July 2, 2006

A ‘Disquieting Trend’ In California

A pair of reports from California. “A drop in requests for building permits and in competition for the city’s housing allotments for single-family homes has prompted questions about a slowdown in residential development. By June 23, Redlands had issued 66 building permits for single-family homes this year, down from 170 by this time last year.”

“The city’s quarterly competition for residential building allocations, the precursor in Redlands to a building permit, also had fewer applications this quarter than recently has been typical. Just one 26-house project requested allocations in June.”

“‘It may be that we’re seeing the beginning of the slowdown in housing construction because the market is saturated,’ Mayor Jon Harrison said. ‘I get that impression from the real estate community, that not only (have) housing sales of existing inventory slowed considerably, but they anticipate that housing construction is slowing as well.”

An editorial at the LA Daily News. “There is a disquieting trend upon us. This much is a certainty, though: The resale housing market is in a funk for the first time in years.”

“We can now mark the sales turn at the end of the third quarter, the last time most markets recorded totals above a year ago. They’ve been under that ever since. And that signals a trend.”

“Consider the following price points in May: In May, the median price of a previously owned home in the San Fernando Valley was $600,000. That’s exactly where it was last July. And that’s the first time the current year and past year median price have been this close since September 1996, when the $158,000 median matched that of the prior 12 months.”

“May’s median price in Los Angeles County was $568,550. That’s not too far from the $564,340 median of last August. And the statewide median in May of $564,430 is below last August’s record of $568,890.”

“Riverside investor Bruce Norris sees dark days ahead. Norris predicts that California will see a 1,500 percent in foreclosure activity by 2010. He notes that $1.5 trillion in adjustable loans will do just that upward between now and next year. ‘California has a much higher proportion of adjustables,’ he said.”

“And Norris maintains it won’t take a lot of stretched mortgage holders to start some bad stuff rolling downhill. ‘You don’t have to have more than 2 percent of owners to create a tremendous problem,’ he said, ‘and send foreclosures rising.’”




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129 Comments »

Comment by Ben Jones
2006-07-02 15:02:41

The Union Tribune is doing a make-over for a potential part of that 2%:

‘Recently McElwain’s financial situation has changed, which has left her to wonder whether she can still support the same kind of lifestyle she had upon first moving into her condo. ‘Chimene’s working so hard, but she still can’t afford to live in San Diego. She likes where she lives and doesn’t want to leave,’ Giles said. ‘She’s caught in what a lot of people are feeling right now with interest rates going up and housing prices dropping.’

Comment by flatffplan
2006-07-02 15:17:37

how does 2% compare to the 1990-95 era ?

 
Comment by GetStucco
2006-07-02 18:12:21

Interesting how the Union-Tribune has suddenly begun to quote experts who are coming right out and stating the obvious:

SAN DIEGO HOUSING PRICES ARE DROPPING.

 
Comment by waaahoo
2006-07-02 18:46:46

Whoooa Seabiscuit.

This chick is a Strategic Planning Specialist???? She’s pulling down 65K and has a net worth of $1500???

Is everyone in San Diego taking irresponsible pills?

Comment by michael
2006-07-02 19:18:01

Sounds like me in the 1970s. Who wants to bother with savings in inflationary times and when you’re young?

Comment by feepness
2006-07-02 21:36:21

That’s just it. This is the bastard step-child of the 70s which we all have in our consciousness to some degree.

Cash is worth less if not worthless. Spend it.

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Comment by deflation guy
2006-07-03 07:54:05

Falling prices mean that cash is worth more not less. I think inflation is so deeply ingrained in the minds of people that they refuse to even consider deflation. As this bubble collapses, people will grasping for all the cash they can get so they can service their debts and hold on to their assets. A bursting credit bubble is highly deflationary not inflationary.

 
Comment by waaahoo
2006-07-03 08:22:22

That’s my bet even tho everyone who has cried deflation in the last 70 years has been wrong. I think there is going to be a mad scramble for dollars.

 
Comment by SeattleMoose
2006-07-03 10:51:26

I agree….cash will be king.

 
Comment by diemos
2006-07-03 11:01:44

“As this bubble collapses, people will grasping for all the cash they can get so they can service their debts and hold on to their assets. A bursting credit bubble is highly deflationary not inflationary.”

But with our current fiat currency the gov can print up as much money as they please and hand it out to the citizens. So the real question is what will the gov choose to do? I tend to take Bernanke at his word when he said that deflation is the worst thing that can happen to an economy and the government is justified in doing anything to prevent it. Including printing up money and dropping it from helicopters.

I’m nearly certain that the US will see a drop in standard of living over the next several years but whether it’s an inflationary or deflationary event is up to the government.

 
 
 
Comment by GetStucco
2006-07-03 05:39:52

Unfortunately, the positive net worth valuation is only due to the fact that the stated value of her condo does not reflect the aforementioned falling prices.

 
 
Comment by waaahoo
2006-07-02 18:49:24

And the financial makeover expert wants her to get a 10 year interest only / adjustable loan?

Comment by winjr
2006-07-02 19:58:33

And this:

“McElwain’s pension plan through San Diego County requires that she make involuntary contributions of $300 a month. She was also contributing about $130 to her 401(a) plan. Giles advised that she hold off on further contributions to this plan, relying on her pension until she gets back on her feet and breaks even with her bills. ”

Bad advice. The best way to break even with your bills is to quit spending. Once she stops contibuting that $130/mo., it will be a loooong time before she resumes that plan, if ever.
And the actual after-tax cash in-hand will probably be less than $90.

 
Comment by GetStucco
2006-07-03 05:55:42

10-year I/O loan = deferred pain, if she lives that long…

 
Comment by San Diego RE Bear
2006-07-03 09:52:06

I know this advisor and I know she had a really tough situation in putting together this makeover. One - how do you sell a condo when condo’s aren’t selling? Two - she came in AFTER the divorce and after the assets had been split. Husband got cash, wife got over-appreciated real estate and didn’t have a financial planner during the divorce to make it more equitable. (I am assuming this - I don’t know.) Three - client had to buy out husband and suddenly had a lot more debt. Four - planners aren’t miracle workers. The only thing she could do was try to structure it so that the client could hold onto the condo until her financial situation changes. And in ten years a lot can change - remarried, higher income, inheritance - that would make her burden far less.

Unfortunately, a lot of planners are seeing clients too late to save them from themselves. I have a friend who had three different couples come to her office in two days that were going to lose their homes. They did not even have the option of refinancing and it was to a point where my friend had absolutely no advice that would help them out.

More and more of this will be occurring. I have less pity for the people who got greedy and tried to make a quick buck. More pity for people who believed the “experts” (read salespeople) only to get screwed by them. And the most pity for people who have a huge change in their life - divorce, medical bills, death of a spouse - who have little control over their fates. (Although much of that can be avoided with proper planning.)

I thought this makeover was well done within the limitations that were there. Robert Campbell argued that in the event of a serious recession the Feds will re-lower interest rates for a time and that will be a good time to lock in the best rates possible. (He also says it won’t help the situation but he sees it happening anyway. Sometimes all you can do is help someone hold onto the buoy until the Coast Guard shows up.:)

 
 
 
Comment by Mike/a.k.a.Sage
2006-07-02 15:06:26

One thing I have noticed recently; The Immobilization of a once mobile society; due to falling home prices. Do some people feel like they are prisoners in their own castle? What is causing this, and what does this mean for those who are stuck? I kind of know the answer, but I would like to here how others would express it.

Comment by diceman
2006-07-02 15:23:01

They can burn the furniture for heat, but it isn’t recommended.

 
Comment by stanleyjohnson
2006-07-02 15:27:44

Do some people feel like they are prisoners in their own castle?

Or are they prisoners in their own prison having no bars, a TV, lots of neighbors and in some cases a 30 year or life time sentence!

 
Comment by Mort
2006-07-02 15:40:50

It is a leased vehicle and $1 mil. granite countertopped debt prison of their own construction. They were so arrogant on the way up as to be intolerable and on the way down they will tell sob stories. I have yet to hear a sob story where I felt sorry for the FB.

Comment by Former Saratoga CA homeowner
2006-07-02 15:52:04

OK, see if this story makes you feel sorry. A very elderly relative took out a home equity loan and began to gamble it away in the Pachango Casino (near Temecula). “Luckily” an alert relative (me) noticed this and stopped her after she lost $20K in one month. Her rationale? She was very old, her only enjoyment was slot machine gambling, and she was going to die soon anyway (speculation on her part but given her age, mid 80s, not unreasonable).

Fast forward 4 years. Elderly relative had 2 strokes immediately after gambling was stopped (unrelated events) and now has stroke-induced Alzheimers. We take her gambling but she can barely figure out how to push the buttons. Previously she greatly enjoyed playing the poker machines. I sold her house for her with a reasonable gain (she owned it 15 yrs) as she can no longer live there alone (it had stairs besides and she is in a wheelchair).

So now the elderly relative has lots of money in the bank, and nothing to spend it on. She can’t travel, she can’t drive, she can’t go out for more than an hour or so. She’s quite happy but maybe she SHOULD have lost all that money in the casino and enjoyed herself while she could! (She has fantastic health insurance so money isn’t needed for her care.)

Comment by sm_landlord
2006-07-02 16:02:42

The part that makes me sad is hearing about a person of that age turning into a slot zombie. It’s a free country and all, but it still makes me sad that someone who managed to live that long couldn’t find anything more interesting to do.

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Comment by GetStucco
2006-07-02 18:17:34

My wife and I were at the Rincon Harrah’s casino for a gig last Friday. We had dinner in the casino, and noticed what a dreary life the gambling addicts all around us were living. Nowdays, the mechanical slot machines have been replaced by virtual slots — computer screens artificially rigged to look and behave like an old-time slot machine. The gamblers all had looks of vapid desperation on their faces — no joy was in evidence despite the fact that they were obviously there for recreation purposes.

 
Comment by sdrealist
2006-07-02 21:09:30

Get Stucco,

OT, but you mentioned a gig at Harrah’s, are you a musician? Just wondering, that’s what I do too, here in San Diego.

 
Comment by marin_explorer
2006-07-02 22:58:36

“…but it still makes me sad that someone who managed to live that long couldn’t find anything more interesting to do.”

Or have cultivated any interests or causes to donate their time/money. That’s a wasted life. (imo)

 
Comment by Kaleidoscope Eyes
2006-07-03 09:41:27

I have to agree. The saddest part about this story is that the elderly relative’s only joy in life was GAMBLING, for Pete’s sake. Even if she was old and couldn’t get out much, there’s always books on tape (which are free). Or other hobbies.

If I had a life that empty that gambling was the only thing that filled it up I’d really stop and reconsider.

 
 
Comment by Mort
2006-07-02 16:04:25

Pain and disability is the sucky side of life. :-(

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Comment by Langley BC
2006-07-02 16:06:41

I still agree with you about stopping the gambling binge. What if she had not had a stroke? - Just hope you don’t feel bad about doing what you believed to be the right thing to do.

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Comment by VaBeyatch
2006-07-02 16:38:32

You should buy her a poker machine or two from eBay. This way she could play the game, but not loose.

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Comment by GetStucco
2006-07-03 05:58:07

It won’t work. The risk of having lots of money at stake is what makes gambling fun (”the thrill of victory, the agony of defeat”).

 
 
Comment by Sumguyincanada
2006-07-02 16:59:32

I always hated gambling. But one time I was travelling and passed through a town where the only latenight restaurant was in the local casino. I’d rarely been in a casino before and couldn’t help notice all the grannies.
And, you know what, they were having fun. The 20-something staff were treating them with respect and dignity. It appeared the old gals’ drinks and meals were comped (or at least discounted). They were all dressed up and socializing. Sure they were gambling away their savings or home equity, but you can’t take it with you. If they were there too much perhaps their heirs needed to pay attention to them. Many elderly folks live lonely lives.
I still loathe gambling, but I sort of “get” why some people enjoy it.
But don’t feel guilty, those strokes were coming anyhow and you are giving her the attention she deserves.

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Comment by Former Saratoga CA homeowner
2006-07-02 18:49:03

Thanks for the comments. The issue of her gambling, which had been a lifelong habit but when she was younger not so easy to binge on then since the drive to Las Vegas was LONG, had always been something that we worried about. Instead of interacting with people, she played the slot machines. She did enjoy bantering with the staff though and some times the old ladies would get into a tiff over a “claimed” machine.

People are really the same person even when they are old.

We did get her a home slot machine but she doesn’t enjoy it. The thrill of losing or winning is what makes it “fun”.

 
Comment by Catherine
2006-07-02 19:07:02

That was an interesting story about human behavior and inclination.

I know a woman who is in her eighties, had a stroke about 3 years ago, and her recreation is…kayaking.
Diversity rocks. While I abhor gambling and personally think an 84 year woman kayaker is the height of wonderfulness, I do believe we all are entitled to our own peculiar passions.

 
Comment by david cee
2006-07-02 19:27:48

There are support groups for your relative and yourself that will ad meaning to her life…and with money, she can be treated to the best medical attention available. Break thrus are occuring every day in this field, and giving it for research is a whole lot better than some
gambling addiction.

 
Comment by buddhaman
2006-07-02 19:33:52

If you live to be 84 (my dad is 87 and going strong) you should be able to do/say as you please - and if anyone here knows what i’m talking about… that’s exactly what seniors do! Of course, this is all as long as the folks have good progeny looking out for them !

 
 
Comment by feepness
2006-07-02 21:34:57

She’s lucky as hell she made it to 80.

How about the friend who got hit by a drunk driver at 25? Completely paralyzed until his body gave out five years later.

Life is a meandering path towards a certain death which is painless if you’re lucky. Be sure to smell the pretty flowers on the way to your funeral.

Yes, I’m available for parties.

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Comment by GetStucco
2006-07-03 05:48:51

All the more reason to buy a McMansion ASAP and live it up while you are young and alive! Don’t be a fool and save your money to pay for your own funeral expenses…

 
 
Comment by skipintro
2006-07-03 09:11:15

As we all know, for many people, gambling becomes an addiction. This addiction won’t destroy them, or even cause major problems, as long as they can afford the inevitable losses. Most people, however, can’t afford significant losses for very long, hence the adverse consequences.

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Comment by Mort
2006-07-02 15:48:15

I saw this beautiful bigger house that I had to have and now I can’t sell my old one. Waa!!

I bought two condos at the top of the market and now I can’t afford to sell at a loss. Waa!!

I bought a spec. house in Phoenix and now the market has tanked. Waa!!

My three adjustable mortgages (on the same house) all went up at the same time and I can’t afford the higher payments. Waa!!

 
Comment by sm_landlord
2006-07-02 16:27:20

“One thing I have noticed recently; The Immobilization of a once mobile society; due to falling home prices. Do some people feel like they are prisoners in their own castle? What is causing this, and what does this mean for those who are stuck? I kind of know the answer, but I would like to here how others would express it.”

At risk of flogging my own business here, it has not made sense for young professionals to purchase houses for some time now. Average duration at a professional job is no longer 10 to 20 years as it was in the 1950s. Most young professional types need to change jobs every three to 5 years, and this is not a new phenomenon. Paying a 6% commission to relocate is expensive in normal times, it’s just more obviously silly when prices are in the stratosphere and the need to relocate comes more frequently.

For those who are stuck, they should have thought things through before they dug the moat and filled it with alligators. Hopefully they made the right decision.

Comment by Mike/a.k.a.Sage
2006-07-02 16:43:30

I think, we will now begin to rethink about the intrinsic value of real estate. If it becomes a noose around your neck, then I guess it’s not worth all it was cracked up to be. The Japanese have already learned this.

Comment by Jim M
2006-07-02 17:41:02

What about rethinking the needing to relocate every few years just because of a job?

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Comment by sm_landlord
2006-07-02 19:42:53

Depends on your threshold of pain for the cost and time wastage of commuting. In SoCal, a job change can mean the difference between a 20 minute commute and a 2 hour commute.

Also, for many professional jobs, the opportunity cost of staying in the same job for too long can be huge. It’s the difference between a 5% raise and a 35% raise until you max out in your fifties or sixties.

 
Comment by M.B.A.
2006-07-03 03:35:47

5%? Try 3-4% - if you are lucky. If you company has a pension or some other reason to stay, calc it in, if not jump companies. A 3% raise is ridiculous and is the norm.

 
Comment by AZ_BubblePopper
2006-07-03 06:07:45

Vacation eligibility & sick time accrued also wirth considering. Pensions, defined benefit plans, are a tough trap to get away from. I checked mine out under several retirement ages. Let’s say, I double my payout between 58 & 62, that’s after a 25 year stint. I don’t get it? Why do they want old folks to stay around past when they are at the top of their game?

 
Comment by east beach
2006-07-03 08:23:16

“What about rethinking the needing to relocate every few years just because of a job?”

You work in a government job or something? You are acting like people switch jobs on a whim… companies go under, outsource, etc. and many times are the only place in town where you can apply your skills. I’d LOVE to stay with a good company for 10+ years, but it’s just not that way any more.

 
 
 
Comment by feepness
2006-07-02 21:59:37

Why do you have to sell when you relocate?

I know it’s smart to sell now whether you are relocating or not… but under different circumstances it could be a good long term plan to simply buy-hold-rent it out. The first 3-5 years you pay the most interest and rents move up. You leave, hold the place, get a tax deduction and let someone else pay most of the expenses. Sure, you can’t buy a little less on your next go-round… but if you can stay cash-flow positive you can make it work for you.

Anyways, I realize this has little bearing on today’s market, but it was how I viewed things growing up (80s/early 90s).

Comment by NoVa Sideliner
2006-07-03 04:55:05

Renting a place out after you’ve relocated to another city is often problematic. I’ve got several friends who have done that previously after job moves, and one who is in the painful process of doing it. Managing a property from that far away means either hiring a rental agent (which eats big time into your cash stream) or the endless aggravation of you doing all this yourself long distance.

I’m not sure if I see a representative sample, but comparing their various tenants versus the tenants of my friends who rent things out locally, it seems that the long distance landlords inevitably get more destructive deadbeats.

Maybe being far away means they’re not on top of the situation all the time, and the tenants know it, but out of six friends I know who owned long-distance rentals, all but one ended up using a management agent, and all but one ended up selling the white elephant(s). The one who still has his place only just started “renting it out”, which term I put in quotes because he moved out months ago, and the place is still empty because he can’t get a renter to pay as much as the mortgage.

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Comment by tj & the bear
2006-07-02 17:29:00

In his book on the bubble, Talbott talked extensively about the economic costs of people trapped in their homes.

Comment by Mike/a.k.a.Sage
2006-07-02 18:32:00

What is the name of the book by Talbott?

Comment by Brad
2006-07-02 20:26:27

Sell Now!

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Comment by tj & the bear
2006-07-02 21:50:54

Actually, it was his first book “The Coming Crash in the Housing Market”.

 
 
 
 
Comment by GetStucco
2006-07-03 05:45:21

“Do some people feel like they are prisoners in their own castle?”

Welcome to the Hotel California
Such a lovely place
Such a lovely face
They livin’ it up at the Hotel California
What a nice surprise, bring your alibis
Mirrors on the ceiling,
The pink champagne on ice
And she said ‘We are all just prisoners here, of our own device’

 
 
Comment by lalaland
2006-07-02 15:44:55

Slightly OT, but CA related.

My question: Is there any real estate “journalist” writing today who is more of a nitwit than the SF Chronicle’s Carol Lloyd? For a sampling of her senseless groping around in the dark, here’s today’s column:

http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2006/07/02/REG2NJNI4J1.DTL

Carol Lloyd, for those who don’t know, bought in San Francisco in 2005 using scary financing. She’s a writer; her husband’s an artist. You do the math. She not an un-entertaining writer–it’s just that she has NO TRAINING WHATSOEVER in finance, economics, etc. (She runs workshops on “getting in touch with your creativity” — and I’m not talking creative financing.) Yet weekly or so she pontificates on the “surreal estate” of the Bay Area, always with this passive-aggressive, false pity for people who feel priced out. She has a very vested interest in keeping prices high, as a precarious recent buyer; yet as a long-time renter until recently, she knows exactly which buttons to push to raise renters’ hackles and play to every illogical and petty fear. (Notice how she labels couples looking for a house in a softer market as “latte-swilling” — a term which brings to mind rather loathsome yuppies, does it not?)

The false pity for people that feel priced out given current prices and idiot financing is what gets me.

I would be interested to hear of other RE journalists people read who are as transparent, incompetent and biased than Lloyd (if that’s even possible).

Comment by mad_tiger
2006-07-02 16:25:34

Ha! I used this blog’s search feature and located my March 12 post regarding a Carol Lloyd article:

“As for the Lloyd article–an irrelevant piece of fluff. This blog has bigger fish to fry.”

 
Comment by lunarpark
2006-07-02 20:17:23

More on Lloyd:

“Carol Lloyd is currently at work on a book about Bay Area real estate. She teaches a class on buying your first home in the Bay Area”

She also wrote an article last week claiming that rents are “soaring.” Soaring? Yeah, I’m still paying less rent than I did in 2000. Yawn.

Comment by glorgau
2006-07-03 09:16:26

Yep, rents are _very_ negotiable in the Bay Area. Not in the large multi-unit complexes, but with the smaller buildings and SFHs.

 
 
Comment by SF Mechanist
2006-07-02 20:27:47

I’m pretty sure it’s a safe bet there is no bigger nitwit writting real estate than Carol Lloyd.

Comment by San Diego RE Bear
2006-07-03 10:04:13

Blanche Evans has my vote. But that might be be a fair comparison since she’s in the biz. http://tinyurl.com/hrayq

Of course, she would just argue that we are in the “Replace-Realtors-With-Us” Cartel. :) I, of course, much prefer my cartel to hers.

Comment by San Diego RE Bear
2006-07-03 10:05:09

But that might NOT be a fair comparison…. Grrrrr, I blame Mondays.

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Comment by deb
2006-07-02 15:56:42

["John Karevoll, an analyst at DataQuick Information Systems, which tracks the real estate market's movement, notes that all things considered, this year will probably end up as pretty good.

Things that are falling, like sales, are coming down from extremely high levels. And things that are rising, like foreclosure activity, are coming off really low levels.

And if you've got a good chunk of equity in your house, it probably won't go “poof.”

“The question now is just how much of that increase over the past five years are we going to keep. Even the most negative forecasts say we get to keep 95 percent of that,” Karevoll said. “My view is the vast majority of gains we've had are here to stay.”]

Karevoll has been an absolute joke for the last year. Every time things look a little worse he lowers his forecast for possible appreciation. I see his is now admitting that 5% price declines are at least a possibility.

Where on earth does he get information that even the MOST NEGATIVE forecast predicts at most a 5% price cut??? There are reputable analysts saying we could see 30++% declines. I have a real hard time believing that he is so poorly read that he has never come across these kinds of forecasts. This is the first time I feel like he is telling out and out lies (of course, there have been many times when he has twisted the truth nearly beyond recognition).

Comment by greenlander
2006-07-02 16:58:04

Note that he’s not even saying a 5% absolute decline, he’s saying 5% of the GAIN in the past few years, which is really more like a 2.5% absolute drop.

He’s smoking crack. Don’t worry, he’ll get what’s coming to him when this all unfolds.

Comment by arroyogrande
2006-07-02 19:10:12

>he’ll get what’s coming to him when this all unfolds.

Is that the same as saying “he’ll be the first against the wall when the revolution comes”?

Comment by greenlander
2006-07-02 19:36:36

No, David Lereah will be the first against the wall when the revolution comes. Don’t worry, though, John Karevoll will be against the wall soon enough.

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Comment by GetStucco
2006-07-03 05:54:38

Nah — he will simply and conveniently avoid any reference to his past statements, pretending to never have made them.

Comment by Sunsetbeachguy
2006-07-04 08:53:40

Yep, John K. tells whoppers.

Americans like being lied to:

See here:

“You will find the truth is often unpopular and the contest between agreeable fancy and disagreeable fact is unequal. For in the vernacular, we Americans are suckers for good news.” Adlai Stevenson

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Comment by sm_landlord
2006-07-02 16:09:38

I went for a walk around the neighborhood today and noticed something new at the open houses. In the past most of them had those brochure boxes out front with the property information and asking price. Today, the brochure boxes were either missing or empty, without exception.

Maybe the repeated sightings of drivers pulling over to grab a brochure, bursting out in laughter, and immediately fleeing finally got to the realtors. That was the scene a few weeks ago.

Comment by Judicious1
2006-07-02 16:30:12

Here’s another theory: Eliminating the brochures is the only way they can get anyone to step inside the open house.

Comment by david cee
2006-07-02 19:31:53

They can’t afford to print 100 flyers to put in the box. They haven’t cashed a commission check in months, and the summer doldrums has just begun. I smell dot.com crash (-20%) any day now.

 
 
Comment by VaBeyatch
2006-07-02 16:41:06

You should put lists of links to housing bubble blogs and website in the brochure boxes.

Comment by MC_White
2006-07-02 17:07:07

Guerilla warfare? Sneaky…

 
Comment by Darth Toll
2006-07-02 23:10:25

Not a bad idea. How about “thehousingbubbleblog.com” on a red bumper sticker slapped right on the Realtwhore sign and/or on the flyer box? It’s true volume is very slow, but I’m amazed how some people will buy anyway. It’s as if they’ve never heard of or don’t believe there is an immediate -30% correction in the cards (at the bare minimum.) Amazing.

 
Comment by Bryce Mason
2006-07-03 05:44:11

I’ve given that very carful consideration. Even to the point of pricing 50 or so little staked-signs with http://www.thehousingbubbleblog.com on them. Or “FB’s beware!” Or “Bye bye flippers”

 
 
Comment by Former Saratoga CA homeowner
2006-07-02 18:51:18

My theory is that the brochures aren’t bringing in any traffic, and since the agents have LOTS of listings, they are getting expensive. Especially the color ones. I know in Menifee, CA the agent was loathe to have color brochures outside (inside was OK) because she felt they were a waste of her money.

Comment by Mort
2006-07-02 19:00:14

If I were a seller I would make sure that the tube stayed full on my own. I think some are giving up hope of ever selling.

 
 
Comment by chiphxla
2006-07-03 08:16:58

Much different in my WLA neighborhood a few miles east of you; brochures galore, and the most expensively produced, on color cards, was for the lowest priced 2b/2.5ba in the area. It was listed at 539k, two others of same size within blocks of each other were listed at 599k and 649k, respectively. The 649 had a jacuzzi. I look forward to seeing these on my Sunday walks…

 
 
Comment by SoCalMtgGuy
2006-07-02 16:18:12

You haven’t seen nothing yet. I know these little stories help ‘vindicate’ those of us that have seen this coming for quite some time….but we have a LONG way to go.

2007 is the ‘day of reckoning’ as I have been saying for a long time. 2007 and 2008 are NOT going to be pretty for many people.

In 2000 and 2001 less than 1.5% of all loans in CA were I/O. Now we have over 80% interest only and neg-am. With 80+% of the purchase loans the past 1-3 years being ARMs, there will be hell to pay when those things start adjusting in mass during 2007.

But again, if you can afford to put some money down, get a fixed rate mortgage, and plan on staying put for a while, then go ahead and buy. Just don’t neglect your retirement savings, disability insurance, etc. to be able to ‘afford’ a home. It just isn’t worth it.

I’m just enjoying life. There IS more to life than being in debt to your eyeballs.

SoCalMtgGuy

Comment by Judicious1
2006-07-02 16:32:48

IMO you’re enjoying life a little too much…how about an update on your blog? (JK)

Comment by SoCalMtgGuy
2006-07-02 20:46:28

I know, I know…

I have been busier than crap lately. My territory was just ‘doubled’ in size…and the summer is a very busy time of year for me.

I do have some good stories to share, but like I have said before I feel like I am beating a dead horse with not much ‘new’ to say. I will try to get a new post up on the 4th.

Thanks!

SoCalMtgGuy

Comment by M.B.A.
2006-07-03 03:42:32

what do you do sales? what kind?

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Comment by peter m
2006-07-03 23:28:16

hello Mr ScCalMrtguy. I Miss your really insightful thoughts on your blog. I am Gloomyon RE on your blog, did about 73 posts, mostly on the coming Inland empire RE meltdown.
I know that you are very busy with your new career and cannot contribute much these days on your blog but thats okay. There is a ton of insightful info all over the net on the coming RE bubble collapse, a lot of it coming from Ben jones Blog and some very knowledgeable commentators to his blogsite.
Thank you for your excellent insightful articles on the intricacies of Neg amort, I/O, ARM’s.ect.

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Comment by wawawa
2006-07-02 16:34:26

You do not see tsunami when it is in the middle of the Ocean, you see it when it hits the shores.

I agree, 2007/08 will be nasty for many people. As far as I am concerned they deserve it, why they had to buy something that they could not afford! Could not they had more humble requirments?

Comment by GetStucco
2006-07-03 06:10:32

“You do not see tsunami when it is in the middle of the Ocean, you see it when it hits the shores.”

Some of us observant types noticed the tsunami in the middle of the ocean a few years back… The problem with sharing such information is that you can easily get stuck with the “stopped clock” characterization (”even a stopped clock is right twice a day”).

 
 
Comment by Stephanie Ellison
2006-07-02 17:01:41

Dayummm…

About the IO and ARM situation in CA - I would like someone to paint for us a scenario(s) that is likely to happen in CA. What I’m curious about are everyday things, like the cost of coke out of a machine, how much a gallon of water at the store costs, a burger at Chili’s, the electric bill. I’d like to know what the person with gold/silver and renting an apartment will be faced during resets worth $1.5 trillion, when millions of people are standing outside formerly-owned houses with their possessions and have no place to go. In other words, can these financial disasters of this scale make ghost towns in CA out of the big cities on down?

Stephanie Ellison
http://www.deafdrummer.org

Comment by david cee
2006-07-02 19:35:41

I sure didn’t see a lot of people at the gas station over the last 2 days filling up for they holiday weekend. Have you guys been driving less, and are you spending less at the gas station every time you stop in? Are you less likely to fill it up, or just spend $20 now.

Comment by bluto
2006-07-03 04:24:28

You might be looking at the wrong station. Gasoline demand has been up slightly on average from last year through June’s estimates.
http://tonto.eia.doe.gov/dnav/pet/hist/wgfupus2w.htm

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Comment by feepness
2006-07-02 22:10:09

The value of gold and silver may decline. When people are desparately looking for dollars to pay off mortgages everything could deflate. That’s not to say there won’t be reflation… but nothing is certain. I wouldn’t put all your eggs in one basket.

 
Comment by Rancho Cal
2006-07-02 22:39:35

I believe that in the near term, we will see a lot of people moving in with friends and realtives to make ends meet. The friends and relatives may be FBs as well, and will gladly take in the extra income to help keep the house.

As more and more bank repos sit empty waiting thier final disloution, the rental market may get a little bit tighter, but as the banks figure out that they must get the properties back on the market quickly, they will invest in new buisinesses to do just that, thus changing the state of the market more and probably reducing rental rates at the same time.

The price of gas is going to go up no matter what the housing market does. We are just starting to feel the effect of a decade long transcendance of the Indian and Chinese economies (one third of the world population) on the price of energy. Don’t fool yourself into believing the world’s oil producers would rather sell their oil to the US.

As for the price of common goods, I would expect the cost of eating out a resturaunt to go up considerably, while the price of purchasing groceries will go up less. The price for consumer goods I cannot predict, but I do believe that we will see some deflation in the price of luxury items like Escalades and plasma TVs.

All in all, I predict the price of goods you need will go up more than we have been accustomed to, the price of housing will come down precipitously, and the price of non-essential items will go down. Oh yeah, wages will go down as well (all in nominal terms). IMHO.

 
Comment by chilidoggg
2006-07-03 01:22:41

i predict the food and service at Chili’s will continue to be lousy and overpriced

 
Comment by M.B.A.
2006-07-03 03:48:35

search “L.A. riots, early 90s”. People on the streets, outraged. Burning businesses, etc. Or search on “homeless, 3rd street promenade, box city - downtown LA” areas.

Yes, LA will be sweet! I mean ground zero for whatever will happen. Considering the amount of unstable crazies there, I will take bets that any acting out will 1st occur there.

Comment by Sunsetbeachguy
2006-07-04 08:58:44

Yep, Falling Down the movie about LA in that area has been in solid rotation on the cable networks here in OC.

Crime will go up.

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Comment by peter m
2006-07-04 14:52:49

AH! LA has a really bad rap, which is deservedly so, for here you really see third-world poverty and such famous landmarks as the imperial housing projects. However, being LA is not all that bad. It is easy to operate a business without the prying government sniffing it’s nose into your operations(25 % of all LA economy underground and untaxed). There is also an aboundance of of tenants to rent out to, and it is easy to rent out to illegals in LA.
Regarding the possibility of a repeat of the LA Riots of 1992, a lot of the Gangbangers have shifted to new turfs in other regions such as Inland Empire or Las Vegas.
I do not think that the RE decline in next few years will cause wild social upheavel among the lower classes in central LA, who actually make out like bandits during bad times thru increased stealing, bartering, or getting government benefits , and can crowd several families and a ton of relatives into homes/apts easier than middle-class suburbanites.

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Comment by Brad
2006-07-02 20:32:48

“In 2000 and 2001 less than 1.5% of all loans in CA were I/O. Now we have over 80% interest only and neg-am. With 80+% of the purchase loans the past 1-3 years being ARMs,”
——————————————————
could be that lenders ran out of buyers who could qualify with more traditional loans about 2003, so in 03, 04, 05, and 06 they came up with increasingly more creative products, culminating in the “pick your payment” neg-am. So the buyers who bought at the peak used the most toxic loans. It’s getting scarier and scarier.

Comment by Housing Wizard
2006-07-02 21:33:17

I have said it a dozen times , the risky ARM and IO loans were made based on the premise that real estate appreciation will save the day .

Comment by GetStucco
2006-07-03 06:14:58

And this, in turn, increases the likelihood that the Fed will try to find a middle path between stamping out speculative excess and preventing a deflationary spiral. The likely consequence will be a pause sooner rather than later. Unfortuntely, it won’t work, because after eighteen years of training from the Delphic oracle, there are too many expert Fed watchers out there who can see right through this ploy, and won’t believe the Fed will follow through on tough rhetoric.

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Comment by chilidoggg
2006-07-03 01:26:31

lenders ran out of people who could qualify for traditional loans wayyyyyy before 2003. has a first-time buyer put 10% down since 1999?

 
 
Comment by GetStucco
2006-07-03 06:02:51

“With 80+% of the purchase loans the past 1-3 years being ARMs, there will be hell to pay when those things start adjusting in mass during 2007.”

Joe –

Are you out there? Because I believe you recently asked whether I knew what share of recent home purchases were financed by ARMS. I did not — not my line of business — but SoCalMtgGuy does…

 
Comment by GetStucco
2006-07-03 06:07:15

“But again, if you can afford to put some money down, get a fixed rate mortgage, and plan on staying put for a while, then go ahead and buy.”

I don’t agree with this statement from a financial planning standpoint. If one actually believes that prices will fall by 30% over the next few years, it would be far wiser to park your would-be downpayment into some form of inflation-hedged savings and wait it out, renting for the time being. Otherwise, the downpayment will get sucked down the drain by the falling knife.

 
 
Comment by Sensible Lender
2006-07-02 16:44:46

I am seeing many people that may be in trouble soon. One category is those who bought with no down payment, where the rate is fixed for the first 2 years. Many of these got their loan with “easy” underwriting, and cannot afford to refinance with a bank like mine where we use “sensible” underwriting standards. As long as their home value maintains, they can refinance from their broker, who will charge them high fees and give them another risky loan. Their new loan will be larger with these fees included. If values drop, and an accurate appraisal is obtained, these people will not be able to refinance.
This is the most risky situation, and a huge potential problem here in So. Calif.

Comment by sfbayqt
2006-07-02 19:30:21

As long as their home value maintains, they can refinance from their broker, who will charge them high fees and give them another risky loan. Their new loan will be larger with these fees included. If values drop, and an accurate appraisal is obtained, these people will not be able to refinance.
This is the most risky situation, and a huge potential problem here in So. Calif.

Ditto for No. Calif, too.

BayQT~

 
 
Comment by Mike/a.k.a.Sage
2006-07-02 16:46:42

I think, we will now begin to rethink about the intrinsic value of real estate. If it becomes a noose around your neck, then I guess it’s not worth all it was cracked up to be. The Japanese have already learned this.

Comment by tech98
2006-07-02 23:18:51

A typical luxury condo in Tokyo has dropped from $1.2 million in 1990 to $250k today.
An estate in Connecticut that sold for over $1m in the late 1920s went for $75k in 1933.
The same could happen in some housing markets here that have had ridiculous runups to excruciating prices, particularly areas with massive condo building.

Comment by Jeff
2006-07-03 00:34:43

Man, I should move to Tokyo!

 
Comment by Joe
2006-07-03 05:41:52

And that same CT estate is now worth, what 5m, 10m+?

Comment by Bryce Mason
2006-07-03 05:52:27

Probably, Joe. Good luck waiting 70 years for the next rebound like that.

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Comment by GetStucco
2006-07-03 06:17:28

Joe,

Don’t miss SoCalMtgGuy’s answer to your question on ARMs. And may you live another 70 years to see another housing bubble to match the current one!

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Comment by AZ_BubblePopper
2006-07-03 06:38:45

Luxury Condo - Another RE oxymoron

 
 
 
Comment by txchick57
2006-07-02 17:39:56

Broke is the new black.

Comment by SLO_renter
2006-07-02 18:00:08

LOL!

 
Comment by Catherine
2006-07-02 19:15:14

Broke is the new black.
Amen, sister! Just watch the glossy magazines and Dr. Phil start to capitalize on the coming meltdown of personal finances.
Count on adjectives like “cozy”, “scaled down”, “austere”, “simplicity” to enter our everyday lexicon.

Broke is the new black!!! LOL

Comment by sfbayqt
2006-07-02 19:39:52

And don’t forget about (my fav)…”quaint”. :-D

BayQT~

 
 
Comment by sm_landlord
2006-07-02 19:45:44

Then would homeless be the new hip?

Comment by Brad
2006-07-02 20:39:17

return of “communes,” barter and subsistence living?

 
 
Comment by M.B.A.
2006-07-03 06:58:40

Double LOL!!!!! :)

 
 
Comment by LAXRentor
2006-07-02 19:26:54

John Karevoll ia another homeowner who doesn’t want to see the equity in his house disappear. Most all of these so called experts predicting housing can only appreciate are homeowners and again they don’t want to see their “net worth” reduce. I wish Dataquick and the media would just call it the way it is…demand is dropping and so are home prices…especially here in the costal parts of So Cal. And demand will continue to drop and home prices will eventually go back to 2001/2002 levels within two to three years…more in-line with inflation.

Comment by greenlander
2006-07-02 19:39:18

I want to say “Woohoo! John Karevoll’s former residence for everyone!!!” But, I can’t really say that, can I? Only once of us will be able to buy it at the foreclosure auction.

Comment by feepness
2006-07-02 22:15:08

Naah, I’m sure we can sub it a few times… “John Karevoll’s former residence for four of us!”

 
 
 
Comment by Brad
2006-07-02 20:21:11

“This chick is a Strategic Planning Specialist???? She’s pulling down 65K and has a net worth of $1500???”
————————————————–
She has a net worth of $1500…….IF you count the current market value of her condo at the quoted price. I wouldn’t.

 
Comment by Mozo Maz
2006-07-02 20:26:32

‘And Norris maintains it won’t take a lot of stretched mortgage holders to start some bad stuff rolling downhill.’

There is a simpler spelling of ‘mortgage’ that can be used in this context.

It’s b-a-g

 
Comment by need 2 leave ca
2006-07-02 20:35:32

Way to go California. Keep up the good work. Let the blood start flowing. May the FORECLOSURES be with you. Seeing equity liberated by evaporation really makes my day for California people. Might give the folks that recently liberated their equity some problems. Both, because no more equity and they now have to pay back the now gone loans. WWWWWAAAAA. LOL

 
Comment by need 2 leave ca
2006-07-02 20:48:57

And folks in Bakersfield better keep this in mind.

As of April 28, 2006, a leak was found in the Isabella Auxiliary Dam. Officials determined that it would be necessary to restrict the maximum reservoir elevation to 20 feet below the spillway, or normal “full” pool. The dam’s releases through the outlet have been increased, allowing the water to flow at 4,500 cfs. Due to more than average rainfall and snowpack in the mountains, and warmer than average temperatures in the area in May, the Upper Kern has been filling up the lake faster than officials can lower it. The Lower Kern is also running higher than normal, and flowing at up to 20 miles per hour in some parts. Highway 178, which goes up the canyon between Bakersfield and Lake Isabella, has become unstable, and one lane closed, due to the high water levels[1]. Some flooding has been reported by property owners along the river. Emergency management officials have warned that if Isabella Dam were to fail when the reservoir was full, a large part of Bakersfield would be inundated within 2 to 4 hours. Isabella dam is also located on a fault line thought to be inactive, but now is judged as possibly an active earthquake source, and Federal Engineers believe that an earthquake might cause the dam to fail, depending on the size of the earthquake.

 
Comment by jbunniii
2006-07-02 22:55:56

Consider the following price points in May: In May, the median price of a previously owned home in the San Fernando Valley was $600,000. That’s exactly where it was last July. And that’s the first time the current year and past year median price have been this close since September 1996, when the $158,000 median matched that of the prior 12 months.

The San Fernando Valley has quadrupled in price in ten years. But there’s no bubble. Clearly everyone in southern California simultaneously realized that 1950s shitboxes miles from anything were undervalued by a factor of four. What were we thinking??

Comment by ric
2006-07-03 05:05:41

We all make 4 times as much money as we did 10 years ago don’t we. So it’s a wash right.

Comment by M.B.A.
2006-07-03 06:54:58

no, just 3X…

 
 
Comment by peter m
2006-07-04 18:33:05

The San Fernando valley is undergoing a monumental demographic change(apparantly over last 2 decades) from a formerly middle-upperincome enclave of affluent angelinos into a deteriorating vast lower-income region of recent immigrants, mostly hispanic. The middle class affluent folks cling to their enclaves up in the hills above Ventura blvd(encino, sherman oaks,woodland hills, studio city) but the entire vast flatlands is becoming all hispanic immigrant, especially East and northeast SFV(Pacoima, panorama city. north hills, almost all van nuys,north hollywood, San fernando, sun valley, East/northeast burbank, ad nauseum ), Basically entire area east of the 405 and all way to the 5 fwy.
Sorry to pierce the former picture of the SFV as an affluent bedroom suburb. There are still some decent areas such as parts of chatsworth, the above mentioned hill communities, parts of canoga park, and even some areas east of the 405 such as valley village, toluca lake, studip city, ect. And the entire far west SFV past topanga canyon is holding. Northridge seems to be shifting to the hispanic camp.
This may be affecting current RE trends in the valley: If entire neighborhoods and communities are swamped by immigrants(the Santa ana effect), then usually that area will see deterioration due to factors such as large numbers of renters, relaxation( or complete abandonment) of strict city zoning ordinances,the springing up of low-class shops such as the Mexican market, assorted auto repair shops, cheap med clinics, tire shops, taco stands and wagons, ect.

 
 
2006-07-02 23:37:02

OT,

BTW, I have been getting more reports from people that the IRS has been much more agressive with collecting taxes and scrutinizing tax return statements. And that they are challenging more tax return statements, and claiming money is owed (including penalties and interest) on those still owing taxes. And they they are not just challenging the last year’s tax statements. They are going back as much as 5 years of statements.

Anyone have more info on this?

Comment by glorgau
2006-07-03 09:23:36

I know that the State of California sent me a tax bill for the year 2003. I didn’t make any money in the state that year - didn’t even have to file a return. However, I did pay mortgage interest for about half the year. They took that amount, multiplied by 4 and figured that was my income for the year. Then they sent me a bill with all the usual demands for payment.

 
 
Comment by Randy
2006-07-03 09:48:59

Redux:

This housing bubble will result in a national, if not international, depression. It’s everywhere and has permeate markets which would never have had any housing appreciation on their own. There’s no connection between housing and its respective regional job market in any manner. I think Bakersfield CA is one of the best cases for this point.

My advice to fellow renters, with enough of a savings to put in a 20% down payment after a 40+% correction, is to not bother. You’ll need that money to survive periods of joblessness in the decade to follow. Cash is king during a deflationary cycle.

Comment by LAXRentor
2006-07-03 12:03:06

Actually…Gold is king.

Comment by Randy
2006-07-03 19:09:30

I stand corrected.

 
 
 
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