Chuck Ponzi March 24th, 2006

After giving the OC register a pretty hard ribbing in my post “The OC Register - The Nerd at the Housing Bubble Party”, I can say that Mr. Jonathan Lansner has nearly redeemed his paper singlehandedly. I suppose that guilty by association should work the other way too, right?

His recent article Home Prices ‘Soft Landing’ Can Hurt really took the gloves off to look at the data and do some actual analysis prior to taking doctored tidbits and statistics (see lies, damn lies, and statistics) from the NAR or CAR before passing them on in the paper.

Unfortunately, I would probably agree that this type of analysis is better read by educated folk, rather than the average OC-educated citizen. There were several pieces of information gleaned from his article that should be ingrained in anyone wondering if housing prices will go down (they will)

1. 2005 Home equity loans extracted $6.1 Billion (yes, that’s with a B), down from $7.2 in 2004.

While both numbers are ludicrously high and this represents figures larger than the entire GDP of several small nations, the real cause for concern is the necessity to repay those debts. They are not like selling a cash position of stock and spending them, all of that money plus interest must be paid. The future is when they will repay them.

Remember, HELOCs are generally adjusting (rarely do they adjust less frequently than every year). What does that do for our homeowner who needs to pay this off in the future, but doesn’t have the income to support it? Well, I suppose that if the worst case scenario happens, you can just sell your house, right? or Refinance? I wouldn’t bet on it. Lansner also reported that OC inventory stands at 10.4 Months!

Please don’t write me an angry email; I did not misplace the decimal place on that statistic; check out the link of you’re wondering if that is true.

2. 17% of Orange county’s employment base is Real-estate related.

This represents the highest number, and the highest share of total jobs occupied by real estate on record. We have often heard that the 1990’s bust of housing caused by job-losses in the manufacturing sector; we are more diversified out of manufacturing since then and it doesn’t represent the same risk. Pish-posh. We are out of manufacturing and much heavier in real estate.

Today, Orange County real estate businesses employ practically twice the work force of bosses running factories that make everything from plane parts to computer chips to industrial measuring tools.

And, the income base is much more tied to service production of real-estate jobs that are highly commission weighted as opposed to stable factory work. When the rout happens, the fall will be long and painful.

There is an intersection of several freeways in OC that remains seemingly perpetually clogged with people escaping from some section of the area that is affectionately referred to as The Orange Crush. (Although this has been relieved somewhat in recent years with construction)

This is our Orange Crush.

One aquaintance once commented that OC’s sole industry is constructing, financing, refinancing, cleaning, landscaping, and selling homes to its residents. Now we have proof that this perceptions is closer to reality than one might assume.

Flippers have not lost their hope… yet

On an unrelated note, the house next door to me finally sold after more than 7 months on the market. My wife and daughter and I anxiuosly awaited meeting our neighbors and hoping they might be a similarly situated family with young children.

Alas, but no. Suspiciously, the house (occupied by a very vocal and perhaps divorcing couple desperate to sell) had been reduced more than $60K since we came and the couple moved out without so much as an “in escrow” tag on their for sale sign. In fact, up until the day they moved out, there were still full-color leaflets advertising the home in the hand-out tray. Exactly 24 hours after they moved out, trucks began appearing at the entrance to the home carrying all kinds of tradesman, and a few peeks over the fence has yielded a surprising conclusion; no one lives there and the entire house has been gutted (of the normal cosmetic things, of course). Tile has been replaced with granite, carpets with wood, and white appliances with stainless, no less.

We’re now confident this is a flip. Perhaps the price was just too good for a flipper to turn down and they fully expect the spring to bounce right back. Either way, it’s a risky move to be making this late in the game. I sincerely hope he/she does not have to learn the meaning of the word BagHolder.

So, anyone thinking that real estate speculation is dead needs to visit my neighborhood. Hope springs eternal the hearts of those in Aliso Viejo. The nearly identical house across the street went up for sale during that same time for $80K more than their last asking price. Will this be a 10-month sale for them as well? If so, it could at least delay plans, if not bleed them dry. 2 months of attendanceless open houses have not yet persuaded them to lower their asking. Maybe someone will realize that $749K is really too much to pay for a 1500 square foot house on 2500 square feet of land backing to a major road. Until then, we will see full-color adverts of homes that no one will even visit.

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