Monday, May 16, 2005

Sales Drop In Southern California

If southern California is experiencing a bubble in home prices, it would be expected that the psychology to keep paying more would continue, even as the buyers disappeared. This report from Inman News shows that now the sales volume is down, in some cases by double digits.

"A total of 31,431 new and resale homes were sold in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties in April. That was down 3.8 percent from March, and down 4.5 percent for April last year, DataQuick reported."

"'More homes will probably be put on the market in coming months, as potential sellers try to sell at the peak in their local markets,' said Marshall Prentice, DataQuick president."

The Bay area is leading the way with price increases. There is a complete table at the bottom of the link. Here's a few of the bigger drops in numbers sold. San Diego, 12.30%, Riverside, 6.50%, Contra Costa, 12.4%, San Francisco, 10.3%, Santa CLara, 15.4 and Sonoma, 14.1%.

16 Comments:

At 2:08 PM, Anonymous Anonymous said...

"More homes will probably be put on the market in coming months, as potential sellers try to sell at the peak in their local markets."

I like the word "peak". I will scream if they say sellers will sell at the beginning of a permanently high plateau.

 
At 2:14 PM, Anonymous MikeMo said...

Question for all:

In crunching the numbers of renting vs owning, what is the best calculation? To my understanding it's:

monthly payment + taxes + insurance - tax write off (up to 1 mil.) compared to monthly rent. Is this correct? Is it based on 20% down for 30 yr. fixed? If not, then at what terms?

And how does this relate to the P/E ratio of homes? Thanks in advance!

 
At 2:15 PM, Anonymous Anonymous said...

Higher median on lower volume may also mean that the price compression is unwinding: the activities on the lower end is dying down.

 
At 2:19 PM, Anonymous Anonymous said...

"Indicators of market distress are still largely absent."

Ummmmm....OK.

 
At 2:30 PM, Anonymous East Bay Renter said...

Well, it's official: I'm "priced out." (So I start chanting, "Prices do drop, bubble will pop, madness will stop...")

MikeMo: don't compare rent to your whole mortgage payment, just to interest, tax, maintenance etc.

Look at
http://www.patrick.net/housing/crash/html
for an example.

Try http://www.bankrate.com to figure out how much of a given payment would go to interest versus principal.

 
At 2:36 PM, Anonymous Anonymous said...

MikeMo

Don't forget to add into the cost of owning the interest you could be getting on the down payment money if your were renting instead.

Having that money tied up has a cost.

On the other hand deduct from the ownership cost the amount of principle you are repaying each month, since that is reducing your debt.

Also, owning usually requires some maintenance costs; renting usually doesn't. Questimate a yearly repair and maintenance figure & divide by 12. Add to the owning side of things.

..DenverKen

 
At 2:39 PM, Anonymous Anonymous said...

www.dinkytown.net

mortgage calculators...

rent vs. own calculator

 
At 2:39 PM, Anonymous Anonymous said...

sorry...

its rent vs. buy

 
At 2:44 PM, Anonymous Andy said...

To MikeMo:

First the P/E. Ed Leamer of UCLA is a big proponent of this. If I remember correctly the calculation is simple

House Price / (Monthly Rent * 12)

That alone doesn't tell you whether a house is under or over priced, but what it does allow you to do is compare historical P/E ratios for the local market and give you an idea of how hot or cold the market is at the moment.

For more info see this article
http://sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2004/06/17/BUGND776191.DTL

As for the rent v own calculation, I think you have to use your own personal set of circumstances. There's no point working out that it's better to buy with 30% down, and a 30yr fixed if *you've* only got 5% to put down and you're thinking about a 5/1 ARM.

Personally I'd go with
Monthly Interest Charges + Taxes + Ins + Maintenance Costs - Tax Write Off

I'd do the values for today, and the values for 5 and 10 years from now (assuming that rents go up with inflation and that interest rates go up if you don't fix them now).

As always remember that my advice is worth exactly what you paid for it (ie nothing). So check with your accountant lawyer etc before you buy anything.

 
At 3:06 PM, Anonymous Anonymous said...

Wow, this is huge! This is the first time that I can remember that anyone from Dataquick isn't being a complete cheerleader. At least Dataquick understands the lagging indicator of median price vs. the more leading indicator of volume. Otherwise they wouldn't have used the work "peak."

 
At 3:10 PM, Anonymous Anonymous said...

"If people are thinking prices are going down, they're delusional," said developer Ran Korolik.
From NY Daily News

See, we're all delusional on this board !!

 
At 3:22 PM, Anonymous Anonymous said...

Go to any sanitarium...

They all say that you are insane and they are wrongfully committed.

 
At 3:23 PM, Anonymous great caesar's ghost said...

What do you all make of this (via www.calculatedrisk.blogspot.com): http://www.federalreserve.gov/boarddocs/press/bcreg/2005/20050516/default.htm

The beginning of the end acknowledged or just cya-ing?

 
At 4:27 PM, Anonymous MikeMo said...

Hmmmmm...That's a pretty heavy release.

Allow me to translate Fedspeak:

To lenders: "You idiots who've been throwing huge cash at any under qualified deadbeat you can find are going to pay..."

To borrowers: "The easy money spigot will soon be turned off, you WILL repay the full amount of your debt, OR say hello to my little friend, Mr. New Bankruptcy Law."

 
At 11:13 PM, Anonymous Awaiting the crash 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 7:38 AM, Anonymous Anonymous said...

Critical thinking is the key. The mortgage community has banked on the stupidy of the general public, and is fleecing them one by one...

 

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