Friday, May 20, 2005

"Glut" Of Realtors Drawn To California's Bubble

The LA Times has a story about the competitive realty market on the west coast. "'Hi, I'm Joseph Petralia from Coldwell Banker. I'm doing a survey in the neighborhood.' That's his standard opening line. Petralia is working ZIP Code 95118, a middle-class neighborhood in San Jose."

"'Hell, no, I'm not moving,' this fellow says. 'I was born and raised on this street 85 years ago.' 'I'd rather have them hang up than not answer,' Petralia says. 'At least I know I'm getting closer to success.'"

"Last year, as he was breaking into the business, Petralia acted as a buyer's agent for a $1.6-million property. He netted $32,000 more than he had made in the entire previous year stocking auto parts at a Mercedes dealer. But Petralia confesses that the clients were his sister and her fiance. This year hasn't seen a payday like that. He's made only $4,000 in commissions."

"Suddenly, he gets a live one. It's his 21st call of the morning. An unemployed engineer says he's thinking of selling and then renting, hoping prices fall enough so he can get a better house at a cheaper price."

"'You're looking to cash out?' Petralia says. 'Are you aware of the market right now?"

"Is there a homeowner in California who isn't?"

"More than 22,000 applicants took the state's real estate exam in April, nearly three times as many as in April 2003. The last time so many people wanted to sell real estate in California was in 1990. In what might be an ominous sign for the current boom, that year marked a peak in the housing market."

30 Comments:

At 9:06 AM, Blogger Tim said...

Hi Ben!

Where Do We Go From Here?

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

Great site, and a subject I happened to be very fervent about. I went through a bidding war back in 2001 and was absolutely disgusted as a result. It so happens the wife and I didn't get the house as we refused to pay a pumped up price for a dump without even the dignity of knowing what the highest bid was. That's right, we weren't allowed to know what the highest bid was, we were told to just keep bidding and would be told if we got the house. I told the realtor to tell the sellers to shove the house up their @ss. I think it's a travesty what's happening to the RE market today. I live in Northern New Jersey and the same thing that's going on in Southern Cal, Boston, D.C. and Vegas is happening here. There is very little inventory going for very high prices. The moment a house comes on the market, it's gone. People are fighting over houses that haven't seen a paint brush in 40 years and the owner sops it up with glee. It's very disheartening. We managed to get a house in late 2001 through friends of the family and man, were we lucky. I hope the whole damn thing crashes and I'm a home owner. - GC

 
At 9:31 AM, Blogger Mousebender said...

Jersey anon: absolutely right!

Blame the easy money. Look, even the amortizing ARMs are going out the window, especially in California. Look at this Rocky Mountain News story about the prevalence of IO loans:

New slant on loans

Percentage of home loans that were interest-only:

Jan./Feb. 2002 2003 2004 2005

National 6% 13% 31% 31%
Denver area 6% 18% 50% 37%
Boulder-Longmont area 11% 29% 54% 53%

The 2004 leading interest-only loan purchase markets nationally in percentage:

Fort Walton Beach, Fla. 71%
Athens, Ga. 67%
San Diego 64%
Santa Cruz-Watsonville, Calif. 64%
Santa Rosa, Calif. 61%
Panama City, Fla. 60%
Salinas, Calif. 60%
San Francisco 59%
Reno, Nev. 58%
Oakland, Calif. 57%

Source: LoanPerformance

 
At 9:41 AM, Anonymous Anonymous said...

mousebender,

I currently rent in the Fort Walton Beach metro area because of the unbelievable amount of appreciation here over the last 5 years...

do you perhaps have a link to the data you posted?

Thanks

 
At 9:53 AM, Blogger Mousebender said...

Hi, Fort Walton Beach! It's posted above. Here it is:

New slant on loans

 
At 9:56 AM, Anonymous Anonymous said...

9:31 Mousebender -- unless it's some kind of proprietary secret, how do you get a link you include in your post to show up as descriptive text instead of a URL? Thanks.
Chip

 
At 10:06 AM, Anonymous hellboy said...

(Justin DeSantis, his buddy in the next cubicle, concurs that tech is a bad bet: "Only one out of 20 dot-coms makes it."

A former personal trainer, 31-year-old DeSantis likes the unlimited potential of real estate.)

Hindsight is 20/20. Nobody was saying that about tech in '97,'98,'99, even '00! I bet this guy even thought tech was the way to go back then. Now he's convinced real estate is the only way to get "unlimited potential"? It's the "gold rush" all over again.

 
At 10:08 AM, Blogger desi dude said...

http://www.presstelegram.com/Stories/0,1413,204~21474~2878600,00.html

Is it any wonder that
1) most economists agree that there is no national bubble, may be regional
2) their region may see slight decline in prices (soft landing), but no crash
3)or they are immune because every one wants to live there(realtors say this)

But Long Beach may be immune to depreciation because it's a relatively affordable beach community and the area's housing stock is so thin it will never meet demand, said Dick Gaylord, incoming president for the California Association of Realtors in 2008

 
At 10:09 AM, Blogger Mousebender said...

This comment has been removed by a blog administrator.

 
At 10:11 AM, Blogger Mousebender said...

Rats! Scratch that. Anyway, refer to this page:

HTML tutorial

 
At 10:12 AM, Blogger desi dude said...

Hope some of the bloggers here frequent here would catalogue the quotes and arrange them by date, person, state, company etc.

It would by fun to revisit in about 6 months.

 
At 10:14 AM, Anonymous Anonymous said...

10:11 Mousbender -- thanks. Chip

 
At 10:20 AM, Anonymous Anonymous said...

As I am in the leading metro area on that list of interest only's (Ft. Walton Beach)... I am interested to here opinions of people on this board of what that data suggests...

We have friends who have seen there property triple, almost quad, in the last 3-4 years and are thinking about selling to cash in... what advice if any would you give them? and what advice if any would you give to a current renter in this type of market that has seen 200-250% appreciation the last 5 years?

 
At 10:28 AM, Anonymous Don said...

Advice to owner: Sell!
Advice to rener: Keep renting

 
At 10:33 AM, Anonymous everyone in the pool said...

(The last time so many people wanted to sell real estate in California was in 1990.)

Stupid is as stupid does. Even though i've been through a number of housing booms here in Calif and ran a biz in SF during the dotcom nonsense, I am still always in awe of how foolish people can be. It's amazing to watch folks getting bullish at the top, yet again. But I guess that's how markets work. Remember that old childhood pool taunt, "Last one in is a rotten egg"? I think we've just identified the rotten egg. C'mon, Joseph. Jump in, the water's fine.

 
At 10:42 AM, Anonymous Anonymous said...

Part of the reason this bubble just keeps going is that people chase whatever investment class has had the biggest return over the recent past.

No doubt that has been RE.

The S&P500 index traded at 1190 in July 1998, and today is at 1186. In other words, no gain in 7 years, and you had to go through a tremendous amount of ups and downs in between.

Housing on the other hand has been in a pretty continuous uptrend. On top of that you can leverage the heck out of your investment, AND the government gives you the first $250k of gain tax free if you just live in the property for a measly 2 years.

MUCH of this bubble is government induced.

..DenverKen

 
At 10:43 AM, Anonymous Anonymous said...

To: At 9:31 AM, Mousebender said...
I'd like to look at stats on IOs in other states and cities.
Can you please tell me how I can find this data?

 
At 10:49 AM, Blogger goleta said...

"
Advice to owner: Sell!
Advice to rener: Keep renting"


I'm moving out of California and will continue to rent. I just don't see a reason to buy one when the prices on my realtor's list are all 30 to 80% over last year's appraised priced from the state and county's tax records.

"Stupid is as stupid does. Even though i've been through a number of housing booms here in Calif and ran a biz in SF during the dotcom nonsense, I am still always in awe of how foolish people can be. It's amazing to watch folks getting bullish at the top, yet again."


It's human nature that most of the population always follow the crowd even when it's jumping off a cliff.

 
At 11:00 AM, Blogger Mousebender said...

IO data:

LoanPerformance makes some data available in its MarketPulse newsletter, but you'll have to register to download it. I don't know if that will have it.

You can also search Google News for "LoanPerformance".

 
At 12:41 PM, Anonymous Anonymous said...

I live in Santa Cruz, California and let me tell you, real estate agents have become like flies on sh*t around here. All of them think their going to get rich quick.

I have them coming to the door each week asking if I want to sell.

It is discouraging to witness the level of greed around here.

Can't wait for this to be over so they can all go back to doing whatever jobs they used to do.

 
At 12:47 PM, Anonymous buffalohunter said...

((Justin DeSantis, his buddy in the next cubicle, concurs that tech is a bad bet: "Only one out of 20 dot-coms makes it." )

I was not aware that successful real estate investors work in cubicles. Or inside those little glassed-in huts at gas stations. Or serve mocha frappuchinos. Guess I'm behind the times.

When the morons stampede, run the other way. As they say, "Always drink the water upstream from the herd."

 
At 12:53 PM, Anonymous numbersguy said...

(Part of the reason this bubble just keeps going is that people chase whatever investment class has had the biggest return over the recent past.
No doubt that has been RE. The S&P500 index traded at 1190 in July 1998, and today is at 1186. In other words, no gain in 7 years.)

That's true. Yet stocks have been a far better bet for the past 50 years than property, at least in most markets. Property (outside of hi-growth areas) has risen 5% a year during the past 100 years, a little better than inflation. Stocks have doubled that.

Over a short period of time, property does better. But people are making a big mistake extrapolating the future off the recent past.

The problem I foresee is not simply that people are using the rear-view mirror in their investing decisions, they are using obscene amounts of leverage to do so.

People think stocks are risky because they go up and down. Yet the vast majority of people would never consider going on margin. So a 10% portfolio loss means a 10% portfolio loss.

But today, the same "risk-averse" people are leveraging 10-1 and 20-1 on RE (even more if they go no-down). So a 10% loss could mean a 100%-200% loss of capital. So tell me again why stocks are risky and RE is not?

 
At 1:06 PM, Anonymous semper fubar said...

how do you get a link you include in your post to show up as descriptive text instead of a URL?

If you don't want to do the html thing, you can go to www.tinyurl.com and they'll give you a nice short url than won't break the column width. Easy -- just follow the directions. You can even add it as a toolbar button.

Ben - I do notice a LOT of really long urls breaking the columns (making them practically impossible to copy). How about putting the html instructions for embedded links at the top of your comments box, like you have for formatting? Just a suggestion. :-)

 
At 1:40 PM, Anonymous Andy said...

There was an LA Times article a few weeks ago (Sorry I can't find a link) that said 2% of the working age population of California have Real Estate licenses.

Even just a slowdown in Real Estate is going to take a big chunk out the state's consumer spending habits.

 
At 2:06 PM, Anonymous Anonymous said...

Here is a cool stat for you.

LA TImes reported in 2003 that 80% of the jobs in LA in the 2001-2003 time frame was real estate related (realtors, construction, home depot employees).

LA Times reported a few months ago that 50% of the jobs added from 2003-2005 were real estate related.

If the bubble pops, there are gonna be a lot of unemployed people around here....

 
At 3:02 PM, Blogger desi dude said...

Also
state of CA had an additional couple of billions of dollars in revenue, probably due to all the increased property taxes!

 
At 3:45 PM, Anonymous lee said...

***

Great snip from LA Times story: "There are 165,000 Realtors in California, an increase of 49% since 2002. Only a handful of other fields is growing faster, including debt collection and waste collection, according to the state Employment Development Department."

As a Californian, I can't say I'm too excited to know that our three fastest-growing careers are collecting money from deadbeats, picking up trash and hawking real estate. Maybe they have something in common.

 
At 6:15 PM, Blogger Melody said...

Do you ever feel like this is what the government wanted? They need tax dollars but they did not want to raise taxes. A round about way of getting money was to have the real estate explode along with gas. Just a thought.

 
At 6:57 AM, Anonymous Anonymous said...

Numbersguy:

Amazing how the risk-averse RE investors ignore the value of compounding dividends/income over a very long period of time. Instead, achieving captial gains via leverage as seen as much 'safer.' these are the same people that would 'never' use margin to buy stock.

In the end, these folks would be miles ahead by selling their speculative (and overpriced) RE and cost-averaging into a mix of boring investments (that actually pay cash dividends) to get the compounding machine started NOW! Consumer staples, utlity stocks and US government paper anyone?

BUD may be the beverage of choice when the tears start and using home equity to buy groceries will cease to be an option.

Looking forward to someday reading articles refleeeecting on how RE could possibly have been so out of control.

Will Lereah become Blodgett's contemporary?

 
At 3:47 PM, Anonymous Anonymous said...

Hello All,

"Stupid is as stupid does. Even though i've been through a number of housing booms here in Calif and ran a biz in SF during the dotcom nonsense, I am still always in awe of how foolish people can be. It's amazing to watch folks getting bullish at the top, yet again. But I guess that's how markets work. Remember that old childhood pool taunt, "Last one in is a rotten egg"? I think we've just identified the rotten egg. C'mon, Joseph. Jump in, the water's fine."

Yes the water is fine and I'm enjoying every moment of it. Say what you want about the housing bubble. That’s a great concept but last I checked the bay area has run out of land. Sure values might dip as the have in the past but if you look at the long term values have continued to rise. A lot of the license holders in California are inactive or never renew. They just don’t have what it takes. You have to work hard at this business and I do. Every one of my past clients has been happy with the service I provide for them and I am sorry so many people have been wronged by unethical real estate agents. Good luck in all of your endeavors!

Best regards,

http://www.cbnorcal.com/agentoffice/agentdetail.aspx?agent=13140

 

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