that the pool of new buyers may not be growing. Btw, is someone going to argue that the lost population is of no consequience b/c those people couldn’t affor to buy anyway? Geesh, I hope not.
Losing 0.7% is only a small part of the story. Anecdotal exageration but mom and dad San Diego just graduated their last child 2 weeks ago and have sold their home of 30 years. They are walking away with $500k tax free and putting the other $300k into a nice place in South Carolina. She has already told her retirement liason at the school district to send her generous retirement checks and lifetime medical benefits to the new address. He has already moved the self-directed portfolios to SC and told their renters in the 4plex they bought in 1995 to send their rent to the bank in SC. Meanwhile the two families pooling resources to buy the house have managed to obtain a very nice intro rate on the no down mortgage. Not to worry, by the time rate reset they’ll have converted the garage to a rental unit and their cousins from “down south” will have arrived and both will help with the payments. Good thing the schools are so nice with all the new children entering the district. Ahhh, the American dream.
Meanwhile the two families pooling resources to buy the house have managed to obtain a very nice intro rate on the no down mortgage. Not to worry, by the time rate reset they’ll have converted the garage to a rental unit and their cousins from “down south” will have arrived and both will help with the payments.
Are you describing my neighbors? Seriously though, a nice hard working family who are legal US citizens own the house next to me. They bought it for around $380K (I got mine in 96 for $147K). Both mom and dad work, but they are not in high paying jobs. Since the first of the year they have rented out their garage to some friends from “down south” until the city told them to cut it out. I am pretty sure they bought with 100% financing, and have had at least one HELOC.
I feel sorry for them, as they are nice folks. I just think they were not quite financially ready to spend that outrageous amount of money on a small house.
Robert Cote’
As usual you have nailed it Sir! I (like sigalarm) feel like I know this fictitious couple as well. The only thing I would add is that in many cases the “self directed rollovers” are not all that significant in size. In altogether too many instances they ARE NOT substantial enough to provide the liquidity to fund any lifestyle of mention (particularly if they are under 59 1/2 and doing a 72t). Mom and Dad San Diego NEEDED the 500K tax free money or none of this would have been possible. It has become such a self fulfilling prophecy it just utterly bores me. Where else can you have a negative savings rate and at the same time so many early retirees? What a country!
DinOR and sigalarm make good additions to this situation. I just wanted to point out the “flow of funds” aspect. Money is what is fleeing SoCal and it is being replaced with debt and obligations. On the other coast the same has already happened. Massachusetts has no one from my immediate family left and the Commonwealth sends my mom her check to Florida every month.
On the other side of the flow of funds ledger we’ve got overcrowding, education, traffic, and uninsured issues to face now as well. This is unsustainable. Just this morning CALPERS rejected the need to raise co=pays. Instead they are “adsorbing” the cost increases. Adsobing in this case means a tax increase. The Governator has already caved on prison and highway patrol cost containment and everyone else is next.
dailynews.com is down as I write this, but the biggest headline on the front page of today’s paper is: “LAUSD’s graduation rate: 44%” Subhead: “District 6th worst among U.S. cities, new study finds”.
According to the story, “the LAUSD was sixth from the bottom in graduation rates out of the nation’s 50 largest school districts, trailed only by Detroit, Baltimore, New York City, Milwaukee, and Cleveland.”
IMHO, that right there is your next recession baked right in to the graduating class of ‘06 and and a scary number of previous graduating classes. How is LA going to run its economy when 56% of its new workers were unable to complete even the dumbed-down programs that pass for high school in these parts? And how are these in-duh-viduals that dropped out of high school going to pay for housing, even rental housing? Flipping burgers or washing cars? Sorry, those jobs are all taken by our friends of Hispano/Indian persuasion and damp posterior.
Oh, wait, all of those dropouts will get jobs as Realtors and sell houses to each other.
L.A. is Toast.
Funny, but you almost describe my parents’ situation last year!
Sold SD house for $585,000 to a family that bought with a NINA loan. In fact, the buyers had to get a cousin or someone else on the loan because they didn’t have a valid SS number. My parents paid $175,000 in 1995! They started out listing it at $630,000 but just kept dropping the price every week until someone bit.
Dad bought the motorhome he always wanted and mom bought a cheaper house in NC. She’s teaching there with 90% of her CA teacher pay, and her house cost $90,000.
My dad’s rolling the countryside in blissfull retirement.
Hard to believe that a stranger on a random blog has almost the same story!
Hey! I’m not that strange.
Anyway EP, I’m bettin’ that your mom has a hefty CALPERS or equivalent account that will suck the lifeblood of Kalifornia for the next 40 years right? Good for her BTW, I’m not being critical, when it is raining soup the correct response is to get a bucket.
The future for San Buenaventura to San Diego is dim indeed. There is no way at all, none, not even a bailout or repudiation scenario for Kalifornia structural spending that isn’t going to involve violence. Those of us left will be conservative and libertarian and independent minded to the extreme. The anti-illegal immigration tidal wave will scare electeds into overreacting, contributing to that problem.
It isn’t rocket science. I said I “made up” the story but as the responses indicate all I really did was report the median story. It was inevitable that many true stories would be very close. I just played the odds.
Yes, mom has Calpers but she didn’t work while we were growing up so won’t get the 80-90% salary payouts that career people do. Will still be plenty to live on with no house payment. My bro. moved to NC too, so at least she’ll have family close.
It’s somewhat frightening that they fit your median story so well.
Dunno what my wife & I will do in the end but it won’t be to move to NC. Maybe Tx or somewhere else, but it has to be a place where we can keep our careers in advertising and entertainment.
I know we’re not alone - both of us are 3rd generation californians and most of our contemporaries have the same attitude, or else a huge debt load.
My kids are 3 rd generation Venturans as well. Me? I’m one of those random genetic infusions from back east.
I’m not being smug or arrogant or anything here. Why is it, do you think, that I was so close and even called something as obsure as CALPERS investiture?
As good as I’ve “guessed” so far give me a little more lattitude and consider my future projections. You don’t even mention a long term connection to SoCal. I know why and I beg you don’t call it racism but at worst culturalism. You don’t like what has happened and certainly don’t like what is happening and worry that you might get caught in what might happen.
For scare purposes only: Southern California Megapolitan Region 2030 will look very much like the Mexico City Megapolitan Region 2006. The geographic exception being the inversion of cenurbs/exurbs. In Mexico City the cenurbs are the enclave of the rich. Reverse it here.
Actually greater LA metro region has already advanced into a north of the border slightly smaller version of Mexico city. large sections of LA county(e.g the entire south-central LA or the east half of the San fernando valley, are 70-90% recent hispanic immigrant. I can provide more detail for greater LA Metro area exactly where the concentrations are, but it is sufficient to say that probably within next decade or so LA region will be very much like Mexico city, unless the US builds a 2000 mile great wall of china across the entire souhtern border and does it immediately. This will not happen so I expect to live in a hispanic-Pan-latin American city-state(LA/California)within next decade or so.
yes. that is the american dream. maybe not for you. but for them, it is, considering that they probably never had it this good from where they came from.
OMG… just started reading… where do economists come up with s..t like a recession requires job loss in 2 sectors? Somebody is just pulling this bs out of you-know-where (sry, this is a family blog) to come up with whatever conclusion they want to come up with.
Can moron economists like this be stopped? Back to reading.
Now, is this the same Chris Thornberg that delivered that insightful 50 minute video on the housing bubble, the one who contributed to this rubbish?
It just goes to show how academia–and not just in economics but definately in medicine and engineering and probably the rest of science–is becoming an intellectually vapid lapdog of industry.
SF Mechanist,
The Economists who wrote the UCLA report fail to recognize one very important point. Increases in Unemployment does not cause recessions. Increased Unemployment is the result of a recession. If you look over the last 3 U.S. recessions (2000/01, 90/91 and 80/81) each and every time the unemployment rate hit its low point as the economy of entering recession.
True definition of recession is defined as two consecutive quarter of neg GDP.
Very few of these self aggrandizing experts are ever right about much. We have them in the IT business too, and they are a plague upon moving things forward. This seems to be all the rage these days. Dishonest researchers who go into a study with an outcome in mind. No wonder the rate of discovery and invention has slowed so much since the early 1900’s. You can’t spin math. Oh you can try, but reality will prove you wrong.
I liken it to the excellent mention of the death of real debate and discussion among the leaders and thinkers of our time from an earlier post.
Not to say I think this is garbage because I don’t agree with his conclusions, only that I think the whole UCLA study is very sloppy and un-supported by the facts and the math. I would give it a “D” at best, at least there were no spelling errors.
“The UCLA Anderson Forecast said in its latest quarterly outlook to be released today that home prices probably would not fall much from current levels. ‘Absent a recession, the price of a home five years from now is not likely to be substantially lower than it is today,’ UCLA economist Ryan Ratcliff said.”
In other words, unlike what happened at the end of every other mania in the history of our planet, this time prices have reached a permanently high plateau?
The recession qualifier is a sneaky way to slip some CYA-protection into their prediction; in other contexts, the Anderson Forecast has predicted a recession over the next few years, and when that comes to pass, they can point back to this statement and legitimately claim that they never said prices would not fall if there was a recession.
Yeah, they know the housing bust will cause a recession but they will blame the recession for the housing bust. Tell the sheeple what they want to hear for now.
Blame the godamn bankers?
Who controls and watch the bankers?
Kozuimi? Chirac? Bush? Blair? Putin?
No. It’s the bankers that control the politicians.
ANSWER: Nobody.
Anything goes.
Thank you soo much Alan Greenspan and your bunch of goons.
GetStucco, you’ve hit the nail on the head. “Absent a recession”…LOL, as if recession is such a remote possibility…it is in fact a high probability!
I think it is going to crash once we run out of buyers. You can add a million 60k jobs to your county, but you’re not going to sell a single house if all the ones on the market are over 500k. Well, okay, there’s still neg am loans, but the number of people stupid enough to get one of those has to drop sometime.
“Well, okay, there’s still neg am loans, but the number of people stupid enough to get one of those has to drop sometime.”
When the conundrum dies, it will also be hard to find sources of funding for loans which are predestined to go into default.
Consumer MEW extraction and borrowing barely missed a beat in the 2Q.
http://www.xanga.com/russwinter
“In otherwords Joe Soccer Mom was fully supported by her lending enablers, despite a diminished ability to service the borrowing, and clear evidence that the collateral supporting these loans is slipping. As I’ve reported, I feel the housing market incurred the same kind of damage in May-June as most other asset and financial markets. Therefore, financial corrections have stung higher end consumers, even harder than average Joe.”
Russ –
That is truly shocking. It looks like though MEW is still high, it also peaked last year and is dropping off fairly quickly. I also agree with your conjecture about the housing market’s financial damage in the May-June asset crash, as the spike in asset price volatility which accompanies the death of the conundrum will drive up risk premiums in a similar fashion on all risky assets, including stocks, bonds, and real estate. It simply does not appear yet in the data for real estate prices, as most of the homes which were on the market as of the beginning of May will take 6+ months to sell and show up in the data.
Dude, this time it’s different. Gosh, how many times do people have to remind you for you to forget that timeless market fundamentals just don’t apply in our current space-time vortex economic anomaly.
” Prices seem too high, they say, and with more homes to choose from, there’s no pressure to act hastily.”
I’ve never understood this statement. There should never be pressure to quote ‘act hastily’ to buy a home…….you can always rent…..this is purely a statement born of fear and greed.
Not true. If you’re heavy into cash and property is cheap there could well be a time critical element to getting a good price, especially if the currency is due for a devaluation or there is a bank holiday in the offing. Argentina would be a good example. One day you had cash in the bank the next you had cash in a closed bank.
Sometimes it does pay to act hastily. The key is knowledge and wisdom, not blind faith and ignorance.
‘Absent a recession, the price of a home five years from now is not likely to be substantially lower than it is today,’ UCLA economist Ryan Ratcliff said.”
Okay, Ryan now look into your crystal ball and tell us how likely falling home prices and increasing inventory will bring about a recession.
If you read that statement the right way, he’s actually saying, “I expect prices to be lower, although I can’t say how much lower and for how long the declines will last, unless we have a recession, then all bets are off…”
Yes, they will definately be as high in 5 yrs as they are now. THat will make me, and many other folks that are fleeing CA right and left (the educated ones with decent paying jobs) want to return and pay $1M +, commute 3 hrs a day, breathe smoggy air, never see our children, etc return in droves from places that have a much nicer quality of life. And I will have elephants flying out of my ass too.
Some new charts from yesterday’s DataQuick release:
Now It’s Getting Interesting
- 2nd derivative of prices has been negative (with a slight amount of random noise) since mid-2004 for all the areas on your graphs.
- 1st derivative is already negative for some areas (Ventura County, San Diego County) and poised to go negative for the rest by the end of 2006.
- All told, your graphs clearly support the statement that “The Pendulum is Now Swinging the Other Way.”
Don’t get ahead of yourself GS. No personal offense but don’t forget that the 2nd derivative is called “jerk” for good reason. Ventura County shows the least y-o-y appreciation because it has the least change in housing stock. Expect it to stay low +/- long after OC and SD are cratering.
I was looking at the month-by-month price chart. Ventura’s MOM is negative (and that would be the first derivative)…
To the best of my ability to read the graph, I see the following for VC:
Dec 2005 $630K
May 2006 $580K
Approximate annualized rate of decline:
[(580/630)^(12/5)-1] X 100% = 18%.
I am just describing what his graphs show, not making any wild-@ss predictions here…
Even the Anderson report cautions about VenCo. The smallest by far (1/4th size of OC) and even though wildly growth accomodative still by far the most growth moderated of any SoCal region. The Dec $630k was noise as is this month. Too small a market to accurately track trends month to month. You’ll see the VenCo median bumping along $580-$620k for a while but that will mask a bifurcating market. The high end and new market well above that price and middle and low priced resale homes declining significantly.
ventura cty will crash hard like the rest.those low paying fruit pickers and oxnard gangsters wont buy those overpriced homes.
Nor will the unemployed Countrywide Mortgage people 9000 now, I wouldn’t be surprised at 3000 in 2 years. Yes, VenCo has risks but it also has advantages. Unlike all the other SoCal regions the #1 industry is agriculture. Will we see a major downturn in eating? We also have had the most restrictive growth policies of any region so our supply/demand equilibrium is one of the lowest in the nation. Our median household income is very high, our existing housning stock carries a very low cost basis. Sure there will be lots and lots of pain but it isn’t going to be the Inland Empire, OC, SD, or Antelope Valley by a long shot.
and what if amgen outsources and moves
They already have outsourced and moved. Oregon, Boston, overseas. Internal growth keeps HQ fully employed and then some. Their only complaint is housing costs. Amgen in a downturn (housing or general) would likely be less likely to downsize. YMMV.
From powaysellers rebuttal However, we must now take into account that people are already leaving at the rate of 50K/year, and those who lose their jobs will also go, so ultimately our unemployment level may creep up only slightly
So with 50K of us educated working professionals leaving, I take it the person making this ridiculous statement (PHP) insinuates that all of the undocumented workers at mininum wage will be purchasing all of these $1M homes. Good call!!!!
It’s all about damage control at this point. Who cares what these economists forecast…the situation is what it is. We’re headed for a significant correction in many parts of the country, California being one of them. Anyone that gets a warm, fuzzy feeling from these reports is kidding themself. I agree with others that have pointed out these reports and articles always leave a “back door” in the event of a severe correction: “absent a recession” “no reason to panic - at least for now” etc. It’s coming, and they know it.
I prefer astrology for forecasting. Economists are soo funny that it ain’t funny!
check out newest member of UCLA forcast team ryan ratcliff
http://uclaforecast.com/contents/aboutus/bios/RRatcliff.asp
and be sure to send him a message on how his prediction is crapola
ryan.ratcliff@anderson.ucla.edu
He’s just doing what he was trained to do with his Ph.D- Piling it Higher and Deeper.
The San Jose Mercury News article re the report says:
“Ratcliff writes that there are a number of variables that could still upend his soft-landing forecast, and even lead to a statewide recession. One is the potential for another large drop in manufacturing employment, another the unknown effect of the adjustable rate mortgages that became popular with buyers in the past few years.”
Gee, that’s a pretty big “unknown affect.”
LOL! A “large drop in manufacturing employment’? Unless he is talking about China I think we have already had that here in America. Oh, I forgot that “making” a hamburger or a latte can be considered manufacturing in this brave new economic paradigm. I can’t wait until folding laundry is considered manufacturing.
I think he is trying to tell us that Sponge Bob will not be making as many crabby patties over the next few years…
One of the interesting graphs that Jon Lansner did at OCR was a comparison of manufacturing jobs since 1990 vs. RE related jobs.
There was an inverse correlation. Mfrg in So Cal died and hasn’t come back. RE moved in and replaced those jobs.
The graph was published in the paper and on his blog, you will have to dig through the archives if you want to see it.
Exactly. “Unknown effect” meaning what, it may not be bad? We may hardly notice it? It won’t cause a massive number of foreclosures? Give me a break.
They know.
But they don’t what to know.
Like the three monkeys.
The first hides his eyes.
The second hides his mouth.
The third puts his hands on his ears.
Buyers are actually starting to evaluate a house based on value. The certainty of future appreciation is gone so they are asking themselves the basic question “is it worth it?”.
This leads me to believe that we will see a long, 5 to 10 year, slide rather than a crash. Housing is now vastly overbuild. Most of the newly built stuff is low quality. Wages have not gone up much. Add it all together and people are starting to figure out that houses aren’t really worth much more than they were 5 years ago.
Of course the mountains of risky debt that people have taken on could lead to a huge wave of bankruptcies and foreclosures driving prices down steeply. This would likely tip us into a nasty recession in which case the housing market could completely collapse.
I think a growing number of buyers are actually still factoring in future appreciation. However that factor is now negative for a small but growing number. Some folks I met at open houses and new home models had a “feel” that things were going to come down in price, so unless they found a “bargain” they were going to hold on and wait to see if they could get a better deal later.
This meme is growing. This is the catalyst of the downturn.
“Housing is now vastly overbuild. Most of the newly built stuff is low quality.”
You got that right. I am not sure about other parts of the country, but here in Washington, builders have started using floor joists manufactured from strips of OSB sandwiched between 2 x 4’s instead of the traditional 2 x 12’s etc. due to the high cost of lumber. Apparently engineers said this is fine. Now anyone not familiar with OSB, it is an engineered “pressboard” type of product traditionally used as sheathing for vertical applications in moisture free areas. If it gets wet, it deteriorates. Now I know that the underneath of a house is supposed to remain dry, but here in the Northwest, it rains quite a bit and inevitably, joists can get wet due to a number of things. So what happens if floor joists get wet and deteriorate? Well, lets just say that it’s time to rebuild.
I first worked with that kind of product as floor joists in the summer of 1991 (or was that 1992?) on a housing remodel. This is not a new product.
Point taken. Still relatively new to this area and my contractor friends would not use it on their own homes.
When I crawled into my 1918-1922 attic (still not sure ) to spend months of sweat to insulate it (over 3 years) I was reminded what hell is like!
The joy came when I realized my house was built with fairly-crude redwood that actually measures 2″ by 4″. Some of my Douglas-Fir flooring strips are 21 ft. long. Continuous.
No apparent damage from earthquakes or settling. What I read lately about new homes, especially the models that are put up the most quickly, troubles me deeply.
I always thouught buying a model home meant you got a perfect, trouble-free home.
Paradigm shift? Heuristic shift? Same?
The SF Chronicle ran a fluff piece on this. In the same paragraph, cited that 30% of the state’s job base is real estate related, then went on to say that recession is unlikely because “other” industries will absorb these job losses. Estimated 7.5% increase for 2006 with no price declines until 2008. More of the “soft landing” siren.
Pity the waste of trees the Chronicle is printed on. I still scan through SFgate.com for it’s comical value. At least the movie reviews are okay.
And to think, until around April, that’s where I was getting my news from! Then a long pause in real estate stories lead me to discover the blogosphere. Now I’m thinking about things like Austrian economics, hyperinflation vs. deflation, 0 vs. 25 vs. 50 bps, fundamentals… it’s like I’ve swallowed the red pill. Thank you all and have a nice day!
Laid off realtors qualify for what type of job? Selling cars.
Prostitutes….sign twirlers…dog walkers….wait,no,I wouldn’t trust them with my dog…
Fluffers?
(Apologies in advance.)
That part of the film industry will only absorb a few score people with that particular skill.
Lets see! what industries will pick up the slack for all those laid-off/fired RE people or construction workers. Employment staffing receptionists. Fast-food managers and assistant managers. Sign-wavers. cell=phone sales. Used car salesperson. Pizza delivery driver. Starbucks employee/franchisor/franchisee. Fed-ex/UPS package handler-contract driver. Floral delivery driver. Can you think of other “industries” which will tale up the slack.
“This year 50% more homes have come on the market regionwide versus the same time a year ago.”
What region is DQ referring to? I have my own stats, I looked at ocrenter’s numbers and those on housingtracker and all of these number contradict DQ’s reporting. Something simply doesn’t add up here.
Could DQ be talking the market down too, softening the line on inventory? This is tough to do without getting caught, since there should be no interpretation/commentary used in connection with FACTS. Are DQ shills or are they statisticians?
At $0 down with a 30 year @6%, Tiprin’s 1M home would cost you $6,000/month on just the interest and prin. Add in the impounds and I bet that baby is over $7,000/month. Who the hell is making that kind of money, and if they are, willing to spend it on that home in Pasadena. The people who could afford such a home have already bought or moved on, that’s wnhy 150 people went through your home, but no offers. Also, the thing a lot of these sellers forget too, is that if I buy a 1M home, how in the world will I ever sell at a profit. I would have to live there a 100 years. Don’t get me wrong, I am not a flipper, just trying to make the point that these people all want their cake and eat too, but don’t care about the bag holders.
OCDan,
Well exactly. The very situation you describe is why we have this “mexican standoff” between buyers and sellers. I try to remind sellers by saying “Look, I don’t expect people to do business with me (lose money at it) and actually want to do it again”! “However Mr. Seller, I think it’s unreasonable for YOU to EXPECT that you can make ALL of your money off me ALONE”!
In short, I don’t want to “make your day” (or in this case make your entire RETIREMENT)! Sure, selling your primary residence and downsizing is almost always part of good long term financial planning. I bear no grudge there. Please to notice though I said PART of your plan! Not the WHOLE plan. For me I’ll be stuck with the bag and at the same time making YOUR retirement one____payment____at____a____time. Uh, no thanks.
6% is only available on the rear view mirror for most people. That’s what is really putting the brakes on the market now. Move up buyers? They can’t afford the payment increases on the ARMs now let alone move up. The rapid recent escalation in inventories is accelerating. By the end of the year, if rates stay the same or jump only 50bpts we will be seeing a lot of defaults. In 2007 - LOOK OUT!
Not even Pasadena, South Pasadena. $7-8k a month to live in South Pasadena.
To South Pasadena’s credit, it has the best public school system in SoCal. It is a relatively tiny community compared to its neighbors (LA, Pasadena, Glendale), and it is very peaceful and cute. Hell, Beck lives there. It’s trendier than Silver Lake for young parents b/c of the schools. With private schools in LA running at $15k-$25k a year, housing there will be sold at a major premium.
Personally, I would love to live there. But yes, $1 mil is still quite pricey for the area.
SoPas has excellent public schools, but they aren’t the best. Several other communities have public schools that roughly as good or better — San Marino, Arcadia, Palos Verdes, Beverly Hills, Claremont, La Canada/Flintridge, Las Virgenes, Manhattan Beach, Walnut Valley.
Don’t want to take anything away from the SoPas schools, just want to show that there are a number of other communities with good public schools in LA.
Granted, these are all very nice communities, but they collectively account for tens and tens of thousands of housing units.
Makes you wonder who got to these guys? They have been bearish for years, to talk soft landing now is extremely conflicted with their message for many years. Were they paid off or threatened with physical violence? I wouldn’t lose any sleep over it. The proof is in the pudding and right now Ms. Tripin Follett and her ONE MILLION DOLLAR chitbox has had 150 “lookie lou’s” and not one offer!
unless they are truly stupid (and I do not leave out that possibility) they must be aware of that which awaits. I think they are thinking in their own way that they can let the air out of this bubble slowly. It will not work because at some point, even the sheople will see what is in front of them.
It’s been stated before but real estate agents are going to pay dearly for the last five years. People on the outside of the market, aka renters, look at these agents (primarily SFR types) as nothing more than pathetic middlemen that just add to the cost of an extremely expensive purchase. The article about the 6% commision structure and the class action lawsuit speaks volumes to me. Going forward I think that agents can look forward to flat fee being the way they will earn a living. I think $1000 per house is fair enough for what they *cough* do *cough*.
As the market continues the decline, sellers (especially the ones that bought at the top) will abandon agents as they switch their allegiance to the buyers to make sure the cash flow continues. I hope this “Mexican standoff” continues as it will crush these pathetic real estate hens even more than a declining yet liquid market.
The demise of the commisioned real estate agent will be a boon to future homeowners just as the demise of the travel agent was a boon to travelers.
Exactly. No need to stampede the cattle when the storm’s already upon them.
150 lookers, and no offers at all? Don’t you get the feeling that these weren’t buyers, but instead sellers - people out to see what a $1 million home looks like, so they can value their sale accordingly. If so, the inventory crush is yet to begin. Who was it that said ‘Death is only the beginning?’
As the magnitude of the bust becomes real, it scares people.
People who are scared do strange things.
People who get quoted in the media don’t want to do anything to spook the herd, so they say soft landing with a “no recession” out to not get threatened or assaulted and still have some professional integrity.
Now, let’s hear all of that sympathy ‘boohooboohoo’ for the Follett’s and the inability to sell their piece of shit house in Pasadena for $1M. We could collectively offer $100.
Did you know there are mountains right next to Pasadena? I didn’t until I was down there on a day without smog. It just happened to be Christmas with no traffic. L.A. and the surrounding cities are covered in poison the other 364 days a year. Of course, Beijing makes L.A. look like an oxygen bar.
It’s funny, I live about two blocks away from SoPas (probably near the Follets!) and I had lived here for four or five months before I realized there are mountains right next to us.
Seriously, I am not making this up or embellishing. I was driving down San Gabriel Blvd one day and looked out and suddenly saw this mountain range right next to the Best Buy in Pasadena. It was something else.
The air isn’t that bad to breathe, but it sure does obscure a lot!
during a good portion of the year the scal coastal fog/haze blanket will obscure the view of the San Gabriel Front Range. That and the smog which seems to pile right up against the mountains in Pasadena. To access the mountain range take 210 west then north where it says San fernando, then exit the (2) angeles crest hwy to your right(north)in the city of La Canada Flintridge. Some good hiking and scenic vistas near Mt wilson and strawbwerry peak areas.
The JPL(jet propulsion lab) is located off the 210(San fernando frw) about 3-5 miles from where the 210/134 spilt occurs.
Pasadena is very rich in cultural/historical places and insittutions such as the monumental stone arched bridge over the arroyo seco at colorado.
My NYC and LA friends tell me breathing is overrated. I like getting out to the party circuit and seedy nightlife, but I’m always happy to come home. Maybe the smog doesn’t come from cars, but is actually a byproduct of the constant hot air about “the biz”. That’s all anyone ever talks about out there. It’s like they are all afflicted with the same psychiatric disorder.
(“The slowing housing sector has placed California’s economy ‘at a tipping point,’ UCLA economist Ratcliff said. Because real estate has been a major driver of economic growth, its retrenchment is bound to have some consequences.”)
I read that 6 months ago on this blog.
‘Absent a recession, the price of a home five years from now is not likely to be substantially lower than it is today,’ UCLA economist Ryan Ratcliff said.”
You need to read between the lines ala Fedspeak. Sounds like they’re saying probably lower ,and really lower if recession. Why would you buy a $1m house on that outlook?
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Re: Predictions. …I don’t want to argue his merits ,buy Kayasaki was saying to buy RE to profit form the babyboom before the big runup, now he is saying to load up on PM’s. Hope he is right on that call.
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Did you hear the Dallas Fed spokesman the other day?. He said he didn’t see a significant crash to the bubble, BUT there would something to replace it? What’s going to replace 30% of housing losses in some communities?….?
It also depends on what he means by “substantial.” 5%? 10%? 20%?
When has a “soft” landing ever happened?? I’ll tell you - NEVER! These idiots are just praying they don’t lose their as*ses! I have been in many heated discussions lately with homeowners who tell me I am crazy and that prices aren’t going to go down but flatten out. It is really pissing me off! I feel like I am in high school with the whole peer-pressure crap! I didn’t fall prey to it then and I sure am not going to fall for it now! It seems to me that people are becoming more and more desperate to keep this thing afloat. They will say anything to keep it going. I truly believe we are heading for a recession this fall if not sooner. Look at how many times the yield curve has been inverted?? Oh, but I forgot it doesn’t have the same meaning nowadays! It’s different now! Don’t forget - EVERYONE WANTS TO LIVE IN CALIFORNIA!! Ha, ha!!
Exactly, Yeah I remeber how the stockmarket was supposed to have a soft landing and then the Shxx hit the fan. A local financial radio guy in Sacramento spoke on the air that there was no stockmarket bubble and told people not to sell and if you listened to him you would have lost big time. People here think this guy is God. Yesterday the same idiot is saying the same thing about the housing bubble that things are fine because construction starts increased in May. They are so full of shxx. The more I hear soft landing the more I feel like the housing market is going to take a big dump. I mean in Sacramento they want 300K for house in the hood. I mean your neigbor would be a crack dealer. Im not spending 300k to live next to crack dealer.
Looks like you have a good reverse indicator! When he finally says its time to sell RE, then may be the time to buy. LOL
I just moved to CA/Bay Area for a better job (market is better than where I was for my speciality). Right now there’s no way in hell I’m buying a house. In fact, my wife and I figure it’s at least 3-5 years away for us if at all since it’s just not worth it.
Admittedly we do now and then speak of how to shop post-housing bust. It’s a special, personal time
…..Sorry for my spelling….
Ok one more point : we were discussing yesterday. Speculators, flippers, backed-n-corners, will be bailing at some point ,but we know 2 people that had bought 10 years ago so when they sell they can drop their price by 200k and still walk with 500k profit so they can move to cheap retirement areas. This is much like the big builders lowering by 100k. When this really unwinds the potential lower comps will make the fall possibly farther ,and faster than expected…
Rode past Half Moon Lane in OC today with modified exhaust on Husqvarna. Sign now says “From Mid $800s”, down from $1000,000s and from $900s… also, No Payments Thru 2006!
O it is happening… Funny that UCLA trotted in new kid and shoved Thornberg to the rear. Definite attempt by somebody to keep the band playing while the deck chairs are rearranged…
Is this the same lane? If so, the winner should probably take the $500k rather than pay tax on $1.0 mil and risk not netting more from the sale than could be realized from paying tax on $500k.
http://www.mdhomeraffle.org/hometour.php
I think the slowdown in LA is almost entirely attributable to word of mouth. Potential buyers have friends, and some of those friends who bought in the last three years are having a tough time. Anecdotally, I know three people in my office and one person in my social circle who are REALLY screwed, like preforeclosure/bankruptcy looming screwed. We have another set of friends who HELOC’d to do a massive renovation on a new house, have been paying two mortgages, and are counting on having to sell their old place for top dollar to make the whole financial house of cards work. Their new house is still months away from being finished, and so they probably won’t be listing their old house until Nov-Dec. They look like zombies from the sleepless nights. I mean, these people are borrowing out of the 401-k to pay for their Ramen noodles. And they are high functioning, high income, successful in their field, etc.
These are all nice people. Not idiots. Victims of a frenzy, maybe, but not stupid greedy people. I hear their woes, and it sure makes me want to wait for a long time before jumping into that pool of sharks.
Plus I am hearing more and more people quoting blogs, Dataquick stats, etc. The local news in LA in the past two months or so has FINALLY caught on and you’re seeing less of the “is there a bubble” reports and more “how to survive the bubble” reports.
No mystery to me why sales are down. You can’t fool everyone forever, and now you’ve got a huge amount of skepticism out there that is going to linger a long time …
Plus the market is just running out of idiot buyers. I hope. Like P.T. Barnum said there is a sucker born every minute. I hope it took along time to groom the last batch of suckers and a bunch of new suckers won’tcome around.
DAVID:
Patience on the add comment button, Ben’s fire sieged servers sometimes are slow. Which is good news for the bears.
You forgot the other part about Barnum. He made a ton of money once he realized how much American’s liked to be fooled.
I think the most popular exhibit of P.T. Barnum was the “egress”, in “This way to the egress!”
Plus the market is just running out of idiot buyers. I hope. Like P.T. Barnum said there is a sucker born every minute. I hope it took along time to groom the last batch of suckers and a bunch of new suckers won’tcome around.
Plus the market is just running out of idiot buyers. I hope. Like P.T. Barnum said there is a sucker born every minute. I hope it took along time to groom the last batch of suckers and a bunch of new suckers won’t come around.
They look like zombies from the sleepless nights. I mean, these people are borrowing out of the 401-k to pay for their Ramen noodles. And they are high functioning, high income, successful in their field, etc.
When this whole flaming mess is over, we ought — as a society — to do a kind of values check. What’s going on that so many of us are mortgaging our financial futures for flatscreens, big cars and big houses? Is something else going on here to turn us all into a bunch of “money lemmings”? The greenhouse effect? The war? 9/11? The rapture? Are we all so convinced that the world’s ending tomorrow that it’s just spend, spend, spend and the value of true financial security is therefore moot?
I saw a post on another blog the other day in which some poor middle class Bay Area dweller had “done the math” and decided to cash out his 401K to buy high-priced wine, since at the rate things were going the middle class will be a thing of history in about 20 years anyway, leaving him to a life of poverty no matter what. And this guy had kids!
I’m personally still maxing out the retirement accounts and spending below my means — no kids and no religion, either…and feeling more and more like the last of some exotic human species. Anyone else in this boat?
Yes. I know the feeling. I imagine a lot of people here do too.
When my wife and I moved to CA, we used it to take inventory of how we spent when we lived in the midwest. We were good savers and reasonable spenders then, but since she’s changing careers, our eqivalent income took about a 15% hit while she’s re-working her way up.
So we had to really look at our budgets and priorities. We were saving and spending with reasonable care, but the shock of moving, the shock of rethinking things, and the shock of seeing how some of the Katrina refugees lived really made us rethink. We also had moved to an area with better weather and more to enjoy that didn’t require any or much money - nothing like a farmer’s market or a walk in a park.
So now we’re pulling back even more. We’ve got a friend moving here for a job change who will room with us. We’re watching the budgets more closely. Entertainment comes from a Netflix account (serious bargain, by the way). And its working out fine.
It also feels even more alien, as we’ve known people who just can’t plan or manage money (or conversely people who can manage money and feel no joy in life). Here I am with my spreadsheets and calculations, and also enjoying the sunshine or a Meetup.com event in a park. Sure we don’t have fancy cars or fine wines, but we’re happy and we have a future.
Agree on the value check. Although it isn’t hard because MOST people have these values. It’s the 20%-30% who don’t who cause the most damage.
As for my friends renovating the house - their fatal mistake was not being realistic about what their contractor was promising. The renovation was originally estimated at 1 yr and $150,000 and ended up taking 2.5 yrs and $350,000. They fired the original contractor six months in, and had to replace the second guy they hired. Their new place is going to be amazing, but their “dream” renovation just basically turned into an absolute nightmare.
I can back up what you are saying. I work for the largest private employer in San Diego, and everyone that bought in the last few years is in pain. I am talking they have a sick look on their face when they talk about their condos. They are always asking me what to do, I told them SELL SELL SELL in the winter, but they said their realtors told them to wait until the Summer…. guess what, they lost even more money and just can’t make ends meet.
Plus the market is just running out if idiot buyers. I hope. Like P.T. Barnum said there is a sucker born every minute. I hope it took along time to groom the last batch of suckers and a bunch of new suckers won’tcome around.
Plus the market is just running out of idiot buyers. I hope. Like P.T. Barnum said there is a sucker born every minute. I hope it took along time to groom the last batch of suckers and a bunch of new suckers won’t come around.
It’s amusing in every story you read now there is always a phrase like:
not a crash, not a bubble, not a collapse… which tells you that is exactly what it is.
realtor’s like to quote comp’s and $/sq. ft., to justify why this condo that was $280k 2 years ago should be $500k now, I am looking forward to the vastly lower prices showing up in the “comps”
also note, I have heard several people tell me to buy now because L.A. never goes down, I remind them that in late 80’s and mid 90’s there were “crashes”. I also know one guy who bought a condo in 1989 and only until 2002 did the price finally go above what he paid for it.
Hoping these fools who bought in the last 2-4 years used fixed rate mortgages and don’t need to move anytime in the next 7+ years…good riddance
A former boss of mine bought a house in Brentwood, CA for $1 million back in 1989. Four years later, after his wife had passed away from brain cancer, he relocated to the east coast to start a new life and had to sell it for $750K, barely enough to cover the balance on his mortgage (this was back when downpayments and actually accumulating equity in a home were “all the rage”). Before his wife died, he had the chance to bemoan the money he would lose on the house to her, and she told him not to feel so bad. ‘Think of all the young couples who finally have a chance to own a home’, she told him. ‘It’s their turn now’. Deathbed wisdom. I think of them often these days.
I will never forget a co-worker who bought one of those nasty homes that look like a 2 car garage and 1 story just directly above- maybe 1000 sq ft. -for 350k in 1989. A few months later the mkt crashed and he was holding the bag on a horrible POS with the only thing to recommend it was that it was in Laurel Canyon. But it was on Kirkwood - kind of a busy street. It must have been at least 5-7 years for that to play out and for his mortgage to get right side up.
LA does indeed go down.
We just moved back to LA and are moving into our new apartment in Playa Del Rey today. When I first came to this site, I was dreaming 06, then dreaming 07, and now dreaming 08! Our 2-bedroom apt is 1,550/month (we looked around for the right place at the right price…rents seem to be going up a lot) and we are surrounded by homes that are (trying to, at least) selling for 1.5 M. We’re 1/2 mile from the beach and two miles from my new job at LAX. There’s a pretty good (for LAUSD) magnet elementary school where my daughter will start kindergarten next year. Thanks to everyone on this blog for your observations and insights
Per ziprealty, no SFR in So Pasadena or Pasadena at $1M
Zip doesn’t get it all.
There are a number of them on the MLS — this is the only one at exactly $1mil, but there are a lot in the $1.2 — $1.7 million range.
http://guests.themls.com/profile_page.cfm?mls=06-100117
Dont you think, Thornberg made a newbie put his name on the forecast as a CYA?
Sleepless people cashing in 401K to pay for ramen noodles because they jumped the gun on a new house and remodeling an old. Sorry for those folks, but it is a cavaet emptor. Should have just stayed put, and they would have been in a much better situation.
“The UCLA Anderson Forecast said in its latest quarterly outlook to be released today that home prices probably would not fall much from current levels”
I read this as a prediction that absolute prices won’t decline much. But what about after correcting for inflation? Suppose absolute prices decline only 10%. After correcting for five years of inflation at 3.5%, you’re talking about a 27.5% correction in real terms.
Saying that home prices “won’t fall much” long term is more bearish than you might think.
Google has a relatively new search capability called Trends. It allows you to plug in a word or phrase and see when and where Google users are searching for it. The URL is http://www.google.com/trends.
I put Housing Bubble in there and wow - is ita California phenom or what? Clearly, the Golden State is where Googlers have the highest per capita interest.
The top cities in the U.S. are:
Pleasanton, CA, USA
2. Arlington, VA, USA
3. Rancho Santa Margarita, CA, USA
4. San Jose, CA, USA
5. Santa Clara, CA, USA
6. San Francisco, CA, USA
7. San Diego, CA, USA
8. Irvine, CA, USA
9. Washington, DC, USA
10. Sacramento, CA, USA
It also appears interest peaked in 2005.
Nice link. I searched “house prices” and found interest peak in early 2005.
A blast from the past acticle noted: “IMF warns on global house prices
BBC News - Sep 23 2004 ”
Neil
Well, whaddaya know?
Tiprin Follett purchased the house mentioned in the article on 1/29/2003 for $580,000 per Zillow.
And now she’s flumoxxed that buyers aren’t willing to hand her a $500,000 profit in just over three years (the house was originally listed for $1,098,000).
My heart bleeds for her!
and get this…a Tiprin Follett graduated from La Canada/Flintridge Prep school in 1994. That would make her what, 30? I am guessing it is her, as LC/F is just a few miles from South Pasadena. Another Tiprin Follett (and how many of them can there be? It’s an unusual name) had a baby in 2000.
In 2006, there was a senior at USC in the BFA program named Tiprin Follett.
So let’s see…she’s 30 years old, daddy bought her the house, she went back to a very expensive private college to study the lucrative field of art, and now she’s upset that no one is willing to hand her $500,000. What a tragedy!
Nice picture of her about halfway down on this page:
http://www.highdeserttestsites.com/
She must have done very nicely as an artist to afford the house while still in college, supporting her child. I am clearly in the wrong profession.
Man, you guys are good.
NO F’ING WAY I am giving her 500K in profit.
This is one reason why Ben’s blog rocks!