It’s the inventory STUPID!
San Diego inventory passed 17,000 on Feb 21st, and is officially at 17,027 per ziprealty.com…but don’t be surprised if it is higher when you check it. On Jan 23rd, the inventory was 15,568. That is a 9.38% increase in the last 30 days. Don’t wait for the Union Tribune to tell you that though. Take the initiative to check it out yourself, or use the resources of this blog and others. If you depend on the media to tell you what is happening, you will be behind the power curve. Don’t forget that during the ‘good times’ in 2004 the inventory was in the 2900-3000 range.
Take for example this article in the OC Register. I’m sure some of you saw it yesterday, but it was called “Is median price drop a blip or an omen?“. It is worth reading if you haven’t read it. I just don’t get why nobody will touch the ‘inventory’ issues that are being seen in every major bubble area. Check out this excellent site that does nothing more than track the inventory in the bubble areas. One other point I want to make here:
Fact: In January, 72 percent of Orange County’s homebuyers chose adjustable-rate loans to finance their deals. That’s the lowest use of these loans since May 2004.
Only a blip: Lower adjustable mortgage use means fewer buyers who’ll be subject to payment shocks if interest rates rocket higher.
72% of the people used an ARM mortgage to finance their deals in January, and that is the LOWEST rate in 20 months?!?!?!? So it is save to say that 75% or more of the loans the past 2 years have been ARMs, and nobody sees a problem with that?!?!? The fixed rate mortgage is all but dead for many of these people because they can’t afford it in the long term!!! Yes, I know it is Orange County, and there are some sophisticated people there that are leveraging their money, managing their cash-flow, and making investments in and out of real estate, but those are not the majority of people in Orange County. If you look at the affordability numbers, it is no secret why 3/4’s of the people are not getting fixed rate mortgages…they can’t afford it!! If you look at PIMCO’s research, they said that from Nov 2004 to Nov 2005, that 82% of the purchase loans were either interest only, or neg-am (option-ARMs).
Back to the inventory numbers….
This is simple supply and demand. I know that people still think they are entitled to the ‘appraised’ value of their property, but they are going to have to realize the important fact that property is worth what somebody will pay for it, not what a 10-20 page appraisal says.
I think prices will be sticky for a few more months. I have talked to quite a few people who are still holding out for things to ‘pick up’ in the spring “like they ALWAYS do”. Once all of the ’spring sellers’ get their spring ’surprise’, watch for the media to start covering the issue. I don’t think it is a secret that real estate has become very popular because it has been associated with ‘easy money’ in books, infomercials, and the news. The increased inventories will eventually lead to falling prices (yes, I know it is already happening so some extent), this will eventually lead to media coverage that will inevitably include a realtor ‘expert’ who will rationalize things, but the end result will be a change in the market psychology. Throw in a few trillion dollars of adjusting ARMs, some foreclosures (which increase inventories), and more media ‘piling on’ the coverage…and you will finally have your widespread price declines as the masses realize they have been bidding up overpriced assets with funny money. The problem is that the bank and the IRS doesn’t think the money is all that funny. In fact, it is quite real to them.
Making an interest only mortgage payment that is 2-3 times what you could be paying in rent gets old extremely quick when your property is not appreciating at double-digit rates of return. Look for the fundamentals to return to not only the real estate market, but the mortgage market as well.
Sorry if I sound like I’m beating a dead horse. Sometimes I just feel that I’m saying the same things over and over. Let me know what you think.
I look forward to the comments and feedback!
SoCalMtgGuy
February 22nd, 2006 02:13
socal,
no need to apologise, i know it feels like you are beating a dead horse but no need to apologise. I’ve been telling friends to be careful, they wont listen, send them links to good reading material and they wont read, i”m willing to discuss
money or real estate issues but they wont debate, they have made up their minds. nothing i say or you write is getting to a lot of these people.
but what you are doing is an incredibly caring thing for a lot of us out here , so there is no need to apologise.
I just got this from a friend from Honolulu. I sent him a ton
of links about the housing market and his 6 month late reply
is
” I did buy a place on Aug 1(thats 05), actually signing directly off the plane from Tokyo. When you come visit, you will see that regardless of markets I personally believe I am very lucky to buy where I did. ”
see what i mean? regardless of markets? lucky to buy in Aug.2005?
you will see that….. I personally believe I am very lucky!
see what i mean?
have a good day and thanks for an educational and entertaining site.
February 22nd, 2006 02:37
Flogging a stubborn mule is more like it. At least you keep the cold hard facts coming. That in itself might be enlightening to someone who stumbles on to your site. The other side has stopped using facts, you just might save another potential FB.
February 22nd, 2006 05:22
Keep beating the dead horses.
People who were wise to this years ago, and have been reading for some time, will get bored.
But there are other people who will be hearing it for the first time.
Perhaps you need to write the penultimate “here is what was happened” post for IO loans, option ARMs, soaring housing costs relative to income — and the likely signs that it will all unravel. Like inventory.
February 22nd, 2006 05:25
(just got this from a friend from Honolulu. I sent him a ton
of links about the housing market and his 6 month late reply
is ” I did buy a place on Aug 1(thats 05), actually signing directly off the plane from Tokyo.)
LOL. If you recall in the late 1980s and early 1990s Japan was rolling in dollars, and many Japanese companies were posting workers to the United States. The joke around Brooklyn as the market tanked was that everyone was trying to find a Japanese buyer! Buy products built by Japanese engineers and craftsman, but avoid Japanese finance.
February 22nd, 2006 05:51
We’re seeing inventory jumps all over the state:
http://nitricacid.blogspot.com
Sacto now stands at 8800 listings, up 20% since Jan. 1
February 22nd, 2006 06:50
I agree that market sentiment will take a dump when people think that their homes will go down in price and not appreciate at all. Everyone is chasing the easy money but it is drying up quickly. I think the spring will actually worsen the situation. There are a lot of people waiting to list in the spring to take advantage of the herd. The market will be flooded with inventory and prices will have to adjust. Over here in gilbert I can already see it playing out. It just seems buyers have dissappeared from this market. I think that prices have got so high here that it doesn’t make sense for people to buy now. I’m feeling good about renting and watching this play out.
February 22nd, 2006 07:04
I wish I had a crystal ball and knew exactly how much of a percentage drop we are going to see in prices. Anyone willing to put their neck out and guess? I’ve seen 30% in a lot of articles and blog postings lately.
February 22nd, 2006 07:17
Monica: My crystal ball for the SF Bay area: 20-30% real loss over the next 5-10 years. This “Drop” may be either long term flat (inflationary loss), or an actual price collapse. But a drop of that magnitude.
Why?
Because that is what it would take for (Interest, property tax, hoa, insurance, - tax savings) to be less then or equal to rent.
February 22nd, 2006 07:56
the best thing that can happen is for nothing to change just yet. let the inventories climb to freakish levels, and sellers leave those prices right where they are.
socal……..keep on saying the same simple message over and over. you will be gaining a larger audience than you ever imagined before this is done.
February 22nd, 2006 07:59
SoCalMtgGuy,
You’re right on the money here. I know everyone has talked about this subject over and over again but it needs to be. People are very dismissive when it comes to behavioral finance, this case real estate, and they need to hear these statements over and over for it to penetrate through their thick egos. I have seen the mortgage piece dry up considerably and we haven’t seen anything yet. My clients usually borrow in the millions and that has been far and few between. In fact, they’ve been liquidating or trying to liquidate the properties for the last 6 - 8 months. We can easily end up in a situation similar to Japan. The writing is on the wall.
February 22nd, 2006 08:03
No need to apologize, great post.
I think it would be great if you would post more specific stories about specific f’d borrowers you’ve come across in your work. Those stories are gold!
February 22nd, 2006 08:11
Prices are sticky on the way down, because of emotions of the homeowner/seller. Has anyone extended the study of behavioral finance to homewoners? As a breed, they think their home is worth more than it is, and their emotion keeps them attached to this idea.
Thus, I’ve seen pre foreclosures for 5 people I know, and they are not even listing their houses for sale! Now, if people if pre foreclosure are not selling, how long will it take for these overleveraged ARMs borrowers to default in masses? Add about 6 - 8 months from the time they default. They will hang on until the very end. Until the auction. They will try to sell other assets, borrow from family, try to refinance, string the bank along, etc. And for those who are selling, they are dropping their price in $5K increments.
In my neighborhood, a duplex is overpriced by $100K. It had one reduction, very slight. It’s been on the market since October, and the owners want to buy a bigger house in Temecula. They’re sitting tight. Sticky prices…
Just remember one thing: house prices are sticky on the way down because homeowners don’t want to “lose my equity”. So it will take about 5 years for the bottom to hit.
What could accelerate it? Lender action. Only if lenders force quick foreclosures. If they give the homeowners time to work it out, this thing will just drag along.
SoCal - have you yet seen any of these pre foreclosure people who want to get another cash out refi or any refi at all, to pay off that late mortgage? I did read an earlier post of yours where you said that a mortgage late would disqualify you from getting any loan.
February 22nd, 2006 08:47
I predict a 60% drop in house prices in the big California population centers.
I’m saving up to buy TWO McMansions and then rent them out to multiple bubble pop bankruptees. Perhaps 3 or 4 families per house.
Oh boy oh boy.
February 22nd, 2006 09:20
Does anyone else find it odd that the media ignores this story of drastically increasing inventory? Is it deliberate or just inept reporters?
February 22nd, 2006 09:32
I don’t believe the 60% drop hype anymore than I believe the real-estate hype before.
Prices are sticky somewhat, and inflation will probably be a big source of the drop. At 3% inflation, it takes about 10 years to work out the bubble, by which time a person who rented & saved could easily have $100k for the down payment (and an inflationarily higher salary of ~35% increase, assuming wage tracks inflation).
But a REAL drop of 20-30% over those 10 years seems quite likely. I suspect that it will take at least 2+ years before the distressed sellers cause prices to drop somewhat.
I also don’t see a drop much GREATER than 30% real drop. As soon as (Interest, property tax, maintinence, insurance - tax savings) is significantly less than rent (eg, a 35% drop), then the REAL investors can move in and put a floor on the market: trading a higher cash flow cost (principle payments) in return for rent which more than covers all the “lost money” portions of ownership.
February 22nd, 2006 10:06
The drop in California has only begun. There will be a lot of sorry homeowners. Guessing the % of a drop is hard to do, and will vary by region.
February 22nd, 2006 10:35
I am a student of the CA RE mkt. in general, and da OC in particular.
While I sold my place in Irvine ( for a gain of nearly 100% in 3 years, thank you!) and think prices are way overvalued, I don’t expect the median home price to drop more 10% from here. Why? The psychology behind the residential RE mkt. is very strong. People (lemmings) have been conditioned to buy no matter what the cost, so long as the payment is tolerable.
As such, even when the facts suggest buying now is LIKELY a losing proposition over the next 3-5 years, people will simply console themselves with the fact “they’re building equity”.
I’m glad I lived in the OC before it was a TV show, the traffic has made it almost as bad as West LA and the beige stucco is as omnipotent as the plastic people in their leased vehicles.
Good luck OC, you’ll need it!
February 22nd, 2006 10:43
At 3% inflation, it takes about 10 years to work out the bubble, by which time a person who rented & saved could easily have $100k for the down payment (and an inflationarily higher salary of ~35% increase, assuming wage tracks inflation).
I think it is important to consider the components of inflation. US wages do not automatically go up concurrently with consumer price inflation. Wages in the US seem likely to stagnate given the competition from abroad. China and India will have to raise wages quite a bit before companies will find it more efficient to raise US wages. Union power is not what it once was. Yet urban wages in China are rising at 13%/year and India is not far behind. The rising wages in developing countries will be good for the world–and many people will be lifted from extreme poverty–but American consumers will pay higher prices for goods manufactured abroad and services provided by foreigners.
Thus we could have consumer price inflation *without* concurrent US wage inflation. This will greatly reduce the amount that Americans will be able to afford to spend on housing (same income, higher costs for food, energy, electronics, autos, etc….) Sounds like a *de*flationary scenario for housing prices.
February 22nd, 2006 10:54
so i’m at lunch yesterday and a friend’s boyfriend bought a house in december 2005 and he is convienced it’s already worth 80K more than he paid for it, and this is riverside county.
i’ve been preachin a bubble for 2 years and now, i hate to say it but most of my friends look at me like the lone gunman who’s gonna end up broke while they are all rich in realestate.
i got burned once (bought in ‘91) and who woulda thunk this could go on so long????
February 22nd, 2006 10:59
Sounds like a *de*flationary scenario for housing prices.
Well said SoCalRenter!
There is a bit of a bubble here in Minneapolis/St. Paul. According to MLS, there was a 12.5% percent increase in houses for sale. In California, this might not be surprising. In Minnesota, where the ambient temperature was -12 degrees during the daytime last week, this is amazing. People don’t like to go out and look at houses when it is that f***ing cold out.
As I posted yesterday, this is an excellent link to examine the amount of supply of rental and homewowner housing currently vacant:
http://www.census.gov/hhes/www/housing/hvs/qtr405/q405tab1.html
This little chart provided by the Census bureau shows that there are simply too many forms of housing on the market. Period. There will have to be a correction of some variety.
February 22nd, 2006 11:00
“Thus we could have consumer price inflation *without* concurrent US wage inflation. This will greatly reduce the amount that Americans will be able to afford to spend on housing (same income, higher costs for food, energy, electronics, autos, etc….) Sounds like a *de*flationary scenario for housing prices.”
The government will cook the books to under-report inflation.
They will print money to inflate out of the deflationary threat. I think house prices are going to stay constant, but the value of money will debase. House prices could actually appreciate! You do not need to see huge price declines to actually feel the pain. It’s why median house price is such a poor gauge of the market, and why inventory is a much better story.
It’s already happened actually:
(I know the DJIA or index has survivorship bias, inflation, etc) Look at the NASDAQ/Gold ratio, or the DJIA/Ratio, or the Russel 2000/Gold ratio, or replace gold with a large basket of commidity futures (metals, oil).
Remember, productivity gains should be deflationary to the commodity index (because they reduce the price to extract assets).
Fewlesh.
February 22nd, 2006 11:13
Hey threadkilla,
I live own in Riverside and prices have shot up like crazy. It’s comsidered one of the biggest bubbles in the country (i think). You friends buddy is being a littl too optimistic though. I highly doubt it shot up 80k in 2 months. Give me a break. Maybe 20k. Prices are actuallt tapering of around here. He will be SAD when this thing comes down as most people that bought in AT THE PEAK.
cheers
February 22nd, 2006 11:14
In the last bubble, it took seven years from 1987 to 1994 for inflation and a modest 10% drop to cut the price of one-family homes by one-third. Condo and coops had a more rapid descent.
The thing is, the median price of homes sold is just that. So if the only house that sells in a metro is a foreclosure sale, that prices in the median price. So even most people choose not to sell at a “discount,” the comps could fall.
That, plus the internet, could make things happen quicker. In the 1990s you saw a smattering of homes sales listed in the New York Times each week, from all over the metro area (with 20+ million people). Now I can look on Property Shark and see the sales price of homes in my neighborhood that sold last month.
February 22nd, 2006 11:31
Hi,
My name is Exiled, I am a popaholic! I have been reading your articles and postings for some time. All I can say is BEAT THAT HORSE UNTIL IT POPS LIKE A WEASEL!!!!!
February 22nd, 2006 11:52
have you guys been checking out realtytrac lately on some of the foreclosures? there’s some definate gems of an FB on there. one guy made a purchase of a 1.2 million dollar home on ZERO down! and then took out a $50,000 HELOC, I’m assuming to pay for the monthly mortgage on the 80/20 loans valued at $1.2 million.
i know we have had some real loose lending practices, but a zero down $1.2 million loan? and a HELOC on top of that?
February 22nd, 2006 12:07
here is some information about inventory and price reductions and foreclosure numbers for Sonoma, ca.
(Sonoma)as of 2/20/06:
For Sale Listings: 176 (www.ziprealty.com)
Listings w/reduced prices: 52
Listings with price reductions: 30%
183 For Sale listings according to Pacific Union/GMAC MLS
(GMAC MLS) claims 50/183 under contract
Realtytrac.com shows: 16 in foreclosure (many correspond to some of the listings below)
Foreclosure.com shows: 48 in 95476 in foreclosure (once again, many correspond to the listings below)
1. 792 AUSTIN AVE, Sonoma, CA 95476
Price Reduced: 02/14/06 — $910,000 to $889,000
Days on Market: 27
Total Reduction: 21k round about 2.3%
(wow, this guy is really pricing to sell. Hurry, Hurry, come one come all… this one is priced to move quickly, come and get your 2.3% price reduction)
2. 18423 RIVERSIDE DR, Sonoma, CA 95476
Price Reduced: 02/18/06 — $650,000 to $575,000
Days on Market: 31
Total Reduction: 75k round about 11.5%
3. 222 & 226 W SPAIN ST, Sonoma, CA 95476
Price Reduced: 02/10/06 — $2,275,000 to $1,975,000
Days on Market: 31
Total Reduction: 300k round about 13%
4. 193 GUADALUPE DR, Sonoma, CA 95476**
Price Reduced: 02/07/06 — $629,000 to $619,000
Days on Market: 43
Total Reduction: 10k round about… don’t make me laugh
5. 435 JACEY ST, Sonoma, CA 95476**
Price Reduced: 01/26/06 — $599,950 to $589,950
Price Reduced: 02/16/06 — $589,950 to $559,950
Days on Market: 45
Total Reduction: 40k round about not even 10%
6. 111 W MACARTHUR ST, Sonoma, CA 95476**
Price Reduced: 01/18/06 — $450,000 to $430,000
Price Reduced: 02/13/06 — $430,000 to $410,000
Days on Market: 47
Total Reduction: 40k round about still less than 10%
7. 18817 RAILROAD AVE, Sonoma, CA 95476**
Price Reduced: 01/19/06 — $649,000 to $644,500
Price Reduced: 02/01/06 — $644,500 to $639,500
Days on Market: 48
Total Reduction: 9,500k round about… couldn’t even spring for the full 10k reduction huh?
8. 731 5TH ST E, Sonoma, CA 95476**
Price Reduced: 01/03/06 — $875,000 to $849,950
Price Reduced: 01/09/06 — $849,950 to $849,444
Price Reduced: 02/01/06 — $849,444 to $799,444
Days on Market: 56
Total Reduction: 75,556k still less than 10%
9. 609 ROSS CT, Sonoma, CA 95476**
Price Reduced: 01/06/06 — $849,950 to $829,950
Price Reduced: 01/17/06 — $829,950 to $799,950
Days on Market: 69
Total Reduction: 50k round about 6%
10. 17660 17662 MIDDLEFIELD RD, Sonoma, CA 95476**
Price Reduced: 02/02/06 — $1,140,000 to $1,095,000
Days on Market: 69
Total Reduction: 45k round about… why bother?
11. 304 DECHENE AVE, Sonoma, CA 95476**
Price Reduced: 01/26/06 — $659,000 to $639,000
Days on Market: 76
Total Reduction: 20k round about… so not impressive
12. 18585 MANZANITA RD, Sonoma, CA 95476**
Price Reduced: 12/20/05 — $740,000 to $729,000
Price Reduced: 02/07/06 — $729,000 to $699,000
Days on Market 79
Total Reduction: 41k round about …. pppfffftttt
13. ? 18677 MELODY LN, Sonoma, CA 95476**
Price Reduced: 02/06/06 — $649,000 to $629,000
Days on Market: 75
Total Reduction: 20k wooohooo… can I get a “Hell Ya!!” for round about 3% ?
14. 1385 BAINBRIDGE LN, Sonoma, CA 95476**
Price Reduced: 12/13/05 — $710,000 to $675,000
Price Reduced: 01/03/06 — $675,000 to $670,000
Price Reduced: 02/09/06 — $670,000 to $669,000
Days on Market: 91
Total Reduction: 41k around 5.8%. ..was this the guy’s interest rate before his ARM adjusted?
15. 1343 E NAPA ST, Sonoma, CA 95476**
Price Reduced: 01/17/06 — $1,368,000 to $1,295,000
Price Reduced: 02/13/06 — $1,295,000 to $1,268,000
Days on Market: 94
Total Reduction: 100k That’s nuthin’ I bet Bill Gates has this between his couch cushions
16. 18015 HARVARD CT, Sonoma, CA 95476**
Price Reduced: 02/04/06 — $775,000 to $750,000
Days on Market: 95
Total Reduction: 25k priced to sell, I tell you. Better hurry up or be priced out forever.
17. ? 970 GLENWOOD DR, Sonoma, CA 95476**
Price Reduced: 01/10/06 — $679,000 to $665,000
Days on Market: 89
Total Reduction: a great big fat 14k
18. 535 MITCHELL WAY, Sonoma, CA 95476**
Price Reduced: 01/16/06 — $799,000 to $775,000
Price Reduced: 01/26/06 — $775,000 to $750,000
Days on Market: 96
Total Reduction: 49k come on… would the full 50k kill you?
19. 919 1ST ST W, Sonoma, CA 95476**
Price Reduced: 02/01/06 — $415,000 to $405,000
Days on Market: 100
Total Reduction: 10k Oh Puuhhleeaassee!
20. 910 ARGUELLO CT, Sonoma, CA 95476**
Price Reduced: 01/06/06 — $649,500 to $629,500
Days on Market: 103
Total Reduction: 20k This 3% thing is popular…
21. 920 5TH ST #M, Sonoma, CA 95476**
Price Reduced: 11/16/05 — $425,000 to $389,000
Price Reduced: 01/16/06 — $389,000 to $373,000
Days on Market: 111
Total Reduction: 52k round about 12%
22. 1365 DAWN HILL RD, Glen Ellen, CA
Price Reduced: 12/11/05 — $1,400,000 to $1,198,000
Days on Market: 104
Total Reduction: 202k round about 14.5%
23. 215 DEPOT RD, Sonoma, CA 95476**
Price Reduced: 01/10/06 — $565,000 to $525,000
Days on Market: 112
Total Reduction: 40k right around 7%
24. 16880 ESTRELLA DR, Sonoma, CA 95476**
Price Reduced: 02/02/06 — $997,000 to $950,000
Days on Market: 117
Total Reduction: 47k round about 4.7%…really is the 5% too much to give back?
25. 17930 SPRING ST, Sonoma, CA 95476**
Price Reduced: 12/08/05 — $499,000 to $484,000
Days on Market: 124
Total Reduction: 15k that was hardly worth the time it took to re-enter it in MLS
26. 16737 SONOMA, Sonoma, CA 95476**
Price Reduced: 11/29/05 — $635,000 to $599,000
Days on Market: 124
Total Reduction: 36k somewhere near that 5.8% again
27. 832 2ND ST W, Sonoma, CA 95476**
Price Reduced: 11/15/05 — $545,000 to $525,000
Price Reduced: 01/13/06 — $525,000 to $510,000
Days on Market: 124
Total Reduction: 35k in the ballpark of 6.5%
28. 600 OMAN SPRINGS CIR, Sonoma, CA 95476**
Price Reduced: 11/08/05 — $669,000 to $654,000
Price Reduced: 11/16/05 — $654,000 to $639,000
Price Reduced: 01/09/06 — $639,000 to $619,000
Days on Market: 126
Total Reduction: 50k in the neighborhood of 7.5%
29. 846 848 3RD ST, Sonoma, CA 95476**
Price Reduced: 11/18/05 — $897,000 to $875,000
Price Reduced: 01/17/06 — $875,000 to $850,000
Days on Market: 126
Total Reduction: 47k round about: 5.3%
30. 19177 ARNOLD DR, Sonoma, CA 95476**
Price Reduced: 12/05/05 — $625,000 to $599,999
Days on Market: 128
Total Reduction: 26k round about: who gives a rat’s ass?
31. 17313 PARK AVE, Sonoma, CA 95476**
Price Reduced: 01/31/06 — $599,999 to $589,999
Days on Market: 131
Total Reduction: 10k round about: give you 3 guesses why this baby ain’t movin’!
32. 162 W AGUA CALIENTE RD, Sonoma, CA 95476**
Price Reduced: 01/09/06 — $368,000 to $364,900
Days on Market: 136
Total Reduction: round about 3k… baahahahahahahaha!
33. 842 W 2ND ST, Sonoma, CA 95476**
Price Reduced: 12/06/05 — $549,000 to $539,000
Days on Market: 139
Total Reduction: 10k let me get my bullhorn… “Dear Seller, 2% isn’t very compelling!”
34. 49 S TEMELEC CIR, Sonoma, CA 95476**
Price Reduced: 01/19/06 — $589,000 to $569,000
Price Reduced: 02/08/06 — $569,000 to $549,000
Days on Market: 145
Total Reduction: 40k round about: not much
35. 399 DAHLIA DR, Sonoma, CA 95476**
Price Reduced: 01/31/06 — $545,000 to $539,000
Days on Market: 146
Total Reduction: 6k round about: YAWN
36. 17178 SONOMA HWY, Sonoma, CA 95476**
Price Reduced: 12/02/05 — $385,000 to $375,000
Price Reduced: 01/06/06 — $375,000 to $329,000
Days on Market: 154
Total Reduction: 56k round about: 14.5%
37. 4611 WARM SPRINGS RD, Glen Ellen, CA
Price Reduced: 01/04/06 — $699,000 to $629,000
Days on Market: 151
Total Reduction: 70k round about 10%
38. 980 RACHAEL RD, Sonoma, CA 95476**
Price Reduced: 11/22/05 — $2,495,000 to $2,375,000
Price Reduced: 01/16/06 — $2,375,000 to $2,345,000
Days on Market: 159
Total Reduction: 150k round about- almost 1k per day since its been listed
39. 140 ENCINAS LN, Sonoma, CA 95476**
Price Reduced: 11/30/05 — $510,000 to $500,000
Price Reduced: 01/30/06 — $500,000 to $495,000
Days on Market: 160
Total Reduction: 15k round about: squat
40. 511 BAINES AVE, Sonoma, CA 95476**
Price Reduced: 11/11/05 — $535,000 to $510,000
Price Reduced: 11/30/05 — $510,000 to $495,000
Price Reduced: 01/12/06 — $495,000 to $479,500
Days on Market: 163
Total Reduction: 55.5k round about 10.4%
41. 17023 SUMMER MEADOW LN, Sonoma, CA 95476**
Price Reduced: 11/14/05 — $1,249,000 to $1,149,000
Days on Market: 165
Total Reduction: 100k right close to 8%
42. 12 WOODWORTH LN, Sonoma, CA 95476**
Price Reduced: 02/10/06 — $399,000 to $379,000
Days on Market: 166
Total Reduction: 20k round about: 5%
43. 17333 MALEK LN, Sonoma, CA 95476
Price Reduced: 02/20/06 — $549,000 to $544,000
Days on Market: 173
Total Reduction: 5k round about: You have GOT to be kidding me! LOL
44. 107 PINE AVE, Sonoma, CA 95476**
Price Reduced: 02/06/06 — $479,000 to $469,000
Days on Market: 188
Total Reduction: 10k round about: who cares?
45. ? 715 BOYES BLVD, Sonoma, CA 95476**
Price Reduced: 11/14/05 — $879,000 to $849,000
Price Reduced: 02/08/06 — $849,000 to $799,000
Days on Market: 181
Total Reduction: 80k round about 9.1%
46. ? 18395 BARRETT AVE, Sonoma, CA 95476**
Price Reduced: 01/30/06 — $579,000 to $569,900
Days on Market: 190
Total Reduction: 10k round about 1.74% (who came up with that lame number?)
47. 13400 SADDLE RD, Glen Ellen, CA
Price Reduced: 12/19/05 — $1,149,000 to $1,049,000
Days on Market: 208
Total Reduction: 100k seems to be the magic number on million plus property
48. 17135 SONOMA HWY, Sonoma, CA 95476**
Price Reduced: 01/05/06 — $629,000 to $600,000
Days on Market: 208
Total Reduction: 29k round about: negligible
49. 13432 ARNOLD DR, Glen Ellen, CA
Price Reduced: 01/13/06 — $849,000 to $799,000
Days on Market: 209
Total Reduction: 50k round about 5.9%
50. 290 SERRES DR, Sonoma, CA 95476**
Price Reduced: 01/03/06 — $1,650,000 to $1,595,000
Days on Market: 264
Total Reduction: 55k round about a blip
51. 1901 FREMONT DR, Sonoma, CA 95476**
Price Reduced: 02/02/06 — $2,950,000 to $2,650,000
Days on Market: 271
Total Reduction: 300k close to 10.1%
52. 16743 SONOMA HWY, Sonoma, CA 95476**
Price Reduced: 11/29/05 — $635,000 to $599,000
Days on Market 489
Total Reduction: 36k round about barely noticed
February 22nd, 2006 12:12
some seem to get it on that list… and others seem to not be taking the longer sales cycle and climbing inventory seriously. But who is surprised by that?
Oh and of course all the local news outlets are totally mute on all of this.
February 22nd, 2006 12:25
I’ve been watching this bubble closely for over 3 years. I think we’ll see at least a 50% drop. People think its so drastic, but look at it like this: my 200k house is now 700k (in SoCal), so with a 50% drop its still +150K. When you factor in a drop you can’t look at today’s market, you have to also forcast the conditions for the drop. Massive unemployment is bound to strike. Real estate has been built as a single point of failure and its now starting to fail!
February 22nd, 2006 12:30
well personally, I am tired of the bored housewives wanna be martha stewarts turned real estate agents, who think handing out fortune cookies at open houses are the way to making a quick buck and selling a house. I would like to see a few of them unemployed. I do solemnly swear never ever to buy a house from a realtor that has no concept of economics 101. criminy… I may never be able to buy a house then. :-/
February 22nd, 2006 14:02
I love your blog. You have such a wonderful sense of humor. Keep em coming.
They know the inventory is high but they don’t want us to know. Everything is rosey….NOT.
February 22nd, 2006 14:17
It’s amazing to me the power of psychology on the state of the market right now. I live in OC, and was recently talking with some friends about real estate. We were looking at the home listings from the Sunday paper. The conversation went something like this:
Me: How can you justify this $2 million price for an inland Newport Beach fixer-upper?
Friend: Easily - homes in Irvine cost over $1 million.
Me: How can you justify that?
Friend: Easily - homes in Tustin cost $800,000.
Me: How can you justify that?
Friend: Easily - homes in Riverside cost $600,000.
So my friend’s rationale is that since a home in Riverside costs $600,000, it makes perfect sense that a fixer in Newport Beach costs $2 million. So the whole market is bid up based on the initial price of a Riverside starter home. Sounds to me like faulty logic.
February 22nd, 2006 14:46
Soryy but we have new ‘estate’ homes in the Inland EMpire going for a cool 1.5M now so I think the OC fixer uppers are 3M now.
February 22nd, 2006 14:56
52. 16743 SONOMA HWY, Sonoma, CA 95476**
Price Reduced: 11/29/05 — $635,000 to $599,000
Days on Market 489
Total Reduction: 36k round about barely noticed
489 days on the market !? wtf?
talk about sticky prices
February 22nd, 2006 15:17
Hi guys!
First post, been lurking a couple weeks and thought I’d pop up and say a few words. To people who have mortgages over the value they can handle I see some of them hoping for a dollar devaluation to bail them out. I just want to say, how is a dollar devaluation going to help you keep your house? The people who will be on the receiving end of the printing presses will be the rich stock holders, the banks, not you. Do you expect your wages to automatically double if the dollar goes down? If you can’t pay your mortgage they will take your house and sell it for what they can. They won’t care about comps, or you, or your neighbors. Large scale defaults will be handled at auction with big money buyers who (oh, I’m sorry, you thought you were a big time playah?) know how the game is played. They might even rent it back to you. I know I’m preaching to the converted here but buy what you can afford. Sometimes a city gets so out of whack that if you aren’t already bought in, no way you can realistically afford to buy. Interest rates will probably go up, credit will get tighter. Protect your credit if you can. Whatever happens in the housing market in bubble areas will not be pretty when things turn down. I don’t know how anyone can borrow $1 million with no money down, an average working wage, and sleep at night. From what I’ve seen this bubble may be the one that breaks the bank, big time.
February 22nd, 2006 15:27
Ok Hi Socal, been reading just no time to post lately, keep up the good work. Anyhow had to grumble this one, I ahve an associate in San Diego, and yep for me too it is like flogging a dead horse, she totally disagrees with me, and today after all the anccedotal evidence she asks me where the hell do you et your info from, never heard such BS. As I told the blogs and they are real time comments from all over, and she is actually arguing with me that San Diego is all about supply and demand and to my surprise she said there just isn’t enough houses here. At that point I wanted to ring her neck an dtold her to check out your site, that the house count is 17,000 and counting, yeah but its the winter slow season she replied, at this point I just bit my lip hard and fortunately my phone rang. Boy and she is a very intelligent smart woman runs her own succefull business pretty alrge too.
But yep some people have a built in invisible barrier that we just can’t see or get around ahve a great day…
February 22nd, 2006 15:31
Hi all,
Not to change the subject but the #2 guy at the FED “Ferguson” just handed in his notice. Any of you old enough to remember the S&L scandle. The collapse was caused by lenders handing out bad loans.I would like to know what some of you think about all of the changes at the fed. Are the golden years gone for good? or Just a while????
February 22nd, 2006 15:31
excuse typos in a hurry
February 22nd, 2006 16:20
Just got finished reading an ISI research report that showed the housing supply NATIONWIDE at an ALL-TIME HIGH! This survey goes back to the 60s. Of course, you have to allow for the fact that the population is much bigger in the US than it was in the 60s, but the recent trend in supply of houses is almost a straight vertical line.
Agree with some on this site that the government, which posts a completely bogus CPI number anyway will inflate their way out of the deficit. This inflation will help save the heavily in debt as long as interest rates stay reasonably tame. In order for rates to stay low, we all better pray at night that foreign investors, both sovereign nations and individuals keep buying our long bond. If they don’t, even the government won’t be able to keep the real estate bubble from popping.
For those who don’t know, ISI is a highly regarded (and very expensive) institutional research organization that is used by a large percentage of institutional investors. Thus it’s information is to be heeded far more than Robert Kyosaki or Jane Bryant Quinn or the motley fool and their ilk. They actually post the facts, not the hype.
February 22nd, 2006 17:24
There is still widespread denial of the obvious housing bubble.
I have tried, unsuccessfully to warn newfangled RE “investors” about the financial risks they are taking - to no avail.
Unfortunately brains and success in specific occupations apparently don’t translate to financial acumen.
The last time Americans took on so much debt to purchase overpriced assets was in the 1920’s.
This is going to end so badly. It is NOT different this time!
February 22nd, 2006 17:40
you wanna see what $419,000 gets you in Bayonne, NJ?
looky here: http://tinyurl.com/khcd2
you think it looks bad in a photo? I walk by this crumbling pile of shit twice a day. it’s an insult to the eyes. it needs about 100,000 worth of reno.
Bayonne is full of old shitboxes like this. there’s lots of nice houses too, but the city’s housing stock is close to 100 years old and there’s no more land as we’re on a peninsula (not counting the toxic industrial area to the south-east, and who wants to live next to an oil refinery anyway). mitigating factors: cheaper than Hoboken/Jersey City, 30 minutes to lower Manhattan or 33rd/6th.
I realized tonight that it’s had a for-sale sign in front since I moved here last June.
February 22nd, 2006 17:44
SoCalMtgGuy,
First, thank you very much for your blog. I could read a lot over exorbitant housing prices on other blogs, but on your blog I read also on the more important issue behind them, the overwhelming personal debts. If millions feel (paper) rich or poor for a while, that doesn’t bother me, but the real debts of many frighten me. Their sad stories are both of human interest and, when occuring in large numbers, of interest for the economy of the US.
> Sorry if I sound like I’m beating a dead horse. Sometimes I just feel that I’m saying the same things over and over. Let me know what you think.
Because I have read here for quite a while now, I do think that some things become boring for me. A new reader might get more out of them, like I did in the beginning. Two things that I seldom get enough of are the concrete stories of borrowers and the changes in the financial industry (MBS etc.).
To ARMS: I think you shouldn’t preach too much against ARMs per se. I understand that many prefer a fixed-rate mortgage, like fixed property taxes as in CA, for a better estimate of what the future holds; on the other hand, most people in the world have only ARMs, and they don’t seem to get screwed more often than Americans. In Europe, for example, you can get only an ARM, as far as I know, albeit with a fixed starting rate for 5 or 10 y. Afterwards, the rates can go up or down: refinancing and its additional fees are much less widespread than in the US. Please save your scorn for the OPTION-mortgages aimed at the general public, may they have fixed or adjustable rates. Those mortgages will show their ugly faces in the next years, and early warnings are helpful to save at least a few.
> I look forward to the comments and feedback!
I hope I could give you back a little bit.
Thanks,
Peter
February 22nd, 2006 17:45
Exiled to Oregon,
Not a doubt in my mind that Easy Al has set up the Helicopter to be the fall guy for his 18+ years of loose $$ standards. Under Greenspan’s “rock star” stewardship, the dollar has lost 50% of its value. If these guys were card players Greenspan would be king of pass the trash. Any entity can look successful if it borrows enough money to buy the decorations and ornaments. This is what Greenspan has done with his endless bailouts of OC, the Asian crisis, Long Term Capital, and the economy after the tech collapse. These rescue operations have done nothing more than run up US debt to unprecedented levels, unlike the world has ever seen. Sounds to me like the “maestro” has hit a sour note.
February 22nd, 2006 17:55
SoCal:
I have been telling people the same thing for almost 3 years. What has pushed markets so high in places like here in Calif, is the very recent developments in mortgage lending. In the late 80s I used to tell people about my theory of “Unaffordability.” This is the trend towards prices rising to a level where almost everyone cannot afford to buy a house. Back then, the limiting factors were down payment, income levels, and payments.
Down payments were typically 10% or more. Now, almost anyone can buy with no down payment. The price of houses that can be bought with no down payment keeps rising. This pushes up the level of prices. Income levels of course determined how much house could be afforded. Now, stated income loans allow people to greatly overstate their incomes and afford a higher price. Payments were typically 30 year fixed (fully amortized.) Now payments are interest-only or below int-only which greatly increases the loan amount that people can “afford.”
There are dangers with all three of these. As was mentioned above, 100% financed house will be given back to the lenders when prices drop and people can rent for much lower monthly rent. Overstated income will be a problem when loans move off interest-only and adjust upward. It does not matter what a home is worth if people cant afford the payment.
Add to this the number/percentage of speculators, and the risk at this point in the market is much higher than the last cycle where homes dropped 35% over 6 years, and took 11 years to break even here in SoCalif. No predictions because I am constantly surprised by lenders, buyers and speculators behavior.
February 22nd, 2006 18:03
Peter,
Thank you for the comment! I have nothing against ARMs per se. The thing that most people miss, is that most of the ARMs people are using are the Interest Only ARMs.
I know that ARMs are very prevalent overseas, but from what I have heard (not fact by any means) is that interest rates are not as volitile in many places. Most of the ARMs are of the principal and interest variety…not I/O or option.
Also, ARMs are great in a falling rate environment. My beef with ARMs is that sooooo many were done during the boom times. You are in for a culture shock when your 3-4% I/O ARM adjusts. Even though rates are still historicall low, if you maxed yourself out (like many did) to buy a house, or more house than you could normally afford, then stand by.
When rates were at 18%…having an ARM was an excellent choice. In the last ‘bubble’ in SoCal in the early 90’s, one saving grace was that rates fell from the 9’s to the high 6’s and 7’s. That lowering of payments helped many people. This time we are going to see the opposite. More creative loans, and more people over-extended….and rates will be increasing from their 3-4% lows.
I know quite a few people that ‘bit the bullet’ and locked in 30yr fixed rates in the 4’s and low 5’s. Sure, they could have saved some money in the short term, but instead of buying more house, they got a fixed rate they could afford for the long haul.
When a doctor friend of mine (25+ years in their specialty) tells me his 1000 sqft condo made more than he did in a year of working full work weeks…that might represent a problem.
SoCalMtgGuy
February 22nd, 2006 18:08
Sensible Lender,
I agree with you completely. That is exactly what the data shows, and that is exactly what I have seen the past few years.
Don’t worry, the lenders are about out of tricks. Only so far you can stretch a dollar….until it breaks.
I’ll keep beating the dead horse…I know that sometime in the next 24 months, the masses will wake up and finally see that the horse is dead, and will not be running in the Kentucky “real estate” derby any longer.
SoCalMtgGuy
February 22nd, 2006 18:34
The horse may be dead, but it’s still moving.
I’m grateful to this site, not because it kept me from making bad choices (my parents would be vastly disappointed in me if I didn’t think carefully about ANY loan) but because it has made me feel much better about not being able to afford a house.
The real-life anecdotes let me know that the reason I can’t afford a house is not because I’m unlucky or poor (laughable concept, I feel like I’m rolling in it after a few lean years) but because I have too much sense to get into a bad financial situation. That changes the whole scenario from being a “have not” to being a “not that dumb.”
Different prospect entirely.
February 22nd, 2006 18:40
SoCalMtgGuy and the gang,
I’m not any type of conspiracy wacko, but did Pres. Bush go off the prepared script the other day with his comment on interest rates, “He (Bush) went on to praise new Federal Reserve Chairman Ben Bernanke. However, he added, “If I were you I’d be worried about interest rates.”
Ben B. was the Chair of the CEA prior to taking over the FED. Did GWB just accidentally show Ben’s cards?
Thoughts?
February 22nd, 2006 22:40
With all the ARM resets I guess folks will have to get into 40yr and 50yr fixed mortgages. I wonder how the sub-prime lenders will do as their asset mix changes. Interesting that LEND stcok price is up while NFI and NLY are in the tank. What’s up here?
February 23rd, 2006 06:24
My little part of world, see a trend
Dupage Reduced Total Listings
1/31/05 1,398 7,573
2/1/05 1,404 7,588
2/2/06 1,429 7,635
2/3/05 1,437 7,655
2/6/06 1,429 7,659
2/7/06 1,446 7,694
2/8/06 1,449 7,709
2/9/06 1,474 7,729
2/10/06 1,503 7,774
2/13/06 1,528 7,815
2/14/06 1,539 7,850
2/15/06 1556 7879
2/16/06 1596 7901
2/17/06 1611 7932
2/21/06 1654 7994
2/22/06 1701 8050
2/23/06 1730 8079
February 23rd, 2006 10:16
Thanks for the picture of that NJ $hitbox. I couldn’t help but make a comment to the realtor that it was ugly and overpriced. How about all of us flooding the realt whore with such comments. I am sure it will make his day.
This whole house of cards in CA is going to end badly for a lot of folks. No sympathy for flippers and stupid investors. Some sympathy for the uneducated who were encouraged to buy something that the realtor/mort broker, etc knew they couldn’t afford. Some people belong in hell for what they have done to some people.
February 23rd, 2006 14:44
True story!
Last september I went to my tax guy in Santa Barbara, “ooohhhh” one of the most over valued real estate markets in the world!!!! Sorry just had to do it.. I have been going to the same guy for 9 years. He runs his part time Tax business from his home and every time I go to see him he lives in a different location. Turns out that he has become a house flipper. By the last time I visited he is not only doing taxes.He now has a cottage industry running from his home.His whole family works for him,”He quit his job as an engineer” and now does Tax prep, Real Estate, Mortgage sales, and Notory Public.Good for him right! Read on… He is the Tax/Mortgage guy “Engineer”. His wife is the Real estate gal/notory “former doctors assistant “PLASTIC SURGERY” …”Hang in there” This is where it gets good! They are Hispanic and bilingual so most of there clients are from the Hispanic community. When I arrived to get my taxes done there were 15 people in the living room all hispanic and very few spoke any english.So I patiently waited my turn. When I finally got in to see him I said “wow your really busy for September”. He told me of his new ventures into Real Estate and how the whole family quit their jobs and now work for him at home.”Great right” As he was doing my taxes an older hispanic gentleman came into the office he needed to pick someting up and say thank you.The man excused the interuption very politely with broken english. He and my tax guy started speaking in spanish the older gentelman was thanking him for the loan. Not the MORTGAGE but the personal loan.The Taxman/Loanman had loaned the older gentleman $10,000.”I SAW THE CHECK” to put into his checking account for 1 month so that he could qualify for a Stated income, no moneny down,interest only $750,000 loan on a Santa Barbara shack on the west side. The Taxman /Loanman even verified this directly to me after he could see that I could understand enough spanish to know what the conversation was about. Then he offered to do the same thing for me. He said that they would find me a house loan me the $10,000. and get me qualified for the same type of loan all in a month. He showed me the four houses their little company had in escrow and the fifteen houses they had sold the same way that year and the MLS directory. “He said just pick one”.
PYRAMID SCAM or REAL ESTATE
February 23rd, 2006 16:52
need 2 leave CA,
I wouldn’t be too rough on the agent. he looks like nice old dude, like he’s been in the business for decades. i’m sure he’s probably thinking the same “WTF?” when he writes ads like that than I think reading it (or seeing the bile-green dump in question).
February 23rd, 2006 17:01
exiled to oregon,
I hate to break it to you, but people ‘lending’ money for to meet reserve requirements is nothing new. Some lenders require source and seasoning (where it came from, how long it’s been there).
When the times were good, it was an easy exception to get from most lenders. The lender I work for has tightened up on the source/seasoning on certain deals with ‘no exceptions’ for source/seasoning issues.
I’m sure there are plenty more places that will do the loan though.
Thanks for sharing the story…
SoCalMtgGuy
February 23rd, 2006 17:21
SoCalMtgGuy,
Thank you for your extensive answer. My last comment on ARMS: Yes, the ARMs of Europe are of the principal AND interest variety, as far as I know. Anything else is unsound. And yes, ARMs are good in a falling interest environment. Where interest rates go long-term is anybody’s guess; Greenspan expected Yes, and bond investors seemed to think No, leading to the “conundrum”. Even now, it seems unclear where the journey will go, to DEFLATION because of a credit crunch or to INFLATION because of a weak dollar. Maybe to both, manifested in lowered wages and higher import prices. Both lead to a poorer America.
Regards,
Peter
February 24th, 2006 09:54
42 - I am sure he is a nice dude. Just trying to do my part to help pop the bubble. Check Ben’s site today for weekend topics, for some other outrageous listings