July 17, 2007

Sales Drop Their Pants in Southern California. In More News, Median Prices Still Strong Like Arnold Schwarzenegger.


What a shock that housing median prices are still holding strong. In the land of Oz otherwise known as Southern California, June data released today shows housing prices resiliently strong with one caveat; sales are falling off a cliff! So even though Los Angeles County has a median home price of $545,000, a 4.8 percent yearly gain and Orange Country has a median home price of $645,000, a 0.4 percent yearly gain the devil is in the sales declines.


Los Angeles is down 32.5 percent in sales numbers. Orange County is down 31.6 percent. Riverside is down 47.2 percent. San Bernardino is down 50.1 percent. San Diego is down 22.6 percent. Ventura is down 27.8 percent. After each sentence I expect you to say Hoorah! Here is an excellent test of housing sentiment. In July of 2006, only one year ago we were having double digit sales drops but pundits kept hyping the yearly gains in the median income. “Sales drops mean nothing. Look at the tasty yearly median gains! Housing is hotter than a burnt tamale.”

Of course any person who studies housing markets realizes that drops in sales volume are indicators of where prices are heading. Housing is sticky on the way down. But the ironic thing is you don’t hear the housing syndicate jumping up and down for the positive median home prices just released. Why? Because business is horrible and the public is tired of being bamboozled. Just listen to the sentiment of the home builders. The summer bounce isn’t here and we are quickly approaching August. Suddenly visions of infinite double digit gains start to seem more distant. Summer 2007 is a vastly different housing market. For one, the subprime market is imploding. Imploding? Seems abstract to say it that way. How about “no more mortgages for LaLa land investments.” Aside from irresponsible lending and delusional sellers, housing is coming back to Earth from a long vacation to Uranus.

The housing syndicate wants to blame the Fed and anyone championing tighter credit. If it were up to them, we’d be purchasing $2 million dollar homes while inflation goes along at 25 percent and every new buyer ended up in a 70 year multi-generational loan. They wouldn’t care. Sustainability is a word outlawed in the subprime industry. These companies have such little reserves, that a simple credit tightening brought many companies to their knees in a few months. And this on the back of the largest housing bubble in history. They could have easily built up their cash account to weather a storm over the healthy years; but why save when you can make money hand over fist loaning out ridiculous suicide loans? Wall Street ate them up.

Well now, thanks to the transparency of information most people look at the median price and just laugh because they know it is simply absurd and a horrible indicator of the current market. Sellers are still doing baby steps trying to lower prices by $10,000 or $15,000 on a home overpriced by $200,000. So it is in today's market. The great summer standoff. I predicted this many months ago. Call it the summer housing Easter bunny and he ain’t hopping in Southern California and time is running out.



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11 Comments:

Liberal said...

Dr. Housing Bubble,in our development here in AZ, (one of the better ones) prices actually went up over 20k the last 4 month. There was almost a standstill in new construction for a couple of month and now the pace is picking up very fast. I looked at recently closed mortgages and most of the people finally had to get 20% down. Also, I spoke with a Realtor friend and he told me that most of the foreclosures are picked right up by other people.
Go figure. Do you have an explanation for that?

tpir said...

I bet a lot of the people who think they are getting good deals on foreclosure houses will realize down the road that they didn't get the "steal" they thought they did.

mrfnuts said...

Dr. HB:

Absolutely correct on the comment about sellers are lowering their prices by 10-20K on a house over priced by $200K.

I just moved to Pasadena, and signed a lease on a very nice condo, $1800 per month. I know, not cheap, but, it's 3/4 a mile from my relatively high paying job, so, I get to avoid LA traffic, save on transportation costs, and get home after work while there is much of the day left that I can enjoy with my wife (with whom we are now expecting our first kid). At any rate, I digress, the point is although I agree this is a very nice neighborhood, and I am comfortable with the $1800 per month lease, there is another unit in the complex that is for sale, and the asking price is just staggering!! For a unit that is SMALLER than the one I rent, they were asking $565K !! Without even doing many calculations, you know that the interest on the first mortgage payment is going to be somewhere north of $2800. Plus when you're an owner you get the privilege of paying a monthly home owners association of $400, and annual property taxes (not sure of that figure). At any rate, in pure costs before repaying principal you're probably looking at over $3500 monthly for a condo, that is smaller than one you can rent in the same building for $1800.

Just last Sunday they had an open house for this unit (they've been having one every Sunday for the past 2 months), and they just reduced the price to $530K, yet even given a $35K price drop, I still think this thing is over priced by $200K - $300K.

At any rate, I'm simply baffled by the asking prices these places have given the actual rent that can be commanded. I was actually more baffled a couple years ago when people were actually paying these prices and trying to explain to me that this would be some kind of investment.

It looks like it's still going to be a while until I'm a buyer.

Dr Housing Bubble said...

@liberal,

Currently inventory stands at approxmiately 62,000 in the Phoenix area. Sales are massively down:

May 06 Sales: 14,169
May 07 Sales: 10,112

A drop of 28.6 percent. The median price is also down:

May 06 Median: $264,000
May 07 Median: $250,000

A drop of 5.3%. In addition, if you were only to look at new homes, the overall median price drop is 10 percent over last year.

Is the community you are looking at gated? Upscale? What area of Arizona? The overall market is trending downward in the area including Tucson.

@tpir,

Good locations are still moving. Maybe these are upscale niche communities (i.e., Scottsdale). Either way, look at the above stats and the market is not going well in Arizona overall.

@mrfnuts,

Pasadena is a great area. In LA, if you can avoid the commutes, paying a bit more in rent is absolutely a must. Prices are still in LaLa land. The ovearll market is holding its breath thinking summer will offer a recovery, hence the baby step mark downs. I don't think we'll see any significant market movement on the downside until Q4 2007, or Q1 2008.

Musnbny said...

Ok, so I'm renting in Rancho Cucamonga. I deal with a lot of different people in my job. One real estate agent said her sellers are angry in general. The piddly little price decreases in Rancho Cucamonga are a joke. Nothing is selling, really.

My wife went and spent pretty much the whole day at a couple of the local builders.

I am flabbergasted. Every damn one of those companies is posting a loss quarter after quarter and with the poor customer service I'm not surprised.

First, the listing price is not coming down much at all. Some say they can't or piss off the current home owners in the neighborhood. Bunk! They can change their prices any time they want. They already sold the houses to those people and so, so what! Second, they say they are going to give upgrades, but guess what: they don't tell you what the upgrades cost until you are a buyer. They send you to a third party "design center" in order to determine what your house is going to cost, but they will only do that after you sign on the dotted line. What kind of crap is that? What other industry do you buy something without knowing how much it is going to cost.

That leaves me and my wife guessing. Lennar and Van Daele builders are unbelievable! Nice homes, but how can they expect one to buy the house under these circumstances?

Quang said...

Many sellers are in a state of denial right now. As the summer sale season comes to an end and the housing inventory grows higher, reality will set in. I believe as long as the economy is strong, many FBs will hold on. What I mean is instead of slashing the prices, they will take the house off the market and pray for a better spring 08 sale season.

Peppermint Hippo said...

I am familiar with the Rancho Cucamonga market as well. There are many f*ed borrowers in this area hoping that the market miraculously recovers. I often wish we could just fast forward, see banks foreclose on all these homes, and slash prices to where we have market equilibrium again. I wonder which group will be the first to concede significant price reductions: sellers, lenders, or builders?

The North Coast said...

It is Stalemate Summer here in Chicago, too, and this market is just as insanely overpriced as CA in it's way.

The trendy Bucktown and Wicker Park nabes defy belief. These 'hoods can be as trendy as they want to be but they are still filled with gangs and cruddy bars, and the quality of the housing is abominable. These are 90 and 100-year old A-frame "worker's cottages" built for working-class people, that have been rehabbed with stainless and slant hardwood floors. 1800 sq ft for $795K on streets you don't want to park your car on, that are a mile from a train line.

Up on the north Lakefront, where I live, the architecture is a lot better and the prices are more moderate, and are dropping fast. It's beautiful, but it's not "trendy" and it still has some crime problems. Still, $200-280 is a bit rich for a neighborhood where the median income is $40K. To CA people, $140K for a vintage apt with 715 sq ft might seem cheap, but keep in mind that the same place would have sold for $75K in 1999.

The median household income for the City of Chicago is about $52K and the median house price is $325K, so the prices are still way out of whack. You can still rent way more cheaply than you can buy.

playabarbie said...

Median home prices go up and go down, but few homes are selling and the fewer homes sold the eaiser it is for the median home prices to fluctuate.
I live/work in Nevada County in northern CA and last month at one point there were 65 pending sales and over 1,200 real estate agents......what does that tell you?
playabarbie

The North Coast said...

Expect there to be substantial contraction in all areas of the financial sector in the next few years.

That sector includes me, so I'm battening down the hatches and looking for a railroad job- I believe we are on the eve of a major rail expansion.

The end up the housing feeding frenzy will mark the end of a number of other things we have taken for granted.

Like excessive consumption via easy credit.

Like unlimited upward mobility. Let's face it, there have to be more indians than chiefs and that means that most people are going to spend their lives clustered around the "median" wage, regardless of educational level.

Like the idea that you can get something for nothing and make money just by holding an asset that is doing nothing, in and of itself.

Life will be different for a lot of people, yes.

Donpisto said...

I just sold my house in Rancho Cucamonga in 12 days. My house was completely renovated and upgraded. Ther are 1150 homes for sale in Rancho right now. Only the superior houses or really underpriced houses are selling.My agent wanted to list mine for 429000. I told him he was nuts. I wanted 499000. we compromised and listed for 479000. 12 days later in escrow for 469000. I am now going to rent for 6-12 months and sit on the sidelines til I think it all has bottomed out. then I will buy the house I could not afford before. I will profit from the fall because I got out. There are many dreamers in Rancho with houses that have had no work done on them since 1977. They will not sell.they are all dreaming. They will still have the houses a year or so from now when they are worth 250000 like before.