Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
Thursday, January 26, 2006
Housing Bubble 'Fever Has Broken' In CA
A flurry of reports show that California is also aware of its' housing bubble. " The sideways slide was more pronounced in Los Angeles County. The median home price in Los Angeles County dropped from $575,310 in November to $552,760 in December. The market is leveling off and some prices will drop, said Marty Rodriguez in Glendora. A home that needs work or that is on a busy street might see price reductions, she said, since a buyer has more choices and doesn't have to take those homes anymore."
"The median price of an existing home in the San Diego region was down 2.1 percent in December, and sales were down 21.3 percent, compared to the same period last year, a real estate group reported. The median price of a home in San Diego stood at $603,680 in December, down from $616,840 the previous month, but up 4.6 percent from $577,040 a year ago."
"Statewide, the median price of an existing home remained flat in December. Sales of existing homes in California last month were down 8.2 percent from November and down 17.6 percent from the same period last year."
"'The market has definitely peaked,' said Jack Kyser, chief economist with the L.A. County Economic Development Corp. 'The fever has broken and now the question people are asking themselves is if there is a crash ahead.'"
"(Realtor) Bill Velto said some of the builders in the Upland area actually are listing new homes with real-estate agencies. 'We have a situation right now where resale prices are higher than new homes,' he said. 'That's really not a good situation for builders.'"
" After years of double-digit price increases for homes in Riverside and San Bernardino counties, the median price is expected to flatten out, according to Chapman University. The EDD estimated job growth in the two-county area as 2 percent for 2005, but Chapman staff, as well as other economists, questioned that figure. 'There is no justification to see such a strong home demand and such lousy job growth,' Esmael Adibi said."
"The Chapman report also provided an economic forecast for 2006, presented by Jim Doti, university president. The picture Doti presented was neither a perfect storm of bad events nor a perfect rainbow of good news, he said. 'It's a calm with concern,' Doti said."
Real Estate Caba
ReplyDeleteInformation is so readily available with the internet.
It makes Lawrence Yun who said a few months ago, "the possibility of a price decline in DC is near zero", look like a ____ (you fill in the blank)
Extreme home selling
ReplyDeleteAs the market slows, home sellers are throwing in sweeteners to move properties...dual-mode toilets, anyone?
flyingpolarbear -
ReplyDeleteI see what you are saying re: infracture, mainly with regard to freeways and population density.
However, and maybe I'm not clear on what your source means by "urbanized area" (he certainly cannot mean "cities") because LA is unlikely to have population density greater than NYC (especially), Chicago, Boston, Philly or DC. And I'm sure LA is not as densely populated as SF.
So maybe he means LA city is more dense than the BOS-WASH corridor(the greater urban-suburban area stretching from Boston/Providence through Hartford, NYC, Jersey, Philly, Baltimore, Wash, DC, all the way to Richmond) - which has many more roads.
That comparison I can see.
Funny thing is people are still in self denial here. We're "special" because it's the SF Bay Area. Just got a statement from a coworker of mine saying, "you're going to get priced out!
ReplyDeleteI'd call that self-referential smugness, supported by a "lifestyle of success". People's spending habits and lifestyle have become the "truth" by which they live. If the economy/housing market turns, it will be a hard pill to swallow.
At 9:55 AM, sf jack said...
ReplyDeleteflyingpolarbear -
I see what you are saying re: infracture, mainly with regard to freeways and population density.
However, and maybe I'm not clear on what your source means by "urbanized area" (he certainly cannot mean "cities") because LA is unlikely to have population density greater than NYC (especially), Chicago, Boston, Philly or DC. And I'm sure LA is not as densely populated as SF.
So maybe he means LA city is more dense than the BOS-WASH corridor(the greater urban-suburban area stretching from Boston/Providence through Hartford, NYC, Jersey, Philly, Baltimore, Wash, DC, all the way to Richmond) - which has many more roads.
That comparison I can see.
LA is by far and away the densest urban area in the US with a bullet. Nothing comes close and not only that is continues to densify. LA also has half the freeway lane miles per capita of the average urban area in the US. It also has far fewer Freeway centerline miles again with a bullet. Here's a handy chart:
http://www.demographia.com/db-canwusua.htm
This partly explains the persistence of the LA bubble. More people competing, more persons per dwelling unit skewing the household income figures, the nature of the underground economy, high value placed on proximity, lack of sprawl to provide affordable relief, high crime pushing low crime area prices higher, premiums placed on even modest amounts of personal space, on and on.
goleta said:
ReplyDelete"Baby humans develop self awareness when they are around 18 months old.
Before that, they can not connect anything in the mirror to themselves. RE investors look at their properties in the mirror the same way. Who wants that over-valued POS property in the mirror? There is no bubble in my town where everyone is moving to."
*********
Those who were buyers in the last 18 months, and probably should not have been (least qualified - using rational/traditional measures) are probably the most delusional.
They have to be in denial.
Otherwise, they could face some very hard decisions.
getstucco said;
ReplyDelete-38.1% / year.
I know you prefaced this with the danger of extrapolating a single month but I'm sticking with my -20% by the end of Q2 '06 and -27% for all of 2006. By end of Q3 '06 a state of shock will set in. Walking dead and a general freeze in the market that will be falsely proclaimed by the RE apologists as the end of "a painful but necessary correction." Mark my words on that phrase. Don't be fooled by that dead cat bounce, another 7% for 2007 and 2008. Two details, that's percentages from the top not from the preceding year and it assumes a return of 4.5% inflation also eroding comparable pricing comparisons.
Oct 6th 2005: 100%
Jun 30 2006: 80% (worth 78% in 2005 dollars)
Dec 30 '06: 73% (worth 67% in 2005 dollars)
Dec 30 '07: 66% (worth 61% in 2005 dollars or Yen equivalent or whatever currency is the new reserve currency by then)
Don't even begin to ask me what those will be in oz of precious metals or BTU of energy.
A quick look:
ReplyDelete1990 population densities US cities (pop./sq. mile) according to Population Division,
U.S. Bureau of the Census 1998.
NYC 23.7K
SF 15.5K
Chicago 12.3K
Philly 11.7K
Boston 11.9K
Washington 9.9K
Baltimore 9.1K
LA 7.4K
The story says it today has 7K/sq. mile (note above that I have only 1990 data). But let's say LA has grown extremely fast since then - it still could not have added density at a rate to exceed the densities that now exist in NYC or SF (and perhaps Chicago, Philly or Boston).
Robert - I've seen your name around here for a while now. You should know by now that the bubble strength has much more to do with the intensity of the mania (easy money; other factors) than with the density of the population.
I suppose by your reasoning, Tokyo, a much denser place than these cities above, would not have had to wait 15 years for its residential housing prices to begin its recovery (this year).
Consumer interest rates going forward will be sticky on the way down because of all the recent adjustable debt tied to the Prime/LIBOR/etc. The banks won't fall in line with everything the Fed does because so much of their portfolios are exposed to the problem.
ReplyDeleteAt 11:02 AM, sf jack said...
ReplyDeleteA quick look:
1990 population densities US cities (pop./sq. mile)...
No. Not the outdated and irellevant city borders, the Urbanized Area. The old fashioned city boundaries have been discredited for these types of compariosns since at least 1950. I'm on very familiar turf talking about these statistics and methodologies.
Robert - I've seen your name around here for a while now. You should know by now that the bubble strength has much more to do with the intensity of the mania (easy money; other factors) than with the density of the population.
I do know those things you mentioned. i merely added to that list with Los angeles specific additional reasons. LA characteristics have the effect of intensifying manias. That said why don't you go on down any and/or every list of those places considered the most bubbly. See a corellation with density? I sure do. So, don't tell me when I have a highly correlated leading indicator with reliable and long term data that it is less important than the highly subjective "intensity of the mania" alternative.
I suppose by your reasoning, Tokyo, a much denser place than these cities above, would not have had to wait 15 years for its residential housing prices to begin its recovery (this year).
No, again you get it all wrong. Tokyo did have a mania and it was among the worst in modern history with its' bubble. You should look to Tokyo as confirmation of my assertion.
Kalifornia also suffers from Prop 13 lock ins. Until you approach retirement age even a lateral move in housing comes with a monstrous tax penalty. Right now I pay $2600/yr in property taxes. A trade with a similar house down the steet would bump that to $15,000/yr. Now you also know why so many are taking their chips off the table and moving to Arkansas.
ReplyDeleteAnd nobody lecture about the "unfairness" of Prop 13. Its' one of the fairest property taxation methods around for all its' flaws. How would you like it if the franchise tax board in your state adopted property tax methods for everything else: "Dear recent automobile purchaser. Thank you for your $20,000 car buy earlier this year. We really appreciated the $1500 in sales taxes we collected on the transaction. However, it turns out that last week someone else paid $28,000 for the same vehicle. As they have equivalent values you are hereby assessed an additional $600 due immediately. the State does not care what you paid, we only care what the stupidest person paid. Oh, and -if- future values drop, don't come looking for a discount, we'll just raise the rate to make sure we get at least as much money as the previous highest total regardless of the market on the way down. In order to make this as easy (for us) as possible the nice sheriff will be stopping by very soon to collect your, excuse me, our money."
You are right on... this boom has done a total 180 turn!
ReplyDeleteFor a great article on the true direction of the real estate market as
authored by a top San Diego real estate broker, visit:
http://www.downtown-san-diego-real-estate.com/san-diego-real-estate-article.htm
Robert -
ReplyDeleteI used cities for two reasons:
1) That's what I'm talking about. That LA is not as dense a city as those other cities (this is what I said in my original statement: "he can't be talking about cities"); I was not talking about SMSA's or any other thing that you might be an "expert" in.
2) It was more easily available data.
Further, the link you showed was "urban areas" of 13 western states. Where is the East Coast data?
As well, the most bubbly areas (perhaps using an "overvalued" metric) have been recognized by others as being places like Phoenix, Miami, LV and San Diego.
Are they the most densely populated? Where's the correlation? Shouldn't, by your reasoning, NYC, Chicago, and some others - be most bubbly?
You are the one who has it all backwards.
I think we should tax property owners on rent equivalent instead. Or we can just completely do away with property tax and introduce consumption-based taxation.
ReplyDeleteAt 11:50 AM, Mr. D. said...
ReplyDelete"And nobody lecture about the "unfairness" of Prop 13."
Why not? It is unfair.
It's a TAX, OF COURSE it is unfair. there. Now we can hopefully move on.
Why should two neighbors pay radically different taxes just because they bought at different times?
Because they are voluntary transactions. What part of Prop 13 don't people understand?
Here's a really cool idea without Prop 13; the city needs a little quick cash. They hire a consultant on a two year contract for $1 million. He moves into a tract of $250k houses and pays $500k. Property tax revenue problem solved, consultant earns his pay.
Also, by limiting the ability of local government to overtax long time residents, they have resorted to overtaxing new buyers, and overtaxing all income at the state level.
Again, sure, the newer residents are overtaxed. Not. They pay 1% (plus a little) of the purchase price EXACTLY the same as old timers. What you are saying is in effect fixed rate mortgages should likewise be illegal since those moving in later cannot use their purchasing power to raise the mortgages of longer term residents.
The result was a major shift in power from local governments to the state level. Rarely a good thing.
Never a good thing and not part of Prop 13 but only part of California State practices. Part of the confusion stems from another 1978 Prop that killed California primary and secondary schools at the same time as Prop 13 took effect.
The appropriate response to soaring appraisals is to build in an automatic cut in rates to offset the increase in appraisals.
Why? Why is this better or fairer? You are saying in effect the lees you were willing to pay for a home the more you shall be taxed. Is that not the most unfair tax policy you can imagine? I can imagine worse, the same system made involuntary and subject to political manipulation. Ooops that is what you suggest.
Unlikely. So the second alternative is to vote in politicians that don't belive their job is to spend as much as they can. Also unlikely in California.
We've got a balanced budget constitution and last year spent $16b more than we collected and this with Prop 13. You understate the problem.
In Southeast Virginia, where I live, every city in the area voted to cut rates to partially offset rising appraisals. And yes, I did write "partially". They are still politicians after all.
Govt: "We want more money and because your neighbor cooperated and overpaid for his home the only fair answer is to lower his taxes and raise yours. Have a nice day."
mr. d.:
ReplyDeleteI don't claim to have a crystal ball, but I do know that interest rates have never gone up after a major asset bubble has popped. But, maybe this time is different...
How about "after a major asset bubble has popped in a country that no longer controls its own interest rates"?
Let's see:
* Huge debt & deficits
* Declining foreign appettite for USD, Treasuries & MBS
* Sinking USD
* Rising energy costs
* Decoupling of oil from USD (via Iranian Oil Bourse, etc.)
Lots of reasons why rates may rise regardless of what the Fed wants.
p.s.: Hope you don't feel like I'm picking on you. You just raise some of the more debatable issues.
The fever has broken, and sellers are screaming at their agents in Fresno:
ReplyDeleteScreaming Sellers in Fresno
The "white minority" issue is a bit overblown. Second generation American born Hispanics are difficult to distinguish from the old white majority on most issues. They are a little more liberal and have slightly larger families but while the data don't exist I'd be willing to bet no more ominous than the Irish or Italian infusions of the past century. Pasta Boy, Potato Eater, Beaner. Sound familiar? Did the US survive? No, it prospered.
ReplyDeleteThe above is NOT what is happening in Los Angeles. The Los Angeles of 2006 is fundamentally different from all past immigration waves. First, it is not a severing of ties and comittment of new alegiance. Second, it is not ethinic but Nationalistic in nature. Third, it is based on an agenda of changing not assimilating into the existing culture. Thus we see the unprecendented increases in LA population density and all the attendant problems that brings.
Gee, I just checked Shorewood Realtors. Maybe the mighty South Bay real estate market is winding down from steroids and is finally starting to show a few dents.
ReplyDeleteSales "take a holiday"
"$100k a year in LA is "working poor".
ReplyDeleteWhat BS Its is only true if you want to bought and are now house poor. If you rent 100K is a very solid income.
mr. d.:
ReplyDeleteI don't see a correlation there.
Historically, no, but our record debt & deficits (coupled with our huge CAD) mean the government has to import an unprecedented amount of money to keep running. If that money is reluctant, rates will have to rise.
I'm not certain asset deflation can offset commodity inflation enough to warrant rate cutting. A declining dollar virtually guarantees inflation, especially owing to the fact that 70% of petroleum-based products are imported.
Also, wouldn't a broadly declining dollar make the carry trade unattractive? Why earn interest when you're losing principal??
westcoastwndr said...
ReplyDeleteWhile lending standards are tightening, those re-setting IO loans may be refinanced or at least extended, by eager bankers who will have huge interest to find a way to avoid default.
Good luck refinancing an upside-down property. "Extended?" Not a chance. Why wouldn't the tapped-out owner simply walk away?
Expect a flood of forclosures soon.
The main problem the illegals pose is their huge numbers. They are overwhelming the infrasturucture and social systems. And, like all immigrant ethnic groups with no political expereince, they tend to elect low-rent hustlers like Villagairosa.
ReplyDeleteVoting illegals?
As for all the other happy-happy immigrant talk, I point out that immigrants do not have good outcomes simply because they are immigrants to the USA. ("It's different this time! Our country is special!")
Blacks have been here for hundreds of years, and they are bottom of the barrel in intellectual performance and legal compliance. Mexicans are around generally the same level. And yes, the numbers ARE out there if you are inclined to look for them. The mass media, of course, is not, except for when they are trying to make an argument for more money.
Asians, on the other hand, fresh off the boat, give Whites a run for their money and even best them.
Posters on here understand 'reversion to the mean.' It applies in this area, too. If you want to know how an immigrant is going to fare, look at the long-run performance of his people in their homeland.
Not looking good for L.A.