Y-O-Y Declines ‘Going To Take Some Getting Used To’
The California press reacts to the May numbers. The Daily News, “California’s residential real estate market continued its decline in May with the median housing price making its first single digit increase in more than six years and a trade association on Monday issuing a big downward revision in its 2006 sales forecast.”
“The California Association of Realtors now expects the sales total this year to fall an annual 16.8 percent, 14.8 percentage points more that last September’s forecast. That would be the steepest drop since a 30.2 percent plunge 24 years ago.”
“Sales fell in all 20 major markets tracked by the association. The declines ranged from a high of 44.4 percent along Santa Barbara County’s south coast to a low of 2 percent in Santa Cruz County. Year-to-date sales are down 19.5 percent, the association said.”
“Santa Barbara County’s median fell 9.3 percent to $677,630; north Santa Barbara County fell 3.2 percent to $453,330; Santa Cruz fell 0.3 percent to $755,000; and the Palm Springs/Lower Desert area declined 3.54 percent to $374,830.”
“‘This is kind of the apex..of the curve. There is no doubt we’ve been expecting this. We thought it would happen earlier,’ said John Karevoll, an analyst DataQuick.”
The Daily Bulletin. “A local real estate agent says Tuesday’s housing report from the California Association of Realtors can be summed up in one word. Yay.”
“That was (broker) Bill Velto’s reaction to the news that home prices increased only 8 percent statewide from May 2005 to May 2006. ‘It’s the first time in nearly five years that we’ve had less than a double-digit increase,’ said Velto in Upland. ‘The indicators are all good and it’s the kind of price increase that is a lot more reasonable and sustainable than what we have been having.’”
From Long Beach. “The California report shows price depreciation was seen across some Southern California communities for the first time in years. The median price in Cerritos fell 0.1 percent, though prices there are still high, with a median of over $639,000. Still, about eight other Los Angeles communities saw price declines.”
“‘We’re beginning to see more communities showing year-over-year declines,’ CAR economist Robert Kleinhenz said. ‘It’s going to take some getting used to.’”
From San Francisco. “Homeowners across most of the Bay Area stand a 55 percent or greater chance that their property values will slip in the next two years, according to a quarterly study by a mortgage insurer. Still, many industry insiders remain optimistic.”
“‘The lending community is endlessly innovative, and they’re trying to develop products to deal with the affordability problem in California,’ said Mark Milner, chief risk officer at PMI Mortgage Insurance, which released the survey”
The Record.net. “Local builders report that although prices generally haven’t been slashed in San Joaquin County, buyer incentives have become commonplace in the past several months.”
“National Association of Home Builder’s chief economist, David Seiders, said the group’s builders surveys indicate weaker demand for homes coinciding with higher interest rates, deepening affordability issues and a retreat of investors/speculators from the market.”
“‘We don’t think the cooling process for housing is over yet, and we wouldn’t be surprised to see..some decline in coming months,’ Seiders said.”
The State Hornet. “Several University of California-Los Angeles’ Anderson School analysts said a housing market dip could lead to job losses in some industries, especially construction.”
“The prediction of a slowdown in the real estate market did not come as a surprise to many forecast attendees. Addressing an audience of mostly corporate businesspeople, Mike McCook asked members of the crowd to raise their hands if they thought real estate was never going to slow down.”
“The crowd laughed at the nonexistent show of hands.”
“Edward Leamer, director of the Anderson Forecast, began the event by jokingly requesting that audience-members keep their cell phones on, in case they were called and told their house was offered a sale before house prices begin to decrease.”
“‘The lending community is endlessly innovative, and they’re trying to develop products to deal with the affordability problem in California,’ said Mark Milner, chief risk officer at PMI Mortgage Insurance, which released the survey”
I suppose this kind of talk is why people ignore the risk of their loans. First, they don’t want to face the danger. Second, those ‘innovative’ lenders are ‘working’ on the ‘problem.’
When the loans default, those ‘innovative’ lenders are going to be the problem. Yet, the more defaults the more affordable RE will be. This must be confusing to Joe Sixpack.
I could certainly be wrong on this… but is it not rather difficult to be “endlessly innovative” when you are behind bars?
Or, at the very least, not doing any business at all?
“endlessly innovative” must be prisonspeak, for “I’m a bottom”
I lol’d, IRL.
What about lower prices? All the impact fees and permit fees are out of control. This is getting ridiculous folks. Time to take back control of our local governments.
Totally with you. People don’t realize that a HUGE reason why prices are high are because of the impact fees - especially in California. The areas that have few restrictions, like Atlanta and Houston, have a lot fewer rules about where new homes can be built.
Oops - I meant to say that areas like Atlanta and Houston are cheap in part because there are few building restrictions.
I hear texas is fairly reasonable on fees. They don’t rake you over the coals and extort you if you want to buy shelter. California is so top heavy with fees it is simply a joke.
Texas gets you with property taxes. A $150,000 homes there will cost you almost $5000 in property taxes every year. Compare that with my Nevada home that I sold for $700,000 and generated just $3000 in property taxes. The equivalent in Texas will cost you almost $21,000 in property taxes every year. And BTW, both states don’t have state taxes.
arizonadude, I have an insider’s view of local government. The incompetence, waste and fraud is so out of control. I agree, it’s time to take back control.
time to chop heads- they were only doing their jobs
Around here I’m hearing 40k for fees and permits. This is totally absurd. Government waste is out of control. I will not pay for the nonsense.
Go to http://www.americandreamcoalition.org/penalty.pdf and see how much of our money they’re wasting on so-called “smart growth”. I think you’ll find it interesting - although you’ll be even more angry after you read it.
Great another person who prefers cars to people
That is such B/S. I mean who do they think they are fooling. You have a loan with an interest rate. You have to pay that back not matter what form it takes. ARM, Interest Only, Combination of the two. It is such crap. The only thing they have done is approve everbody and their mother for a loan. Anything to keep the commission going. Well boys and girls the party is over and party pooper is here. Realtors have made a ton of money and so have the mortgage bankers and all we got is over priced houses and higher property taxes. Oh joy, it so great that home prices went through the roof so realtors can get 6% on $800K instead of $400K and mortgage bankers could 5 points on an $800K loan instead of a $400K loan. Just freakin great.
The median salary went down for most agents during the boom since the chaos caused for so many more people to become an agent. I’m sure there are plenty of people who made out like bandits, but there were some seasoned agents that got less pay.
My dad knows of a new agent who quit her job to get on the RE horse too late. She’s only made one commission (a few thousand after the pie is split four ways) in the last 7-8 months. She has virtually lost tens of thousands of dollars from the job she left.
correct if im wrong but i dont believe many loans even use pmi anymore.what the big lenders have done is offer 80/20 financing where they lend the 80% at say 7% sub prime and the 20% at say 11% interest rate.i know my worker just this type of loan.the 20 part gets sold to who knows maybe packaged to some poor guys retirement plan.the big lenders have a built in cushion as they only lend the 80% so if seller defaults they can recoup their investment.the big question is what happens when the holders of the 20% lose their ass.who holds these 11% mtgs and what will happen when they lose.
That should be coming to a quick halt. Suze Orman researched this, and said pay the PMI, the “20″ of the 80/20 is too costly a loan now with interest up. They’ll have to get really creative to get the last of the unqualified greatest fools of all to buy.
I agree 100%. So these aholes could bring home the big bucks the entire country got screwed. What do I tell my kids? It used to be the father, with a blue collar job, could afford a home. The wife stayed at home. Then both parents needed jobs, and the kids had to stay at the sitters. Then both parents needed to work and go into heavy debt, just to make ends meet.
Now homes are so outrageous you need several incomes, crazy loans, and incredible debt, just to buy a shack.
The American dream? This is a nightmare.
Well said.
Totally agree. Blue collar? These prices are even too high for many good paying white collar professions.
At this rate, indentured servitude may just be another generation or two away.
yes and this man is in charge of pmi risk mgmt.that is freekin scary.
No it’s just “keeping up appearances”.
It is the same concept as “Creative accounting”, “Core inflation rate”, “Hedonics adjustments”, “Agressive accounting”, “New economy”. Endless lies.
It’s like buying time before you receive the electric discharge on the electric chair. Another cigarette ?
These types of “innovations” are just another way to say. “We perfectly know that you are flat broke, not capable of buying and it’s way over your means, but here’s what we will do…”
Illusion of spending power and illusion of wealth, illusion of borrowing capacity.
That’s what these “great financial innovations” always lead to.
No Tesla or Edison here. Just a lot of leverage and hiding the sad facts and the truth. I prefer the invention of electricity than this one. It’s not innovation it’s just a cheap and lousy botched magic trick.
“‘We thought it would happen earlier,’ said John Karevoll, an analyst DataQuick.”
Yup, you guys were the first to predict the downturn.
Let the lying begin!
It is not the end, nor is it the beginning of the end, but it is a beginning.
First the lying, then the dying.
These people are murderers with a pen and a contract.
It shows that “endless innovation” generates “endless stupidity”.
WTF!! Give me a break. These people are all liars! Luckily we have it all archived right here on this blog. The truth will be told!
Someone should make him go on record with his prediction of where prices will go over the next 2 years. I bet he’d be wrong there.
If you look precisely at his diction, he might be truthful, in a truthiness sort of way.
Dataquick thought about the bubble and the inevitable downturn, they just didn’t tell anyone about their thoughts!
Legally, is lying by omission prosecutable for agencies that report on market conditions and market clearing reports?
Indeed, these guys are stone-cold liars. I blogged about a radio show interview back in September 2005 where a DataQuick analyst came on and essentially said, “We won’t see a price decline.” You can even check out the interview. It’s rather depressing, really, because it was an entire HOUR on a usually balanced radio show, with two shills from the RE complex essentially saying - in late 2005 - that “things are going great!!”
“Edward Leamer, director of the Anderson Forecast, began the event by jokingly requesting that audience-members keep their cell phones on, in case they were called and told their house was offered a sale before house prices begin to decrease.”
Now that everyone from analysts at Goldman Sachs and Charles Schwab to prominent housing economists like Leamer are openly discussing the reality of falling home prices, who is still buying? Is there anyone left who does not realize where the next four years will take the bubble market price levels (off 30% or more, unless this time is “different”)?
Yes, anyone who only gets their news from the channel 8 10PM broadcast, or the SD Union Tribune, or….
Laugh now, cry later.
I would like to know who can afford a $4500 PITI payment, plus pay for maintenance for the house & car, buy clothes, save for retirement, fund kids college plan and save for retirement. Who are there people walking around in Los Angeles? Amazingly I don’t know of any..and my wife and I make combined 160K (in our late 20s) and so are all our friends. We can’t seem to make the numbers work..and so we are renters….just wanted to know who in the hell are these people who are making the renters work?
BTW…average median household income in LA is 45K..so we make approximately 3.7x the median income and can’t afford it….there aren’t too many people walking around who make 5x the median income.
My prediciton..this market is going to turn south A LOT faster than people think…with the current multiples…
fyi…just wanted to know who in the hell are these people who are making the numbers work?
I totally agree. They can’t seem to fudge the numbers as far now. Margin of error, I’m sure they take it to the limit.
The margin of error in new home sales is 15%….that’s huge.
“Today, we will get the first New Home Sales (at 10:00am) after the stupendous plus 13% number last month. Recall our analysis of that back on November 30 found two interesting wrinkles:
• a plus 13% is meaningless when the margin of error is 17%;
• Historically (past 15 years) double digit gains are typically followed by flat to negative numbers. ”
I got this from the internet…. is the margin 17%????
http://www.census.gov/const/newressales.pdf (generic link)
“This is 4.6% (+/- 13.1% above the April sales rate…”
I’m w/ you Atrain. I live in the South Bay, work in the Marina. I’ve been following prices in the SB very closely the last 3-4 yrs. I just don’t get it. Who makes all the $$ to afford $1.2 and up mortgages? Then factor in all the other expenses. The only answer is the home ATM. And the home ATM is running very low these days. I also think a lot of people have been keeping up with the Jones, living off of credit.
All I know is the inventory in the SB is rocketing upwards very quickly and we have only 2 mos until fall. Furthermore, 2007 & 2008 should provide more fireworks with the $2B in ARMs coming due. I’m sure my area has a few of those creative/innovative/visionary blah blah blah type loans. What a joke…
LostAngels,
I think it’s actually $2T (not $2B) in ARM’s resetting by 2007. $200,000,000,000,000 in mortgages adjusting upwards is going have some serious effect on this bubble.
Ooops yeah you’re right.
Actually, you’ve still erred, that’s 200 trillion you have typed in there. It is 2,000,000,000,000. If you had a stack of $20’s equalling 2t, it would be like 5k miles high
..seriously.
And aas a talking head stated on CNBC..this is only a minor impact on the economy!
The price of gasoline in the past 24 months is more than double!
Well we shall see!
Flooding along the east coast is great for prices too ?
Probably not a factor!
It’s just like the spin we heard about Katrina — lots and lots of new houses need to be built, oh boy this is good news for the homebuilders, etc. But look where the stocks are today compared to October.
Yeah, it’s rocketing upwards from 1 month of inventory to 2 months of inventory. Gonna collapse any day now. Sheesh. Compare this to Pheonix where they have 7 months of inventory, or San Diego with 9 months of inventory.
BTW - I do think it’ll fall, and probably fall hard, but don’t hold your breath - thinks won’t tank for at least a year. Inventory is still way, way too low.
My thoughts, exactly. I make a decent income, well above the median in OC, and I can’t even come close to buying here. Sure, I could get a loan from those hard-working, innovative mortgage brokers, but the numbers just don’t add up. Eventually, you have to pay PITI, not just interest and taxes. So, they can try whatever they want, but the people just don’t make enough money to afford the homes, and these loans are putting a lot of people in jeopardy. We’re already starting to see it, with the increase in foreclosures, and that is only going to accelerate as those 2005 ARMs reset in 2007. I’m hoping that the decline is fast and hard, as I want to buy but I need the prices to be in a range where I can actually afford it. If the lenders would stop with the nonsense and get back to using standard underwriting procedures, the market would tank very quickly.
Not on an I-O loan. It’s ITI, that’s it! That’s what products the super-expensive areas are using, except the really clever ones experiment with Pay-Option. That’s the formula for a nuclear chain reaction in housing price collapse. We’ll pass 30% decline so fast you’ll barely notice it even happened on the way to 60%…
“pay for maintenance for the house & car, buy clothes, save for retirement, fund kids college plan and save for retirement.”
You’ve got it all backwards. You buy a house and the house takes care of all of that.
Amazingly I don’t know of any..and my wife and I make combined 160K (in our late 20s) and so are all our friends.
If you & your wife @ $160k are locked “out”-sowhat are the 50% divorced stat single income families doin’?
This country’s f*cked.
What makes me really nervous is that I know a few very high income people who are almost certainly going to get steamrolled. The writing is on the wall yet they keep spending like the good times will never end. I don’t think this country has ever had so many people living so far beyond their means.
How are you expecting to see them get steamrolled? Loss of income or rise in expenses? Or both?
HELOCs reset every month and it’s about time the FBs recognize the dolts that fund these instruments may actually expect to get paid back. They are getting steamrolled by their payments… with no appreciation to bail their asses out.
They bought huge houses in trendy neighborhoods on “interest only” ARMs, with the anticipation that appreciation would bail them out. All the while they spent like mad with HELOC funny money.
A shame those high income people you know in New Hampshire haven’t read or haven’t comprehended Stanley and Danko’s book “The Millionaire Next Door.” It described high income low net worth people and it described millionaires who have modest (should be capitalized MODEST) homes, modest used cars, buy clothes at Sears, and so on. Keeping up with the joneses is always a path to failure.
In NH, if you’re high-income, you can always find a place that allows you to live within your means. Of course a lot of people don’t take that path.
I do the Southern NH to Boston commute, so these FBs are Bostonians.
160 k and you complain yes you could afford it you might have to give up cell phones dinner out 4 times a week new cars hummers.buy a 92 honda and be frugile you could buy but u think you are entitled to all the luxuries.160 k is good bank you sound spoiled.many people make less and do more.ah the 20 something generation.
^^^Disagree with above. Yeah, I’m in the same situation where I **could** afford a house if push comes to shove. But the kind of shit box I would just just simply doesn’t justify what I would be paying. Nothing to do with entitlement. Just financial sense in my book.
And furthermore I think resentment at the architects of this bubble is fully justified, for the sake of human decency, irrespective of whether or not you can be arm-twisted into buying some random McShitBox.
bottomfeeder1, I was thinking the same thing…160K and they are in their 20’s? I’d like to know what they do and how they got there so fast. That probably puts them in the top 5% of household incomes, especially if you factor in age group. If they really want a house thhey should bank 60K a year (out of that 160K), factor in compounding, and then in five years they would have 300K+ for a down payment and easily get into a great home. Then have kids and live the dream. I bought my first home when I was 39 (in San Diego) and I never felt screwed or anything. Why do 20 somethings now think they should have a nice home earlier? I’m confused, even when homes were cheaper (i.e. mid-90s), they still seemed expensive compared to salaries and rent, etc. Everything is out of whack!
Bottomfeeder, I know where you coming from but I think you missed their point. To assume they are spending like that is just that… an assumption. I think they are absolutely right… anybody halfway responsible with their expenses isn’t going to take on the kind of ridiculous, risky payments that are required at even their income level just to get into a house. A more responsible, fixed 30-year still wouldn’t be affordable without it being a shack. Not only that but even if they did buy a 92 Honda and spend absolutely the bare survival minimum they would still be foolish to buy in this market whether they can afford it or not.
That, I think, was their point.
What the heck is this? We are in a similar boat. Our late 20s, make 150k combined, have 300k cash (currently in cds, not including retirement accounts), payed off 10 year old cars, work pays for the cell phone and broadband. No debt. We are entitled?
Sure people make less and do more. It is called creative financing. We refuse to make that jump. The fact is, even with a 150k income and a 300k downpayment with a fixed loan, we couldn’t get much more than a uninspired condo here. Frankly we aren’t willing to dump our savings into what is now a depreciating liability that we wouldn’t even like to begin with. Until houses in the area we like go for 700-800k or less, we will continue to rent for pennies on the dollar while adding to our savings. Save your generational superiority for those other blogs.
Ditto. Single income though. Are you in SF bay area, downward_spiral?
Not all young persons live beyond their means, and are unwise with their $.
Sure. Fiscal conservatives like us got screwed royally the last 3 years as AG dropped the fed rate to practically nothing and left it there too long. Especially if you could have bought early on, but did not.
Personally, being young, I didn’t fully appreciate the magnitude of the “BUY BUY BUY” asset shopping spree this set off until it was too late. That won’t happen again. And, the time to use up the nest egg should appear again soon enough.
. . .
BTW, with the right degree, business, and work ethic, $100K income is not that hard to achieve.
$100K is the new $40K don’t ya know?
I make about the same all by my little lonesome. And no, I can’t afford a house here in 700Khouseland. Not without an adjustable mortgage, which would be just stupid, stupid, stupid.
So do the math yourself and shut up, hey?
Dude, why are you rushing, In a year those 1.2 million dollar houses in South Bay will be sold for 50 cents on the dollar or less by some bank willing to write you a sweet portfolio loan at no cost and paying all transfer fees. There’s a whole lot of interest only and option arm money in the South Bay. Your patience will be greatly rewarded. Don’t step on your dick because your being impatient. LOL, take it from a Realtor.
The YOY sales declines in San Mateo, Santa Clara, and Santa Cruz counties are getting terminal looking.
http://www.dqnews.com/ZIPSJMN.shtm
Yeah!
This bubble-bursting thing is a three-step process:
1) Sales down
2) Inventories up
3) Prices down.
At least sales are declining in San Mateo/Burlingame/Palo Alto/Menlo Park. We aren’t at stage 2) yet but hopefully soon. While inventories are still at reasonable levels I have noticed several homes that were pending come back on the market. Purely anecdotal but encouraging.
Using Zip, I’ve been tracking inventories in these LA areas for the last month:
5/25 6/28 %CHANGE
Burbank 458 528 +15.3
Silverlake- 224 266 +18.7
Echo Park
Valley Village 89 107 +20.2
Los Feliz 106 108 +1.8
Toluca lake 75 75 0
North Hllwd 416 447 +7.5
Los Angeles 4877 5148 +5.5
Hey get another screen name buddy and quit impersonating me.
Nope.
1) Sales down
Prices decline.
2) Inventories up
3) Incentives up
4) Inventories up more
5) Incentives up more
6) Inventories up even more
7) Visit from loan holders, knock, knock
don’t forget:
9)tantrums
10)divorce
11) alcoholism.
Again, stop using this screen name.
I tried using another one but this is the one associated with my email. I have no interest in “impersonating you.” For real.
Ben,
If this is the case, can you fix it so he can use a different screen name? I have to much invested in this one.
Oh, and to whoever just started using my screen name I’ve been blogging for well over a year now as happy renter and I’m sure you understand my irritation.
Can’t say I understand what you might have “invested” in a screen name, but I’ll will use a different email and name from now on.
Happy trails happy renter.
To the new “Happy Renter”: You don’t need to use a different e-mail. Just change your name. It’s bad form to use the same name as a previous poster.
happy renters –
Time for one of you to go the way of Professor Bear, it seems…
yep research this:
And our government reported New Home sales near record levels, Monday…go figure!
It’s called desinformation or propaganda.
Do you really think that bums in Washington, Republicans or Democrats, would really report that there is a major problem with real estate?
They will do the same things they do with the indices or the inflation rate. Manipulate the data, change the sampling.
How about “hedonic adjustment” or “core real estate theoritical long term market price” ? It’s coming.
Don’t take any statistic coming from the slobs and scumbags in government seriously. The US goverment statistics mean absolutely nothing! ” There are three type of lies. Lies, damn lies and statistics.”(Mark Twain)
It’s particularly true for the jerks working for the government.
Desinformation and propaganda. Don’t count on government statistics. They mean nothing. Absolutely nothing.
Do you seriously believe that if ever the real estate market starts to crash, Washington and your politicians will tell you what is really going on? Wake up! It did not work like that for the NASDAQ bubble.
And it will not work like that for the real estate mania. They will paper over, manipulate and conceal as long as possible. That’s the truth about the folks in government.
From what I see here with sellers, It will take an act of god to get them to lower their prices. They could never fathom the thought that their house might be worth less than the comps of a few months ago.
I’ve been tracking Santa Clara County inventory since early last year. I’ve noticed an interesting trend - last year prior to the 4th of July holiday weekend inventory numbers fell and then pushed up again after the holiday. This year inventory is ticking up before the holiday weekend.
The sad fact is that with ever-increasing prices, people basically stopped caring about the size of their mortgages. All they cared about was the monthly nut. As long as they could afford to make their monthly payments, the rising market would take care of everything else.
Now that the hangover phase of this 5-year party is beginning. Many people are beginning to look around see what they ended up with: large mortgages on ugly ass houses. Unfortunately, this isn’t a one a night stand, with the opportunity for an illmannered run out the door.
I think we should print up t-shirts saying:
You overpaid for your house.
Some more t-shirt ideas.
What is the price of your dotCondo?
Negative equity. Ain’t it a bitch?
How about - “The housing market crashed and all I got was this stupid t-shirt”
Or “My bank is trying to take this shirt off my back!”
I lost a million in Real Estate! Ask me how!
“Trust me–I’m a Realtor®”
That’s a good one.
Bold closed? I hope.
2nd Try — bold closed. Sorry.
For a minute there I thought you were coming up with t-shirt slogans. “Bold Close” — would work as slogans for those special agents who can squeeze an ounce of profit out of a flip as the last greatest fool signs on the line.
No credit? No docs? No problem!
Happiness is renting.
I’d rather be blogging.
OMG I may just do that…LOL!
Front of shirt: I made a million in real estate.
Back of shirt: I started out with 2 million.
Old commodities joke: to make a small fortune in commodities, start with a large one.
Several University of California-Los Angeles’ Anderson School analysts said a housing market dip could lead to job losses in some industries, especially construction.”
_______________________________________
These are some smart people. UGH!
I am a state univ. grad (most of you can tell by my poor english skills - LOL) and I know this will happen. With these UC reports I wonder if we still have the best college system in the world. My 7 year-old could tell me that if housing cools people in the construction field will lose their jobs.
So right, it’s like DUH!!!!!
LOL.
I can’t stand bold T-shirt comments. But I like the sentiment.
CentralBanker, please close your bold html tag when you get a chance.
Front of shirt: (in bold) I made a Million Dollars in Real Estate!
Back of shirt: I started out with Two Million Dollars. Close the bold.
I’d buy one of those!
Woohoo, Housing bubble t-shirts for everyone! A complete sentence and I went to state school.
I wanted a T-Shirt but all I could afford was a lousy house.
Crisp, cold and well-hopped. Well said Cote!
On vacation, “Red Tail Ale” is the brew of the moment. College Tour ‘06 feels like Bubble Tour ‘06. So far we’ve got Santa Barbara, San Luis Obispo, Santa Cruz, Santa Clara, Stanford (Palo alto), Berkeley, Davis. IOW Bubbletowns.
Vacation bits include the Shasta-Trinity and Lassen areas. Total weirdness. POS sticks in dirt $300k. Vacation/retirement shacks in the woods $600k. Lakefront (i.e. Almanor); add $600k to the above prices. The evil bulldozers of the apocylapse were raping the land. The realty vultures were squabbling over the body. The locals were subdued. Shame, this is so much not Kalifornia. Friendly people, recognizeable sense of community, few population/infrastructure pressures, no discernable hubris. Nonetheless victims.
More as reality permits me to blog.
“Several University of California-Los Angeles’ Anderson School analysts said a housing market dip could lead to job losses in some industries, especially construction.”
My god — the pure genius of these people. That’s why university analysts are different than the rest of us. They can see the nuances that others overlook, and they have the courage to go out on a limb with bold and unconventional predictions.
Leamer was way ahead of the curve two years ago, now he sounds like an idiot. He should just tell the truth, prices are going to drop 40%, and in two years he’ll look like a genius again.
“Several University of California-Los Angeles’ Anderson School analysts said a housing market dip could lead to job losses in some industries, especially construction.”
My god — the pure genius of these people. That’s why university analysts are different than the rest of us. They can see the nuances that others overlook, and they have the courage to go out on a limb with bold and unconventional predictions. ”
Some more wisdom coming from the ivory-tower these days! Here’s some actual ground-level observations from a non-academic:
1.The region of greatest construction activity is the Inland Empire(riverside/San bernardino counties.
2. probably 30-50% of all newly created high-paying jobs in this decade in the IE are construction-related.
3. Fontana seems to be one vast gigantic spread of construction yards.
4. IE has put up more housing tracts and shopping centers than the 4 other Scal counties combined.
5, As the predicated “housing dip” occurs, this will result in not only loss of actual construction jobs in the IE but affect the following job sectors;
a furniture and home improvement retailers like home depot,ect.
b. eating establishments and fast-food employment, including lunch wagon operators.
c. reprographics companies such as Orange=county-based OC REPROGRAPHICS,
d. Architectural firms
e. sewage and pipe-laying companies such as chino-based WESTERN WATER.
f.nursury and landscaping companies
g.electrical,plumbing contractors and businesses.
H.Declinng city/county revenue as a result of declining construction and permits leading to layoffs of city/county employees.
All this will come to pass in the IE over next several years, and the unemployment rate should skyrocket as a result.
Note: have to credit Charle hugh smith website for one of his excellent essays describing a construction job loss scenario. Just applied it to the IE situation.
Looking at the CAR report from yesterday, I think a downturn in prices in the IE will lag the coast/metros by 6 months or more. IE was still posting 15-30% Y-o-Y appreciation last year. Meanwhile the more desireable coasts and counties, SF (2%), SD (0% YOY), etc were at or below inflation.
This is all about affordability, which Atrain pointed out above. Most in CA can swing $400K priced home if the down payment (previous equity cashout) is large enough, or if they really stretch with a promiscous lender. Very few can do the same on $700-800K.
While prices stagnate in more desireable/ultra-expensive areas, I see IE and other more “affordable” areas continue to tick up for a bit longer, before tanking.
They should rename the school to University of California-Los Angeles’ Anderson School of the OBVIOUS.
do you think its time to put low ball offers? I am going to talk to a real estate agent in Redondo Beach tonight. Bascially I am going to tell her…I want to put offers in 20% below list price..if the buyer takes..then I will buy on the spot ( I know the market may go down 30 to 40%..but I can’t wait that long for a house..cause that will take about 3 to 4 yrs IMO).
I wonder what the real estate agent will tell me…if she wants my business she better not laugh at me cause I will drop her real quick.
Btw..she already told me 10 to 15% below list is not unreasonable..that puts a 600K home at around 500K….hmm..I know I know..that is still a $hit load of money….it would take most people a life time to save that much money…maybe I should wait it out….
I can answer your question with a question- did you think prices were ridiculous about 14 months ago?
I think prices pre-2002 were fair market value….I wouldn’t mind paying 2003 prices…NO WAY am I paying 2004 or 2005 prices.
Basically need a 35% drop in prices to get to 2003 levels and about 40% drop to get to 2002 levels.
20% off of today’s asking prices is probably the price from early spring 2005.
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“Arithmetic on the way down and geometric on the way up.” - Say you had $10,000 in a fund at the peak of the bull market and the fund lost 50 percent during the bear market. That left you with $5,000. Then, in the past year, your fund gained 50 percent. So now you have $7,500. In order to recoup your original $10,000 the fund would have had to gain 100 percent.
Erm… FMV is 1995 plus inflation.
Anything more than that is bubble valuations.
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3.5% annual since 2000?:
http://www.files.bz/files/11251/RealEstateValuationMethods.xls
When I bought my place in 2000, I felt like I was paying too much. Since it was the going rate and it was almost affordable, I caved in to the market.
Now I’m thinking that even the 2000 price levels was a ripoff. To convince me to repurchase my old home, it would have to be 20% off of 2000. That would be a 53% drop from today’s price, and a 57% drop from the peak price.
This is an unreasonable request, so I just have to leave CA.
A year goes by fairly quickly. It is better to wait another year longer than you were planning to wait. Reward yourself for waiting, get yourself a nice dinner or some nice toy every month. This will make it easier to wait and be a lot cheaper than losing 10% of the value of a house you just bought.
Kinda surprised your agent would suggest offering 15% below already.
Norcal Ray
Agents don’t get paid unless a sale takes place so they’re just pushing for a deal, any deal. 100k off a 600k house is still a 12.5k commission per agent (based on a 5% deal. That’s why you hear about the smart agents who won’t take listings because the seller just won’t budge on his ridiculous price.
Atrain,
We’re looking in the same areas. Please let us know how your buying goes. There is an incredible amount of inventory in Redondo for $950k… I’m sorry, the only $600k home I’ve seen was literally a shack on an ok lot (two story “bungallow”, with zero insulation).
As to 20% below offers… maybe. The homes I looked at 4 months ago… 85% are still on the market. Gee… instead of 1.3 million they’re 1.1 million. Nice way to chase the market down…
Neil
No! I know the $600k homes you are talking about and they are Sh!t boxes. Don’t do it. Hold out fo 12 mos. (Aug 2007) and then start low balling 20%. I like the “48 hr” low ball strategy. Pick 5 houses you like and rank them 1-5. Start with the first one and submit a bid at 20% below asking. Inform your agent they seller has 48 hrs to accept or you will move on to #2. Follow this through #5. If no one accepts, move on to the next set of 5. With the way inventory in RB is growing, this should work well towards the end of 07 and in 08. Besides, I’m willing to bet within a few days of no counter from you one of the sellers will fold like a cheap suit and accept. Oh, and make sure you have 20% down so the seller knows you are serious.
But if you do start now, please let us know what you’re realtor said. Make sure you do it in person so you can see the reaction on his/her face. I’m sure it will be classic.
Gettung low-ball offers depends on how much equity is in the listed house. Before making any offer, found out what the seller paid for the house and when. A million dollar listing that was bought in 2004 for $600,000 cetainly has some chance of a 20% discount, especially if their mortagage is about to reset.
A million dollar house with absolutely no equity left, has no chance of accepting a 20% off sale. Do youyr homeowrk first for purchase price from title company, county recorder, agent.
Don’t even bother buying anything purchased within the last 5 years.
Your average seller does not “get” low-ball offers. Your average seller does not understand that last year’s marginal buyer, using a 1-year I/O ARM at 3.58% interest, could have afforded to pay 35% more on the same monthly payment as this year’s marginal buyer using a 1-year I/O ARM at 5.48% interest. (I am not making these numbers up — they are prominently displayed for all to see right here:
http://www.bloomberg.com/markets/rates/index.html)
It will take a while for sellers to catch on the the fact that their perpetual money tree (aka the home they own and occupy) has fallen by over 35% in value over a 1-year period of time. The 35% figure merely adjusts for the effect of higher ARM interest rates on the marginal buyer’s purchase budget. I say “over” because the interest rate is one of many other factors which have knocked the legs out from under the bubble prices, including record-high inventories, an ongoing new home construction boom, increasing evidence that price appreciation has stopped or gone into reverse, growing publicity about a housing slowdown and its potential effect on the overall economy, rising rates of homeowner defaults, and the prospect of trillions of $ of ARM resets over the next couple of years, to name a few.
The market will be in a liquidity freeze until all of the above factors combined drive prices down to a lower equilibrium price level more in line with fundamental demand for homes as places to live in. I personally plan to wait until the housing market has worked through the indigestion caused by the weight of these emerging factors, which I would guess will take at least three more years, before I even start to think about looking for a place to buy.
Good comments. We don’t always agree about the very short term but you’ve got it going on there . ..
TxChick –
We will never agree on the short term — I don’t even pretend to have a clue! Since you make your living as a trader, you have to, or else. I still think you should read Taleb’s book (”Fooled by Randomness”)… Very enlightening, and you would enjoy his trader’s perspective (especially since he, like yourself, enjoys working the short side of the market).
Inventory is the delta between supply and demand.
Good advice from the others here. Don’t forget that the inventory is going up up up, so your dream house may not be on the market yet. When there are at least 5 houses you would LOVE to live in, then start your round-robin 30% less lowball offer.
I’m thinking about buying too…more on this later. In the Ozarks, not CA.
R-E-N-T. If you need the place for a while, see if you can work out a lease for the time period that you minimally require.
The good thing about low ball offers is it only takes one to go through to totally screw up the comps. Once that price prints that sets the bar.
It only takes one.
Wait 1 year and then employ your 20% below asking scheme. It will save you a crapload of $$$$$ AND sellers will be crawling over broken glass on their knees & elbows to sign and accept your offer before you move to the next desperate seller…
Yes, then in another year I’ll be low-balling you. The real bargains (read: capitulation) won’t happen until 2008, IMHO.
Look, I never indicated I was about to start next year. I will wait until inventories go down on MoM price increases. I expect inventories to show a little drop soon… as some FBs suck it up seeing they can’t expect the market to bail them out and can’t sell at break-even. About another year and all those withdrawn listings will come back up … as REOs…
“do you think its time to put low ball offers? I am going to talk to a real estate agent in Redondo Beach tonight. Bascially I am going to tell her…I want to put offers in 20% below list price..if the buyer takes..then I will buy on the spot ( I know the market may go down 30 to 40%..but I can’t wait that long for a house..cause that will take about 3 to 4 yrs IMO).”
Atrain, I too, am interested in RB. I share an apartment at Hermosa Beach and am now primarily in Phoenix on an engineering consulting gig. I look at the zip codes 90277 and 90254 mostly. However, most homes are POS homes that are double, yes DOUBLE what I think they are worth. Do yourself a favor and consider buying 6 month T-bills for the next 4 years. 5% gains state income tax free versus a 40% loss (minus a 20% lowball acceptance) over that time amount to roughly a 40% difference! I’ll put it this way. If you get the 20% lowball accepted, and the market falls 40% from today (but that’s 20% because of your offer accepted), you lose 20% in 4 years. But in those 4 years you could have what you currently have, plus another 20%. that is 4 years of 5% 6 month T-bills. I ignored fractions of percentage and compounding for convenience. Emotionalism over real estate is a losers game.
I too live in the South Bay and track the local market. I as well think that the market will drop at least 40% to 50% over the next few years. We just saw YOY median price drops of nearly -20% in Manhattan Beach (90266) and -17% in South Redondo Beach (90277). These are May ‘05 to May ‘06. You’ll see that it’ll only get worse, especially in September through the rest of ‘07. Bill in Phoenix says, put your money into T-Bills and rent. Renting is about half of mortgage+taxes+insurance+upkeep and so on. By the way, Bill in Phoenix, I too am an Engineer, I think that’s why I sold in September ‘05 and now rent, it made/makes logical $ense.
Do your selves
I think offering a 20% haircut is too timid. A lot of houses still have asking prices 25% above the peak.
Definitely wait. Or, if you have a lot of patience, tour the lowball circuit bearing offers of 40% below asking. Eventually you’ll encounter a seller who’s desperate enough.
“The lending community is endlessly innovative, and they’re trying to develop products to deal with the affordability problem in California.”
Next up, legalizing slavery and indentured servitude so people can give up their freedom or future earnings in exchange for a bigger loans.
Under study in case prices rise further: selling one’s soul for a 1950s ranch house in poor condition.
“The lending community is endlessly innovative, and they’re trying to develop products to deal with the affordability problem in California.”
Translation:
The lending community is endlessly scheming, and they’re trying to come up with gimmicks to string the gravy train out as long as possible.
The irony of course is that it is the lending community’s “innovative products” that largely have created the very affordability problem they are purportedly trying to solve.
And the rental community are equally full of opportunists who will give you a month free or similar incentives when you move in. Then they raise your rent every 6 months for “market adjustment.” Can be quite high, depending on their ethics. If you get a good price, lock it in in a longer-term lease if the market looks like condo conversions will abound, net inmigration, and other perceived conditions
like “everyone wants to live here!”
Been there and done that. One reason I bought a house at a good time. Now is not a good time to buy a house, but a month-to-month rental may screw you.
Thankfully San Francisco has rent control.
Didn’t someone already do this to ‘Win the Pennant? The girl friend was nmed Lola?’
Read about Super Savings in Washington - 150,000
.
Lets see…
150k off the previous list price (Isn’t something wrong when $500k for a condo looks more reasonable?)
And I love the “make offer bit too… Damn, if I lived in that area, I might make a lowball offer a la Atrain ($400k for a large townhouse). But… I live 2,400 miles away, so no interest.
Neil
Evidence of big price reductions is cool, i agree, but don’t get too excited. I doubt most of those slapped-together townhomes ever really sold for what the ad claims (mid-$600Ks). Sort of like when the local Macy’s has a “50% off” sale, but fails to mention it’s 50% off the 80% mark-up they added to the price just before the sale.
Ben, I hope you have safe and secure backups of this blog since its birth so you can whip out all the appropriate evidence when the Liarreahs of the world start denying they ever said….fill in the blank.
You have got a lot of these rats by the short hairs…..
I imagine Ben has the extensive documentation to write one the great expose books of all time? Have you started yet? Of course the tale isn’t over yet is the thing.
Read about Valley homes cost more than last year.
“The median price in Placer County declined 2% from May 2005, with Auburn showing the sharpest drop — 8% to $439,000. In nearby Fair Oaks, values fell almost 16%.”
T-Shirt/Bumper sticker/classified ad:
Ben Bursted my Bubble. Big Boobs, Broken Boat & Bland Beachfront Belongs to Best Bidder.
EVERYONE PLEASE CALM DOWN!!
Gary “in the bag” Watts has stated numerous times that prices will increase 15% in Orange County this year. He is paid lots of money at conventions as a speaker and “economist”. Every Realtor(tm) quotes his words and reassures us that we are only in a process of “normalizing” where 10-15% gains will be had into perpetuity.
Remember, Realtors(tm) hold to a strict code of ethics; they and their hero, Gary Watts would never lie to us just to make a fast buck.
There goes “he’s never been wrong” reputation.
Right. They only lie to us to make $30,000 quick bucks.
Gary will need a new nickname for 2007 (maybe 2006).
How about Gary “stick a fork in it” Watts?
Or, Gary “put a bag over it” Watts?
There is a bonehead realtor I talked to before I sold in late 04.
I never used him but h still keeps spamming me with his market updates, all of which are 180 degree biased from the truth.
His hero Gary Watts 2006 RE Outlook is like the biggest boldest link on his website. I would love to be able to hack the truth into his site, but I never went to the “dark side” of software design…
Read about Homebuilders Fall on Analyst Comments.
“As a result, “we now expect a 48 percent decline in earnings in 2007 and a 72 percent decline in 2008 based on the weak trends and our expectations for the future,” Oppenheim said. “We continue to see downside in the stocks and would not yet look for value opportunities, despite the weakness.”
Things must be bad if the Wall Street analysts have caught on.
Things must be bad if the Wall Street analysts admit to having caught on.
You’re giving Wall Street analysts way too much credit!
Just in case anyone cares this puts forward looking price/earnings for the HBs above those of emerging techstocks. Somebody remind me what happened that caused forward looking earnings techstocks to trade at such a low multiple? Mar ‘01 was it? Welcome to Jul ‘06 HBs.
That is why these stocks are not “cheap” as the talking heads on CNBC say they are. Once the E shrinks, the PE’s will skyrocket unless the P drops. The P will have to fall by the same percentage of as the E for the PE to remain where it is today. Not cheap yet. In 2 years, these stocks may be very cheap and I may load up in anticipation of the next up cycle for real estate even though the stocks may stay flat and/or decline a bit for a couple of years thereafter.
The June survey and recent checks “indicate decreased traffic levels, weak pricing trends and longer times needed to sell homes,” Oppenheim said. “In addition, a large investor presence and high levels of both new and existing inventory increases the risk of home price deterioration.
How long have we all been saying this here? Finally these guys are repeating what we have stated for several months now.
SUMMARY: MAJOR PAIN IS ON THE HORIZON FOR SPECUVESTOR FLOPPERS.
Keep your powder dry fellow housing bears.
“Several University of California-Los Angeles’ Anderson School analysts said a housing market dip could lead to job losses in some industries, especially construction.”
This just in: Several Anderson School analysts announce that sunrise follows night. They also point out that recent data strongly suggest that Friday comes after Thursday, although they won’t know for certain until Saturday.
Does this stuff really pass for “analysis” these days? Who are these Anderson School people?
How does UCLA allow their good name to be associated with these “idiots” I’m thinking of calling the president of UCLA and asking him why his school is allowing such a political economics report to have UCLA attached to it. A real embarrasment