Five Financial Trends Keeping California Home Prices Depressed – Rising MLS Inventory, Falling Rents, Lack of Good Paying Jobs, FHA Defaults Rising, and No Mortgage Payment.
For the first time in nearly three years since I’ve been tracking MLS data for Southern California, the public inventory number has increased. The low was reached in October of 2009 and this was when across the six Southern California counties 64,000 properties showed up on the MLS. Today that number is now over 70,000 (an increase of 9.3% in 6 months). I’ll include a graph later in this article showing the trend. The L.A. Times ran a couple of articles discussing option ARMs and additional defaults coming down the pipeline. Now whether this happens in mass or slowly will be something we will find out soon enough. With high unemployment and a fragile market, housing prices will remain stagnant in lower priced areas for years to come but in more select neighborhoods, we will see prices adjust.
Let us now look at 5 major trends hitting the market today.
Trend #1 – Increase in MLS Inventory
Part of the issue with shadow inventory revolved around the fact that the foreclosure process was stunted. In fact, the foreclosure process has been drawn out to record timelines:
“(HousingWire) …Again using LPS data, for all loans more than 90 days in arrears, the average days delinquent is now at 272 days—up from 204 days in early 2008. For loans in foreclosure, the aging numbers are even more staggering: loans in this bucket average 410 days delinquent, up from 260 days delinquent in early 2008.â€
Now with banks having additional money from stock market profits and unlimited backing from the Federal Reserve and U.S. Treasury, they are more willing to put inventory on the market. In some areas like the Inland Empire investors are crowding out first time buyers and are speculating:
“(Press Enterprise) Bruce Norris, a longtime Riverside real estate investor and consultant who warned other investors early on that the real estate market was about to tank, said the deluge of houses hitting the foreclosure auctions and the numbers of buyers chasing them are far beyond what he had expected. He recalled that a year ago it was common for just a handful of investors to turn out to hear the trustee’s auctioneer reel off the addresses of houses for sale and sometimes the auctioneer would speak to an empty courtyard, he said.
Interest in foreclosure auctions is driven by a dwindling supply of bank-owned houses listed for sale. Investors can quickly resell houses purchased at auction to first-time buyers and others eager for affordable prices, low interest rates and government tax rebates.
Investors also say the apparent stabilizing of the real estate market has soothed their fears that the price of a home may fall before they can sell it.â€
People are being drawn by the low prices and speculators are back in. Not to the level during the boom but it is back however many of these folks have cash to put down. The idea is to buy, rent it out a few years, and make a nice sum selling it in a few years when prices boom again. That is another bet. Yet economically speaking, the Inland Empire is seeing an underemployment rate of 25% and rents are falling because of the flood of vacancies and investors buying properties. This is speculation just from a different angle. With people putting their own money on the line, this is different from the flippers using option ARMs to make quick sells with OPM (other people’s money).
The MLS inventory increase is coming from more short sales and additional bank owned properties making the public view. What will this do to prices? It’ll probably bring them down especially that the home buyer tax credit is set to expire soon and quantitative easing from the Federal Reserve is ending soon as well.
Trend #2 – Falling Rents
Rents continue to fall because of a flood of inventory as we have mentioned but also because of a weak economy:
“(OC Register) February’s SoCal Consumer Price Index tells us that renters’ expenses fell again — this time at an 0.8% annual rate. That ties January and is a touch higher than the 0.9% rate of decline for December — the steepest fall since 1995.â€
Renters have a lot of choice in this current market. In some areas renting makes the most sense as a hedge against further adjustment in real estate prices especially in expensive markets. The market is still in high distress. In fact, if we look at the amount of distress properties in California it is at a record high:
Source:Â CNN Money
Over 15 percent of California homes with a mortgage are either in foreclosure or 30+ days late. This number is astounding and includes tens of thousands of toxic mortgages. Even more troubling, the amount of “prime†loans going bad is also increasing. What is also missed in the data is people doubling up or moving back home. Many recent graduates are going into a terrible job market so many instead of renting their first apartment are heading back home. Until the economy improves, this trend will continue.
Trend #3 – Competition for any Job
More news from the trenches, jobs are hard to come by. And those that are available pay much less than previous jobs during the boom:
“(LA Times) Theme parks are being flooded with applications from job seekers, as unemployed mortgage agents, sales clerks and construction workers who can’t find work elsewhere seek temporary positions that often pay little more than minimum wage.
A job fair at Six Flags Magic Mountain in Valencia last weekend drew 1,600 people — in the rain. Universal Studios Hollywood took in more than 1,100 job applications on just one day last month.
Disneyland in Anaheim and Knott’s Berry Farm in Buena Park have received so many job applications that they put off plans to hold jobs fairs this year.
In the past, summer jobs at theme parks were often the path for teenagers and college students to get their first paycheck, doing such tasks as playing Goofy, Snow White and other costumed characters at Disneyland or running roller coasters at Magic Mountain.
But with the unemployment rate in California at 12.4%, the parks are now getting applications from people with years of work experience.â€
Now think about this and how this impacts housing both on the rental side of the equation but also for purchasing a home. Those former mortgage brokers and construction workers who were once able to afford a home or condo can no longer do that. And these were high paying jobs during the housing bubble. The only mass hiring going on is coming from low pay seasonal work. In the next few months we might see national unemployment slightly improve because of Census worker hiring. But this is definitely part-time and won’t last beyond the year. Then what? Until we see this trend reverse, housing prices will either move sideways or go lower.
Trend #4 – FHA Defaults Rising
It was only a matter of time before FHA insured loans started going bad like milk on a hot summer day:
“(CNNMoney.com) — The recent spike in the number of delinquent Federal Housing Administration-insured loans has some people worried that taxpayers will eventually have to bail the agency out.
Seriously delinquent FHA loans, those 90 days or more late, jumped 62.1% in the past year to 558,944, or 9.4% of FHA loans, as of the end of January, according to agency statistics released on Friday.â€
Almost 10 percent of all FHA loans are now seriously delinquent. This is incredible but has to do with the 3.5% down payment and weak vetting. But let us be honest, it has to do with the low down payment and home buyer tax credit. It is government backed zero down mortgages:
A bailout is going to happen. This isn’t stunning. It is a matter of giving loans to people with very little down in an economy that isn’t adding good jobs. So even though people salivate at a $250,000 home in California, how can you support this on temporary work? You can’t.
Trend #5 – Not Paying Mortgage
Let us run some quick numbers shall we?
California homes with a mortgage:Â Â Â Â Â Â Â Â Â Â 5,290,276
Source:Â Census, 2008 American Community Survey
15.02 Percent of Mortgages are in foreclosure or at least one payment behind
5,290,276 x  15.02 percent = 794,599 properties 30+ days late or in foreclosure
The statewide MLS has about 160,000 homes listed. So over 630,000 homes that are in foreclosure or are 30+ days behind are for the most part, hidden from the public. The public doesn’t really look at the NOD + auction + REO data but they are actually living it. This is an enormous amount of inventory. The L.A. Times had data showing that 5% of distressed properties have no foreclosure or notice of default filed. But that still leaves hundreds of thousands of properties sitting in limbo. Many right now are simply not paying their mortgage. And with toxic option ARMs and other junk mortgages, we can expect this trend to continue.
So tying this all together is rather straight forward. Prices are not going to increase. The economy will keep pressure on prices simply because incomes are not there. The government has stepped in and all it did was stalled the inevitable correction in some markets. With the tax credit ending and quantitative easing almost done, this will add more pressure on prices. In more mid to upper tier markets, prices will correct simply because they are still overpriced and show signs of bubbles.
After all this time, the “solution†was to delay the pain over the years. Trillions of dollars in tax money and this was the grand plan of the banks.
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44 Responses to “Five Financial Trends Keeping California Home Prices Depressed – Rising MLS Inventory, Falling Rents, Lack of Good Paying Jobs, FHA Defaults Rising, and No Mortgage Payment.”
Two of my neighbors, both college grads with years of experience, have been out of work for over one year. A relative of mine, who usually would have people calling her to come and work for them, has been out of work for 6 months.Many, many stores in the San Francisco area are closing, even after decades in business. Can see nothing on the horizon that is going to stimulate the economy. This is kind of like watching an avalance,in slow motion-does not look like much to begin with, but rapidly builds to deadly force.
Dr. Housingbubble, I think the CNN report of 15 percent of California mortgages being in trouble means in foreclosure or SERIOUSLY delinquent.
The number in foreclosure or only 30+ days late would be higher.
Nationwide the number of mortgages in foreclosure or late is 15 percent.
“The combined percentage of loans in foreclosure or at least one payment past due was 15.02 percent on a non-seasonally adjusted basis”
http://www.mortgagebankers.org/NewsandMedia/PressCenter/71891.htm
When will more people understand, if the loan is guaranteed, does not the servicer if well capitalized makes more money for every month the loan is out there? Now if the servicer is not well capitalized, they are already being sued by the mortgage security holders for foreclosing too fast.
If the servicer has access to 0.25 percent money and the loan is guaranteed, or even if the loan is held by someone else, the servicer comes out ahead by not foreclosing?
Not to mention the book cooking of not realizing losses when the servicer owns the mortgage.
I am just wondering if we are staring at a Japan style deflation, where some properties are still 1/10th or even 1/100th the value they were at the peak. Where is the job growth going to come from? In this global economy, we are being increasingly priced out. Like Wal-mart squeezed all the mom and pop stores, China and India are squeezing out all the American workers.
I just wonder where we are headed?
Many if not most of the foreclosure and short sale homes are older and have not had the up keep required over the years. The short list is roofs, heating systems,air conditioning units are just a few problem s that can make a investor sink significant money into a home with little or no chance that they can recoup later.
Another excellent article. These are the exact reasons that real estate in Ca will not recover anytime soon. And the high end areas that are back in bubble territory will correct…how much is the big question. I track prices in several areas (the South Bay, Irvine, Huntington Beach). The South Bay has been extremely sticky with prices…many places are being listed and sold for near bubble prices. Irvine and HB are also close…prices there are generally 10% to 20% off peak. When the home buyer welfare programs and cheap money start to disappear, look out below. California is in a financial death spiral and employment will not increase anytime soon…these factors alone should derail house prices. Then throw in all the future foreclosures and building shadow inventory and we might have an epic disaster on our hands. Anybody who buys now in the bubble areas better plan on staying at least 10 years and have very high confidence they can keep their job during that time. This time, it truly is different….
There’s a scary thought-mortgage brokers running rides. They didn’t E-stop when things got bad with Alt-A, why would they care now?
Yep, it’s all coming down another 20% at least, with more pain likely in the mid to upper tier markets. And yet even now, I see people buying up properties in these mid-LA markets at ridiculous prices. Eventually the inventory will hit the MLS and they will regret it. But clearly the plan is to kill home prices with 1000 little cuts.
I see almost everywhere where people compare current prices with peak prices. If peak prices were ridiculous to begin with, shouldn’t we be comparing to another price point? Great article Doc. I try to share this information to everyone I know. Thanks
I think doc is as always on the pulse of the market and this exact moment IMHO is a pivot point to new emotions.
Whereisthebeef, I am in the same both with you. I am also watching South Bay and HB. South Bay is ridiculous. Prices dropped some 15% till the summer of 2009 and regained 10% up till now. Ridiculous! And there is people still buying like if the “prices always go upâ€. Although no matter the improvement of sales in Inland, sales here are depressed since 2007 to a level of 50% at normal (bubble years) and no improvement. How long buyers and sellers will be stuck in this pose? 2 more years, 5 may be? I don’t thing so. People die, divorce, scale down their housing needs, there must be sales… and with prices propped they will not materialize… No lessons learned here in South Bay. Asians are extremely hard headed and with total lack of economic sense (look Japan bubble history), but still I don’t think they can defy gravity. Meanwhile rents here are slowly but steadily declining and the discrepancy Buy vs. Rent is not getting better and it makes even more economic sense to rent now than 2007 since all this postponing and government meddling with RE is going to make the ultimate outcome even worse IMHO.
Doc rents are bubble too. I will appreciate an article describing rent situation. Last decade the income inflation was at around 30% but southern California rents are up 60-70%. I know rents cannot deviate much from its economic fundament (the income) but they did and need to come down with additional 10% so we can accomplish all aspects of lost decade…
I have been looking to buy in Torrance last two year or so but as you said the price hasn’t come down enough for me to do it. I would say they are listing around 2006 price at this time. I am waiting list price to be around 2003 price then I will take a swing at some houses. I do have a child who needs to start the school soon so I am currently looking for a rental.
“Asian are extremely hard headed and with total lack of economic sense” ? You think the price in south bay is high because of Asians? You got to be kidding me. Did you know Asian make up only 25% of population there? South bay price is slow to adjust because many of the houses are own by a family who has been living there such long time and do not need sell unless they have to. Many of the house are tend to passed down to their children. Also If you look around the area, other than Torrance, all the Beach cities price are out of most people’s range. Torrance is only place which offers good school with affordable price for middle class. So the competition is high for a listing compare to Gardena, Harbor city and Compton.
Dude, Asians are by far the most of Torrance population. In Torrance is the biggest concentration of Japanese in USA. I live in 90503. And even they need to sell at some point. If there was no sale before as you said and no sales now, then when? And don’t give me that Asians are way better than everybody financially in this mess. They are over leveraged as anybody else just this kamikaze style stubbornness what is holding… If they are financially better or richer somehow why sales in Del Amo mall are going down for 5 straight years. Just stubborn denial of reality, total social disorientation… Median income for west and south Torrance is $90 000/family against median prices of more than $600 000. INSANITY! Total lack of economic sense is at play here! What are they thinking? If you hold onto that house not selling it what do you think? It will go up? How much more? Ha-ha-ha. When? For Torrance is coming IMHO slow decay of the prices, may be a decade long similar to Japan bubble deflating for 15 years, because it is the same mentality involved. Don’t you see it? I am not racist, just making difference between people, if one is not making this difference he is just a fool. That is the scary part for anybody making the sacrifice to buy in Torrance now – no appreciation for decade (because prices have absolutely no way up with that income) and more likely slow decay. At some point there got to be sales…
On other hand clear alternative to buying in Torrance to be able to utilize the schools system is renting. I have 2 school children and pay only $1200 rent for 2 bedroom apartment. (What was renting for $1300 one year ago is $1200 now.) The funny part is my $1200 rent would not cover even the private education (which will not be better than TUSD), not to mention other living expenses at some mediocre place let say Long Beach, where schools suck, but you still have to pay significant amount in rent… If I try to get into the shoes of somebody with children in private school I pay less for education and live in better part of the city…rent free or I live in the better part for 10% higher rent but free good education… If Torrance is on one’s radar because of the school system they should know ONLY RENT (in Torrance) MAKE SENSE! Because owner alternative here is $4000 mortgage for $600 000 SFR (I believe median around here is actually higher) or mortgage of $2500 + 400 HOA for condo. IT DOES NOT MAKE ANY ECONOMIC SENSE! Even Asians will find out this eventually! Ha-ha-ha. In worse case I will live for 15 years for the schools will pay 200 000 in rent (save 300 000 from the difference mortgage – rent, which could be invested) and when the children go to college the world is wide for me… I can buy house almost everywhere (including little further away from T) for 300 000 (the same amount I saved opting not to buy in T) . That is what should know everybody buying in here…There is no way for the prices up you will be stuck with stagnated “investment†at least… my 2 pennies on Torrance.
Hello da-di-da: Ya you know you might be little right but Torrance is high because safer area than surrounding South Bay Area, like Gardena, Inglewood, & Hawthorne. But also cost more because famous FWY like 405, 91, & 110 is and mostly close to Palos Verdes, Rolling Hills, and nice beach cities like Hermosa, Manhatten, Redondo Beach. If you factor the nationalities or the race, then anywhere White, Jews, Asians, Indians, Armanians, Middle Eastern residing cities are bid higher than what we wish for housing price should be. Anyhow…..race has nothing to do with the housing values are too high or not coming down quickly……It is the Goldman, J.P Morgen, Citi, BoA Wallstreets, Bankster Narkies, and money hungry loan officer including the real estate agent who have given States like Florida and California the illusion of false pricing and made it delusional to where people become the debt slaves. Anyhow, 2nd wave will be about to strike and like RS commented previously and I could not agree more, we will see 20% correction in next 2 years all over the Southern California…..
It took seven plus year to inflate the bubble..so.its probably going to take a few more for it to fully deflate. If anything, it shows the true illiquid nature of real estate since these things take time ( as opposed to the stock market where the automated trading would have deflated this a long time ago ) and that the government may truly be letting the air out of the balloon slowly to avoid a pop. History may show that it was a good decision after all. I guess only time will tell.
hahaha, the Cali tax credit will be extened – AGAIN. Bwahhaahaha
“The deal reached Monday provides $200 million in new tax credits for homebuyers, to be split evenly among those buying a home for the first time and anyone buying a newly constructed home. Anyone qualified who makes a purchase between this May and August 2011 will receive a credit for 5 percent of the home’s purchase price, up to $10,000 over three years”
http://www.mercurynews.com/ci_14735679?nclick_check=1
There are not a lot of inventory out there to choose from. I don’t want to throw my hard-earned money away. I am watching closely but waiting. It probably will take another 2 years for the congestion to loosen up. My kid needs to go to school in 2 years. So if the price still won’t give then, we will just rent.
Not sure anyone is going to read this, but.
I’ve become convinced that what happened is that when they secuiritized mortgages that made it possible for hot money to flood into the housing market on a global scale. Hot money, money that moves in to take advantage of small interest rate differentials is notorious for blowing bubbles and the housing market was not going to be an exception.
That got underway in 1997 during the Asian Financial Crisis. Investors had been pumping money into Asia all through the early nineties, blowing up a large bubble in the process. More than 50 billion or more in 1996. In 1997 default and panic. Investors fled Asia like rats.
A lot of the money went to the relatively new, and ill rated mortgage backed securities MBS. They were a good deal, looked safe with decent return.
The problem is that there is always pent up demand for housing. The market and prices are thus defined buy the amount of cash available to fund mortgages and buy the ability of people to save a down. As the hot money flowed into the mortgage market two bad things happened. The price rose and people that should have waited to buy houses bought them.
A second problem is the rating of these mortgages was wrong. Instead of rating them by something tied to the ability of the homeowner to pay, like loan to income rations, they based them on historic default rates. Which seems okay till you realize that MBS’s themselves changed the market fundamentally.
The third thing that was wrong, was the regulators. Ideologically they were disinclined to beleive anything was wrong. Even as lending standards went by the wayside.
You’ll notice that in previous recessions housing prices fell. That did not happen in the 2001 recession because the housing market had become decoupled from fundamentals. The Central banks cut rates, which admittedly did what you’d normally would expect it to. Except it was like throwing gas on a fire as far as real estate was concerned. Prices already due for a serious correction in 2001 instead went to the moon. Till the housing market ran out of suckers. There is a lot of pent up demand in housing. But by 2007 it was spent.
It’s freaky weird to me. It wasn’t the buyers of MBS’s that stopped the bubble. Not the Central Banks, Wall Street or the Ratings agencies, it was renters simply refusing to buy.
The aftermath of such a thing isn’t pretty. Lots of long term demand gets blown through during a bubble and there is a lot of resource misallocation. The economy tends to suxor until demand comes back.
Problem is _none_ of the actors in government at willing to accept the truth. For them the problem is and always will be that housing prices declined and they’ll do everything to try and reverse that. You just listen to them, recovery means one thing and one thing only; a return to bubble pricing. Not sales, not affordability, not the solvency of banks, it is all about price.
Big fear I have is that they’re going to crater the real economy while attempting to push home prices back to 2007.
Once again, thanks for wonder info Dr.HB…….I always learn a lot from you and your fellow readers and commentators…. 🙂
I am posting Gerald Celente economic forcaster 🙂
http://www.youtube.com/watch?v=CHHAK6F2RXQ&feature=related
And the stock market goes up over 100 points on Tuesday, as a nasty existing home report comes out. This is a strange disconnect going on. Something is seriously wrong, and equilibrium is a long way off.
If the extend the credit again I am going to puke. Actually I will just leave california before the whole thing implodes and becomes a bananna republic.
@ BCumbers. Hit the nails on the heads. Oftentimes the simplist explanation is the correct one. I think what makes DHB blog so compelling is the frustration people feel about watching this slow-moving process of deflation of the RE bubble happen, especially in So Cal. It absolutely will take YEARS to resolve. However, I do think there are opportunities in FL, AZ and NV to jump in and invest right now that make sense. But the reward in So Cal might be the reverse psychology of the mania we experienced in the bubble….people throwing in the towel on RE (especially when interest rates go up) and allowing the prudent to buy once again in desirable areas like Westside/South Bay.
Another point you made is unpopular here but probably true….we absolutely didn’t want a “pop” in the RE bubble.
BofA to start reducing mortgage principal
http://news.yahoo.com/s/ap/20100324/ap_on_bi_ge/us_bank_of_america_mortgages;_ylt=AhqoIgEnP1gIY8A.4Eu4O3uyBhIF;_ylu=X3oDMTJ0bmlvb3FoBGFzc2V0A2FwLzIwMTAwMzI0L3VzX2Jhbmtfb2ZfYW1lcmljYV9tb3J0Z2FnZXMEY3BvcwMyBHBvcwM0BHNlYwN5bl90b3Bfc3RvcnkEc2xrA2JvZmF0b3N0YXJ0cg–
CHARLOTTE, N.C. – Bank of America is taking a major step to help some of its most troubled mortgage borrowers. The bank says it will forgive up to 30 percent of some customers’ loan principal.
The bank has said Wednesday it will start forgiving principal for homeowners who owe more than 120 percent of their home’s value.
(more at link)
Edy, no need of irony. I understand that problem is much bigger than simply the poor assians (pure victims of their own economic attitude, perception and delusion) and that is why we are at HBB not some assians bashing racist blog. Here we have been chewing on this issues for years I am just throwing one peculiar detail about the assains attitude toward RE, which is clearly seen in South Bay… Of course, assains and in the case of South bay japanese are only part of the problem. Again they are their own problem… Look, Huntington beach has higher income than Torrance and is surrounded with safe areas too it is relatively close to work centers and on top of it is has 5 miles beach. Prices at 2007 for sfr at both places were starting at 650K, now Torrance starts at 600K, Huntington Beach at 450K… Do you see the difference? Why? Well, Huntington Beach is mostly white people (there are less Hispanic and black than California average even) and many of them realized the insanity and unsustainability of the situation with 2007 prices and got more adequate to reality of the market early on… ( I don’t want this to sound as advise to somebody to buy HB.) One can compare demographics and economics of Torrance and other middle class cities and will see same pattern. Take Woodland hills, Yorba Linda, Irvine was flying high, but owners there seemingly are more realistic and market economy works. Lets put this bluntly assains are not very smart with money… that is why Torrance is stall with dead RE market for years no matter improvement or not in the big picture. I don’t want that arguing which slowly drift toward racism, but not making difference in the economic attitude of people is foolish. Try the home buying race with assians in Torrance and you will end up with dead asset for a decade. Good luck!
When I said in my last post now is a “pivot point” for the RE market I meant this:
http://finance.yahoo.com/news/Newhome-sales-hit-a-low-apf-2763644600.html?x=0
Cheerleaders are throwing the towel and acknowledge there will be double dip for the housing. Any speculation what is coming if bank start to get loses again?
I agree with you da-di-da 🙂
I am looking at the money supply increase and trying to figure out if it’ll affect home prices through inflation. Between short sales, healthcare “reform” (which is very large tax increase on everyone’s income that’ll comes into effect just as the ARMs are nearing the end of the reset cycle, causing a drop in income that further affects price-income ratios), and the continued disconnection from fundamentals, one side must give – either employment and income must skyrocket, or housing needs another large (perhaps long-term) drop.
Deflation? Inflation? It seems like the cards could fall either way…
In Spring of 2007 I was TDY’d to Torrance for 90 days to decide if I wanted to relocate there from Texas. My then employer, was based near Torrance. After I arrived, I started asking my co-workers where they lived. Some commuted, but quite a few lived in and around Torrance. One of the more senior (10+ years) staff members told me he had just purchased a 3 Bedroom Bungalow for over $700,000 US dollars. My jaw fell open. I knew within ten thousand dollars per year what he made…and there was no way in heck he could afford PITI on a $700K home. He told me he did almost 100% financing. I thought at the time he was the sole exception. I quickly found out he was more the rule. Person after person I met at the company told me of the “great deals” they were getting on homes with almost no money down. I was pressured to move there and buy a home. I kept my thoughts to myself and realized these people were bug nucking futs. It was insanity, the worst kind of mass delusional thinking I had ever witnessed. I returned home and told my wife “No way in heck are we moving to CA”. And at that moment I started looking for a new job. I found one right before the bottom dropped out of the economy. Most of the folks I met while in Torrance are in serious financial trouble. The home I mentioned at $700K is almost 12 months in arrears, no payment. He told me a few months ago via email he stopped paying his mortgage because hardly anyone else at my old job was. He said he felt like a loser, but realized he needed to bankroll cash for the inevitable eviction and foreclosure. Torrance in 2006 2007 was insanity, pure and simple. I have never before or since ever experienced such poor critical thinking skills in a group of people like the bunch I met there in 2007.
@Gibbon1 – while I agree with your conclusions as being the operational results of what happened which inflated the bubble, I don’t think they were the original cause; BTW check out an archived podcast from “This American Life” on NPR called something like “The Giant Pool of Money” which did a great job chronically exactly what you are describing,
I believe the cause had to do with Wall Street greed combined with the political desire to expand home ownership through policy changes which lessened lending regulations. The creation of the financial instruments which allowed for the securitization of mortgages while spreading the risk to investors ( and away from lenders ) fit perfectly with the desire to extend credit for home purchases to riskier buyers (with little to no money or income ) that could not otherwise qualify.for mortgages at the time; including increased minority and low income ownership levels. .Wall street made it happen and found willing participants on all ends of the deal – and made tons of money along the way – including to bett against the whole process using CDOs. Its just hard to know which came first, the regulatory policy changes which allowed it to happen or the financial instruments which enabled it to happen. Coincidence or as a response to a political desire ( and also investor desire ) to increase potential housing market share. Classic chicken-or-egg scenario.
just read about the Shadow pipeline being 18 million on Alpha that was published on Yahoo. Perhaps understating the problem, if anything…
We threw in the towel today. With BA reducing mortgage principal, California extending the homebuyers tax credit, speculators driving up the market and now the govt using TARP funds to write down principal and demand that banks require jobless people to not make mortgage payments, we give up. It’s 2004 all over again and the RE bubble is reinflating fast. We will never own a home again, and you know what, it’s okay. Our retirement involves an RV now. I am not kidding. Thanks US Government, for making it a fair and level playing field for those of us who played by the rules, paid our debts on time, saved for a rainy day, bought only what we could afford, and basically are complete fools. I could care less about my FICO score.
Sweet deal. I’d buy this in a heartbeat.
http://www.redfin.com/CA/Laguna-Beach/1087-Flamingo-Rd-92651/home/4892722
wow, really?? you my friend not only write like an idiot, but you also sound like a “unknowning” racist….
it doesn’t matter if you’re asian or not, people just don’t like to lose money. plain and simply people are most likely going to hold out until they need to sell. don’t get your panties all in a bunch because these “assains” aren’t selling their homes where YOU seemingly want to buy. get over it.
while some of your theories, despite your grammatical errors and what seems to be a disconnect from the english language, are close, some of your stereotypes are simply offending. keep to your RE theories and economic forecasts as some are good, while your socio-economic valuations are horrendous and make you sound like a moron……
Wow! Very interesting reading! I can’t believe the prices you people are comparing. I just bought a single level 2600 sq ft home blt in 2003 here in Phoenix for $80,000. My piti is $650/mo, actually will go down next year when taxes adjust to about $550piti. The bank foreclosed on $275,000 note.
Now you see why we are flooded with Ca investors, just like in 2006-7.
We are having a 50-75% off sale. I am buying all I can under $100k.
You’re so smart da-di-da. Are you seriously telling me Asians are what holding up the market in Torrance? What about suppply and demand? It is also the first that I heard that Asians are not good with money. You know, they are probably the ones with enough down payment/ equity in their house that there is no pressure to sell. Just because people don’t do what you expect, that doesn’t make their choice any less valid than yours.
I’ve been waiting for you to address the latest Obama mortgage rescue plan. Is there not enough info yet? I’m sure you will point out why the banks are solidly behind the plan. I’m more interested in what your projections are regarding home prices and foreclosures. Will this make any difference? Thanks.
Thanks for all the amazing work, Dr. H!
The shadow inventory will be the new norm for a long time. The government has relaxed all rules/fiscal responsibility to allow banks to carry the inventory with no consequences. The government wants the stock market and house prices up, and wants the banks to earn their way out of insolvency. There is nothing going to get in their way, they are (an will continue to do so) sacrificing the long term prosperity of the next generation, middle class and elders, and could care less. They will not take away the stimulus. The housing credits will be extended indefinitely although they won’t tell you that until close to the expiration date. They will keep giving .25% interest money to the banks (in exchange for junk collateral) so they can keep pumping the stock market making huge profits and keep making ridiculous profits on interest rate spreads. They will also be allowed to carry homes on their balance sheets at phony prices (not marked to the current market), only working them off slowly so as to not destroy their profits or collapse house prices. The gov/banks have the staying power to do this, the gov can print as much money as they need, banks can hold the houses as long as they need to, and slowly (10-15 years) control the prices down while moving the homes to rich investors. The consequences of these actions will be inflation (big time in 1-2 years and they will lie about how much), and a disjointed housing market with banks carrying the bulk of the inventory like Dr. HB describes, massive deficits and debt. Eventually (like 5-10 years unless the system collapses/implodes from an external event), employment, house prices, inflation, interest rates, will reach a new equilibrium and that will be the new base to go forward.
Typical housing cycle has been 7-10 years (top to bottom to top). Picking mid/late 2005 as the top, we are 5 years into this cycle. Due to the size of the bubble and the severity of the pullback, assume this cycle takes twice as long. 15-20 years. The bottom is 2012-2013 to the next top at 2020-2025. If you are thinking of buying, do a rent vs buy comparison assuming the house value looses 5-10% in 2-3 years, climbs back to break even in another 2 (this could be much faster with hyperinflation), then plods upward at 1-2-3%/year thereafter (mostly due to inflation).
We are starting to see the extended implosion in Ohio. The formerly good city urban areas have just fallen to their knees, and now I see pockets of homes in the suburban areas that are selling well and actually increasing in price. But the rest of the homes are in decline across the board – basically because of the jobs situation. (Ohio was formerly a big manufacturing state and now is going technology and/or reverting back to big farm agriculture). People are leaving in droves to the southern “right to work” states which are less unionized and have work. I fear for the cities here, there is a lot of infrastructure that is crumbling around us. When inflation hits, and it will, all bets are off on who can buy a home, anywhere.
Guys, Johny and wow you smart pants, I invite you to invest in Torrance. Get the real feeling. Get into the RE race with assians and let me know when you build equity… in 5 years in 10 years…. here is not a place for political corectness so assians are money stupid. Got it? Ha-ha-ha!
L check http://www.housingtracker.net/asking-prices/los-angeles-california/ before you throw the towel. You should know that inventory in LA is up 24% for a month and median asking price is 5% down, when economy is stabilized but only on a lower level, commercial property catastrophe is unfolding and still in the future (come see how scary is del Amo Mall parking lot. ha-ha-ha), gov incentives are ending (and the market is get insensitive to it) , the first horde of knife – catchers is learning a lesson called “back of a napkin buy vs. rent estimate . This is clearly different trend that you describe. No seasonality can explain this because in Vegas or Phoenix or Florida there is no such trend visible at this moment. It looks like they have taken their punches. I think this time will be different for California alone… ha-ha-ha. Besides this when it is really over there is no sense of emergency anymore. That is the way it ends every time. With the biding wars going right know it is clearly to me a dead cat bounce, same as 1993 before the prices start the decline for 3 more years in LA and then comes 1996 , the true bottom…where “investment in RE†will be dumb idea for a while , people will value higher there freedom renting, and generally there will be no emergency buying…
I read a lengthy but provacative piece last week explaining why this is not a recession so much as a decline that returns to historic norms. The last 40 years have been the mother of all asset bubbles (starting with reneging on the Bretton Woods agreement and the whole world going 100% fiat) and that we are merely going back to the long-term normal, only the PPT is trying to keep the party going. Without inside information to know which area of the economy the gov will let slip, there is no sense in betting strongly on anything.
That being said, everyone knows construction folks that are out of work or slow the last two years. If things are golden again, they will be working steady. You need paychecks to buy groceries and pay mortgages. Feed a starving man gov’t statistics and tomorrow you’ll have a dead man.
Financial Armegedden? 2012-2014: Housing crisis debt, M&A, US Gov, Junk, all coming due in three years. If this debt doesn’t rollover, everything in the world will. This can’t go on forever, and 2012 is just 21 months away.
http://www.nytimes.com/2010/03/16/business/16debt.html?pagewanted=2&ref=business
Da-Di-Da: your comments are pretty ignorant. If you think that a race of people are keeping housing inflated, you need to go read a book and learn something. You are clearly interested in housing in Torrance area and placing blame on people because you probably cant afford it. The prices in Torrance remain high, just like all other desirable locations in southern california because it is exactly that… they are in desirable areas. Oh btw, Irvine has a higher Asian population than Torrance… so your arguments do not really hold true.
If you really want to blame anyone, blame the government who continue to help keep prices inflated with our tax dollars, instead of letting the market correct itself.
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