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tabs 07-19-2004 01:34 AM

The Bubble has Burst
 
In the past week I have talked to a friend whose house is curretly for sale in Upland, CA ......his Realator says NOTHING IS SELLING. Nobody is even looking...

And I have talked to my Accountant in CA, she says NOTHING IS SELLING.....

Looks like we are in that limbo period where values are just hanging the next step is a DOWNWARD one.

Here in LV production is begining to catch up to demand...yet an acre of land ready to be built on is going for 600K to 1M..so prices here are still on the rise soCA boyz your time of coming to LV on the cheap is over.

In my immediate area 3700 to 4000 sq ft houses are going from 675K to over 1M.

turbo6bar 07-19-2004 04:09 AM

It's not a loss until you sell, right trust fund boy? ;)

I'm surprised the market is already showing weakness. I expected it to happen, but not this soon. I bet Wayne's head is swollen big time. :)

Now, when is this slowdown supposed to hit the Midwest and Southeast? I'm ready to pounce.
Jürgen

nostatic 07-19-2004 04:36 AM

location, location, location. Houses are still selling fast in our neighborhood, and in the last couple weeks we've had 3 agents knocking on our door asking if we were thinking of selling.

lendaddy 07-19-2004 05:23 AM

"in the last couple weeks we've had 3 agents knocking on our door asking if we were thinking of selling."

Is this not a sign of a weakening market? Not enough walk in traffic, lets go pound on some doors? Just a thought.

Leader 07-19-2004 05:44 AM

Location is right. When realtors are going door-to-door looking for listings, it often means they have buyers waiting to purchase in that particular neighborhood. In the San Fernando Valley the demand is still ahead of the supply - i.e. prices are still going up. Location, location, location, indeed.

lendaddy 07-19-2004 05:53 AM

Good point. Trolling for buyers would be a better indicator of a slowdown.

Burnin' oil 07-19-2004 06:23 AM

Quote:

Originally posted by nostatic
location, location, location. Houses are still selling fast in our neighborhood, and in the last couple weeks we've had 3 agents knocking on our door asking if we were thinking of selling.
I remember the time three agents came to my door and asked if I was selling . . .

widebody911 07-19-2004 07:21 AM

Quote:

Originally posted by lendaddy
"in the last couple weeks we've had 3 agents knocking on our door asking if we were thinking of selling."

Is this not a sign of a weakening market? Not enough walk in traffic, lets go pound on some doors? Just a thought.

Or trying to generate some churn; if they convince party A to sell, party A now has to buy something, or live out of a shopping cart.

Moses 07-19-2004 07:26 AM

Most houses here are sold before official listing. At or above asking price.

The homes above 2.5 million have slowed a bit but are still selling.

JavaBrewer 07-19-2004 07:56 AM

Yeah right Tabs. Even in the CA desert (Temecula) homes are still moving quickly. Many new homes coming online this fall in North County. Looked at some model homes 2 weekends ago, 3600sq/ft, 7000sq/ft lots (small), limited views, starting at $950K and quickly going to $1.2M. Phase 4 (8 homes) sold out by lunchtime the day it was released. Next phase is expected to +$35K with no view lots.

Rot 911 07-19-2004 08:01 AM

I still don't understand how a person of "middle income" can afford to live in CA.

LeeH 07-19-2004 08:07 AM

I talked to an agent/friend a few days ago. He said the listed inventory is very low here in Phoenix and many houses are selling for more than the asking price.

cowtown 07-19-2004 08:09 AM

I'll believe it when I see it, Tabs. In NorCal, we still have lines of people camping overnight just to get a shot at signing up for a new house, sight unseen.

In my town, the homes on our street are selling for 200-250% of purchase price, and they are only 3-4 years old. I'm not too excited personally, because I wouldn't know where to go if we sold!

The people who are banking on a real estate crash (moving into smaller homes and waiting, holding off on buying rentals, etc.) are taking a huge risk for a return/savings that I think might give them 5-10% at best. 10% downward is a huge correction in housing prices.

LAT article based on the Census:
"California's population is expected to grow by an additional 12
million people by 2020, a 36 percent increase."

Everyone wants a house.

JavaBrewer 07-19-2004 08:23 AM

Quote:

Originally posted by Kurt V
I still don't understand how a person of "middle income" can afford to live in CA.
Afford to live here or buy a house here? To get a home you have to start small and inexpensive. Some of us have posted about this before. The key is to get something in a good location, near good schools and shopping. A total fixer if necessary. Just make sure your yard is big enough to BBQ come January :) Once you own a home here you could justifiably say "How can I afford NOT to live here?". If you don't own (or want to) then how much is year round outdoor time worth to you? Ocean, mountains, desert, snow, camping, it's all here and within a 2 hour drive.

techweenie 07-19-2004 08:51 AM

Reports out laast week indicated the 'median' home price in the San Fernando Valley reached $500K last year!

My realtor friends say exactly what Tabs indicated: no shoppers for the past month, plus. Lots and lots of downward price revisions.

How far prices will need to implode before buyers come back is the big question on the West side of El Lay.

I'm sure this varies by area, though.

One additional economic data point is that retail sales took a big dive in June, with car sales being the lowest in 6 years. There's an 'unsettled' feeling that's not showing up in the Consumer Confidence numbers...

motion 07-19-2004 09:03 AM

Its all over the board around here. I just sold a condo for $20k over comps in one day. 2 friends with a condo and high-end house are having no luck at all. Buyers are looking for realistically priced properties, because there is so much inventory. Gone are the days of tacking $50k on the price, just because you can :) Well, at least for now.

widebody911 07-19-2004 09:08 AM

It would appear there's a disconnect between the "man on the street" anectdotal reports and the stories published in various rags.

It's very easy for me to believe there's a certain amount of hype being generated here. Nay, say ye? Look back at the stock market bubble and the news stories of that era.

B D 07-19-2004 02:28 PM

Quote:

Its all over the board around here. I just sold a condo for $20k over comps in one day. 2 friends with a condo and high-end house are having no luck at all. Buyers are looking for realistically priced properties, because there is so much inventory. Gone are the days of tacking $50k on the price, just because you can Well, at least for now.
I agree with Motion things are all over the board, some areas are doing better than others. There is so much inventory of cookie cutter track homes next to nothing of intrest. I know some people in Ladera ranch who had to enter a lottery to get dibs on a new home, now the additional phases are unable to sell. The market is slowing but homes are selling, many prices are dipping back to last year but for most that means little since prices have risen for the past couple years. The beaches are still hot, the reason is location and climate. Just come to the beach on a hot day and you will see why; thousands of people drive many miles to the coast to be in cooler weather. For those of you inland I would be a little worried.

What's happening in my hood:

House 2 years agao 500K
House 2 months ago 850K-1M
House today 750K-950K

dd74 07-19-2004 02:39 PM

Tabs is correct. It is slowing down. Buyers are backing out because of the increase in interest rates. We know an agent who is now starting to worry, and might get back into the tech sector from where he came. He says interest rates will surely go up after the elections. No matter if Bush or Kerry's in office, Greenspan is gonna' pull the plug.

CarreraS2 07-19-2004 02:57 PM

Interest rates will go up, market momentum and sentiment is going down, and Fall will be here in 3 months (people with families tend to stop looking to move once school starts up).

Should be an interesting end of the year.

Leader 07-19-2004 04:11 PM

There are a whole lot of "real estate clichés" being posted in this thread that have not been valid for decades. Interest rates may have gone up a tick, but mortgage rates are still the lowest they've been in 40 years! There is no good or bad time of the year to be buying or selling a house. The real estate business hasn't been "seasonal" since the 60s - at least not in the areas of the country considered "desirable."
And after stating those two generalizations, I would caution all to be wary of broad generalizations like "buyers are backing out because of the increase in interest rates" or "market momentum and sentiment is going down." Remember - on the internet everyone is an expert.

dd74 07-19-2004 04:20 PM

Quote:

Originally posted by Leader
There are a whole lot of "real estate clichés" being posted in this thread that have not been valid for decades. Interest rates may have gone up a tick, but mortgage rates are still the lowest they've been in 40 years! There is no good or bad time of the year to be buying or selling a house. The real estate business hasn't been "seasonal" since the 60s - at least not in the areas of the country considered "desirable."
And after stating those two generalizations, I would caution all to be wary of broad generalizations like "buyers are backing out because of the increase in interest rates" or "market momentum and sentiment is going down." Remember - on the internet everyone is an expert.

I see. So you give that advice to the people refinancing their mortage, taking what they save to dump into a $50K renovation, while also praying that interest rates don't go up because they can barely survive a 500-dollar increase in their monthlies?

Or are you telling that to the first-time home buyer who daily is increasingly scared to pull the trigger because interest rates will go up?

I believe we'll see how "seasonal" things are after Nov. 2nd. But this comes from just another internet expert...

CarreraS2 07-19-2004 04:22 PM

Well, the good thing about arguments like this is that there is eventually an answer - history will show who was right and wrong.

It will be interesting to see where the market is this winter, next year, and the year after that.

techweenie 07-19-2004 04:47 PM

I don't think anyone here has said the market is homogeneous, Brian.

And what you're seeing people post is largely what they've heard from people in the market. Certainly my comments came from several agents and people in the mortgage industry.

Just go to themls.com and look for homes on the West side of LA, Santa Monica, Venice, etc. for under $750K. Lots of teardowns and a few WWII era cottages. 60% appreciation in 3 years is just not sustainable.

Zeke 07-19-2004 05:01 PM

I hate ot admit it, but our Tabs is astute and spot on. The homes in my neiborhood that used to sell in hours 4 weeks ago are now not moving at all. Nothing has sold in 2 weeks. Prices will start to drop on the ones where the sellers are impatient or in need. You know what's next.

About time.

07-19-2004 05:04 PM

We like the Meyers data for new home projects. If this market goes the way previous years have gone, it will be financially influenced first (incentives before prices drop), then locational (some areas will go down faster than others), then market level (whatever price level is most influenced by rates will be affected the most)

There has been a lot of discussions about the "bubble" in/on all the real estate sites (Inman www.inman.com/ ) The conclusion thus far is no conclusion. I think refinancing at these historically low rates is ok, I'm not sure I would buy at this time.

http://www.meyersgroup.com/homebuilding/homebuilding.asp

pwd72s 07-19-2004 05:27 PM

Ahhh for the good old days, when people bought houses in order to have something to live in, OR as a rental property that would eventually pad their retirement income. When those who "churn" enter the market? Those who buy, not caring about interest paid, expecting to turn a quick profit in a few moons? Bet on it...the market will turn south soon. Early churners make money...later ones lose. Big time. Just free advice from a guy entering his 6th decade given here...so value it for the price paid, right?

dd74 07-19-2004 05:29 PM

PWD - so true, so true...

pwd72s 07-19-2004 05:56 PM

This is why the only real estate I now care to own is the piece I live on. I can sell a stock, mutual fund, or bond I own tomorrow, by picking up a phone, or a click of the mouse. Real estate? Well, that's another story...despite the old saying that "God quit making land, while he keeps making people"...in real estate, first you gotta find a buyer if you want to sell. ;) One of the happiest days in my life was when I sold real estate, bought as an investment, for more than I paid for it...after years of watching it's value plummet while it's tax burden climbed.

Moneyguy1 07-19-2004 06:20 PM

Please educate me. I was a real estate broker back in New York State, and when we sold a house, it was a general although not universal practice to "pre qualify" a potential buyer. Once this was done, a range of affordability was established beyond which we would recommend against purchase. Given average indebtedness, the monthly PITI was not to exceed 35% of gross income.

So, given even today's interest rates and, say, an annual income of $120k, this would result in a monthly of $10 k, and $3,500 available for the total monthly payment. Now, assuming a mortgage of $800 k on some of the houses that have been mentioned, an interest rate of 6% and 30 years, the principal and interest alone come to $4,796. Given the rule(s) of thumb, and only guessing at the taxes and insurance, the annual income for such a property would be in excess of $200k.

Are there actually that many people in that earnings range in California? Seems to me that this would put many people out of the race for home ownership. Using the example of 6% interest, then every $100,000 of mortgage for 30 years would be just pennies under $600 per month, so even a more modest mortgage of, say, $400,000 would be $2,400 not including taxes and insurance. Once again, that would require an income of $82,300.

So, the question...Who in Hell is buying these homes and with what?

turbo6bar 07-19-2004 06:24 PM

Quote:

Originally posted by pwd72s
Just free advice from a guy entering his 6th century given here...so value it for the price paid, right?
You're 600+ years old? Damn, you're old. :)

While you had a bad experience with real estate as an investment, I've had spectacular luck. Those data points and 25 cents will get you pretty much nowhere. :)

Moneyguy1 07-19-2004 06:33 PM

Turbo:

From what I have been able to ascertain, right coast and left coast real estate are two totally different animals. Different mindset, different income levels, you name it.

Personally, I think your end of the continent is the saner one!!!

Of course I leave Long Island and Conn out of the equation. Those folks are plain nuts!!

pwd72s 07-19-2004 06:45 PM

Quote:

Originally posted by turbo6bar
You're 600+ years old? Damn, you're old. :)

While you had a bad experience with real estate as an investment, I've had spectacular luck. Those data points and 25 cents will get you pretty much nowhere. :)

HOOT! Mistake edited...it's just that sometimes, 6 decades feels like six centuries. ;) Hey, I made a profit on that real estate..even after nearly two centur...er, decades of paying taxes, insurance, escrow & broker's fees, not to mention interest paid to the lender. So, overall, it wasn't a bad experience, just lengthy and tiresome. On the other hand, 109 % gain, made in 1999 alone, on my IRA, was fantastic. Especially since, on Cindy's advice, after she got naked, went out back, smeared herself with wood ashes, and then studied chicken entrails, we dumped our equities in January of 2000...not getting back in until March 11th of 2003. Long time in between, making only bond and money market interest. Hey, to each his own...me? Nevermore money into real estate other than the piece I live on. Contrary to what a real estate salesman will tell you, real estate values can, and will, fluctuate. It's only that the real estate up & down cycles last longer.

CamB 07-19-2004 06:53 PM

Quote:

Originally posted by Moneyguy1
Given average indebtedness, the monthly PITI was not to exceed 35% of gross income.
Someone will chime in, but I expect you will find that the banks are being a little more "flexible" than in the past.

My private opinion (very much 2 c worth) is that the housing markets in many parts of many countries will suffer somewhat of a correction that, if it is cause by, or coupled with, any other economic issue affecting home affordability (higher interest rates, unemployment, stagnant wages) is going to hurt the banks. Or whoever holds the mortgages - I never quite understood the whole Fanny Mae/Freddie Mac thing.

Banks in NZ/Australia (they're pretty much all Aussie) have spent the last few years growing profits at a huge rate on the back of home lending. They have further earnings growth expectations from their investors, and so they are chasing more and more mortgages.

Especially the "revolving" mortgages - for many people they end up becoming not much more than an interest only mortgage...

pwd72s 07-19-2004 07:00 PM

"Especially the "revolving" mortgages - for many people they end up becoming not much more than an interest only mortgage...


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07-20-2004 03:53 AM



P.T. Barnum was right....

Moneyguy1 07-19-2004 07:05 PM

Interest only mortgages are really not that much less expensive per month than a declining balance mortgage. The interest only would be in our example of 6% and $100,000 loan amount $500 a month. A declining balance mortgage for 30 years would be $600 a month. Over the course of the thirty years, the individual would have paid out $180,000 in payments and have 0 equity. The declining payment would have paid $216,000 total but own the property free and clear.

The banks being "flexible" of course works to their advantage. If the individual defaults, there is always foreclosure. Our guidelines were constructed to reduce the potential that the individual "bit off more than they could chew".

techweenie 07-19-2004 07:24 PM

Bob: many buyers of million dollar properties are 'trading up' from $750K properties in El Lay. But $750K properties aren't necessarily luxury homes.

Take a look at this little bitty thing on half a Venice lot (you have to enter fromt he alley) probably 60 x 45 feet. A half million bucks.

http://guests.themls.com/photos_addl.cfm?mls=04-078746&p_type=0&addr=2416%20WALNUT%20AVE

Down the street in a very nasty neighborhood, is a full-sized house on a 'normal' 4300 square foot lot needing total rehab for only $780K.

Wacky.

CamB 07-19-2004 07:27 PM

Yeah, I think the point I am making is that they encourage people to keep borrowing more (which is why the bank likes them) - in other words, they take any of the compulsory savings regime out of a mortgage.

This is fine when prices keep going up, but means that a much broader number of mortgage holders are likely to be in a difficult position if prices go south.

In particular, this is an issue when the mortgage has been topped up to buy holidays, cars and big screen tvs ---> the ready availability of the cheap credit is too big a temptation for a lot of people.

CamB 07-19-2004 07:30 PM

Quote:

Originally posted by techweenie
Take a look at this little bitty thing on half a Venice lot (you have to enter fromt he alley) probably 60 x 45 feet. A half million bucks.

Wacky.

What would it rent for?

techweenie 07-19-2004 07:37 PM

Cam, that little place might bring $12-1400 a month.


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