The Housing Bubble

From the LADN article:

‘The two-story homes will be about 2,465 square feet and have three to five bedrooms. They will be priced in the mid-$400,000 to low $500,000 range, just below the current median price of a re-sale Valley home. Williams’ Foothill 74 townhomes will have floor plans ranging from four bedrooms with 1,738 square feet to five bedrooms with 1,901 square feet. They will be priced in the high $300,000 range.’

‘Warner Center is a trendy, hip place where the phrase “luxury living” is a conversation condiment. Shawn Evenhaim, the company’s founder and CEO, wants to kick it up a notch at the complex that will probably include apartments.’

‘And the Valley doesn’t yet have what’s on his mind. “This is something I’ve really wanted to do for the last 20 years,” he said. “The Valley doesn’t really have any kind of luxury living.”

So hundreds of thousands of dollars and no luxury?

‘For over a year, local residents have been bracing themselves for the influx of what was estimated to be 50,000 new inhabitants. However, the current substantial drop in oil prices put a hold on much of the transition, and only a fraction of the predicted total have moved in’

‘Royal Dutch Shell warned on Thursday that lower oil prices could continue for several years, and said it was planning for a prolonged downturn. Earnings in the second quarter, on a current cost of supplies (CCS) basis, came in at $3.4 billion - down from $5.1 billion for the same quarter a year ago…Shell also revealed plans to further reduce 2015 capital expenditure (capex) to $30 billion.’

‘On Tuesday, BP reported a second-quarter replacement cost loss of $6.3 billion and warned that low oil prices were here to stay. On Wednesday, French oil giant Total reported that net profit fell 2 percent in the second quarter, and the company stepped up its cost-cutting drive.’

This always happens. It comes time for crow, and the poster has disappeared.

‘The crime statistics released this month by the Los Angeles Police Department were sobering, particularly in Downtown Los Angeles, where all manner of law-breaking shot up. Now area stakeholders have a big question for the brass at Central Division, which covers Downtown: How will they respond?’

‘The city recorded a 12.7% increase for Part 1 crimes, which detail the most serious offenses, among them homicide, robbery and aggravated assault, and a 20.6% increase in violent crime in the first six months of the year, compared to the same period in 2014, according to the LAPD.’

‘The numbers were higher in Central Division. Through July 18, Part 1 crimes increased by approximately 34% from the same period last year. Additionally, Central has seen a 60% increase in violent crime.’

‘Specific categories in Central Division saw skyrocketing increases. Aggravated assaults rose 77%, with 461 reported so far this year compared to 260 at this time in 2014. Robberies spiked 51%, from 255 last year to 385 this year. Rapes rose 22%, from 50 to 61.’

‘The trend in Central Division was not limited to violent crime. Property crime, which includes car theft, personal theft and burglary, surged 25% higher. Burglaries jumped from 114 last year to 182 this year, an increase of 60%.’

‘The numbers have sparked concern across the community. Although she stressed the need to consider the local figures within the context of crime citywide, Carol Schatz, president and CEO of the Downtown Center Business Improvement District and the Central City Association, called the numbers for Downtown “alarming.”

‘Her take was echoed by Patti Berman, president of the Downtown Los Angeles Neighborhood Council. She said she hears complaints on a daily basis from residents and doesn’t know what to tell them.’

“I’m hearing much more than I did a year ago about quality of life issues involving assaults and property crime. Everyone is feeling the pressure,” Berman said. “People are becoming very unhappy. Some are becoming frightened and some are leaving.”

This link is the LA Downtown News, which is devoted to mostly residential development of its namesake. Now, how much for one of the thousands of condos being built down there?

‘Budget motels last resort for California families out of options’

‘The problem of children growing up without a secure place to call home is growing worse nationwide. In 2013, an estimated 2.5 million children lived in run-down motels, cars and shelters, on friends’ and relatives’ couches and on the streets, according to the National Center on Family Homelessness, a nonprofit research institute. That was up 8 percent from 2012 and 67 percent from 2006.’

‘In California, a higher percentage of children are homeless — 5.7 percent — than all other states but Alabama and Mississippi, according to the National Center. They number more than half a million. Budget motels have become the last resort for those with nowhere else to go.’

‘The situation is particularly stark in San Bernardino County, where 9 percent of public school students are identified as homeless, compared with 4.3 percent in Los Angeles County.’

‘Life at the Country Inn is little different from similar run-down, midcentury lodgings across the street and in other parts of town.’

‘The children here pay no attention to the meth merchants on the sidewalks. To the emaciated woman who furiously paces the upper deck, naked. To the men in nice cars who drive slowly through their makeshift play area scanning the doorways for prostitutes.’

Somebody here yesterday was saying how affordable most of California was. Sounds like paradise. I bet the SBC air is really comfortable.

‘Everything is affected by the price of oil, and as of Monday, the price of oil was lower than it has been since the dramatic price drop at the start of 2009. Park County and Wyoming as a whole depends on the price of oil for tax revenue, employment and the benefits that come from having oil workers and their families reside here. When the industry takes a dive, the impact is far-reaching.’

‘The oil from Park County traditionally sells cheaper than other oil, topping out at $70 per barrel last year, said Park County Assessor Pat Meyer. “The kind of oil in Park County is not the sweet stuff,” Meyer said. “Park County is mainly oil — oil is our big boom.”

‘The drop in oil prices hit Park County a little later than the rest of the country, with minimal impacts to the price in 2014. “So this year I wasn’t too concerned; we were right where we were last year and not down much in oil production,” Meyer said. “The big hit was back in October, the last quarter went down quite a bit.”

‘In terms of how much tax revenue would be lost under those conditions, Park County’s revenue would drop by about $2.5 million, roughly 10 percent of their total, Meyer said. The county’s current property tax income is $10.4 million and that would go down to about $8 million, he said.’

‘Those estimates are based under the assumption all of the wells will continue producing, Tom Fitzsimmons said, noting that some oil wells will stop production when oil prices get too far below $50 per barrel.’

“If they can’t afford to produce, the wells and the revenue goes away entirely,” Fitzsimmons said. “This week, we showed an increase in inventory. There is more oil coming on than we are consuming.”

‘In 1982, local oil sold for $29.46 per barrel on average — making up 90 percent of the county’s valuation at $680.5 million. Then, just five years later, it dropped to $11.31 per barrel and made up 72 percent of the total county valuation at $233.5 million.’

“The ’80s were terrible; they (the county) cut everything shortly after that,” Meyer said. “It was a big drop — we had to cut people from the offices, cut vacation times; they were just cutting everything.”

‘The downturn 30 years ago had an impact on the housing market as well. “In the ’80s there were foreclosures all over town and houses boarded up,” said Rocky Mountain Oilfield Services owner Dan Groves. “All the major companies left Powell and never came back.”

‘He’s hoping to flip a $275,000 home in central Phoenix for $700,000, but he said the average person can start smaller.’

Hmmm, I wonder if there’s some appraisal fraud going on around these parts:

‘The Phoenix housing market posted strong gains in June in terms of volume, according to the latest data from RL Brown Housing Reports. But new home prices dropped and existing home prices are flat, according to the Scottsdale-based real estate research group.’

‘Compared to last June, housing starts by builders were up 46.5 percent. The number of new and existing home sales were both up 24.2 percent.’

‘That’s good news for a regional housing market that has grappled with some soft indicators. While there were gains in the number of sales and permits taken out by builders, new home prices dipped 3 percent in June versus June 2013.’

‘The median new home price in the Valley was just under $291,000.’

‘While downtown Raleigh’s condos boom, its retail busts ‘

‘Other stores—including Blake Street Shops and Studios in City Market, Phydeaux in Seaboard Station and the Kindred artisan boutique on South Wilmington Street—have had to relocate or close their doors recently because, the owners have said, their rents became too high and they weren’t getting enough foot traffic to keep up. Gift shop Cimos and clothing/convenience store Estate Essentials went online-only; Glenwood South boutique Cat Banjo will do the same at the end of the month.’

‘Meanwhile, the owners of CU Fitness (a gym) and Artcraft (a sign shop), both on Hillsborough Street, are worried they’ll be pushed out of downtown as well, if York Properties, which owns their spaces, announces other plans for that block. Respective owners Alison Katschkowski and Jim Jackson rent month-to-month at a below-market rate; they say York hasn’t indicated what it plans to do yet, but Jackson says he won’t be surprised if he comes to work one day and finds a notice on his door telling him to be gone in 30 days.’

‘As rents downtown continue to climb—they’re nearly double what they were a decade ago—local retailers fear they’re going to be priced out. The foot traffic in many areas hasn’t kept pace with all the newly built apartments—and their parking accommodations—that are driving up rental prices to unaffordable levels.’

‘This doesn’t surprise Ann Marie Baum. She opened her own furniture store, Cherry Modern, on Glenwood South in 2004; her monthly rent was in the low-$9,000s, but she took the risk because she expected other stores to open up around her and drive business.’

“The whole city was telling us, ‘There is going to be so much retail down here, you’re in the place to be,’” she says. “We were paying crazy money, and they were like, ‘It’s coming,’ but all that came were bars and restaurants, nothing else.”

Urban living = barflies.

‘The increases in the median price for a home in Flagstaff appear to be slowing, Brighton said. The median price of a home in Flagstaff in June was $335,000, a 10 percent increase from the previous month, but only a 4 percent increase over the median price of a home in June 2014. Prices for the first half of 2015 increased by 5 percent to $319,000 compared to some of the double digit gains the area has seen in past months.’

‘The price rise slowdown may be due to the number of homes that are now on the market, he said.’

‘Inventory levels have also increased with the summer weather and as home owners see other homes selling, Brighton said. There is currently a five-month supply of homes on the market price at or below $335,000. About a third of those homes are currently under contract.’

‘Homes priced above $335,000 are not selling as quickly, he said. There’s about a 13-month supply of homes priced over $335,000 currently on the market with less than 20 percent of them under contract.’

‘The massive valuations of the latest Internet sweethearts has some seeing a bubble in the making. These high valuations include Uber at $50 billion, similar to FedEx, Salesforce, Caterpillar and Target; Airbnb at $25 billion, similar to utility Pacific Gas & Electric and Netflix; and Snapchat’s $15 billion, which is roughly equal to Whirlpool and Tyson Foods.’

‘Investors aren’t the only ones who get hurt when a bubble pops.’

‘IT employment, excluding tech manufacturing, at 3.527 million in 2001, declined about 5% or by nearly 200,000 jobs in the following year, according to data by TechServe Alliance, an industry group. IT employment didn’t regain its 2001 level until 2005.’

‘Meantime, the bubble also crushed computer science enrollments. In March 2000, the NASDAQ composite index reached a historic high of 5,048, at just about the same time undergrad computer science enrollments hit a peak of nearly 24,000 students at Ph.D.-granting institutions in the U.S. and Canada, according to data collected by the Computing Research Association in its most recent annual Taulbee Survey. (There are many more computing science students enrolled at non-Ph.D. schools.)’

‘By 2005, computer science enrollments had halved, declining to just over 12,000. Remarkably, it has taken nearly 15 years to reach the earlier enrollment peak.’

‘On July 17, the NASDAQ hit its highest point since 2000, reaching a composite index of 5,210. In 2014, computer science undergrad enrollments reached nearly, 24,000, almost equal to the 2000 high. They may well be past it now.’

“It’s often difficult to recognize a bubble while you’re in it, as unreasonable optimism and speculative greed lead to the belief that a ‘new paradigm’ will validate wildly aggressive projections,” said Bruce Bachenheimer, clinical professor of management at Pace University and executive director of its Entrepreneurship Lab. “It certainly appears that certain sectors of the market are due for a major correction,” he said.’

‘If we are in a bubble, the impact on computer science enrollments — similar to what happened in 2000 — won’t be immediate. “The decline in enrollments typically lags about two years the decline in the industry and employment,” said Hal Salzman, a professor of planning and public policy at Rutgers University, who studies the science and engineering workforce. “So if this is a bubble, students would be smart to anticipate it in their choice of major.”

‘Who is to blame for San Francisco’s affordable housing crisis? According to SPUR’s Gabriel Metcalf (“What’s the Matter With San Francisco?”), it’s the city’s progressives. Metcalf argues in a story last week that San Francisco progressives had “a fatal, Shakespearean flaw:” they “decided that new development, with the exception of publicly subsidized affordable housing, was not welcome.”

‘This meant that “instead of forming a pro-growth coalition with business and labor, most of the San Francisco Left made an enduring alliance with home-owning NIMBYs.” Metcalf concludes that this led to the city’s acute housing shortage, and skyrocketing rents that prevent progressives not currently living in San Francisco from moving here.’

‘But while I agree with much of Metcalf’s arguments about housing development, his article includes a glaring omission: the role of realtors.’

‘Realtors, not anti-housing progressives, are far and away the party to blame for San Francisco’s affordable housing crisis (by “realtors” I mean those associated with the CA Association of Realtors or local associations that lobby in Sacramento against tenant protections).’

‘Short-term vacation home rentals are big business. The CAST report details how 10 towns — Breckenridge, Crested Butte, Durango, Estes Park, Frisco, Jackson, Mt. Crested Butte, Ouray, Park City and Steamboat Springs — are dealing with the challenges, and it suggests communities learn from each other.’

‘In 2014, more than 2.1 million rentals were listed on the top-three hosting sites — AirBnb, Homeaway and FlipKey — and more hosting sites pop up all the time.’

‘Of the 10 towns, Breckenridge had the second-highest portion of housing used as vacation rentals, with 41 percent of 7,187 estimated units in 2014, behind Mt. Crested Butte’s 52 percent.’

‘Breckenridge’s largest employers came to officials at the start of last ski season and urged action. “Certainly short-term online rentals can’t be helping the situation,” Waldes said, but the shortage could be caused more by landlords raising rent as the economy has improved and with increased property values.”

‘Mindy Brewer, who has lived in the Wellington neighborhood with her family for the last 10 years, said the proliferation of websites like AirBnB has affected Wellington dramatically in the last year or so. She said the Wellington’s HOA dues have risen, and neighbors might be breaking the rules because they’re struggling financially.’

“People are just getting off track with affordable housing and what that was supposed to create,” she said. “Everybody’s just forgetting.”

‘As a property manager, she said she gets 100 inquiries in an hour after posting a long-term rental listing, and sometimes people will offer to pay $50 more a month because they’ve gotten so desperate for housing.’

‘The vacation-rental industry has grown beyond its sharing economy status and no longer uses only spare bedrooms, homes empty while owners are on vacation and second homes that owners visit a few times a year.’

‘Community leaders have said they want to continue supporting those doing business legally, like Tammy Ramsay, who manages five vacation rental properties in Keystone. “The short-term rentals create lots of work for the people in our county,” she said, from housekeeping, maintenance and landscaping teams to massage therapists and home chefs. “Short-term brings so much more than rental income to the owner.”

‘Homes that are underwater — mortgaged for more than they’re worth — represent a much smaller fraction of the housing market than they did a few years ago, according to a new report from RealtyTrac. However, some parts of the country are doing much better than others.’

‘The national average, at 13.3 percent, isn’t all the way back to normal, but it would sound awfully good to places like Tampa, Cleveland, Las Vegas — or Chicago, where almost a quarter of mortgages are still underwater.’

‘Ironically, one culprit may be state and local homeowner protections that make it harder for banks to foreclose, according to Daren Blomquist, vice president for Realty Trac. “You have many properties that are kind of sitting in foreclosure limbo,” he says. “And not only are those properties likely underwater, they’re likely dragging down the values of surrounding homes.”

‘Eight ZIP codes on Chicago’s South and West Sides have underwater rates above fifty percent — more than three times the rate for the Gold Coast area.’

Comment by Professor Bear
2015-07-30 00:10:00

We live in an era when debt is easily acquired but difficult to repay.

Solution: Don’t borrow, prices fall. It’s the borrowing that drives prices to inflated levels which necessitates the borrowing in the first place. Vicious money-losing circle.

Chevy Chase, MD Housing Prices Fall 21%

http://www.movoto.com/chevy-chase-md/market-trends/

“. He’s hoping to flip a $275,000 home in central Phoenix for $700,000, but he said the average person can start smaller.”

I have a friend who inherited a house on Coronado Island SD, and two appt bldgs in SD. He did a property exchange and sold some in 2006. Bought three properties in Phoenix AZ. He has been underwater on all since the market dropped in 2008. He tried to sell his condo (just about breaking even on rent with condo fees raising) a year ago and could only get $100k less than he paid. His house (that he lives in): just removed all the popcorn ceilings, repainted the inside, and had someone lay 2400 sq.ft. of a wood look floor tile. Now he is to start painting the outside. He has to get around $500K on the sale to break even and so far nothing in his hood is selling near that price (house near by Scottsdale area). He says if he can’t sell he will rent it out next May. In the meantime he and wife are on their 3rd cruise and 2nd vacation outside the US.

‘We like the San Fernando Valley and we like the City of Los Angeles. There is unlimited demand (for housing.)’

Unlimited.

I guess they’ll be saying “We never saw it coming” soon enough.

Emptied pocketed debt enslaved fools.

“California Cities Cracking Down On Summer Rentals”

http://www.sacbee.com/entertainment/living/travel/article27679498.html

Next up? California home-debtors offer 2-hour rentals to hookers and johns.

“Massachusetts Foreclosures Up Nearly 60 Percent”

http://nationalmortgageprofessional.com/news/54733/massachusetts-foreclosures-nearly-60-percent

California Realtor Pleads Guilty To Bank Fraud

http://www.contracostatimes.com/breaking-news/ci_28518064/danville-man-be-sentenced-conspiracy-charges

CNBC (Diana Olick):

http://www.cnbc.com/2015/07/30/more-homeowners-drowning-in-debt.html

“Nearly half the homes in the nation’s top markets are actually losing value.”

I guess our resident senior housing analyst was right all along.

Alexandria, VA Housing Prices Fall 9%

http://www.movoto.com/alexandria-va/market-trends/

I am back…I called the top and bottom (2009) for my areas…that said. I think we are in 2004 bubble territory again. I

crater