‘Hey, Things Are Coming Down, We Can Start Bargaining’
Some housing bubble reports from California. “The Inland housing and construction market is slowing down, but it isn’t likely to experience the dramatic price drops of the early 1990s, a longtime Inland Empire economist said Thursday. A combination of overbuilt and overpriced housing, slowing home sales and rising interest rates will cause a construction slowdown over the next few months, said Michael Bazdarich.”
“‘It’s unclear whether there’s a housing bubble,’ Bazdarich said. New-housing permits are expected to continue to drop over the next year or two in the Inland Empire, and construction hiring should begin slowing down in coming months, Bazdarich said.”
“A local Realtor acknowledged that his colleagues are concerned about the direction of the local housing market. ‘Our inventory of available homes has tripled in the last year,’ said Gene Wunderlich, a former chairman of the Southwest Riverside County Association of Realtors. Between 500 and 700 homes a month are selling in Southwest Riverside County, down from about 1,200 sold monthly during last summer’s peak.”
The Fresno Bee. “After a decade of growth, the local housing boom appears to be slowing in 2006. Through May 31, Visalia issued 584 building permits for new single-family homes this year, shy of the torrid rate of 2005, when a record 1,450 permits were issued for new houses.”
“After two years of a red-hot real estate market in Santa Clarita, May home sales took a dive and experts on Wednesday predicted a slow summer. Realtors sold 234 single-family homes in May, down 35.4 percent from May 2005. A total of 123 condominiums sold, a 27.2 percent drop from a year ago.”
“Realtors spin the slowdown as good news for buyers who have more choices as inventory grows and homes are available longer. ‘Housing is selling, but not as quickly as a year ago,’ said Peggy Mueller, president of the association’s Santa Clarita Valley Division. ‘Frankly, I happen to like it that way because buyers and sellers have opportunities.’”
“The San Fernando Valley’s housing market remained sluggish in May with sales falling an annual 25 percent and the median price increasing by its smallest margin in 62 months.” “It was the eighth consecutive month in which sales declined from the previous year and in which sales numbered less than 1,000. The last time the latter happened was during a 20-month string that began in September 1996.”
“‘I think what we’re going to see is interest rates stay favorable and sellers negotiate a little bit more than they are now,’ said Southland Regional Association of Realtors VP Jim Link. Buyers are saying ‘Hey, things are coming down, and we can start bargaining.’”
“At the end of May there were 4,072 houses listed for sale, 130.3 percent more than a year ago. Including condos, inventory increased 145.7 percent last month.”
“‘Housing is selling, but not as quickly as a year ago,’ said Peggy Mueller, president of the association’s Santa Clarita Valley Division. ‘Frankly, I happen to like it that way because buyers and sellers have opportunities.’”
But of course, who doesn’t like making half (or less) of what they were making a year ago?
My thoughts exactly. Perhaps Peggy would be even more pleased if sales dropped in half from here. Doesn’t every RE bullshitter long to make less $$$$$?
Frankly, remarkable.
I keep thinking… what Peggy, probably up to her eyeballs in alligators, is really hoping for, is DESPAIR to set in. Isn’t that what all the agents hope for? WHat garbage. Any journalist would have at least asked. “Why exactly would this development amke you happy? Are you a masochist, Peggy, darlin’? Is that it?”
LMFAO!
good point, these reporters never seem to ask the obvious follow-up questions.
‘It’s unclear whether there’s a housing bubble,’ Bazdarich said.
‘Frankly, I happen to like it that way because buyers and sellers have opportunities.’
Is anyone keeping an archive of these quotes?
Put them right next to
“There are no American tanks in Baghdad”
MjM
Or put them next to the libs mantra “there are no weapons of mass destruction in Iraq.”
Or put it next to the Neocon mantra “we are turning a corner”
“the insurgency is in it’s last throes.”
“We will be welcomed as liberators!”
“Mission accomplished”
“They will remember us for building the schools (not for killing civilian bystanders)”
(I in no way blame the soldiers for killing the bystanders but intentions are irrelevant when it comes to a 5yr old remembering for his entire life how his dad met an early grave…)
Some nice quotes here too:
http://www.freedomagenda.com/iraq/wmd_quotes.html
“Every nation has to either be with us, or against us. Those who harbor terrorists, or who finance them, are going to pay a price.”
Senator Hillary Clinton (Democrat, New York)
September 13, 2001
Or this one:
“It is the duty of any president, in the final analysis, to defend this nation and dispel the security threat. Saddam Hussein has brought military action upon himself by refusing for 12 years to comply with the mandates of the United Nations. The brave and capable men and women of our armed forces and those who are with us will quickly, I know, remove him once and for all as a threat to his neighbors, to the world, and to his own people, and I support their doing so.”
Senator John Kerry (Democrat, Massachusetts)
March 17, 2003
Many more here:
http://www.freedomagenda.com/iraq/wmd_quotes.html
Some nice quotes here too:
freedomagenda.com/iraq/wmd_quotes.html
“Every nation has to either be with us, or against us. Those who harbor terrorists, or who finance them, are going to pay a price.”
Senator Hillary Clinton (Democrat, New York)
September 13, 2001
Or this one:
“It is the duty of any president, in the final analysis, to defend this nation and dispel the security threat. Saddam Hussein has brought military action upon himself by refusing for 12 years to comply with the mandates of the United Nations. The brave and capable men and women of our armed forces and those who are with us will quickly, I know, remove him once and for all as a threat to his neighbors, to the world, and to his own people, and I support their doing so.”
Senator John Kerry (Democrat, Massachusetts)
March 17, 2003
Many more here:
freedomagenda.com/iraq/wmd_quotes.html
It depends on what you’re bargaining for. If you don’t mind buying way too high, then sure, try to knock 15% off an already ludicrously overvalued house and send the seller away with his windfall. I can already tell there are a million suckers out there who just can’t wait to sign up for years of punishment.
Too true, Txchick!
txchick57,
Right you are (as usual). In the past I’ve referred to this as “making someone else’s retirement one payment at a time”. I’ve also said anyone that just has to buy in this environment should insist their agent show them NOTHING built, bought or re-fi’d in at least the last 3 if not 4 years! Oh, btw unless your family has some incredible medical challenges and no suitable rental can be found NONE of us has an excuse for buying. None of us HAS to do anything.
Because there’s nothing that a family facing a debilitating illness needs like another source of crushing debt. Sure, good plan.
Ok, you try renting a house fully accessible by wheelchair.
Nine years ago, when there was a severe shortage of rentals in Boston, you could not even get a call back from a landlord if he or she knew that you had children.
I’m not saying that discrimination against people with children or the handicapped doesn’t exist, but when it does happen, there is legal recourse. In fact, if you can prove it in court, you may just might find yourself living rent free at your bigoted landlord’s expense :-).
I will accept that exception, because my next door neighbour bought, bulldozed, and rebuilt for exactly that reason. He wanted my suburb because his kid (spina bifida, wheelchair for life) was already settled at the local school.
And HARM, I think Tulkinghorn’s point is that you can’t find a house or apartment fully accessible by wheelchair in many locations, not that the landlord would refuse to rent to you.
I think Tulkinghorn’s point is that you can’t find a house or apartment fully accessible by wheelchair in many location…
—————————–
Yep. And that’s a WHOLE other topic, IMHO. Why is it that commercial buildings which have existed for 50+ years are required to be retrofitted for wheelchair accessibility, but BRAND NEW HOMES are not required to have any design elements which might make it easier for handicapped people.
Like why are almost all new homes two-story and built with no bedroom or full bathroom (with good clearance and design) on the bottom floor? I wouldn’t buy one of these homes for this reason alone.
These folks are whistling in the dark.
Even if the Fed stops raising rates, mortgage rates still have another percent or so, and defaults are already skyrocketing
This is one of Peggy’s FAVORITE songs.. sung to the sound of musics “favorite things”….
Mort-gage rates rising like ‘Hub on Viagra
Seeing no ringing on phones in my office
Knowing my incomes cut 1/2.. What a ding!
Yet these are a few of my favorite things…
No one is buying yet I have to show them
These greatly inflated wood boxes called houses
Seeing my Hummer on empty a again
These are a few of my favorite things..
When the shoe falls,
When my bank calls,
when the bubble bursts…
I just have to think of favorite things..
and give my shrink…. a calllllllll
Sorry… this comment was supposed to follow this…
“‘Housing is selling, but not as quickly as a year ago,’ said Peggy Mueller, president of the association’s Santa Clarita Valley Division. ‘Frankly, I happen to like it that way because buyers and sellers have opportunities.’”
But of course, who doesn’t like making half (or less) of what they were making a year ago?
Santa Clarita still has a lot of open oak and grassy parklands. Also there has been at least an attempt to build up large modern industrial parks(area north of the 126 and east of the 5). The already existing industrial area in valencia/newhall off magic mountain parkway/old road has some high-tech industries and warehouses(Wesco aircraft?).
All in all Valencia?Santa clarita not half-bad as far as well-planned exurban development goes, but $700,000 SFH”s a bit high. Commute times can get sticky going down the 5 to LA( 1.5 to 3 hrs depending on whether any big-rigs have overturned on the 5)
Have noticed that the area of newhall/valencia/Santa clarita north of the 126 and west of the 5 is putting up large corporate parks.
Shipping and warehouse companies are apparantly siting their operations along the 5 frwy in this area due to problems getting product shipped out of the ports fast enough(traffic clogs).
The tentacles of urban industrial/residential growth in the Newhall/saugus/valencia region are apparantly spreading out to the lake castaic area.
Last look in 2005 there was a just completed water treatment plant near the lake castaic area which was built expressly for the purpose of suppying water to FUTURE PLANNED HOUSING TRACTS around the lake castaic area.
The region is actually one of the very few places available for large-scale LA urban expansion(excepting the palmdale/lancaster region).
The probable future plan for Majic mountain will probably be mostly commercial/industrial with a few houses thrown in.
Joe, you should send that song to the realtor who is full of bull .
Ummmm Which one???? ;^)
Hey Joe , I guess all the realtors could use that song .LOL
Agreed. The ARMs may take up to 2 years before they settle from here even if the rates stay flat over that period.
While the inventory piling up looks spectacular, the anguish won’t fully set in for a couple of years…
AZ_Bubble Popper,
How could you do that? I mean how could you DO that? Here Joe is making my Friday brighter with his wonderful creativity as I’m picturing a realtor (looking much like Julie Andrews) calling her hubby (concealing wood) to deliver a gallon of gas to vaporous Hummer and you’ve gone and ruined it!
Really? How come? Peggy’s extremely happy about all of this, REALLY REALLY HAPPY. She has REALLY looked forward to this “re-balanced” RE market for the past 5 discouraging years. It was depressing her to sell houses without a showing for 20% over asking, managing all those bidding war dolts. She looks forward to sitting open houses where the crickets are her only company. She saves on paper and ink since the sign-in sheets are always blank. ANd she doesn’t have to get all dressed up to go to closings either! Now she gets to hone mushy her offer letter embelishment skills and get to know the hungry squirrels in the yards! Think about it! Less income taxes to pay. Everything is wonderful now!
Zero crediblity in the RE game…
Rip-off mortgage lenders, crooked appraisers, and RE sales people who don’t give a rats azz about anything other than collecting a commission.
Relative to the “few” bad apples theory…Even the honest have had to get down in the gutter to compete with the sleazebags
Greenspan and Raines should be in the cell next to Skillings and Lay.
–”Our inventory of available homes has tripled in the last year,”
–”Between 500 and 700 homes a month are selling in Southwest Riverside County, down from about 1,200 sold monthly during last summer’s peak.”
–”However, home prices are holding firm in most areas, Wunderlich told the group.”
But that’s ALWAYS the pattern of housing crashes!! You get the high inventory, and you get the sales slowdown, and after about a year or two of level prices, aka the plateau, then you have the significant price drop. So of course prices are holding firm, for now!
Home prices are NOT “holding firm” in Riverside. There are many reductions and I’d bet it’s off 5-10% already since the beginning of the year. I saw a house reduced in my neighborhood from $529K to 459K and many other reductions in price. Did this guy really say he “doesn’t believe prices will rise and then fall dramatically in the state like they did in the late 1980s and early 1990s.” The rise has already happened so he’s already half wrong (unless its just bad writing by the reporter).
“‘I think what we’re going to see is interest rates stay favorable and sellers negotiate a little bit more than they are now,’ said Southland Regional Association of Realtors VP Jim Link.
The sellers may want to negotiate just “a little bit more” than they are now but what about the buyers? Sorry, but at this point it’s the buyers who will decide how much to negotiate.
“The Inland housing and construction market is slowing down, but it isn’t likely to experience the dramatic price drops of the early 1990s, a longtime Inland Empire economist said Thursday. A combination of overbuilt and overpriced housing, slowing home sales and rising interest rates will cause a construction slowdown over the next few months, said Michael Bazdarich.”
“‘It’s unclear whether there’s a housing bubble,’ Bazdarich said. New-housing permits are expected to continue to drop over the next year or two in the Inland Empire, and construction hiring should begin slowing down in coming months, Bazdarich said.”
Overpriced, overbuilt, construction slowing, sales slowing, rising rates, there might be a bubble….but everything’s fine.
“Our inventory of available homes has tripled in the last year,” said Gene Wunderlich, a Realtor for Coldwell Banker Associates in Wildomar and former chairman of the Southwest Riverside County Association of Realtors. Between 500 and 700 homes a month are selling in Southwest Riverside County, down from about 1,200 sold monthly during last summer’s peak.”
Here’s why inventory has tripled:
Just trace the route of the 15 frway from SAn diego border all way to Barstow, zillow it and pan with their map search and you’ll notice at least a hundred large ongoing home tract developments. Temecula valley has at least a dozen. Norco and mira loma still adding new tracts. Fontana, rialto, Rancho ccamonga, Northwest SAN Berdoo(Devore area) have around 40-50 or so large tract developments. Area between 15 and 215 and north of and along the 30 adding a hugh amount of new SHF.s
Over the cajon pass in to the deserts victorville, hesperia, apple valley, phelan, ect all adding new tracts on top of already existing newly completed tracts.
I think we’ll see listings for sale in the IE top 50,000+ by end of summer, making it equal to the phoenix bubble.
If it goes to 60,000 or more (a real possibility)then IE RE will tank.
The Inland housing and construction market is slowing down, but it isn’t likely to experience the dramatic price drops of the early 1990s a longtime Inland Empire economist said Thursday.
I agree, the price drops won’t be anything like they were in the ’90s. They will be ten times worse. They won’t be able to give away some of those houses in ten years, IMO.
“…but it isn’t likely to experience the dramatic price drops of the early 1990s…”
What?! But I thought real estate never goes down!
Seriously, amazing that these economists are admitting now that not only were there bubbles before, but the burst, but THIS time is different!
I don’t think we’ve discussed the Santa Clarita Valley as much as we should in this group.
I’ve always felt that Valencia, Stevenson’s Ranch, and Saugus have been the spearhead for the LA housing bubble. The high rate of construction and the droves of people driving up the pricing in the area have been rampant in SCV for the past 5 to 8 years. The residents there are driving around up there in their Mercedes, BMWs, and Hummers when in reality they’re living in tract housing at the base of the Grapevine.
Comical….
When I hear prices of $1.5M for “estates” in Stevenson Ranch (1/2 acre with a 3000 SF home) I realize just how insane things are in LA.
That’s cheap for the area. 1400sq ft condo “manions” are selling for $650. The homes you are referring to are 2.5M asking.
Show me a listing of a 3000 SF house on 1/2 acre for 2.5M.
Sorry boys, there’s no way you’re gonna find half acre lots in SCV. You’d have to go out to Antelope Valley where the horses are to find that kind of real estate.
Is .49 acres close enough or are you a stickler in your old age?
http://tinyurl.com/lv5ow
john, i think you need to get off the crack pipe. I just saw a pimped-out 1300 sq. ft. townhome in SR for under 500k.
> I’ve always felt that Valencia, Stevenson’s Ranch, and Saugus have been the spearhead for the LA housing bubble.
Do you mean with spearheaded that they went up first? Then they should come down last, shouldn’t they?
SCV is coming down already. Do a search on Ziprealty for Valencia and you can filter the search to display only homes that have reduced their price. I pulled a range of SFRs between $300K and $1.5M (yes, $1.5M in Valencia!!) and brought up over 400 homes that have reduced their prices. I expect those price slashed inventories to climb even higher by the time we reach autumn because they’re still building up there.
Magic Mountain is up for sale!
I rent a $650k house in Valencia for $2500/mo. Just signed a 1 year extention and am very happy! My husband and I noticed something interesting the other day… A very popular hangout for the “real estate” people, Wolf Creek, which used to be packed almost every night is now somewhat empty. There is also a house in my neighborhood that had been on the market almost a year for $689k was mystriously taken off last week after even having a $30k price reducution. Couldn’t sell?? I thought everyone wanted to live in SCV??? I would guess that most all these people up here are living on their houses. I ran into a realtor/broker on my train commute a week or two ago who told me the average income of people buying houses in SCV is around $60k and are mostly young people. Heck my husband and I make more than 3 times that amount and we would never dream of buying in this market!! The people out here are brainwashed! Another guy on the train bragged to me about how his daughter bought a house behind Grainary Square in Valencia about 5 years ago for $169k and now it is worth over $700k. That is INSANE!! If I see anymore twinky b*tches in new Mercedes with fake tits I am going to scream! How do you think all of that has been paid for??? Home equity! Let the rates go to the sky! I am so sick of hearing about real estate I could puke! A home is a place to LIVE and raise a family!! It is not an INVESTMENT!!
Sounds like the new Calf. dream. Bunch of yuppies and want to be’s driving nice cars and trying to look good. This is so LA.
We too are renters in Valencia, renting a $450,000 townhome for $1800 a month. (Too much in my estimation, but a steal compared to the landlord’s payments!) Driving around in my little Toyota Echo (30 mpg around town and paid for, thank you) I feel overwhelmed sometimes by the numbers of extremely large and expensive, shiney new vehicles on all sides. But the hard landing is going to be very interesting to watch. The amount of growth up here has been staggering and in addition to increasing home values, it has had other effects: increased violent crime (a brutal stabbing and a gang shooting just last week), racial tensions and fights in the high schools (yikes! everyone moved up here for the schools!), problems with graffiti, and drug busts and meth abuse in the priciest of neighborhoods.
The two zip codes I have been tracking for Valencia on Zip Realty show 49% of homes listed have reduced prices. And the median price was down by $14,000 for May according to the Daily News. My mailbox is being stuffed with realtor post cards, every corner is littered with open house signs, and there are an increasing number of new homes for rent in the paper. Methinks I detect the faint odor of growing desperation!
By the way, I have been scouting garage sales the last couple of months in search of baby items for my pregnant sister. In addition to the overwhelming number of for sale signs, I have found it most interesting to see people sitting in front of their $900,000 houses, with their $50,000 cars in the driveway, trying to sell their used clothing, broken down furniture and old board games. One would think that if you could afford that kind of a lifestyle, you would not be pinching pennies by spending a sunny Saturday scraping up a few extra dollars in this way . . . . Why not take the tax deduction and donate the stuff to the Goodwill? But of course, they’ve got all the deductions they need with those mortgages!
“increased violent crime (a brutal stabbing and a gang shooting just last week), racial tensions and fights in the high schools (yikes! everyone moved up here for the schools!), problems with graffiti, and drug busts and meth abuse in the priciest of neighborhoods. ”
That would be a normal routine day in LA Metro which would rate a half min snippet on ABC/CBS local news.
In today’s LATimes, there was a story about Magic Mountain in Valencia possibly being sold off for development.
More supply can’t hurt, right?
Valencia is going to get more supply because they are going to build thousands of homes off Highway 126 ,( it has already been approved ).It’s going to be horrible because the 5 /405 freeway is already packed and Valencia is somewhat of a commuter town .
somewhat? as in 99%?
and i think you are talking about the newhall ranch thingee which will add an entire city behind mm along the 126. ventura planners are the bottleneck on this one. what is it, 60,000 people?
another similar project is being bantered around for gorman, further up the 5. i haven’t been following it much.
funny thing about traffic - adding 2% more cars onto an already crawling freeway doesn’t just slow it down 2% more. the possibility exists that a magic number will actually cause one of these roads to seize up completely.
I was driving along the 126 a couple of weeks ago. I couldn’t believe all the home-building going on around Fillmore.
That must be making the Soar anti-growth faction in Ventura county go nuts.
magic mountain / water park is 250 acres. they (6 flags) want 500,000,000 for the whole thing.
let’s see. pretend that’s 3 sfr’s per acre, allowing room for infrastructure.
that’s 750 houses
500,000,000 divided by 750 is $666,667 per house just to get land cost back.
add minor details like scraping off an enormous amusement park, construction, permits, sales commissions, infrastucture etc… and you got some pretty $ invested into this thing.
of course the dynamics change when you start talking condo/townhome.
They’re talking mixed-use. I think that’s code for condos over commercial.
3 homes per acre? My good blogger, 8,000 sq. ft lots are large in so cal. Once roads and other necessities are taken care of, I expect it to be more like 5 homes per acre. But you have a good point; land costs alone will eat any developer alive.
While it would be sad to lose Magic Mountain… it makes sense. Home prices are so distorted that business are worth more for their land than as running enterprises.
My company is considering moving about 2,000 jobs and selling off the buildings. Why not? Its prime land and California has such a poor high school system that we are having trouble hiring good people at the low level. All we need is people who can read, write, and do math at an 8th grade level; why is that too much to ask?
Neil
I can assure you that MM is not the only theme park in So Cal whose owners are thinking along these lines!
Might there be an F, K, and B in the initials of another one …. ?
They should leave some of the rides! Now, wouldn’t THAT be a fun developement to live in!
“It’s unclear whether there’s a housing bubble”
Let me clear it up for you - there is a housing bubble.
You beat me to it. I wonder if these same people who aren’t clear if there’s a housing bubble also debate whether global warming is for real or not.
um, you’re trying to compare apples and oranges with that one!
Actually no, he isn’t comparing apples to oranges. Watching “An Inconvenient Truth” is the environmental equivalent of reading this blog.
are you accusing Ben of only telling half the story?
no that’s apples and apples. Now if he had said (which he probably meant) “manmade global warming”, then you’d be right.
No. Global warming is manmade. There is no scientific disagreement. Only press releases from oil companies.
Just like some people believe press releases from NAR.
That’s a good analogy. I don’t understand how people can be so skeptical of one corrupt for-profit industry, then turn around and blindly repeat every last talking point from an even more corrupt and shady industry. I guess it’s easy to pretend a problem doesn’t exist when you don’t see the signs of it right in your neighborhood.
I notice on zip how price are down a lot for many homes for sale (Long Beach, Phoenix). Yet, these homes are still NOT selling. The only ones who are buying right now must not have internet, tv, or know how to read a paper. Most likely they are stressed out individuals overworking themselves and just too tired to notice what they are about to get themselves into. I feel within the next 3 months the lower prices will start jumping out at everyone in a major way. Imagaine the front page of the LA times or AZ Republic with “Home prices down 20percent” (when in reality it would be more like 35percent”. It is coming, and it will be sudden. … damn my percent key is not working btw.
Agreed, this is going to happen a lot faster than even most on this blog believe, IMO.
I too think this will be the fastest downturn since 1926 in Florida.
Why?
1. Internet (information propogation)
2. Loans resetting (people can’t feed the monster)
3. The huge quantity of 2nd homes (what, 40% of sales last year? Sheesh). Nice Alligator… noooooo! Don’t eat me!
4. We’ve never had home prices and incomes so out of balance here in California.
5. It seems like we’ve had an out migration of the middle class (with an in-migration of working class and lower-middle class). Gee… They’ll be buying in beach communities. (Note: this is my opinion, no links.)
6. Fraction of Orange and LA country jobs dependent on real estate transactions.
7. “Everyone knows home prices never go down”. It takes everyone knowing stuff like this to have a good crash.
Neil
I wish the CAR would put out the housing affordability number, I bet it’s under 10% for LA. I think the previous all-time low was about 17%. I’ve emailed them a couple of times and the “tentative” release date always seems to change.
Think Deb said it is 2% or 3%.
that’s the Wells Fargo affordability number
Good consistent argument Neil - I will have to think about over the weekend! I would rather it was quick than the 15 years or so I envision.
“Nice Alligator… noooooo! Don’t eat me!”
Brilliant!
No offense, but you’re off the mark a bit.
The crash isn’t really being driven by fundamentals. It’s being driven by momentum, the way the bubble was.
The bubble was a Ponzi scheme. In a Ponzi scheme, earlier investors get big payoffs, funded by the antes of later investors who buy in hoping for the same return. But as soon as the scheme stumbles for a second, the whole illusion collapses. Not slowly. Not in a gradual decline or soft landing. But instantly, all at once.
The r.e. bubble Ponzi paid out sellers outrageous returns from the investments of buyers who wanted the same returns for themselves. People overpaid for houses because they expected massive price appreciation for themselves. And banks financed those purchases because they wrote in the same appreciation.
Now we see the first wave of unlucky sellers who are scrounging for new investors to buy them out. Buyers see that, diminishing their own expectations of high return, and reducing the price they are willing to pay. The vicious circle has begun, and interest rates and overbuilding and all the rest are no longer necessary to keep it going. Once a Ponzi scheme starts to break down, nothing can stop it.
Your so right Sold at Peak . Let us not forget the run-up in prices was a “Ponzi Scheme ” . You see people trying to justify the run up every day in the news , but it was nothing more than a “Ponzi Scheme”,( the most compelling evidence is 40% of the purchases in 2005 were investor driven purchases in United States ).
Neil,
Only point 1 is a reason why this downturn will be faster.
All the other points are reasons why this downturn will be worse.
but your 5 key works… and your shift key works… odd.
the number pad works on the left, so I have two options at my numbers, but only one option on the symbols
..that would be the right.
What has been the personal income growth for the above mentioned areas? Lack of wage growth is going to kill the market in the most bubblelicious areas. Look at the Fresno area- does anyone think wages have grown enough for a young family to truly afford a 300k starter home? I don’t think so.
Here in Idaho, income rose only 0.5% in the first quarter- it was projected to be 2.6%. The market will give ig income stays flat- especially after double digit % gains in home prices
“The Inland housing and construction market is slowing down, but it isn’t likely to experience the dramatic price drops of the early 1990s, a longtime Inland Empire economist said Thursday.”
This time it is different. In the early 1990s, the dark side of the “Peace Dividend” was a bad recession in the SoCal defense industry, which led RE down. LA riots and the Northridge quake did not help matters.
This time, it will be the implosion of the real estate industrial complex of its own massively-bloated and overconfident weight that will lead to the dramatic price drops of the 2000s.
Good point. The RE cheerleaders keep saying the economy is relatively strong and they don’t see any external factors that will drive the market down. The truth is they’re standing right in the middle of what will drive it down.
Forest, meet trees. Trees, meet forest.
Except for most people who work in RE are independent contractors.
Their job losses won’t show up in most measurements of loss of employment.
True.
But it will show up on:
1. tax receipts
2. retail sales
So the economy will feel their loss.
Neil
Not to mention:
3. Unemployment numbers when they stop being contractors and start looking for a wage-paying job.
And many people who work in construction are illegal immigrants.
The job losses in these groups (construction workers and other independent contractors) may not show up in official stats, but they will have to sell their homes, and stop spending money, so the regional economic impact could be considerable.
Agreed, but bears will never have the data to prove it before it happens.
I think that the decline in construction will have far graver economic effects in the IE because the IE economy( and the consequent rise of housing prices) has been greatly fueled by all the vast amounts of urban infrastructure and new home tract developmemts taking place in last few years. If you follow IE land use trends you cannot fail to notice that the IE is literally being bulldozed and razed for urban development. All those rustic ranchette/homesteaded rural shantys and plots are diappearing fast all over the IE in such varied areas as Mira Loma, roubidoux, fontana,colton, norco, ontario, rialto,lake elsinore,devore,yucaipa, banning, beaumont, ad nauseum.
The process is ugly as there is no controlled master urban planning process: it is all laissez-faire and the developers are in control. No Ventura county soar laws in the IE.
“Bazdarich doesn’t believe prices will rise and then fall dramatically in the state like they did in the late 1980s and early 1990s. But he admits he just doesn’t know.”
He doesn’t believe, OK…why? An economist should at least be expressing their reasoning, shouldn’t they? Oh, he admits he “just doesn’t know”…then why even include his comments?
This is becoming a little annoying. The media seems to most often seek out those that have a vested interest in a “soft landing” and continue to give them coverage. We are experiencing a slowdown that many of these people (Lereah, Appleton-Young, Kunz, etc) said wasn’t going to happen just a year ago, and it’s just beginning. Now the media is listening to them say “Well, we think this is healthy. We expect a small correction in some local markets followed by some modest gains over the long-term. Blah, blah, blah.” Of course you do, you’ll always have optimistic expectations for the organizations you represent. The media should do a better job of covering opposing views on this. They won’t have a choice when it comes to covering the reality as this unfolds.
So why does the media eat these “Dataquick” numbers and spew the regurgitated propeganda? So many local news agencies were saying that prices were STILL rising… of course its based on y2y, and god forbid you look at short term reductions.. unless of course the market is going up… then you switch back to m2m.
UGGGHHHh
That’s a great point. Soon we’ll be hearing how “if you bought a home in 2002…..you would have made….” then it will be “if you bought a home in 1999…..”
“if you bought a home in 1989…..”
It’s the safest long term investment there is…
This is not limited to economists and real estate. Our media has actively promoted the “priesthood of the expert” for many years now. What someone says has weight precisely because they are an expert. So when you have something like intelligent design (which incorporates philosophical fallacies known since the 1600s), all you need is someone from some fancy sounding institute and the media will consider your comments to have equal merit with those of the scientific community.
Why do they do this? Because your typical journalist does not have the skills to sufficiently analyze an argument. To be fair, sometimes such analysis requires technical domain knowledge that you would not expect a journalist to have. But somewhere along the line they stopped trying completely…
All the reporters need to do is interview a bear and ask their opinion on the real estate market and what backs up their opinion . Interviews with realtors pushing their wares is not objective .
It’s easy , just ask 2 opposing sides what their opinion is .
Mr Bear ,where do you think the real estate market is going and why ?
Mr. Bull , where do you think the real estate market is going and why ?
How much skill would that take ?
They couldn’t even do that on CNBC’s survival guide yesterday: 3 bulls and 1 bear cub.
Darn it. I really hoped that show was going to have a good balance.
(I get Asian zone CNBC here in Australia, which doesn’t get the US feed in the timeslot that show was on, but I did see some trailers.)
The problem is that the reasons given are always one sentence talking-points that don’t address each other (Bull: You need a recession before housing declines, Bear: Houses have increased from 3x annual salary to 6x). What does that give us? Who do you believe and why? I guarantee that you would pick the explanation that agrees with your “first principles” (your axioms, the things you accept either on faith, or from empirical experience). No one is going to get converted by this type of exchange. At best they see things empirically around them that changed their mind earlier (For Sale signs everyone), and this exchange just gives them some encouragement to believe what they already believed.
Oh lord, how I wish we had “Firing Line” back. But as Bill Kristol said when Buckley went off the air: “Buckley really believes that in order to convince, you have to debate and not just preach, which of course means risking the possibility that someone will beat you in debate.”
Think about what that statement means. That losing a debate is more important than coming to the truth (or at least some approximation thereof). That’s why “objectively” presenting two camps and have them give their talking points why will do nothing.
Walker.. Opposing views would be better than just a one sided talking points from the NAR and supporters . Now the cheerleaders have convinced the public that this excess inventory means its a buyers market, and oh boy you just get more choices ,(IMHO).
Your typical broadcast “journalist” is a failed actor. They’re not qualified to analyze anyting execpt their reflection in a mirror.
[“‘I think what we’re going to see is interest rates stay favorable and sellers negotiate a little bit more than they are now,’ said Southland Regional Association of Realtors VP Jim Link. Buyers are saying ‘Hey, things are coming down, and we can start bargaining.’”]
This guy isn’t watching the ten-year bond as it seems to be slowly rising. The current rate is a tick over 5.3%. I think that the Fed does not want an inverted yield curve and so must let long-term rates rise with short-term rates.
Lots of folks calling 6% this year short-term. If the Fed doesn’t want an inverted curve, then that means 6% TNX rates as well. I’d guess that would translate into 30-year fixed around 7.5 to 8 percent. No clue about adjustable rate stuff.
Maybe it’s just me but I feel that mortgage rates in the 7-9% range are normal. They can whine, roll around on the floor, whatever, and they will, because a lot of the people who paid too much thought 5.5% was here to stay. Too bad, so sad, margin call gentlemen, time to pay up on your account…
I think that about 5 to 6.5 percent is normal for short-term money as this area starts enticing people back to saving as opposed to borrowing. Which means that longer term rates should be somewhat higher. You need to give folks a reason to loan for much longer periods of time and incur the risk of higher interest rates.
Commodities made somewhat of a rebound today. Coal stocks like CNX are an example. If the Fed starts thinking of adding liquidity out the backdoor, I think that it will head into commodities. Speculative fever has not been killed by the commodities rout in May and June. Loads of folks (like me) are ready to buy the dip. Though I think that seasonality favors the fall.
Given the speculative fever still around, I think that the Fed has to stay hawkish.
Any excess liquidity will be going in the backdoor and out the front. They don’t even try to hide the pork any longer, it’s in the budget. As long as the guvmint is soaking up all the money in the world as if it belongs to them then cash money will become increasingly scarce. From here on out as long as treasury bill and fed rates keep going up cash will be king, sell, sell, sell. If they start to backslide and give in to the easy money bottle babies then buy, buy, buy. The next bubble will probably be in agricultural commodities and alternative energy systems. Just a WAG.
I live in the Fresno,CA area and recently the inventory just passed 5,300 homes and that is now all-time record for the area. Considering the fact our inventory was only 1,300 in November ‘04 things are cooling down rapidly with many homes sitting for 8 months or more now. Local realtor recently told me the homes priced over $600,000 will probably drop by about 25% from top to bottom as the downturn kicks into gear.
Can anyone say bubble?
Isn’t it interesting how this realtor you talked to is claiming a 25% drop on homes priced over $600k . Why wouldn’t price drop hit the houses between 300K and 550K ,(which is probably the average house prices in Fresno )?
The realtors are trying to confine any correction to something other than what they are selling ,bottom line .
when a real estate agent makes a negative prediction about the real estate market, you can basically double that prediction. An agent I’ve used in the past told me six months ago that prices “might” correct 5% in coastal SoCal, now that same agent is admitting prices probably will come down “up to 20%”. Double that and we’ll talk.
Sorry to interrupt, but I just wanted to comment on the nice fair and balanced panel on the town meeting show last night. Poor Robert Shiller outnumbered by the king of asswipes and his cronies. It’s so frustrating watching him attempt to spit out rebuttals knowing he’s such a wealth of knowledge. I love the guy, but somebody’s gotta pull the pickle out of his mouth. I would have loved to see Bill Fleckstein in his corner last night. How great would that be! Oh, and I love the fact that none of the homebuilders would show up. I would love to see Bob Toll defend his stock sell off last year in light of such a fabulous market… and do people really think it’s a good time to buy back in to homebuilders??? The shit isn’t even close to hitting the fan quite yet.
Ten things that annoy me (today) about the housing bubble in descending order of annoyance:
1. Unaffordable Housing
2. Speculators
3. Never-ending spin from realtors, economist etc
4. David Lereah, Leslie Appleton-Young and the NAR
5. Media who never challenges them
6. Smug conversations from recent homebuyers patting themselves on the back.
7. Sellers who say “I’m not going to give it away” etc.
8. Florida
9. Names of POS housing developments like “Morgan Ridge” and “Brookstone at the Glen”
10. Squirrels
How can you lump Lareah, Appleton-Young and the NAR together, and then they only rank #4?
Because in my mind Unaffordable Housing has to be #1. I wouldn’t give a rats a$$ what DL, LA-Y and the NAR did or said if houses were affordable. Speculators have to be higher because they had a more direct and tangible impact on the run up. I’ll admit that you could swap #3 and #4 but that’s as high as they go in my book. If you want to compose a list of the top liars of all time then I’ll gladly give them top billing.
Lumping Lereah, Appleton-Young, NAR, and squirrels together?
Talk about cruelty to animals!
I think they hire erotic romance writers who can’t sell their books to make these names up.
How about “The Morning Woode At Sleepy Hollow/”
If you want a chuckle go to this website:
http://adrian.gimp.org/cgi-bin/sub.cgi
It’s a random subdivision name generator. You pickfrom a list of words like ‘willow’ and ‘brook’ and ‘ridge’ etc and it compiles a list of annoying housing development names.
“The Morning Woode At Sleepy Hollow/”
LOL
BTW that’s another pet peeve of mine. When realtors list a house with the word “olde’ with the ‘e’ added as in ‘olde world charm’ as in this in a pos that wont last another 5 years.
How about:
“Cheek Spread at Mortgage Dew”
v.good
BOHICA Estates (Bend Over Here It Comes Again)
Yeah, any sub-division with:
Heather, Wood, Crossing, Ridge, Meadow, Ranch, or Glen makes me want to hurl my dinner. Of course here in AZ you can throw in Sonoran, Cactus, and Desert.
Remember that movie “Office Space?” The main character had a townhouse at a community called “Morningwood.” LOL
My understanding is that squirrels have been completely priced out of the coastal markets.
Here in Santa Monica, they are actually poisoning the coastal cliff-dwelling ground squirrels. Apparantly they are concerned that the squirrels will catch the plague from the bums that camp on the cliffs.
Or something like that….
Bwwwaaahhhaa
Well they need to buy more poison! I have about 10 of them living in my yard.
Bums or squirrels?
A reasonable question if you live in SM.
I was going to clarify my post, but then I realized my comment applies to both.
Great list. If I were to make a similar list it would include Greenscam and the whole evil cabal of reflationists that performed the ultimate “banker’s mischief” by dropping real rates to 0%, holding them there forever, and pumping as much liquidity into the economy as they possibly could.
There should be no friggin’ reason why someone with a fica 450 can get a 125% loan on a 750K house with no docs, no downpayment, stated income, etc. In my view, all of this goosing is the real cause of the nightmarish RE bubble.
Yep Rainman 18 , I like your list ,but I would throw in as # 3 the easy credit/bizarre underwriting that is putting the funds of this Nation at risk .
Point taken Mr. Wiz, my list was an off the cuff ‘annoyance’ list not so much a ‘what caused the bubble’ list. But now that you mentioned it, I’m annoyed at that too!
I especially liked the inclusion of “Rest Homes!”
Oh there is a reason. So a broker/realtor can get a commission today. Who cares about tommorrow. That is somebody else’s problem. Right?
There should be no friggin’ reason why someone with a fica 450 can get a 125% loan on a 750K house with no docs, no downpayment, stated income, etc. In my view, all of this goosing is the real cause of the nightmarish RE bubble.
_________________________________________
Agree 100% with this. It’s the suicide loans/EZ credit which enabled the speculators to operate in the first place. All else is secondary (including lower int. rates), IMHO.
I like all the incisive analysis and comments . I love it.
Just wondering what is happening to listings on zip realty. I used to see 30 listings in my selection criteria for Newbury park (upto 500K, 3BR and 2BA). Now I see less than 15.
One listing I see when go for morning walk under century 21, the board in the window is gone now. withdrawn? sold?
Cant believe some one bought 3BR/2BA in the neighbourhood for 467K in May. I rent a similar one (4BR/2BA, same size 1300 sqft) for 1850. much nicer, mine is ALL hardwood floor except kitchen and Bath
Zillow tells me that 4K is property tax p.a., $250 HOA PM oouch!!
I saw another listing for 378K nearby condo development and $300+ property tax second installment is over due!!.
ALso, any one use catalysthomes.com to see listings. better than zip. It gives homes sold in last 120 days.
Did anybody notice Shiller’s snippet last night about the real estate crash precipitating a recession? The asswipes, I mean other panel members suddenly had pickles in their mouths, although they smoozed over that really quickly by cutting to commercial. I love Shiller, but he’s way too timid to rebut those ass clowns. I wanna see Bill Fleckenstein up their with him next time.
couldn’t agree more…while Shiller is book smart, he is timid and not a street fighter. Bring on Bill Fleckenstein and he will have the rest of the panel stuttering and shitting in their pants. lol
Lets Wheel and Deal after the 35-40% decline.
We will talk then!
The other asswipes should be arguing Shiller’s book. That would make them take a CR@P in their pants.
Selling off Magic Mountain? Now, I have an idea. Let’s have all of the business’ sell off all of their land to developers. Let’s build endless McShitBoxes from Santa Monica to Lancaster. Then, sell them to people for obscene prices. And then there will be no place for people to work, and they won’t have any income. No activities because all stores, schools, parks, offices, etc were sold, so nothing to do but sit in the McShitboxes. What a grand concept.
We try to kill off the worst ideas here first before they spread.
The cultural function that Santa Monica serves is to test and reject all of the stupid retail concepts that might otherwise infect the rest of the civilized world. We did not give you $350 corduroy pants, although that was tried here. We did not give you $400 tennis shorts, although that was also tried here. Unfortunately, we did give you $1000 crap slipcovers for your sofas, branded as “Shabby Chic”. You have my apologies for that one. We ae not perfect, but we try. That one slipped through.
Latest News: Healthy drinks and bagels are out. Both stores have recently shut down on Montana Ave.
what IS doing well lately?