Funny Money in California

DUDE!!! Where's My Condo? DUDE!!! Where's My Money?!?! (said by MoonValley) :-D

From Ben's Blog

The Californian press is buzzing about the housing bubble. “Cheri Colon has been selling (Silicon Valley) real estate for more than a decade. Last month she watched home sales drop to their lowest level in five years and watched prices dip as well. Colon said, ‘It’s a tough time to be a seller and to lose the mindset of the Gold Rush days.’”

“‘Sellers are becoming nervous about how long it’s taking to sell,’ said Aaron Zapata in Whittier. ‘There are many sellers who have contingent offers on properties that they’re having to withdraw because they’re not getting their homes sold,’ added Zapata.”

“‘We’re seeing buyers out there, but they’re a little more hesitant, they’re waiting a little longer,’ Patrick Lashinsky said. ‘There’s a mismatch between what buyers are willing to pay and what sellers want to take right now.’”

“Zapata said his firm hasn’t seen many first-time buyers lately, and those who are looking to buy feel little pressure to pay sellers’ asking price these days. ‘Buyers are nervous that they’re buying at the top of the market,’ Zapata said. ‘Most offers now are coming in under full price, somewhere up to 10 percent less than asking price.’”

“Chris Thornberg, a senior analyst at the University of California, recollected an epiphany he had while eating lunch at a West Hollywood restaurant. Sitting in the booth behind Thornberg and his colleagues was a trio of actors, who were discussing home vales. Thornberg recalled the conversation he overheard. ‘One of them said ‘Dude, my condo’s gone up in value by $100,000, what should I do,’ his friend told him ‘Pull it out, buy yourself another condo. It’s free money.’”

“That ‘free money’ line sent shivers down Thornberg’s spine. He said it signaled to him just how dangerous the real estate ‘feeding frenzy’ could become. ‘A bubble is when the market price of an asset has no basis in what the rate of return on that asset is going to be; when the fundamentals say one thing and the market says another,’ he said. That’s the market we are in right now, Thornberg argued.”

“‘At some point we have to come to grips with the basic affordability question. This is not an affordable market,’ said Stephen Levy in Palo Alto. ‘I think prices could drop, and once these things start, they have a snowball effect.’”

“Levy, who estimates prices could drop by as much as 20 percent in the next couple of years, said rising interest rates are quashing the segment of buyers who can only get into the market using riskier, adjustable loans. ‘People chose to bet on future appreciation by choosing loans where they knew payments would go up by a lot, but they got in cheap,’ Levy said. ‘There are no cheap loans now.’”

“In January, the average rate for a one-year adjustable rate mortgage was 5.17 percent, compared with 4.12 percent in January 2005 and 3.93 percent in January 2004.”

“Meanwhile, notices of mortgage defaults and foreclosures are rising as some builders report more buyers backing out of deals, canceling purchases at new-home tracts. Sharon Hanley said 89 single-family homes were sold and 30 sales were canceled for the week ended Feb. 5, representing a 33.7 percent cancellation rate. For the same week two years ago, near the peak of the boom, the cancellation rate was 10.9 percent.”

“Suzie Ek, vice president for sales and marketing at Standard Pacific’s San Diego division, said higher cancellations come from buyers unable to sell their present homes at the price they needed to afford to move up.”

“Sandy Perlatti, spokeswoman for McMillin Communities, her buyers are not expressing concern with macroeconomic forces around them, she said. Greg Geisen said he closed escrow on a Quintessa house, priced at just over $1 million, even though he has yet to sell his current home. ‘It’s not real money,’ he said of the anticipated profits. ‘It’s transferring equity from one home to another.’”