Tuesday, May 17, 2005

"Don't Sweat The Bubbles" California

In the Santa Clarita Valley, the local realtors association seems confused. "'We expected things to level off a little bit this year, but it appears that’s not the case,' said Jim Link, association vice president. 'People are concerned that if they didn’t buy now, they won’t be able to afford to buy later.'"

Where did they get that idea? " Mike Davis, president of the association’s Santa Clarita Valley division, said 'It’s (a) good to buy and (a) better time to sell,' Davis said. 'If someone is going to relocate they should do it sooner (rather) than later.'"

An opinion piece in another Santa is more sanguine. "If the housing market softens and you lose a little short-term equity, it's a safe bet you'll get that value back just by waiting out market swings, and have a comfortable place to live while you're waiting."

"The collapse of tech stocks in the late 1990s is a classic demonstration of bubble activity. That market went crazy for several years, turning teen-agers into Ferrari-driving multi-millionaires. The kids who used to be known as computer geeks quickly became sirs. Then that bubble burst, and the sirs went back to geekism and Ford Fiestas."


At 8:45 AM, Anonymous nostradamus said...

(it's a safe bet you'll get that value back just by waiting out market swings, and have a comfortable place to live while you're waiting.)

Market swings? The last Calif boom/bust had a 4-yr boom and a 5-yr bust. The current boom has lasted 5-7 years (depending on area). If the bust starts now, it could last at least until 2011-2012.

That's a long time to wait it out while your home is deflating and your creative mortgage becomes a noose around your neck as payments keep increasing.

My guess is that lots of folks won't be waiting it out. That's how busts gather steam.

By the way, someone please explain to me how it can be a "good time to buy and a better time to sell"? Sounds to me like classic RealtorSpeak™: it's always a good time to buy though there are times when selling makes sense too.

At 9:03 AM, Anonymous Anonymous said...

just goes to you how idiotic people become when they work in the real estate industry... saying stuff like: it's a good time to buy and a better time to sell... what does that mean? it's just a good time to buy or sell... to use me as your broker so i can get a nice, big fat commission check... morons...

At 9:10 AM, Anonymous Anonymous said...

OT: sign of a housing bubble #32,908...

Celebrity Real Estate Agents: Officially Over

"Hot Properties," a comedy about four female real estate agents in Manhattan, is reportedly on ABC's fall lineup. The Times calls it a "'Housewives'-esque sendup." Wooeee! This program is not to be confused with "Hot Property," a show about "three immoral real estate agents in Houston." Last we heard, that Property was given a cast-contingent pilot order from NBC. It does not appear on the network's fall schedule.


At 9:12 AM, Anonymous jeffK said...


I ran across a good buy vs. rent calculator:

It takes into account all of the variables (closing costs, income lost on down payment, selling costs, tax benefits, etc). So it's pretty useful.

Has a few glitches which are pretty funny though. It has a slot for "housing appreciation" so you can see how different rates of appreciation would change the calculus. But when you enter a negative number, it says "House Appreciation Rate Cannot Be Negative". Oh yeah? Says who?

At 9:22 AM, Blogger goleta said...

A $1M house might cost the owner around $20K to $25K a year in California, even when it's rented out and the 0% down ARM rate stays the same:

$45K mortgate + $11K property tax +$4K association fee,insurance, repairments, etc. -$30K rents - $5k to $10K of tax deduction= $20K to $25K.

Personally, I don't think RE prices will ever rise to the current level (inflation adjusted) again in the next 30 years due to the impact of boomers' selling. I don't think they even have a chance of waiting it out.

At 9:23 AM, Anonymous Anonymous said...

I live in the SCV. It sucks. I do so because my wife's family lives in New Hall. I constantly get flyers in my apartment door with the warnings about how "We are not in a Housing Bubble"! "Buy before it's too late!" This RE propaganda is ridiculous! I hope the day is coming when they get their wasteful SUV's repo'd!

At 9:59 AM, Anonymous Loren said...

I remember when one of the biggest reasons to buy instead of rent was being able to paint what color rooms you wanted and to put holes in the walls to hang family photos. Most people realized that buying was going to cost them, but the freedom was worth a little financial pain.

At 10:08 AM, Anonymous Anonymous said...

"Do not go gentle into that good night. Old age should burn and rave at close of day; Rage, rage against the dying of the light."

But the day will end no matter what.

At 10:46 AM, Anonymous Anonymous said...

You've heard the cliché "By definition, half the people you meet are below average". I think they are being gracious. It still amazes me the utter lack of critical thinking that is rampant here in SoCal. I know it's not just because I am an engineer (we tend to over analyze), but in this case its a good trait as I know I have averted financial suicide by not buying in this mania. It should be really simple for folks and all that's needed is the ability to add. Let's take a $400,000 home in SoCal using the now archaic 30 fixed with the almost extinct 20% down. Your looking at a $320,000 loan at today's rate of 5.75%.

Principle and interest = $1867/mo
Property taxes LA County = $416/o
(1.25% only, no Melo-Roos)
Property insurance = $80/mo

That's $2363/mo. Last time I checked, that's two weeks take-home pay for someone making $100,000 with a 401K. Just basic housing is costing 50% of the take-home for what is substantially more than the median income in California. Yes, I know there are a lot of two income families. Better hope there is no recession. It wasn't that long ago that a bank wouldn't loan you the money with that little margin. Why, because history shows that this is a recipe for delinquency. Which in several cases leads to default and foreclosure. We will learn that the statistical sample of the past was adequate and the results should not surprise. They say that "stupidity is doing the same thing over again and expecting a different outcome". I also like "if you think education is expensive, try ignorance". What this bubble needs is a good injection of critical thinking, just like what's going on in the blog. We are undoubtedly preaching to the choir though. When I speak to people who think this mania is sustainable, I really have to wonder about their mental capacity as there opinions are absolutely devoid of critical thinking (i.e. logic). They are literally building thousands of new homes in Lancaster and Palmdale, which I love, because supply is about to outpace demand in the Antelope Valley in the Fall of 2005. When people are paying $280,000 for 1,700 sq/ft in Rosamond (a shit hole), you just know when this baby finally crashes, its going to bounce at least three times!

Remember: When you hear someone say, “there’s never been better time to sell”, that really means “there’s never been a worse time to buy”

At 11:25 AM, Blogger deb said...

"They are literally building thousands of new homes in Lancaster and Palmdale, which I love, because supply is about to outpace demand in the Antelope Valley in the Fall of 2005."

I agree. I think the crazy building in the deserts surrounding LA will help to pop the bubble hear as well. A drive out the 210 towards the desert blows my mind every time. More and more rows of stucco boxes. A sea of roofs as far as the eye can see.

I'd love to know what % of these new homes are bought on spec out in Riverside, San Bernadino, Palmdale, Lancaster, if anyone has ever come across the stats.

At 11:46 AM, Blogger goleta said...

On a trip to Riverside last weekend, I probably saw thousands of new homes in Ventura county along US101 and more in LA's deserts.

If we can get the percentage of homes not owned as primary residence and the number of new homes, we should get a better idea of how many homes will be rushed to the market when the appreciation is gone.

At 12:00 PM, Blogger desi dude said...

looks like lot of us are here from the couthlad (as the call Souther cal here).
10:46 Anon

Very good post.

I do keep meeting people who ask why you did not buy yet? remember, most of these are recent buyers who want you to jum in as well. They know they need company when the time gets tough.

I simply refuse to talk to current/recent home owners about home prices. I tell them, If I talk with you , you'll regret that you bought the home recently (last 2/3 years).

Some of the renters, who feel left out and try things like ' I dont think it will fall more than 5 /10 percent'. 'it may flatten but no downside' ' there are too many people who want to buy and not enough homes'

well after talking to me they go home happy that they did not jump in.

amount of information I read/ gathered over last couple of months on this and other websites (financial sense on line, safe heaven, calculatedrisk-blog etc) is simply astounding. Thanks to ben and other bloggers.

I cannot simply believe that people would pay 300K+ to live in riverside and beyond and commute to west side every day, travelling for 2+ hours each day and still sleep at night with IO payments!. It is just beyond me!

At 12:02 PM, Blogger desi dude said...

sorry read
"looks like lot of us are here from the couthlad "

looks like lot of us are here from the southland

At 1:02 PM, Anonymous Anonymous said...

Deb wrote

"If we can get the percentage of homes not owned as primary residence and the number of new homes, we should get a better idea of how many homes will be rushed to the market when the appreciation is gone."

I don't have actual numbers, but I've been going to all the Grand Openings (pre-sales events) here in the Antelope Valley and this place is full of speculation. They come in and buy 20-30% of the homes in the first releases of a new tract and wait until they are selling Phase 5 and selling. In the past few years that has probably gotten them 10-15% gross, but that has been changing fast in the A.V. I went to the Richmond Grand Opening last week end for two new subdivisions and the majority of folks were from down below. Some didn't even actually know where the homes where to be built (clearly speculators). The A.V. has so much new construction and tons more coming on line this Summer that you can tell the pressure to raise prices is cooled off substantially. Now all the builders here are having "pre-sale" events before they even finish grading lots as I think they realize, the gravy train is ending and are trying to lock in as many lots before the other developers get online. They generate a lot of intersts, but only the paniced are buying. You still get a lot of L.A. people who come up here and like $400K is a steal, but they don't know their history. The A.V. will not support $400K, not for a long time. What will happen here is that when Santa Clarita and Valencia correct, all these commuters, sick of 2+ hour drives and $$gas bills, will buy closer to work while telling the lender that the A.V. home will be a rental property. Once the new home closes, they will let the A.V. go back to the bank. We're the end of the line and it will get ugly as it did in the 90's. East Lancaster and Palmdale turn from a nice area to a shit hole when the County allowed Section-8 housing there to help alleviate the huge number og HUD forclosures that dominated the area. The crap moved in and everyone with a brain left for the west side of town. Now, homes that sold for $40,000 in 1996 (East Palmdale), now sell for $250,000 and it sill the same ghetto shit hole it was in 1996.

At 1:17 PM, Anonymous Anonymous said...

I think we're ALL from Southern California!!

At 1:37 PM, Blogger bubbleman said...

houses in ca continue to reach new heights. i sold my house late last year and i am now renting. i am renting for 3500/mo. the house next door just sold for 1.4 million within 24 hours. we went to the open house and there were people running through the house paniced that someone was going to put in an offer before them - it was unbelievable! i looked up the records on the house and it sold for around 750,000 in 1999. the la county assessors office has a slick website to review property tax information - you can easily look up home prices based on the last recorded sale.
click on property maps and sales

At 2:35 PM, Blogger desi dude said...


thank you.

pretty soon I'm going to make a list of homes that interest me and and keep track of their sales.
when the time comes, I'll be there to buy one of them!(I'm not greedy to pounce on other people's misfortune!)

At 4:59 PM, Anonymous ChrisH said...

To all posters regarding desert homes:

You've got pretty much the same situation here in the Victor Valley (Palmdale/Lancaster's neighbor to the east).

I bought my home back in 2002 when they first started to build out here so I got in right at the beginning.

All my neighbors were like me. We were middle class 40kish young people who were priced out of homes "down the hill" We bought with fixed rate loans an we had jobs that were outside of traffic hours which made our commutes bareable.

Then in late 03 the speculators decended on the area. With in weeks the tract under construction to the north of me went from the high 100s to the low 300s. When the tract was complete, I took a walk through the streets. Every other house was empty and had either a "For Rent" or "For Sale" sign.

Now fast forward to Spring of 05. In talking to my neighbors, I've found most of them have refinanced their equity out of their house to "pay off cars or credit cards" Many moved out of their fixed loans to adjustable. The new people coming in buying are all on ARM, NegAM and IO loans. They make less than me but are purchasing 300k houses.

When I first moved here I correctly predicted that housing prices would go up. However, I figured white collar people with good incomes would be priced out of "down the hill" and come up here and that is what would drive prices up. However, that didn't happen. We have the same blue collar people buying here with the same low incomes, but with riskier loan products. Add in the speculators and this place is going to look like the early 90s again and then some.


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