800,000 mortgages in California are 30+ days late or in foreclosure. Only 132,000 show up in the MLS. Why there will be no housing bottom for California until at least 2012.
The latest data on new and existing home sales shows us evidence that housing has benefited from a bear market bounce but that has now come to an end. The drop in existing home sales was sizable but the drop in new home sales came in at a record breaking figure. The difference here comes from the large amount of distress inventory still moving at lower prices. The amount of troubled mortgages still filtering through the system is large and gives us pause for caution. Much of the boost can be said to have come from massive government intervention. In California there is now money going to banks to match a principal reduction for those homeowners in distress. In other words, the focus is on problems and not having a more stable market for housing. Over the last year, we also saw many people moving off the sidelines spurred by low interest rates, tax credits, and the perception that housing had hit bottom. For California, the data signifies that there will not be a bottom until at least 2012 and that is what we will examine in this article.
This is probably one of the most important questions going forward. First let us examine California as it stands today:
Let us go through each category above to make things more clear. The for sale column is pulling data from the MLS. This is data that the public can view either through a realtor or through one of the many sites available online. The next column for distress properties includes all notice of defaults, properties scheduled for auction, and those that are in foreclosure. As you can see between the differences from the “for sale†item to “distress properties†a large part of this real estate never makes its way to public view. Finally, we know from banking and current mortgage data that 15 percent of California mortgage holders are at least 30+ days late or are in the process of foreclosure. This is the most troubling data of all. Nearly 800,000 properties show up here. What this tells us is that we have a few years of working through this mess before finding any sign of stability. Keep in mind a large amount of troubled mortgages have yet to be dealt with in the state. The above should give you a sense of what we have today in California.
Let us continue the math. Last month statewide, California had 40,965 home sales. At the same time, 24,669 new notice of defaults were filed. So let us do the math here:
40,965 – 24,669 =             16,296 homes cleared out of the massive inventory
Now depending on your perspective, if we only look at MLS data we have roughly 3 months of inventory in the state. Looking at distress data we have over 6 months of inventory. If we look at the broadest measure we have 19 months of inventory. However, we are only looking at the current sales rate and keep in mind this is high because of tax breaks and also the current part of the selling season. We also have to take into account that last month nearly 25,000 more properties are being put into the pipeline for future distress (not counting regular homeowners who want to sell). Subtracting this out, we really cleared out about 16,000 properties for the month.
Assuming no new foreclosures (not likely) at the very earliest it will be mid to late 2012 before we have any semblance of a bottom in California. Keep in mind that California is also battling a troubled state budget. This will require new revenues (higher taxes) or more cuts (higher unemployment). Both options are bad for housing going forward.
Double dip recession
I’m surprised that many in California are talking about a double dip recession. In this state at least, we never got out of the recession to begin with. All we need to do is look at the unemployment data to show us this:
Does that look like we double dipped? Unemployment is still sky high for the state. Without a solid economy there is little prospect that real estate in California will somehow enter another golden era. We have lost over 1 million jobs in the state since the recession started. Even last month when we added 28,000 workers it will take us 35 months before getting back to pre-recession unemployment at this rate. And looking at the data carefully, we see that the bulk of employment growth came from the government sector. This provides more evidence that we are still at least two years away from any housing bottom.
Drag of shadow inventory
Looking at the first chart you realize that there is a tremendous amount of distress property on the market that is hidden from the public. This large amount of shadow inventory will be a drag on California real estate prices going forward. Nearly 800,000 mortgages in California are at least 30+ days late or are in the process of foreclosure. Yet only 132,000 homes are listed on the MLS. That is why it is hard for any honest realtor to tell you with a straight face that there is “only†3 months of inventory so you need to move fast. Most understand that the real market is full of troubled properties. Plus, you realize that we still have thousands of homeowners not keeping up with their mortgages and many more being added per month.
We all realize the issues with Alt-A and option ARM products. These are still out there and will not finish resetting/recasting until 2012 (at least the bulk). But now, the bigger problem revolves around the larger prime market having major problems. Fannie Mae and Freddie Mac are losing money left and right (which means we as taxpayers are losing money left and right). FHA insured loans are plagued with sharply rising defaults and these make up about 4 out of 10 loans in California (this trend has held for nearly a year).
The massive drag of shadow inventory will keep a lid on real estate prices going forward. Throw in the fact that higher priced properties have yet to adjust significantly and we have another market that will take a hit (i.e., Culver City, Pasadena, etc).
2012 bottom?
Predictions in this market are a losing game. With the government intervention it is creating an artificial buffer to the correction. Yet prices have fallen. So things get dragged out. When we look at the data as a whole it looks like 2012 at the earliest will be a bottom. This doesn’t necessarily mean a bottom in prices but a time when we will work through this massive amount of shadow inventory. There is little reason to buy right now in many cities and renting is a much better option for many. Until we work through these 800,000 properties, California is going to have a highly volatile market. Buyer beware.
Did You Enjoy The Post? Subscribe to Dr. Housing Bubble’s Blog to get updated housing commentary, analysis, and information
Did You Enjoy The Post? Subscribe to Dr. Housing Bubble’s Blog to get updated housing commentary, analysis, and information.
Subscribe to feed
51 Responses to “800,000 mortgages in California are 30+ days late or in foreclosure. Only 132,000 show up in the MLS. Why there will be no housing bottom for California until at least 2012.”
“When we look at the data as a whole it looks like 2012 at the earliest will be a bottom. ”
I needed a good laugh today, 2012 !!!
Looks like a slow motion depression to me.
I recently got a letter from one of the biggest agents in Burbank. It said that the market was back to normal and it is a good time for sellers and buyers. It also said that we could expect prices to increase 2-4% a year now! Do you think that they are less than honest or “dumb as a post”? I noticed that their inventory of houses for sale were mostly dogs. I think that it is more a sign of desperation.
Even if we were lucky enough to bottom out in 2012, how long would we scrape along the bottom until a sustained climb took hold? Unemployment at these levels coupled with a huge shadow inventory spells death for the real estate market.
From what I can see up here in the SF Bay Area, even the 800,000 inventory number may be understated. I’ve seen tons of homes pulled off the market in the last 12 months. Most of these people would like to sell but are unwilling to face reality. I’ve heard many versions of the phrase “I’ll sell when prices come back”. I doubt any have missed a payment, but most would love to be a part of that inventory number.
“Predictions in this market are a losing game.”
When you read a Time or Newsweek cover story proclaiming, “Housing is Dead,” is the best indicator that we’ve reached a bottom.
By then, you’ll be able to find a 2/1 fixer in Hermosa Beach, East of PCH, for $450k. Not cheap, but a steal all the same.
NY Times Op’Ed thinks we are on the precipice of the the 3rd depression.
http://www.nytimes.com/2010/06/28/opinion/28krugman.html
“I’ll sell when prices come backâ€.
Sure, except their lifespans won’t last that long. How about, “I’ll sell when I’m dead.”
Their kids will sell when they’re dead. Don’t forget all the baby boomers whose retirement accounts have been massively hit/defrauded that will be downsizing…first to smaller homes then eventually to the retirement homes then eventually to a subterranean pine box.
Their kids will more often than not be willing to deal and take what they can get, unlike their greedy parents!
Even though prices have halved, the only residential for less than $210000 in Napa Ca are condos, trailers, and mfg homes. The cheapest house that had 2 baths was $225000 and no A/C, built 35 years ago. We have to take another leg down.
This is the first time in human history that even the bottom feeders aren’t buying distressed properties because of the tax burden.
Even if the price is cheap, the taxes make it impossible to buy.
The greed that the government, builders,real estate agents, and banks exhibited, is the cause of this mess we’re in.
“Reinhart and Rogoff observe that following systemic banking crises, the duration of housing price declines has averaged roughly six years, while the downturn in equity prices has averaged about 3.4 years. On average, unemployment rises for almost 5 years. If we mark the beginning of this crisis in early 2008 with the collapse of Bear Stearns, it seems rather hopeful to view the March 2009 market low as a durable “V” bottom for the stock market, and to expect a sustained economic expansion to happily pick up where last year’s massive dose of “stimulus” spending now trails off. The average adjustment periods following major credit strains would place a stock market low closer to mid-2011, a peak in unemployment near the end of 2012 and a trough in housing perhaps by 2014. Given currently elevated equity valuations, widening credit spreads, deteriorating market internals, and the rapidly increasing risk of fresh economic weakness, there is little in the current data to rule out these extended time frames.”
http://www.hussman.net/wmc/wmc100628.htm
@Doc,
Another great point:
“Predictions in this market are a losing game. With the government intervention it is creating an artificial buffer to the correction. ”
But the worst part to me is not whether the intervention delays the recovery a year or so, but that it indicates, as in the last depression, that our leaders feel our system has failed and people start thinking we need a new system and use any means at their disposal, including starting wars. And truly we have abondoned the system for this psychotic stick and carrot approach: beat the prudent with a stick while stealing their carrots to give to the criminals. How in the world can that be a viable, self-perpetuating financial system? Of course it can’t be. There is no recovery from this, just a death spiral. Please, someone tell me I’m wrong and you have a plan how this all works out…anyone?
I’m seeing a lot of homes going to auction when I look at realtytrac, google realty, etc. Who is buying these homes that are going to auction? Anybody know?
It seems to me that Ron has a pretty good handle on timing; however, I would add that future rising interest rates will administer the final death blow to housing mania. People will just not qualifiy for high priced real estate. After banks get rid of their inventory, look for interest rates to rise. Banks don’t care if house prices fall, that is as long as they don’t own any. My guess is we’ll see 10% rates by 2015 or 2016.
Dark Ages, you are right…there is no easy way out from the mess we are in. We are halfway through 2010 and the Dow is right around 10K. If someone would have predicted that back in 1998, they would have been laughed off the stage. And I think we are lucky to be at Dow 10K.
Ten years ago, we never envisioned what is happening now in the financial world. We have had one bubble after the other. Countries, states, cities, individuals are going broke at an alarming rate. I hate to say it, but it will get much worse before it gets better. Regarding housing, anybody who signs up for a big CA mortgage in this meltdown is crazy. I wouldn’t touch housing until I have seen signs of recovery with my own eyes, not some MSM number spinning BS. Hold on to your hats, the ride is going to be wild!
Currently our country has about 68% resident home ownership. The sustainable percentage for resident home ownership has generally been at about 62%. I think that people who will be forced to default will also be forced to sell at lower prices to investors who will come clean up the mess. As of right now that seems the only option to me. With so many home owners defaulting, its obvious that a 68% resident home owner rate is unsustainable, and should never even have occurred in the first place. The issue now is exactly what was stated above – the government has created an artificial buffer. If the government had stayed out of this business, several LARGE banks WOULD have failed, and the market would have corrected itself. Banks would have realized that the sub prime MBS’s were going to screw them in the end. It would also have resulted in the end of some of these extravagant bonuses (although I admit it might not have solved that problem). As banks needed to cut back on their secondary market investments, or at least invest in less risky ones. The same would have gone for the mortgage industry.
I guess this leads me to two questions:
1. Do you believe that this will be an investors market (for buy and hold investors)? Will this slowly shift to a renters market as well as homeowners default and necessarily move back to rentals?
2. Do you think the government pumping enormous amounts of money into the market would have provided a long term solution? If you could go back to 2008, what would you have proposed as the solution?
As always, you do a great job posting important information in simple graphs. It’s a refreshing counterpoint to all the fuzzy thinking that prevails these days.
I think we’ve got an “unknown unknown” lurking out there. Massive intervention in the housing/credit markets is likely, on top of what we’ve already experienced. Owning a home is a risk. Not owning a home is a risk. Having a mortgage is a risk. Not having a mortgage is a risk (sounds implausible, but keep in mind that a fixed mortgage is traditionally an excellent hedge against inflation).
Keep up the good work!
@Mark – a slow motion depression? The Great Depression was about 8 years. We are moving at pretty much the exact same speed.
@John – i read that article about the 3rd Depression. While I don’t argue that we are in one, I don’t agree with Krugman’s solution of spending more to get out of it. One of the user comments on the article had it right. Spending is necessary for growth, but not the kind of spending our gov’t has done with the original stimulus.
ron
>
Sorry but you are using the wrong data. You are quoting Reinhart and Rogoff on REGIONAL or NATIONAL financial crisis. Sorry but this time is DIFFERENT. This is a GLOBAL financial crisis. Can’t compare events of regional/national crisis with a global crisis because the options and avenues for recovery are different and more limited.
>
In the past 200 years there have only been around 5 – 6 global financial crises.
>
(1) Napoleonic Wars in the very early 1800s. Trigged by the outbreak of the wars and ended when the wars ended.
>
(2) 1873. For most of the world it dragged on for 23 -26 years. The US ostensibly came out of it around 1879 but the economy was flat and/or falling 40% of the next 22 years. Often called “The Long Depression”
>
(3) 1914 or so. Triggered by the outbreak of WWI. Ended when the war ended.
>
(4) 1929. Ended with the outbreak of WWII – or at least ended for the US. England with its tariffs and social safety net and devalued currency had pulled back out of the crash – though not completely out – earlier in the 1930s than the US.
>
(5) WWII. Triggered by the outbreak of the war for all countries except the US. Ended when the war ended.
>
(6) Now.
>
Don’t know about you but looks to me as if we have 2 choices: (a) dragging on for years like the Long Depression (and I actually heard about those time from my great-grandfather) or (b) do a replay of WWII.
>
All the regional economies who had a financial crisis, such as the Asian financial crisis in the 1997, recovered by (a) devaluing their currency and (b) exporting their way out of it. And so how do you suggest that the US export its way out of it since we don’t make bloody sod all in the way of goods to export and are only good at importing things?
>
Japan is an interesting case. Theoretically it could have done as had other countries or regions (Mexico, Argentina, Asia etc) had done and devalued its currency and exported goods like mad to restore its economy. In fact Japan was stuck between a rock and a hard place because it didn’t really have the ability to jack up its exports because it was now competing with China.
>
And I have to ask ‘recover based upon WHAT?’ Not exports. Not housing. Not commercial real estate. Not household spending since they are broke and their incomes are in the dumper. Not really much left.
What about the “shadow debtor” inventory? So many people have had their credit dinged by this depression that there is no way they could qualify for a mortgage for many years, assuming the unavailability of another sub-prime stoked housing hysteria. You guys focus on the massive glut of inventory on the market (the supply side). This is a supply with most of the potential buyers removed from the market by bad credit scores.
Isn’t the assumption of a recovery based upon buyers whose creditworthiness remains at 2006 levels?
@Ann
You make me sound the the glass-is-half-full guy.
@larry– ‘shadow debtors’—- NOBODY , and I mean NOBODY is talking about the pool of home buyers that is now drastically shrunk. Everyone is assuming 2006 levels of creditworthiness. I am glad someone else sees this.
The bubble is still alive and well. I went to Manhattan Beach this weekend, happened to pass an open house a few blocks from the beach. Walked into the tiny condo, two bedroom, “bank owned.”
It was nice but small, needed some work for sure. I was thinkin’ maybe $300K.
It was $600K!!!!!!!!!!!!!!!
Texas keeps looking better and better.
What is the state doing? So let me see if I have this straight. I wasted a whole lot of money going to college and getting a good job. So I make around 85k a year, but someone who likely didn’t go to college and come out with $40,000 in extra debt can also get out of $100,000 in negative equity. Meanwhile I am expected to pay higher taxes to pay for their negative equity, pay for my $250,000 in negative equity on my on home, and pay for the college education that allowed me to get a job where I wouldn’t qualify for the state program. If you have a decent job and huge negative equity on your house I don’t know what to say if you aren’t strategically defaulting. I feel more and more morally justified every single day. I actually think this might be the thing I will be most proud of in my life when all is said and done.
@DG
This is the stick and carrot approach I mentioned above. They are pervertedly reqarding bad behavoir and punishing integrity.
@beef
thanks for commenting…I was thinking maybe I was so far out folks ignored my posts. The only thing different about this time is that it is much worse this time, and there ain’t much dry powder left. They’ve tried everything, including two wars. Now what?
In 2006, people fresh out of bankruptcy were qualifying for 0 percent car loans. If you had a pulse, you qualified for a mortgage.
Criticize the boom in FHA financing all you want, and rightly so, but without it housing values would be collapsing at far greater free fall rates than they are now. There simply would be no loans for most people, no matter if that $600,000 condo could be bought for $50,000.
Today, the formerly rich and proud contractors of 2006 work at Home Depot and Lowes.
Even IF most potential buyers have not been removed from the market by bad credit scores, there remains the “shadow inventory” of people who probably will never “move up” into a bigger, splashier house and are “staying put.” I live in a house that is far below my afford ability and income level. It was actually embarrassing to live there when migrant farm workers were buying houses at 3 or 4 times the selling price of mine. I just couldn’t be convinced that the housing bubble insanity was based on anything resembling reality. I just couldn’t.
If you have your eyes open, it is also clear that property taxes are about ready to take a drastic climb as local governments swoon with yawning deficits. No matter what the selling price drops to, those governmental agencies are going to figure out how to make home ownership even MORE onerous, you can bank on that. They are going to get their meat hooks into your hide, one way or another. You are FAR better off in this scenario with a cheap house. The cheaper the better.
And energy prices are going to skyrocket, and bigger houses require more energy. Lots more. It is shocking, SHOCKING to read the stories about people who had their houses fixed up by the Extreme Makeover show. So many of them are in foreclosure because they never anticipated how much more utilities would cost on those “free” McMansions. Say you had a $300 a month mortgage on the shack. Extreme Makeover turns it into a Mcmansion “for free,” and sometimes even retires your existing mortgage. Oops! Now your power bill is $500 per month and the fools took out a home equity loan to afford the utilities and the drastically increased property taxes!
I am convinced that anything to do with Real Estate, mortgage brokerage, housing construction, and remodeling is bordering on criminal fraud.
This just in from Craigslist. Here’s to the dinged up debtor nation with credit so bad, they will never again qualify for a mortgage! Enjoy:
Handyman for housing (Spokane/Post Falls/CDA)
Date: 2010-06-29, 3:58AM PDT
Reply to: sale-eefxf-1816758621@craigslist.org [Errors when replying to ads?]
Handyman and Jack of all Trades willing to work for housing. Young professional family of 3 suffered financial set-back and needing to downsize from 3story lakehouse with horse property and a high monthly mortgage payment. Willing to do carpentry, remodel, fencing, pole bldg, ext/int painting, general home improvments, automotive, RV and boat mechanics, body and paint work in exchange for 1st,last and deposit for 3bdrm in the country w/ room for horses with a monthly rent under $1100. Willing to provide professional and rental references and employment histories. Please don’t hesitate to call
I have a couple of points:
1) The only way to recover is to have a severe depression.
2) Housing is not the solution to our problem.
3) Either hyperinflation or massive deflation will solve everything.
4) Savers are suffering while debtor’s are flourishing.
5) Ending all stimulus is the first step in the right direction.
6) Voting out all incubments who have a history of voting against their constituency is a step in the right direction.
7) Americans need to wake up and question their government.
“And I have to ask ‘recover based upon WHAT?’ Not exports. Not housing. Not commercial real estate. Not household spending since they are broke and their incomes are in the dumper. Not really much left.”
Ahhh, Ann, but you hit upon the solution, which we have been slowly ramping up in “pilot programs” and “test cases”, and that is exporting our military/law enforcement/warfare.
No doubt we will be exporting more and more war in the future – Iran first, followed by Latin/Central/South American hotspots (Hugo Chavez, anyone?), followed by something REALLY big in S.E. Asia…perhaps even China.
This will also help resolve/alleviate the pesky problem of having too many humans on this planet with far too little resources to be divided up amongst them. We’re definitely going to be following the “fight a war or multiple wars” method of trying to move our economy forward.
@Larry
I disagree. It’s not bordering on criminal fraud. It is based and rooted on criminal fraud.
Did you read about Wachovia being thick as theives laundering money for the drug cartels? How much more criminal can you get? They certainly wouldn’t be forthright in one area and criminal in the another. The lust of money is the root of all evil. I didn’t make that up–either the Bible or Pink Floyd, I’m not sure.
Well I guess this is it for me and my spouse. Lived in SoCal for decades after growing up in Texas. Raised two sons here who now are both CPA’s. They waited and waited some more for the right conditions to buy but now have given up on CA. With incomes well into six-figures and ready to marry long time GF”s and start families it looks like it will finally happen……in Texas. And my spouse and I will have to follow them back. Grandkids are what we look forward to more than anything now. Spouses’s company has a division 8 minutes from where we plan to relocate. Mine does too and it’s a whopping 10 minutes away. My sons seem happy and excited and that’s good. My spouse and I have family here of course and that’s a positive but our life in CA was special. My kids saw no future there anymore. And so the dream ended for us, or maybe it was just my dream. Other neighbors in our area moved to Oregon, Utah, Dallas, and even Chile. Yes, Chile had better opportunites for an upper-level management type to work and enjoy an environment he says is not so different from home and he loves it. How did this happen? The best and the brightest young people leave for someplace else. Sorry to be such a downer-but today I am very sad and missing what was. I know things don’t stay the same but it’s as if the horrible economic conditions in CA are driving away the very people that the state needs.
Ooops, Average Jones Down 2.65%! Ha-ha-ha! No place for suckers to hide?
My post goes to all of you also tracking the California RE. In summary, while trying to figure out what should be today’s fair-house-prices, I used historical data and realized that the main factors that have driven the long-term trend line of fair-house-prices up for about the last 24 year has been inflation and interest rates.
Why I choose 24 years ago? Because based on historical data, 1986 seems to be the year when house prices were not over nor under priced.
Interest rates have been dropping from >10% 24 years ago until today’s <5%. That combined with an average inflation of about 2.94% (for the last 24 years), results in an average house appreciation of about 4.75% per year (for the last 24 years).
Basically I took a monthly payment, compensated for inflation over the last 24 years, and computed the house value based on the interest rate (30yrs fix loan) for every one of the monthly payments (24 years span). That is what gave me 4.75% per year long term trend line.
So you see, the long term trend line of house appreciation is being fueled by inflation and interest rates… so if interest rates are near the bottom, and can only stay flat or go up… well you know what that would mean.
Now, when I add the 4.75% per year long term trend line over the Case and Shiller House values for California, I realize that today’s house prices are back not to the same inflation-compensated house prices of 1986, but back to the same monthly payment compensated for inflation. At the end of the day, for most people, it comes down to the monthly payment, and not the house price.
@da
Not to worry…the PPT will be buying futures in the morning, because government intervention always fixes all problems. All we need are negative interest rates, bailouts for cronies, more accounting tricks, misleading economic statistics, bought-and-paid-for media. I’m really enjoying this V-shaped recovery. How about you?
Stand back or you might get poison ivy from those green shoots.
“At the end of the day, for most people, it comes down to the monthly payment, and not the house price.”
~
The Doc does buy/rent comparisons all the time. The rest of us would agree with you, but that doesn’t change the fact that it’s much cheaper to rent than buy right now and renting is also a hedge against home devaluation. All of the Doc’s “real homes of genius” posts contain comparisons of identical houses that can be rented down the street at half the price.
~
The amount I’m paying right now for 1100 square feet would leave me with the mortgage-equivalent of a $300k note. A 20% downpayment of roughly $80k puts the ceiling of home I can afford at roughly $400k. I am probably rare in having a downpayment saved. Looking around, I estimate that home prices have another $60-80k to drop or potential buyers have much more to save before they can get in. Those are the options I see after the buy/rent comparison is done. Also, it’s looking like it’s going to cost the taxpayer a trillion to bail our Fannie and Freddie, so I expect that line of credit to dry up shortly.
~
Looking at the trendlines myself, houses were downright affordable in the 90s. The bubble didn’t start until 1998-2000. I expect housing prices to adjust back down to that trendline (or lower given the new normal).
~
Inflation, depending on who you talk to, is governed by the expansion or contraction of the money supply and credit. Inflation is nonexistent right now and we constantly here about deflation being the enemy. Japan has experienced 20 years of near-zero interest rates and deflation, so your point about inflation causing home prices to rise may not apply.
If 15% of mortgages are 30+ days delinquent, I’m curious to know then what the percentage was before 2003.
Everland,
Homes in a nice area of LA County…upper middle class area…good schools(not the best, but very good)…a bit of a commute…but the homes in that area just dropped around 10% over the few months. No not the few sales that occured over the past year, but listings on several homes were adjusted down in April, May, and June. Some of those homes are now well within the 3-4x income range of a family that makes $100-125K a year. Most of these are turnkey older homes with the standard bubble upgrades to the kitchens and bathrooms. And they aren’t selling even at the reduced prices. Not ever much in the way of showings. The area is seeing few qualified buyers and its one of the first to suffer because its a bit of a drive to the job centers…nothing Inland Empire like in commute…but not great either. IMO its just the first area to be hit with the price reductions. There is still a great deal of euphoria amoungst first time home buyers in certain areas of LA. But thats starting to damper and once the damper gains momentum, its lights out on the LA real estate market.
I won’t argue that the same amount of money will get you a Mcmansion in Texas, but if you are pulling up stakes because its too much to purchase a house, you waited and pulled up at the absolute wrong time.
You’re pulling the trigger with timing nearly as horrible as my friend who paid $560K for a house in Simi Valley in early 2007 because “if we don’t buy now, well never be able to afford a house”.
Amazing, isn’t it, how effectively shiny granite countertops and stainless steel appliances were used to blind people to the biggest destruction of the dollar since the Depression?
~
The generation(s) just now waking up to the fact that this was happening while they were dreaming their Carnival Cruise dreams are sweating gravy. And not because they’re on the Atkins Diet.
~
The people who never dreamed those dreams were never fooled in the first place. But we’re all in the same chamberpot now.
~
Like PRCalDude, I expect to see a reversion to 1998-2000 prices, which isn’t much comfort since I bought in very early ’02. Felt I overpaid about 15%–though talked the seller down off his price by 10%. Within months the bubble hit. But I bought well within our extremely conservative fundamentals. I can tell you that 90% of the residents around here for 1/2 mile, who bought or built in ’04 to ’07, are cranking out gravy by the metric ton.
~
rose
“Shadow Debtors”? Yep, I too once thought this crisis would FORCE common sense on the housing sector but not just yet.
A guy I know in Phoneix let his house go into foreclosure about 18 months ago. 8 months ago he financed a bigger, better and cheaper one.
With the federal government insuring most mortgages and the government spending trillions to reflate, lending standards will continue to decline to the “fog a mirror” standard of 2005.
I am hoping for a financial collapse because that is the only thing that will force local realestate back to the norm.
Of course higher interest rates would do the trick too but I now know (contrary to economics 101) the FED controls both long term and short term rates as far out on the yield curve as they want. Believing the market controlled rates has made us all suckers.
Bob…..
I am curious as to which local you are referring to. If it is an area such as Valencia, I concur with you. There are plenty of folks out there that make good money, but love to spend on toys and keep up with the joneses……Places such as Cerritos haven’t dropped much yet, but that’s a different culture……
@PRCalDude
My comment is not against the Doc by any means. I appreciate the info I get from websites like this one. My comment is in general to many sources that take historical and compensate for inflation to figure out if we are above or below the historical mean. My comment is a way of saying “you have to also take into account interest rates, because it is about the monthly paymentâ€
I didn’t want to post a link to the charts I have created on my own, because my intention is for people to figure this out on their own. I know is kind of obvious, but when I see historical data not compensated for interest rates, makes me believe that is not that obvious.
For example, pick a year when you believe you had fair prices in your area (1997?, 1986?), then compute the monthly payment using the interest rates seen during that year, convert the payment to today’s money using an inflation calculator, and then compare it against today’s rents in your area of interest. Also, convert that monthly payment to house price using today’s interest rates. Of course, do all of this also including a 20% down payment as it was needed years ago.
In my personal case, I’m looking for a $380k 3bd/2br in LA county (south), with 20% down and today’s interest rates, my payment would be about $2k, which is about the monthly rent for the similar houses in the same areas. This tells me that in fact, in my area, houses are not over nor under priced, but given unemployment and other crisis factors, I’m expecting prices to overshoot (go under) the fair value… as it happened in previous bubbles. And so I’m waiting for that to happened, and continue saving for the down payment 🙂
@ everland
And the state of Texas has never had a problem with boom/bust economic cycles?
And, why equate home ownership with the good life? I’m sure your sons’ $100k salaries could have afforded real nice rentals until it was time to buy again in So. Cal.
I’m a 4th generation Southern Californian so I have a different perspective than most.
Victor,
The Government publishes its “housing affordability index” which is based upon payment.
It has always been just about the payment and the Government is trying to persuade us that because interest rates are at record lows, housing affordability is at near record levels in many parts of the nation (ca, excluded).
Car salesmen and the Government assume ALL people are Idiots and are only concerned about the payment. Price is primary, interest rates secondary but they want it the other way around.
Thanks Bob. My spouse and I have lived in the same house since 1984. Put a for sale sign up and sold it in two days. It didn’t sell for what it might have gone for a few years ago but after being here 26 years we did ok. I shudder to think what might have happened if we had bought 3-4 years ago. Our two kids (college-grad CPA’s) felt that buying anywhere near their chosen city was a losing proposition and they couldn’t be talked out of leaving by their anxious parents. Believe me we have tried to get them to reconsider but we raised them to think for themselves and boy are they good at it. They know Mom and Dad will follow them because both plan to marry and start families once they are settled. One is moving in today and the other within weeks. And now that the family home of 26 years is sold we will follow soon.
People need to listen to the earlier comment re: Shadow Debtors. This must be a hugely growing issue. For a decade or so, my FICA score was in the high 700s. The reason for not being higher was always told to me as not ENOUGH credit (you’d think less debt = better credit, but I guess not). For reference, I have no debt; cars, homes, or otherwise. Over just the last twelve months, my rating has grown to almost 900, and notheing has changed with me.
Lending standards(?), other consumer credit disasters(?), who knows?
I live in LA, and am likely a grizzled old fart compared to most bloggers. I’ve been through the early 90s cycle, and make no doubts, the combination of less buyers (incl. less QUALIFIED buyers), more inventory, second wave resets, etc., only leads to a repeat of the 50% decline seen in the early 90s (and this was an era before creative ARMs, pick-a-pay, etc.)
Jason
I can tell you that in South Orange County (MV, LForest, Irvine, Laguna Hills, Laguna Niguel) a decent 4 bed, 3 bathroom home is still priced above $600K or more. Consider the required income to buy a SFH here plus property taxes and HOA. It’s ridiculous.
Comparable SFH inventory (options for buyers) remains shamefully low here. Single family homes in decent shape with few defects priced between $550 and $650K are snapped up almost immediately with multiple bidders. It’s very competitive. Realtor BDOs on foreclosure properties are also keeping house priced high since many times the closest comparable sale of a 4bed 3 bath SFH took place back in 2009 or before. I’m sure that there are a bunch of 2 and 3 bedroom condos for sale a low prices, but this doesn’t help families very much. The SFH market in California is still effed up in my view and is no where near correction territory. I’ve been renting since 2005 and frankly I’m starting to distrust all of these shadow inventory claims because, well, just where the fuck is this inventory? And why aren’t US bank regulators absolutely slamming the doors of financial institutions (Bank of America, Wachovia) for their totally screwed up balance sheets that are so obviously weighted down to the floor with NPAs?
Something is rotten in Denmark.
Is there ANYWHERE in California worth a look for buying property? Maybe it sounds crazy but some areas out in the Mojave desert seem to look promising especially since there’s a chance many solar companies will and have been building out there.
However, I’m no expert so I come here more for everyone else’s insight since many of you know a LOT more than I.
So, again, is there any promising real estate ares in the state of California or is the entire place going to keep falling no matter where you are or what kind of property (single family, multi-family, commercial) you’re seeking?
I wish that my parents had looked into strategically defaulting. They still haven’t gotten rid of the 2nd house. They are losing money every day that could be saved for the rainy days that are coming.
Problem is that we are going to run into a housing shortage in california with only investors owning properties. Think about it these people still need to live somewhere and with housing permits new construction at 50 year lows and people moving into california on the daily because prices are cheaper and after all it is california investors who own california real estate will have the last laugh while us working class will be subjected to their rent demands
@Mark
We see the same thing here in Placer County outside of Sacramento.
While there may be a huge shadow inventory, we have been told of its arrival for 2 years now and nothing has materialized.
For those people who have decided that now is the time to buy, they are faced with 3 to 4 months of total inventory and 1 to 2 months of bank owned inventory.
It is very common for properties to be sold above asking with multiple offers.
Is this due to market manipulation from the banks and politiicians, probably. But, it is a fact none the less. If someone is interested in buying a property at this moment, they will need to be prepared to move quick and be aggressive.
Leave a Reply