California Real Estate: Big $ Drops, Big Sale Increases
By Barry Ritholtz - October 24th, 2008, 3:00PM
Sources:
California Home Sales Revive, But Not Without Intense Pain
MICHAEL CORKERY and JONATHAN KARP
WSJ, OCTOBER 22, 2008
http://online.wsj.com/article/SB122462963345656289.html
Fire sale: SoCal home sales spike 65% as prices slide
Peter Viles
LA Land October 20, 2008
http://latimesblogs.latimes.com/laland/2008/10/firesale-socal.html
How to avoid the next housing bubble
Daniel J. Mitchell, David M. Abromowitz
LATimes, October 17, 2008
http://www.latimes.com/news/opinion/commentary/la-oew-mitchell-abromowitz17-2008oct17,0,1836269.story
October 24th, 2008 at 3:03 pm
The higher sales volume is BULLISH!
October 24th, 2008 at 3:10 pm
Kinda surprising that sales go up when prices are lower, heh? Maybe the government should stop trying to keep housing prices high.
October 24th, 2008 at 3:10 pm
Right Larry K., it’s the greatest movie never shot…
October 24th, 2008 at 3:10 pm
Cali is always first
October 24th, 2008 at 3:18 pm
And the prices will go down more as the pool of buyers ( creditworthy bottom fishers ) runs out .
October 24th, 2008 at 3:19 pm
The higher sales volume probably does signal the “end of the beginning”.
Real estate prices, in INFLATION ADJUSTED terms, may continue to drift lower for years to come, at least in California.
October 24th, 2008 at 3:21 pm
Off topic, but we may as well nationalize the whole enchilada now and save on the sauce:
“MBIA Inc(NYSE:MBI – News), the largest U.S. bond insurer, and its No. 2 rival, Ambac Financial Group Inc(NYSE:ABK – News), met with regulators earlier this week to push for a way to tap into the federal government’s bailout plan.”
Of course, with states and municipalities dying for cash, who in their right mind will buy their bond offering when you can get all manner of risky assets that are government guaranteed?
The unintended consequences looks like it will cause a flow of capital out of the very markets where the Fed and Treasury wants it to go unless the government steps in with a guarantee.
How very circular.
October 24th, 2008 at 3:24 pm
It will be cool if stocks do this next, Big $ drops, Big vol increases.
Neat everyone in the orchestra is playing the same tune, it is not over til the fat lady……
symmetry: beauty of form arising from balanced proportions
October 24th, 2008 at 3:26 pm
FINALLY! Market clearing activity is finally happening; and about time – I’ve been waiting for this since August 2005 (when home prices peaked).
Sales volume will continue to increase while prices continue to come down as we finally move towards the market equilibrium.
October 24th, 2008 at 3:27 pm
Won’t it be cool if stocks do this, Big $ drops, Big volume.
Symmetry: beauty of form arising from balanced proportions
October 24th, 2008 at 3:39 pm
Spring On the Right side of Wall Street (Fall and Blood on the other).
Do not confuse seasons and sides!
http://www.marketwarnings.com/2008/10/spring-on-right-side-of-wall-street.html
October 24th, 2008 at 3:40 pm
For those of you who don’t know California, Los Banos is among the least desirable places in the state. It’s a farm town 1.5 to 2 hours from *anything* of interest, located in the middle of a gigantic, windy, dusty valley. The summer temps range up to 115F while the winter has 3 months of exhaust filled 45F fog. Without the farm economy no one would choose to live there.
Towns 30 min closer to the San Jose/San Francisco area were considered radical bedroom/commuter communities 20 years ago. Los Banos growth only happened because of the anti-growth policies of the SF Bay Area. The “environmentalists” there forced those with home owning ambitions to pay either $750K in town or $400K in the middle of nowhere with a commute from hell.
October 24th, 2008 at 3:57 pm
I’m going back to Cali, Cali, Cali
I’m going back to Cali… hmm, I don’t think so
October 24th, 2008 at 4:09 pm
Is it REALLY a shock that California prices are falling?
Since we live in Texas, we watched in amazement the idiocy of the “average” price in LA reaching $600-700K. Now we watch in amazement that everyone is shocked and stunned that prices are falling. Once again the nuts in California prove why they are indeed – nuts!
October 24th, 2008 at 4:10 pm
By contrast, in the Hamptons, prices are stagnant and volume is low:
http://www.nytimes.com/2008/10/24/greathomesanddestinations/24Hamptons.html?_r=1&oref=slogin
October 24th, 2008 at 4:16 pm
@DL: Those people in the Hamptons are insane and in deep denial if they don’t think they’re going to get hit too. Sure, they can try to hang on and not drop prices, but me-thinks they’ll relent within 6-12 months, as many won’t have any choice by then.
Prices in the there (and in NYC/surrounding burbs) in for a big reality slap.
October 24th, 2008 at 4:30 pm
On the otherhand… Many folks are having their property tax adjust downward due to the falling property values.
So if you’re in a house and making payments month after month, living your life, you now will pay less in taxes.
Giving you more money to spend at stores, casinos and strip clubs!
WOOT!
October 24th, 2008 at 4:43 pm
John, isn’t Los Banos where there has been a significant selenium pollution problem? Yeah, you’re right–a real nowhere of a place. I’m only mildly surprised that subdivisions were being constructed there.
35 or so years ago, nobody lived in Los Gatos; even phone calls to there were hit-or-miss (they were on GTE). At the time, I recall a friend who moved to Saratoga, claiming that he had to live out in the sticks because he couldn’t afford anything closer.
Los Altos Hills was full of hippies and horse people–and no one knew where Morgan Hill was.
October 24th, 2008 at 5:19 pm
I’m personally really looking forward to the smoking deals I’m finding out here. There is actually positive rents potential for the first time in years without having to put 50% down. It’s not quite time to get in yet though. I think some of these houses that were selling for 500,000 are going to be in the 100,000 soon. It’s that bad.
October 24th, 2008 at 5:20 pm
I’m not sure now is the time to be picking up bargains with big commutes. But, I guess a certain number are betting that the economy will recover and the dance will pick up right where it left off.
October 24th, 2008 at 5:31 pm
@Chuck, yes, there was a selenium problem near Los Banos, in a wildlife (mainly migratory fowl) refuge, no less. I used to pass through there on my way to Yosemite quite often, ~35 years ago. At the time, I was a quasi-hippie living in a funky section of Palo Alto.
@John, yes, we tree-huggers on the SF Peninsula have preserved a lot of open space, which had the (unintended?) effect of driving home prices up. I’m happily semi-retired here, but it will be tough for my kids to stay.
October 24th, 2008 at 5:41 pm
The SFBay area (one of the grey areas in that chart) still has prices that are too high to buy things as rental properties (with at least a 5% return). But some areas are getting close.
Santa Teresa, on the butt-end of San Jose, has houses going for $425k that went for $720k just two years ago. But they still need to fall to $325k to make sense as rentals.
If you think they don’t have to, you really shouldn’t be a landlord – you’ll lose your shirt.
My guess? They go below that, as rents fall during a hard recession. If we avoid the hard recession (fat chance), they’ll “only” fall to $325k.
October 24th, 2008 at 5:58 pm
I guess I just never understood the lure of California. Too congested for me. And then there’s the Santa Ana winds, fires, mudslides and earthquakes.
October 24th, 2008 at 6:15 pm
Anecdotal evidence:
Here in the western ‘burbs of Chicago, they are still tearing down $400,000 houses to replace them w/$2.5M houses. The best part that is although the houses were moving about a year ago, not anymore. While I will not dispute that the new home is beautiful, the fact is that your taxes are going to be over $25,000 per year. And that does not include your monthly nut. Good luck folks!
October 24th, 2008 at 6:41 pm
@Chuck, environmentalism has almost nothing to do with the anti-growth stuff that’s happened on the CA coast from Monterey to Marin. Rather, it’s a product of the wealthy and established “I got mine, you go away” crowd preserving their selfish lifestyle of driving BMWs and Mercedes and flying to Europe while talking about the environment.
Elitist Bay Area politics conveys a “Let them eat cake” attitude while not realistically dealing with all the people, jobs, and issues next door. (Including SF/SJ traffic being a major cause of the pollution in Los Banos and Sacramento.)
What about the tons of CO2 dumped into the atmosphere from the gridlocked cars coming in from Tracy and Gilroy every day? The anti-growth folks just made the environmental problems worse! Is the open space worth global warming? Is the open space worth forcing half the population to commute so much?
On the subject of open space, have you ever been to Japan? They pack 125 million people into an area the size of California and preserve gobs and gobs of open space. The urban areas in Japan are sprawling messes (akin to Los Angeles) but development EFFICIENTLY stays in the established urban areas and stops cold at the tree covered hills. They have a public transit system that makes BART look like a toy. They don’t force people to drive 100 miles a day to Los Banos just to sleep on once prime farmland.
Of course, head-in-the-sand politics is nothing new for California. The state government is broke, incoherent, and lost. I’m curious to see how things go in this recession, and am feeling a bit of schadenfreude for California.
October 24th, 2008 at 11:41 pm
“@Chuck, environmentalism has almost nothing to do with the anti-growth stuff that’s happened on the CA coast from Monterey to Marin. Rather, it’s a product of the wealthy and established “I got mine, you go away” crowd preserving their selfish lifestyle of driving BMWs and Mercedes and flying to Europe while talking about the environment.”
Exactly right. The high housing costs have little to do with environmentalism and EVERYTHING to do with low-density dogma in Sacramento and tons of metropolitan suburban communities throughout the state.
I’ve lived in San Francisco and San Diego, and in San Diego every time someone’s tried to put up a high-density condo development, there’s instant outrage from the neighbors who scream about: a) falling home prices (increased supply), b) increased traffic (well…maybe we have been relying too much on car transport), c) “greedy developers” trying to destroy the suburban way of life and “force us to live in little boxes”.
When all you can build is McMansions….it’s not surprising that you run out of space and have to start building hours away from businesses.
October 25th, 2008 at 8:58 am
I retire in 3 years (I am in Maryland now), and I started looking at real estate prices in Fresno 2 years ago. I despaired of retiring to Fresno as home prices were just bizarre – to make retirement work I need to live somewhere with a low cost of housing.
Now that prices are reverting to the mean, it looks like I will be able to retire in my home town.
October 25th, 2008 at 10:25 am
fresnodan – you could consider the Illinois Valley
(see community college site; since we are a hodge podge of small communities; similar but smaller version of the Chicago area)
http://www.ivcc.edu/
I don’t think I’m out of line inviting your big city gained wealth into our community; spiking inflation in housing and other needs for/on the current residents that live on small town salaries. We understand “its the way that it is”.
October 25th, 2008 at 2:19 pm
Increase in volume and drastically lower prices means one thing. People are waiting for big discounts on over-inflated property. Foreclosure sales have increased while non-foreclosure sales have decreased. All this does is, condition buyers into waiting for prices to drop, reflecting more fundamental values, rather than mere speculation. Bubble area markets will have to drop by 50% (from peak) in order to see buyers return. That is what has happened in Los Banos, and will happen elswhere.
Affluent areas that have over-inflated will correct (50% off peak), if not more, as the market tends to overshoot in the end. AThese neighborhoods have always been and will continue to be, the last ones to fall.
http://www.westsideremeltdown.blogspot.com
October 26th, 2008 at 10:33 pm
California Housing Woes
California has been ground zero for bubble and bust mortgage market. From the WSJ, one can see how extensive and destructive the past five years have been. In this view, the deep red county is Merced, with 84% of the…