Bay Area Housing Market ‘Rebalancing’
Dataquick has new numbers for northern California. “Sales of Bay Area homes declined for the fourteenth month in a row in May as prices continued to slowly edge up. A total of 9,064 new and resale houses and condos were sold in the nine-county region last month. That was up 8.4 percent from 8,358 for April, and down 19.8 percent from 11,308 for May last year, according to DataQuick. Last month was the slowest May since 2001.”
“‘This is a market that is rebalancing itself after several boom years. What we’re seeing is stable core demand, and a decline in speculative and discretionary buying. These trends should continue through the summer buying season. There is uncertainty about the market after that, tied to broader economic trends,’ said Marshall Prentice, DataQuick president.”
“The typical monthly mortgage payment that Bay Area buyers committed themselves to paying was $3,091 in May. That was up from $3,048 in April, and up from $2,646 for May a year ago. Adjusted for inflation, mortgage payments are 22 percent higher than they were at the peak of the prior cycle sixteen years ago.”
“Many prospective home buyers are being sidelined by the combined effect of high home prices, more expensive mortgages and stubborn sellers.”
“‘As interest rates have gone up homes have become less affordable, and we’re at a point where people are not yet willing to cut asking prices, so there are fewer sales going on,’ said Cynthia Kroll, an economist with the University of California.”
“The once blazing hot Coastside housing market ain’t what it used to be. Inventory is up. Sales are down. And recent data suggests that even housing prices might be taking a modest dip.”
“‘I find it interesting when what people think is going on isn’t really going on,’ said Mike Schelp, a broker associate in Half Moon Bay. ‘Starting in January, inventory was already 45 to 50 percent higher than it was a year ago. People feel the market slowing down and they want to put it on Devil’s Slide, but it’s been happening for a long time.’”
“While the high inventory and longer sales cycle is bad news for sellers, it is giving buyers the opportunity to bid on places that would have been out of reach or a matter of hot competition in the last two years. Sales prices may be a bit more flexible, but are unlikely to crash, Realtors say.”
“Broker Denise Aquila said that the Bay Area won’t get the kind of price drops seen in areas like Sacramento that have a lot of land and new construction. ‘The truth of the matter is, prices aren’t going to go down to the point that people consider affordable,’ said Aquila, a board member with the San Mateo County Association of Realtors. ‘Here in the Bay Area, we are pretty insulated. It’s just a function of where we live.’”
“This is not the year for sellers to push the market, said Steve Hyman, broker in Half Moon Bay. ‘I’ve seen homes come down $50,000 to $75,000 because they were priced too high,’ he said. ‘Sellers need to listen to their agent carefully, drive around and look at the competition. It will probably be an eye-opening experience for them.’”
The squirrels…they’re screaming.
There’s a really great commentary over at Charles Smith’s blog on who this housing bust is really going to hurt, and why:
http://www.oftwominds.com/blog.html
Middle class? What middle class?
Good info in your article. Thanks
Speaking of squirrels looking for nuts, I overheard the stucco guys repairing our apartment complex say working in SoCal sure beats our gigs in Phoenix! Looks like they know where the action is — not Phoenix.
More than likely the were referring to being outside repairing stucco in Phoenix’s 115 degree heat, and that’s in the SHADE!!
squirrels?
The comment refers to articles in previous years about sellers making demands of buyers. One such unusual demand is “buyer agrees to feed the squirrels”.
You don’t know?
LOL - IMHO that was the top!
Top winners from the bubble:
1. Robert Toll.
2. Squirrels.
3. Illegal construction workers.
4. Creative sign twirlers.
What about Suzanne? She is deserving of some award! Maybe the Golden Zipper or the Golden Screw Award. Lotsa research there baby. Research this Suzanne!
Suzanne’s future is a crap shoot - could easily end up a manager assistant at the local Wendy’s. Too early to tell.
Inventory in San Jose is certainly greater than it was this time last year but I think it needs to be a tad higher to push it over the edge into freefall. But thanks to the constant approval of new CONdo complexs I expect the bay area market to tank over the next year, maybe sooner if we get the recession I’m expecting .
The inventory in San Francisco and adjacent cities is a meager 2400, for a population of I imagine slightly over a million. But it is moving up at a steady clip. Funny money has to get mopped up eventually in exhorbitant mortgages. Crazy buyers gotta run out sometime.
My anecdotal evidence is a good friend who is selling for 860k a nice place near half-moon bay, 4-5 BR, at least two baths. On the market since February. Only three people or so have looked, one offered 750k in March.
Devil’s slide, though, could only be hurting things. Driving there on a Saturday the traffic was horrendous, and she say’s it’s worse for the weekly commute.
I’m actually not really sure where the market is going. Down, sure, it’s going down eventually, there’s such a huge differential between rents and mortgage (>50%). But inventory remains frighteningly low, far, far lower per capita than anywhere else in the country outside of Manhattan. OTOH, ARMs are far more prevalent here than elsewhere in the country as well. And the local economy’s been walking on the knife’s edge for the last five years. My prediction for the Bay Area is prices down 30%, rents up 20%, and we’ll reach a rough equilibrium. If tech tanks, then I think we’ll instead see prices down 40% or more, and rents flat. But the SFBay area will probably be the last place to unwind in the country.
Rents up 20%? Only if wages also go up 20%, which seems very unlikely.
Not at all. If you’re a well paid tech worker who’s renting, you’re already putting major money in the bank. And rents were 30% higher only five years ago - so there’s obviously room in the average wage to support higher rents.
The major fall in rents was from two things: outmigration (>50k people in two years), and people buying houses. When rents fell, people’s wages didn’t - economics doesn’t work that way. Rents could easily go up if the house migration reverses itself. Provided, of course, that technology remains strong. Which is the big variable in the equation.
Nothing to worry about here
…move along people.
Note the obligatory main stream inclusion of a quote from some expert or realtor that “prices aren’t likely to crash” — please disregard all the data we presented to you in this story that shows imbalances greater than any prior booms that were preceded by crashes.
“This is a market that is rebalancing itself after several boom years. What we’re seeing is stable core demand, and a decline in speculative and discretionary buying”
I see. So now that the speculative fervor is over, we will now have a balanced market with a stable buying core. Hmmm….if you say so.
Everything is wonderful!
Supply is going crazy, no one is buying.
The market is finding ‘balance’.
No chance of crashing while balancing, don’t worry!
Yea, balance like a two ton anchor thrown off a ship. When it hits bottom, it’s “balanced”.
Hilarious.
“Broker Denise Aquila said that the Bay Area won’t get the kind of price drops seen in areas like Sacramento that have a lot of land and new construction. ‘The truth of the matter is, prices aren’t going to go down to the point that people consider affordable,’ said Aquila, a board member with the San Mateo County Association of Realtors. ‘Here in the Bay Area, we are pretty insulated. It’s just a function of where we live.’”
The unspoken issue is that CA coastal prices were at a 10-15 year peak and ‘unaffordable’ in 2003! Prices have since gone up 25% or more. No, they won’t drop to 3x median income or even 5x median income, but the current 12x or greater multiple is illogical to anyone who runs the numbers.
Out migration with boomers taking their loot to greener pastures leaving a wreckage of debt behind won’t help the re-balancing act either. Unless you think the flat broke illegal migrants that keep the raw numbers up balance out the equasion - The same ones that are employed by the RE complex doing the construction work. A lot of negatives when you start looking. The forensic analysis will reveal all this stuff later, for the historians to book, so the next crash can overlook it again…
I believe all markets will return to fundamentals. Unfortunately for me, the Bay Area may well be the last of them. Many of my friends–single, professional-types– have bought crappy little apartments for like 300-400k (1-2 years ago) just to get their “foot in the door”– one bedroom jokes that would rent for like $1100– nothing that a family would live comfortably in.
So about a year ago I just decided to rent my crappy apartment, as is only proper for a crappy apartment occupier to do, and wait… and wait… and wait……..
I’m in the Bay Area, we ought to get together and comisserate
My wife and I are living in a two-bedroom apartment now, and that’s not exactly cheap (we’re adding a roomate as well, a good friend looking to relocate). So we rent, and wait.
Considering the horrendous cost and time of commuting and the unpredictability of the markets, I find renting makes more sense. We’re both near our jobs, which probably saves us a few thousand each year in gas and car repair. We can relocate easily if we need.
When I moved, I’d interviewed all over the country, mostly in major cities. NONE had a sane housing market. The minimum was overvalued by at least 10%.
Waiting too . . .
Waiting here as well. Pay my rent, sock away lots of dough. Have a real down payment when the time comes. I’m so old fashioned.
Note the negative YOY prices in Marin, Napa, and Sonoma. Also, SF with only a .3% increase? Isn’t that less than San Diego?
“Broker Denise Aquila said that the Bay Area won’t get the kind of price drops seen in areas like Sacramento that have a lot of land and new construction. ‘The truth of the matter is, prices aren’t going to go down to the point that people consider affordable,’ said Aquila, a board member with the San Mateo County Association of Realtors. ‘Here in the Bay Area, we are pretty insulated. It’s just a function of where we live.”
More of the usual “the crash may happen over there but it won’t happen here because (insert lame reason.)”
It’s just the self-preservation instinct kicking in with these bimbi. After all, if they were towering intellects who could identify trends and extrapolate them into larger themes, they wouldn’t be realtors now, would they
LOL!!!! I did not know the plural of bimbo!!! I thought it was bimbos
“if they were towering intellects who could identify trends and extrapolate them into larger themes, they wouldn’t be realtors now, would they….?”
No, they would be Harvard economists.
Another point for Sacramento!
More of the usual “the crash may happen over there but it won’t happen here because (insert lame reason.)”
…because we are Bay-locked!
rebalancing, synergy, rightsizing, delayering - they all smack of some overpriced stiff sitting on the 39th floor in an office tower trying to justify their billings/existence/whatever….
I understand the issues with supply soaked areas–without significant population growth, they will almost certainly be worse off than supply constrained markets. However–
Even in the Bay Area:
If no one is willing to/able to buy your house at the listing price with the available debt, it is not worth the listing price.
When foreclosures rise, ARM loans will be harder to get, financing will be more conservative and more expensive, thus:
Decreasing demand further at todays prices, slowing/stopping/reversing appreciation (depreciation anyone?).
Housing will go back to being shelter and without the prospect of appreciation, cease being an investment. People will begin to compare rents to mortgage payments again.
Decreasing demand further.
As demand for homes at current prices shrinks, prices will adjust. It’s simply supply and demand. Liquidity in the market increased the number of people able to buy homes, increasing demand and prices of homes. As liquidity in the market decreases the number of people able to buy homes, demand and prices will decrease—economics 101.
OT: but just came out on Yahoo
“LOS ANGELES - New earthquake research confirms the southern end of the San Andreas fault near Los Angeles is overdue for a Big One. The lower section of the fault has not produced a major earthquake in more than three centuries. ”
http://news.yahoo.com/s/ap/20060621/ap_on_sc/san_andreas_fault
http://tinyurl.com/fhndd
There is no hope in Bay Area. The good thing we decided not to buy here. The price pressure is so high, that any indication of an improving job market immediately sends prices, rents, and everything else through the roof.
I’m really at a loss on what to do with my life here.
It is pretty discouraging around San Francisco. During the previous cycle low around 1990 prices dropped 20%. I’m hopeful we’ll see something similar this time.
> I’m really at a loss on what to do with my life here.
Rent. It’s a beautiful area and the weather makes life easy.
Watch and wait (about 2 years) for something that is only ridiculously expensive - not a lifelong yoke as they are now. Profit from someone else’ misfortune - I know of a number of people that cashed in their 401Ks in the last 2 years so that they could get in on a place using interest only loans. They will be wondering why life is so “unfair”.
renters have it MADE these days.
Unbelievable!
Bumper sticker for ‘06 - ‘07: “I Rent Therefore I Am”
renters have it MADE these days.
Please clarify.
Thanks.
Please clarify “renters have it MADE these days.“.
Thanks.
Rents are less than 50% of mortgage in the Bay Area. So yeah, rents are a bit high ($1400 for a 3 bedroom apt, $2000 for a 3br/2ba SFR), but compared to people with morgages, we have it made.
> I’m really at a loss on what to do with my life here.
Swenson is right right. I spent 6 happy years in SF from 94 -2000. Could not afford to buy, but rented a beautiful apartment. By rent when you get a new job, loose your old one, the big quake comes, just grab your suitcase and goodbye. No fuss, no muss. DON’T BUY.
The report on San Diego dropping to 8th largest clearly shows the flow is now towards the midsection of the country. Theres nothing left to consume in the bubble areas. After the recession places like San Antonio will come out swinging hard. Population growth is inflationary and people are moving there with cash and with families.
Places like San Francisco have gone barren (no more children) and the economics are horrible compared to places like San Antonio if youre starting out. I wonder if this is the dynamic that destroyed Detroit. Ive read a lot about it but it would really be interesting to see charts of what home prices were doing in the 20s and 30s compared to incomes there. Even after the crash they still had manufacturing in a big way but everyone still wanted to leave. Had to be economic reasons. Whats stopping California from dying out in a similar fashion? Looks to me like the trends leading to serious decay are well in place.
I hear ya. Yeah, I moved in when rentals were absolutely insane during the dot.com craze–that’s a whole other story– then went sharply down, and then have stabilized at what I would consider to be basically reasonable.
Fortunately, I have a book that I’ve been writting for the past three years, and have another one I’m about to start that will take me I suppose about the same amount of time, so I got things on my plate, even if my hope of getting me a nice little bungalow with a nice little wife and a kid or two seems a bit delayed at the moment. Sure I’ve thought about moving, but with all the funny money, I have a pretty good job here.
So life goes on, and on and on and on…
Cruising the blogs helps me spend the time, and a shot of Knob Creek or two.
…but, Max, do hold onto hope. I remember with the dot.coms busted, there was exuberence to the end until they went down… and down… and down… and over a couple months time kept going down.
As noted, rent.
When I decided to leave Ohio, I interviewed at mainly large, creativte cities. The Bay Area stacks up pretty well - there are problems, but when it comes to culture, food, things to do, and interesting opportunites (if you’re willing to drive or BART for awhile), it’s hard to top. My wife and I, weirdly, spend LESS on entertainment here since there’s just more interesting things to do - that are free (and we’re not sitting in doors for 4 months of winter).
And if the market goes kerflooie, jobs dry up, you can pack and leave. I’m cynical enough to know that there’s at least a 50% chance I’ll either have to move or semi-commute in the future. So I’m ready. (Hint - those big tupperware like storage bins at Target and the Container store are AWESOME).
“What we’re seeing is stable core demand, and a decline in speculative and discretionary buying.”
I think the discretionary buying he’s referring to was speculative.
“Broker Denise Aquila said that the Bay Area won’t get the kind of price drops seen in areas like Sacramento that have a lot of land and new construction.”
Do you her this Sacramento? First, they (Bay Area specuvestors) pour into your area with out of control speculation and drive home prices through the roof. Now that the tide has changed, they’re cuttin’ you loose. Sold down the river, so to speak. You’re officially losers to the Bay Area folk. Don’t you Californians look out for one another?
nnvmtgbrkr,
I think some of those Bay Area specuvestors invaded Reno too along with Sac. Is that what you saw in Reno?
I know a few people in the bay area that own mulitiple homes in Sac and other areas toward Modesto. Most used zero down and/or HELOC to buy in Sac. This has stopped the last 6 to 9 months as prices in Sac have stoppd going up. I told some of them to sell in 2004, but they didn’t listen as the market was hot.
In 2005, recommended to sell again but people wanted to buy still not sell.
The locals must dislike the Bay Area investors for pushing up home prices to being unaffordable (except for those that were selling to them.)
Absolutly. We’ve got developments that one in every three houses is empty. Now, you should see all the current listings that say “never lived in”. Then you look and notice that the “never lived in” home was built sometime in ‘05. I’ve seen a few like this that were even built in 04. One to two years sitting empty! Some folks didn’t even bother renting them out being that they were so confident of massive equity return. Some got out in time and scored, but right now we have a bunch of bag-holders just sitting there looking scared and stupid.
It can’t happen here.
I live in Sacto. Prices haven’t really dropped yet, although the rate of increase has slowed significantly. Unfortunately, it seems like everybody from the Bay Area (and many other places, for that matter) is moving here. We call them Bay Area/Silicon Valley emigres. They have left those places to find a life here.
It’s only a matter of time for Sac and all the rest. Inventories are rising and few are buying. I’m seeing new For Sale signs continually added to the already huge glut of houses in Natomas. Houses are falling out of escrow. Houses have FOR RENT signs posted for a couple of months with no takers.
In my view, the crash is happening on que and as predicted. Like many others on this blog, I’d like to see this crash hurry along so we could buy our dream house but thankfully, the economic unwinding can only happen one day at a time. I’m sure it’ll get ugly soon enough.
Yep, I moved to Folsom in 99 and had a new stick built from Beezer in 2000. Bought for 258K (2100 sf, 4 bdrm, 3 bath including options w/landscaping) - earlier version of same model in same development went for 225K, sold in 2003 for 360K. On Zillow, it is rated at 515K. Just silly.
The company I worked for was a Silicon Valley refugee and was one of the early movers. The area is just too damn hot in the summer time.
I fully expect prices to regress to at least 2003 prices - which are still too much.
“Don’t you Californians look out for one another?”
California is just a bunch of single self-indulgenent liberal professionals in their 30’s that can’t afford to buy here but still want to “buy.” I say shoot ‘em on sight!
“California is just a bunch of single self-indulgenent liberal professionals in their 30’s that can’t afford to buy here but still want to “buy.” I say shoot ‘em on sight!”
No kidding. Moved to SF some years back from NYC and I gotta say the people of NYC are warm and fuzzy compared to SFers. SF breeds this rampant self-centeredness that is rarely commented on. At least in NYC there’s constant interaction, if not always of the most pleasant sort.
It’s not so much refis that’s driving MEW equity extractions now.
http://www.xanga.com/russwinter
And even though housing prices are at best flat yoy, and sales volume 15% down, (or even 25% in some bubble locales),
http://www.dqnews.com/ZIPSJMN.shtm
there is still too much activity and at windfall prices, using leveraged to the hilt mortgages. When someone unloads a house they bought at 400K for 700k, to a newbie using 100% financing, that’s just more cash out MEW. I can’t see how $800 million-trillion annual MEWS stop until prices drop a good 10% plus, and the purchase index falls below 350.
Also when one thinks about it, we’ve seen another trillion and a half borrowed against the housing stock in 2005-2006, and the underlying collateral (and thus credit quality) for the mortgages is actually down. And I can’t imagine how much of these are toxic mortgages?
Think of today’s MEW as the reason for tomorrow’s home listed at a price where it will never, ever sell. The reason inventories are going through the roof is a direct consequence of the housing ATM wealth extraction boom — consequently many can not afford to sell at the prices the market will now bear without bringing along a check to the closing table.
And of course many are too arrogant or are unaware of changed market conditions so they will never accept any perceived lowball offer. They will just hang on and hang on and make meaningless small adjustments in price, following the market down until they really can’t sell for any less. Then they’ll just drop the keys off.
It’s easy to imagine - http://en.wikipedia.org/wiki/Image:Nuclear_fireball.jpg
“Many prospective home buyers are being sidelined by the combined effect of high home prices, more expensive mortgages and stubborn sellers.”
No,no,no…..”useful idiots and greater fools” maybe….I’m just not interested in a bad business deal…..I love the freedom of being a renter in your community and when I want to move on, I’ll pick the date of the move and the part of the country where I chose to move and the best of all is my salary doesn’t go down and my income level only rises or falls with the rent. When I vote, I’ll vote for every bond issue on the ballot so that you can have all the social services you feel that you deserve……then move on baby, move on……
Bay Area is an interesting place - lots of transient tech workers. But lots of immigrants from Asia who want to buy houses, too. I’m one of the former. I, too, intend to move on if tech slumps.
nnvmtgbrkr,
didn’t the same invasion by Bay Area specuvestors happen to Reno too? My aunt has lived in Reno for 30 plus years. I can’t believe the prices in Reno are almost as high as Sac. Don’t see how the locals working in casinos can afford it.
Just happened upon this great thread in a RE agent forum. It’s fascinating to watch people argue that their job isn’t going the way of the travel agent despite the obvious corollaries….
Cheers!
http://www.agentsonline.net/forum/ultimatebb.php/topic/1/7056.html
Actually not all travel agent jobs went away - but they DID have to change focus (My wife and a family friend work in travel). But it’s a damn good metaphor for the real estate mess.
Travel Agent used to be a kind of dream job for people, who imagined easy money and perks. It wasn’t quite easy, and the market changes hammered the industry pretty hard. Things changed, and not everyone kept up, especially the wannabees.
Yeah, sounds familar.
Sorry if this was posted before:
Chapman University Prof calling for flat 2006, drop in 2007.
http://www1.chapman.edu/argyros/acer/June2006_UpdatePressRelease.pdf
“Adjusted for inflation, mortgage payments are 22 percent higher than they were at the peak of the prior cycle sixteen years ago.”
Why this doesn’t send people screaming for the exits, I don’t know. That, plus the rent/buy ratio here, are all anyone needs to know about the market. It doesn’t take a crystal ball to figure out what’s coming next.
http://www.deniseaquila.com
she has a great web site!!
I like the “Free Reports, only $10″.
‘The truth of the matter is, prices aren’t going to go down to the point that people consider affordable,’ said Aquila, a board member with the San Mateo County Association of Realtors.
Whew…I thought we’d go at lease 48 hrs before another nominee for the “Idiot of the Week” award. So, Ms. Aguila, let me ask my “Idiot of the Week” question:”If the home is not affordable, why would anyone with half-a-brain purchase the home?” Of course her next statement is “it’s different here than anywhere else in the galaxy…blah, blah blah, won’t affect us…oh and our RE is not affordable…it’s still different here…” head spinning…wow.
http://www.deniseaquila.com
“You can buy with ZERO Down
How wise is your investment!
Renting - Zero investment
Owning - Good Investment and Proud Owner”
Proud owner? Umm you mean proud loser that rents money to pay double the home? Where the hell these realtors (used car sales man) come from? Crawl back into that hole in the wall. Couldn’t get a real job so, I will scam buyers into a mess. 0 down? Nice way to start the buyer off on the road to foreclosure. I bet most realtors that are slow are asking “where are the buyers”? Fu$*ing DUH!!!!
Why do you people have to be so negative? We’re about to have our first-ever soft landing! I’ve always wanted to see one.
hahaha… come to think of it, you have a point!
Driving home today on 7th street in Long Beach.
I saw a 15 foot Century 21 Banner. It said buy this house for $1,000 down.
I couldn’t stop to get a picture but it was interesting.
For those who don’t know 7th in Long Beach is THE major arterial a state freeway terminates into and most people who work in downtown Long Beach commute on that 2 lanes each direction road. Super busy.
Also anything above 4th street is a bit um Ghetto.
That banner has been there at least two months–apparently no action.
Pffft…This is California. EVERYONE wants to live here…
This is LA, someone in the entertainment industry will come along and buy your condo from you….
This is San Francisco, they are not making anymore land.
Real Estate ALWAYS goes up!
Buy now, before the interest rates go up, and you can’t afford the monthly payment.
This is different than 1990 … the economy is more diversified.
You use an interest-only loan so you can invest your money elsewhere.
There’s no reason to pay the principle on the mortgage - you’re just going to sell it in 3 years and move into something better.
It’s a great time to buy, 6% appreciation is in the bag!
didn’t San Francisco “build more land” after the last BIG ONE. They dumped what was left over from the quake into the bay and built on it! Consequently those areas are seismic time bombs.
Where is the picture of Denise Aquilia in her bikini? I thought that was the hot new trend for them to separate them from the herd? AKA = the realtor in Long Beach with the bikini billboard.