The OC Register has identified what we have been expecting for January numbers to report in their piece Home inventories rise; optimism sags.
While this is nothing in this report that surprises us here at Socal Bubble, the inventory number report raised some eyebrows.
It would take 8.9 months to sell all the homes on the market in January, the California Association of Realtors reported.
That number seems a bit high, and is probably not adjusted for seasonality. Going from 1 month to 9 months in 8 months would logically point to either substantially greater new inventory being released, or meaning very little sold. While we know the latter to not be true (2005 was very strong for sales, indeed), we believe that the new inventory will be catching up very quickly.
Before you think that John has gone soft and doesn’t believe in a real estate crash in Southern California, remember that the news media wants to have a quick story where action, violence, and drama are all wrapped up. While there will be plenty of drama over the next few years’ real estate market, there will not be a single quick pop.
We reiterate this again, that we doubt that a pop would take less than 3 years. A crash, however slow it may be, is still a crash. From our ivory tower, we are predicting a 25 to 30% nominal haircut (assuming inflation is tame) from Summer 2005 prices over the course of 4 or 5 years followed by a year or 2 of stagnation. Real Estate Bubbles take some time to unwind due to investor optimism. Remember, the NASDAQ bubble took several years to unwind to the bottom and there were plenty of people who “called the bottom” in-betwixt.
Until then, we can all think about our sagging optimism. (but, it’s still optimism, right?)
this time around the inventory increase is steadier, the slowdown is more gradual, my feeling is this slowdown is for real, not like 2004.
The Australian housing bubble started well before ours and was supposed to crash:
http://www.institutional-econo.....ection/C8/
Quote from the article: “Needless to say, this is a very different outcome to the doomsday scenarios that were floated not very long ago, which promised national economic ruin on the back of a collapse in house prices (scenarios that are still getting a run in the US context).”
We very well may have to learn how to say “permanently high plateau”.
To put the Australia situation in proper context they were very fortunate to have a surge in prices for Australian minerals, fuelled by Chinese demand which propped up the economy and buffered the downturn. Even so Sydney which more closely resembles California RE fundamentals has fallen 8%. Also, they could be looking at a dead cat bounce right now. This has yet to play out completely.
Judging from the warnings being issued almost daily from US home builders, the increasing rate of layoffs at Mortgage companies, rapidly slowing sales, rising inventories, increased rate of people entering some stage of foreclosure (CA shows a 62% YOY increase)it does not appear there is anything that will buffer this fall.
Anonymous said…
We very well may have to learn how to say “permanently high plateau”.
I always love it when someone comes in and unwittingly quotes Irving Fisher without fully taking into account the historical context under which he made his comments.
I will post another quote from a recent central banker that has mileage here:
“This vast increase in the market value of asset claims is in part the indirect result of investors accepting lower compensation for risk. Such an increase in market value is too often viewed by market participants as structural and permanent… But what they perceive as newly abundant liquidity can readily disappear. Any onset of increased investor caution elevates risk premiums and, as a consequence, lowers asset values and promotes the liquidation of the debt that supported higher asset prices. This is the reason that history has not dealt kindly with the aftermath of protracted periods of low-risk premiums.”
The problem with calling the “plateau” is that we haven’t yet seen risk premiums return to historical context. When we do, no doubt there will be a bloodbath. To assume that the world has changed fundamentally and that risk is now lower is very pollyanna-ish and extremely naiive to the point of your own danger. You could be a danger not only to yourself but also others around you if you offer this advice.
A dead cat bounce first requires a fall, boys, which is clearly not present in Australia’s multi-year plateau. I do, however, enjoy the tortured attempts at minimization, fear mongering, and especially the sophmoric cliche-fest.
I’ll try not endanger myself or those around me. LOL!!!
Keep’em coming!
I see a lot of people on these blogs making 6 figs and over and missing the homeowner boat. My question is, how long has those 6fig salaries been in place? 2 years, 3years, more? If so, why didnt you buy a home before the runup?? It could have easily been done with that kind of salary. Not trying to rag on you but curious. I am a software engineer making under 6 figs who bought a new home in Irvine for 300+k in 2000.
OC is rediculous. January ’06 median was +9.0% Y/Y which translates to $48,000. And we thought that was GREAT, that it ONLY went up 48k.
Given OC’s economy which continues to grow jobs, the renters i know will continue to seek homeownership, which don’t bode well for our side. According to a Federal Reserve Survey of Consumer Finances I just read, the median net wealth of a homeowner household is “36″ times higher than a renter household. 36 TIMES. It looks to me like for those of us who bought into the “bubble theory” three years ago and decided to wait on our home purchase, we now face housing prices 75% to 100% higher, or more. Should we choose to wait again in 2006, are we gonna to pay more, in 2007?
“My question is, how long has those 6fig salaries been in place? 2 years, 3years, more? If so, why didnt you buy a home before the runup??”
I’m in that camp. I am basically an economic refugee from the pacific northwest. The last recession hit seattle portland pretty hard. Found work in LA, decent 6 figure pay. I was a home owner for 10 years in seattle with a 6 fig income, sold my property which almost doubled in that time frame. Started to look for property in late 2003 and 2004 and discovered it makes more financial sense to rent. I don’t necessarily like it but the quality of life for home owners buying So Cal RE in 04-05 is less than desireable. My fiance landed an even better job here so we are living at the beach ocean view 2 bd 2 bth saving like crazy. In our case renting is a far better quality of life. There is risk either way. I just see the risk of buying property that is so acutely disconnected from fundamentals as being too much for me. If we had to we could buy in the area we want to live. but Why buy now? I did the calculation we save conservatively a grand a month renting verses owning after tax deductions. It is not supposed to be this way.
Saving 1k per month renting means you are watching homeownership in LA leave you farther and farther in the dust.
If you have no intention of buying for personal or lifestyle reasons, fine. But as a strictly financial matter, you’ve made demonstrable mistake over the last couple of years.
“It looks to me like for those of us who bought into the “bubble theory” three years ago and decided to wait on our home purchase, we now face housing prices 75% to 100% higher, or more. Should we choose to wait again in 2006, are we gonna to pay more, in 2007?”
How many of the people who purchashed homes during the past 2 to 3 years can actually afford them based on income? I never did understand how somebody making 75K can purchase a 750K house. The runup on California RE is not based on income, it is entirely based on credit. Mortgage companies are qualifying people for loans based on the minimum payment for an I/O Option Arms which will reset. Regarding OC employment outside of RE related jobs, Job growth is WEAK. Look at the layoffs taking place at Mortgage Companies, construction soon to follow. This is a house of cards. Nobody’s stopping you, go ahead and buy. But just know that every facet that fueled this boom has already been spent.
“But as a strictly financial matter, you’ve made demonstrable mistake over the last couple of years.”
You know at this moment in time that is probably true. Lets see what So Cal RE looks like when home prices stagnate and these ARMS reset, and there is no longer easy money for first time buyers. Did you notice the yield on the 10 yr bond going up today. Have you been keeping up with the Carry Trade? Do you realize that Europe, the U.S. and Japan could all be tightening monetary policy at the same time? Do you understand the ramifications of that? Do you really think that money will always be this cheap? The illusion that there is no risk in RE is coming to an end.
“Lets see what So Cal RE looks like when home prices stagnate and these ARMS reset, and there is no longer easy money for first time buyers.”
Perhaps you were not aware that we have been in a DECREASING interest rate environment for many years, so when ARMS “reset”, as in a 1, 3, or 5 year ARM, those mortgage holders will be seeing substantial REDUCTIONS in their monthly payments. What, you don’t read about that fact on the bubblebrain blogs? How surprising.
When doomfreaks screech about the percentage of “exotic” loans being taken out these days, conventional ARMS are part of that percentage – a huge part. Is that news you can use?
Look here and tell me when a conventional ARM has EVER been more expensive than a 30FRM, much less “risky” or “exotic”:
http://mortgage-x.com/trends.htm
The answere is “virtually never”.
As to “easy money for first time buyers”, that is 100% true in terms of “easy” being “easier than it used to be”, and that is a fact of life that will not be changing anytime soon, if ever. The Readers Digest summary is simply that the global liquidity markets fundamentaly changed a number of years ago and will never be the same again. They may change agian, probably will, but they will never again be as they were.
Expanding ones sources of information is always helpful.
I am a software engineer making under 6 figs who bought a new home in Irvine for 300+k in 2000.
let’s just say you have a brother that graduated from law school in 2003. He would have missed the boat. What about a doctor that finishes residency in 2004, say good bye to homeownership forever. And a small business owner that didn’t have a solid footing financially until 2005, he’s up sh!t’s creek.
can your fellow software engineer now buy in Irvine?
think about this a minute. All a fellow software engineer has to do is be 5 years younger than you, to attend homeownership, he now has to drive 2 hours to work or live in the ghetto. Just 5 years younger.
Does that make any sense at all? That same fellow software engineer would have been better off dropping out of high school to learn plumbing and bought a home when he’s wasting time in college to be an engineer. Same goes for the lawyer and the doctor.
The doctor should have gone to a Junior College and got a nursing degree instead of the minimum of 7 years for med school and residency. Now he is shut out of housing forever.
That lawyer should have just become a law clerk instead of wasting 4 years in Law School.
Just because you are older by 3-5 years doesn’t make you more deserving of homeownership. Your attitude is absolutely sickening.
My Dad was a plumber, an honorable trade and a true craftsman, who bought his first home where he still lives with my Mom 2 blocks from the beach. The home values in his neighborhood rose above his ability to buy there shortly afterwards.
Just because you are now wishing to become a homeowner does not entitle you to live wherever you think you “deserve” to live. Your attitude is absolutely sickening, yet very common amongst the whiny little babies that constitute a large percentage of your age group.
there’s absolutely nothing wrong with being a plumber.
the whole point is: it makes more sense for a person to start working as early as possible to purchase a home instead of going thru years in a professional school because of the current housing market condition.
therefore, if you can get your kindergarden age kid to start working and get a 0 down mortgage and get him into a house, that does more good for him then keeping him in school these days.
You obviously have a very shallow, one dimensional view of the purpose and benefits of education, self-improvement, and work. Pity for you that the purpose of all of that is simply an entre into homeownership at the earliest possible age with the least amount of savings required. Public self-indulgence and self-pity is not a pretty sight. Did your parents not teach you this?
what needs to be recognized is the absurd prices caused by un-natural irresponsible lending. thereby causing a change in social priorities. of course, you don’t recognize any of this and only chose to initiate personal attacks. I have yet heard anything worthwhile coming from you except personal attacks that help you feel slightly better in regard to your self-worth. This is a mark of a truly pathetic soul. good luck with you, you’ll need it.
OCRenter wote:
Just because you are older by 3-5 years doesn’t make you more deserving of homeownership. Your attitude is absolutely sickening.
Wow. Was that remark for me? If so why do you sound so mad? I simply asked why people making 100k for past 5 years never bought before the runup. With that kind of income a 300k NEW home in Irvine was very possible in 2000. Age has nothing to do with this. I will admit luck is more like it. I think the old cliche applies here :YOU SNOOZE YOU LOSE!
Not one word was said to you prior to this statement of yours, “Your attitude is absolutely sickening.”, which you chose to direct at someone who dared post an opinion which diverged from your own.
Your obvious embarassment at being exposed as the shallow, self-indulgent, self-pitying, self-important, posing, horses ass that you are is understandable.
On Ben’s blog you are protected by the mushroom farmer who keeps you and yours in the dark, fed shit, and protected from the elements. Here you’re not so lucky.
“Un-natural lending”? Jesus wept.
“YOU SNOOZE YOU LOSE!”
It seems to me that the bullish argument for California RE being discussed here is that “if you don’t buy now you are going to get left behind”. So even though you have a 6 figure income and are established in your career, you have been or are going to be priced out. Now if that is the case exactly who is priced in?
Personally I refuse to compete for properties with people that are not at income parody. The No Money down, Interest Only, Minimum payment for my Option ARM, RE can only go up crowd that is so prevalent here in CA demonstrates a group think that is rooted in greed but far worse than that plain old fashioned ignorance. MARKETS ALWAYS CORRECT.
Age has nothing to do with this.
of course it does. a software engineer comes out of college at age of 22. If you were born in 1978, that means you have your job in 2000, you can buy in Irvine for $300K.
Now let’s say you are born in 1983, you go to the same college and get the same job as a software engineer at the age of 22. But it is now 2005. The same place in Irvine now costs $700,000. But your pay is the same as the guy 5 years older than you.
How is this NOT an age thing?
You snooze getting into this world, YOU LOSE.
We DESERVE that same bling house the 5 years older guy bought, and are ENTITLED to either that house, a “reversion to the mean” so we can score one just like it, or victimhood status with just and due compensation. I AM 22 GODAMIT AND I DESERVE A BITCHIN’ CRIB. Not some 1,800sf SHITBOX like my looser bloated bung huffing boomer PARENTS still live in. EFF THAT!!
Why should that other guy get something I can’t have just because he beat me through the birth canal? IT’S UNFAIR and something MUST BE DONE ABOUT IT, and I don’t really care WHAT, as long as I end up with what I DESERVE.
I went to school and got the hotass degree in IT/CS and fully expected to make 80k starting and 200k within 2 years. The fact that by the time I graduated there were Indians in Bangalore doing my job for 33cents an hour and I am reduced to geeksploitation at the cube farm as a code monkey is also something that SOMEBODY needs to be held accountable for.
Ok, fess up – which one of you is this?
http://anotherfuckedrenter.blogspot.com/
http://bitterrenter.blogspot.com/
Funny shit.
Hehe…this is hilarious. Well, I don’t think anyone “deserves” a house. People buy what they can afford, no one’s entitled to anything…well, I guess there is getting taxed.
I’m not even sure what the agrument is about anymore…
Interesting discussion. Here’s my perspective.
I’m over forty, a self-taught software developer with a 6-figure income. I’ve been a homeowner for only ten years. My home is now ridiculously over-valued. Indeed, I could not afford to but a comparable home in my area in today’s market.
When I was right out of college, the last thing on my mind was buying a house. If you do the math you’ll see that I didn’t become a homeowner until I was in my mid-thirties.
I never assumed home ownership was a right or entitlement.
I do, however, understand the frustration of those with high incomes who have watched the housing market run away from them due to unprecedented risky lending practices. If I were in such a place, I would rent and wait for the housing market to return to sanity (and so I agree with the earlier poster who is renting on the beach 100%).
Timing is everything. When the housing market in SoCal bubbled and collapsed in the late 80s/early 90s, I wasn’t even looking to buy a house. However, by the time I was ready to buy in 1996, the market was once again favorable for 1st-time buyers.
I bought my first house with 20% down and a 7-3/4% 30-yr mortgage. At that time it made sense financially because the tax benefits of owning a home outweighed the cost of renting.
That’s not true in this market.
One thing I have also not done is cash in on all the paper equity. I did do a couple refis three years ago to consolidate my debt, pay off college loans, and make some necessary home improvements. However, my mortgage is still very low and still compares favorably to renting. I have never considered taking out a 2nd mortgage or use a HELOC.
My 2 cents.