Sonoma Housing Bubble

Pulling the cork out of Sonoma's bubbly housing foolishness

Friday, February 24, 2006

Look Out Below...

Sonoma Home Sales
On Their Way Down...

...but new listings popping up literally overnight.

2005 Total Units Sold 1/01-2/27: 89

2006 Total Units Sold 1/01-2/26: 70

2006 Unit volume: Down 21.3%
2005 Total Sales 1/01-2/27: $61,813,000.00

2006 Total Sales 1/01-2/26: $58,920,500.00

2006 Total Sales Volume: Down 4.68%

MLS Listings - Sonoma (95476, Boyes Springs & Glen Ellen)

2/25/06 GMAC MLS: 200+ (results exceeded search limit)

Same search ran on 2/24/06 yielded: 193 listings

Houses for Sale are at record numbers, and the length of time on the market has tripled and buyers have dwindled. The mortgage industry is already feeling the pain and cutting their workforce as the demand for mortgages has nosedived...

"A major transition is underway in the U.S. mortgage lending industry, with consolidations and lay-offs at the forefront as companies try to deal with waning demand for home loans."

The U.S. housing market surged for five years, shattering sales and construction records and sending home prices up more than 55 percent on average nationwide."

"But now the market has taken on a "survival-of-the-fittest" atmosphere, said Celia Chen, director of housing economics at Moody's, a consulting firm."

Washington Mutual Inc. said it plans to close 10 home-loan support offices around the country and lay off 2,500 employees as the Seattle-based consumer bank and mortgage company continues a corporatewide effort to cut costs.

"Countrywide Financial Corp. (NYSE:CFC - news), the largest U.S. mortgage lender, recently announced it plans lay-offs for sometime this year, partly in response to lower profits on sales of mortgages."

"On its fourth-quarter earnings conference call in late January, the company's chief executive, Angelo Mozilo, said intense competition should force some smaller lenders out of the market."

"Employment in the real estate and mortgage industry peaked at 504,000 in October of last year but fell to 501,000 in December, according the Bureau of Labor Statistics."

"That is a noteworthy shift, given that the sector has been gaining jobs over the past five years. Employment stood at 283,000 in March of 2001."

"Waterfield Mortgage Co. recently announced that it will sell its mortgage banking business."

"Irwin Financial Corp. (NYSE:IFC - news) said last month it hired JPMorgan (NYSE:JPM - news) to look at selling its conventional first mortgage unit, Irwin Mortgage."

"They just couldn't get the revenue per loan that the big guys were getting," he said. Even the larger firms are poised for a downturn.

"There are some very important signals emerging in that we have seen some pretty good companies go on the block for sale or have been sold recently, which is a clear sign that consolidation is seriously underway," said Douglas Duncan, chief economist at the Mortgage Bankers Association, an industry trade group.

"According to Duncan, lenders have been holding "slowdown" meetings with their employees, a move he said historically coincides with a turn in employment. Duncan said developments at two mid-sized "good performing" companies may hint to a wider trend."

"Mortgage rates are expected to continue ratcheting upward from their historic lows, and that will limit lending and refinancing activity, putting more pressure on firms to find new efficiencies, said Duncan."

"Mortgage lending is an opportunistic business and when business declines, the instinct is to consolidate to become more efficient, and that is what we are seeing," said Chen.

"This shift is expected to pick up steam in 2006 if the housing market, as widely expected, cools off from its record-breaking five-year run."

Just a little prick, this won't hurt a bit....


At 2/25/2006 02:44:00 PM , Anonymous Anonymous said...

Curious: If the job conditions are so bad how can people afford Sonoma County? Just who are these "buyers"..refugees from LA? Are the residents rich retirees?

And if the Hispanic population is growing so fast in the county... just where are they living and how do THEY afford it? OR do they live in trailers? Or are they all cooking meth and growing pot? I read some time ago about an illegal trailer park behind the seedy Amsterdam Oyster bar (but for sale for over a million bucks!) on Valley Ford Road where one of the trailers was a Meth lab and blew up.

Maybe this explains it all?

At 2/25/2006 03:04:00 PM , Blogger Athena said...

well.. those are good questions.

Initially late 90's during the telecom boom a handful of silicon valley companies moved to petaluma and brought with them SF and Silly Valley transplants.

The home prices in SV and SF at that time were double and sometimes triple the cost of a median priced home in various areas of Sonoma County at that time.

There were a few hundred people with more money to invest in real estate and large salaries to support the mortgage payments.

That brief influx of real estate new buyers changed the landscape.

Many of them sold homes in SV and SF and had too much money on their hands after buying a house in Sonoma county... some invested it in more houses.

The internet bubble also had people with bigger salaries able to contemplate buying and many of them started to move north of SF for "quality of life" reasons...and because even with the 6 figure salaries real estate in marin, SF, SV was still too steep for some... and thus the new demand continued to change the landscape and thus the belief that this is a desirable place to live was reinforced.

Then the tech bubble imploded and the interest rates hit rock bottom... people who had bought and had equity saw an opportunity to buy more as an "investment" I don't have a solid source as of yet... but it is estimated that in Sonoma 95476 alone 30% of the properties bought from 2002-2005 were bought to flip.

With interest rates at rock bottom levels people tapped out their equity and bought more properties, or upgraded themselves into a bigger or more expensive home... they sold their house, and bought someone else's property either sold for the same reasons, or bought to flip to someone just like them...

still others who maintained their homes in sF and other areas had enough equity in their houses from the skyrocketing appreciation to buy second homes in desirable Sonoma...

finally, if you look at the last 3 years of purchases and the types of loans used... there is a trend of increasing numbers of Interest Only, and risky ARM loans- last year alone is that 69% of those loans were these exotic risky suckers... locals were trying to get into the market, people who's income wouldn't qualify them for any other loan and it was all about the payment... the hype had taken flight and every day joe's were worried about never owning a home of their own, being priced out of the market and missing the boat- because real estate only goes up...

Well... I think those are simply the latest bigger fools who are going to be left holding the bag. The people who had nothing to lose have likely already cashed out... they cashed in on creating a situation where those who could least afford it entered an artifially inflated market and leverged themselves to the hilt to do it. This market was created at first from a bit of new found money with the tech industry... and when that popped it was a market of pure unadulterated real estate speculation that kept it flying high.

As for the hispanic population... I don't have easy answers, but I hear all too often from talkers in Sonoma lamenting the number of people living in single family houses.

That isn't unique to the hispanic community- Over the immigration history of the US, many ethnic groups entering the US pooled together their resources, and lived with extended family and friends in one residence. They come here poor and they take the jobs that nobody else wants and they make a pittance for it, and they are forced to share resources like housing.

Typically you will find a large portion of the hispanic community in the crooked, cramped streets in Boyes Hot Springs, scattered through the broken down houses and apartments in El Verano, and also in the run down houses and shacks in Agua Caliente. This is why property in these particular areas can be bought for 100k- 300k cheaper than on the East Side of town.

At 2/25/2006 03:28:00 PM , Blogger moonvalley said...

I heard that a great many of the high priced buyers of the last few years have shown up here during some sort of vacation, generally during the spring and then decide they love the place so much that they want to move here. Often these "deep pockets" buyers find out there's more to the town than four star restaurants and wine tasting and they get bored after a while and move on, but not before being responsible for a price jump because when they bought they didn't care what they paid for their little chunk of paradise. Thus the price boost was passed on to the next "out of towner", which in turn raised the bar for anybody and everybody else.
At the other end of the spectrum there is a great deal of poverty all over the country that is largely overlooked by the visitors and by many residents. This is an agricultural area and also a tourist area both businesses attracting cheap labor.
As I've said before, my entire fammily lives here. My parents moved here from SF when my dad retired from the Fire Department 22 years ago, my sister married a guy from Cloverdale and they live in Rhonert Park with their kids. He repairs mail trucks has a non union job and if my parents hadn't given them a small down payment for their place I'm sure they wouldn't have been able to buy and that was 17 years ago. I think they paid 80k for their place..maybe.
My husband and I work in the movie business, (writers) and have always worked from home so we can work anywhere so we prefer being near family and living a quieter life style than LA, I wish we'd bought up here years ago, but we owned a house in Santa Monica and that was enough. I have a lot of family and old friends in Sonoma, lots of other relations too and I would like to see this place become affordable for them again. One thing I can see after having spent so much time in LA and that is a communtiy is much better when it is balanced with all sorts of people, not just those on the top and bottom rungs. I would hate to see Sonoma turn into Santa Monica.

At 2/27/2006 11:38:00 PM , Blogger Athena said...

You know... that's a great point Moonvalley. Sonoma is a very small town and quite tight... it doesn't have much to stimulate people who are used to much more activity, and I would bet that many transplants find it quite boring. When push comes to shove, celebrities and people with $$ have been visiting the valley for ages, and the Valley is glad to have them as tourists. But at the end of the day, aside from the obvious tourist attractions the town is a place for locals, and they do nothing to alter it to make it more hospitable for transplants.

I think the most apt thing I have heard about the Sonoma culture is either you are from there, or you are from "away" and nobody really cares where that is... nothing gets a local's tongue sharp so much as people who have been there for two years to say they are from there...

So... back to your very good point, I imagine that if people have no roots or no history there, and don't have an affinity for a very small town life... they will get bored easily. I am betting many of those houses sold in recent years and back on the market each and every year were bought by some of those folks.

At 3/01/2006 04:04:00 PM , Blogger marin_explorer said...

So... back to your very good point, I imagine that if people have no roots or no history there, and don't have an affinity for a very small town life.

That's interesting. I suppose the best "selling point" of Sonoma is its underlying character, not the recent façade of upscale restaurants and wine-tasting rooms. We've thought of moving to Sonoma county, because we'd love to live in a more rural, relaxed setting with quick access to outdoor activities we love. Of course, the community matters just as much, and while I doubt we'd come across as just some more uppity/smug transplants from Marin, we'd want to feel welcome too. Some want to give as much to the community as they get themselves. But, perhaps Sonoma has become more akin to Marin: pleasant, but somewhat self-absorbed and dissociated? Perhaps some transplants move in to build their image of a self-congratulary paradise. Others, I suspect move there because they value the same things the "locals" do.

At 3/02/2006 02:41:00 PM , Blogger Athena said...

I don't think it is as self absorbed as Marin. I see it more as real small town like. The people who are involved in the town, and what happens in the town and in offices have been there for generations, and they tend to stick with their own... for generations. People know each other, and the people who are important to know aren't usually the sort that transplants would view as important. The pretentiousness I see in my town has come from the transplants who have viewed their move to the valley as some sort of brownie button proclaiming them to be of the rich sort now.

The really rich that I know, still live in simple houses, drive non-descript cars, spend time with the same people they have known their whole lives. My friends are the children of my parent's friends, and they are children of my grandparent's friends. I remember growing up and knowing I was related to a quarter of the town. Its just small town type of local community. That's more of what I mean. And when it comes time to changing and altering sonoma, it is the new people who push for that. The people who have all been there a while are the ones who get in the way. The local sentiment doesn't really equate to a desire to make sonoma the place for the rich and snobbish. When push comes to shove it is still their town, and there are a lot of old people there, and they are old sonoma people. I get emails from my best friend's mom and I can scroll down the entire chain and see that it likely made it through all the recognizable names in Sonoma before I got it... sonoma is that kind of place. generational small town.

At 3/02/2006 04:17:00 PM , Blogger marin_explorer said...

The local sentiment doesn't really equate to a desire to make sonoma the place for the rich and snobbish.

I'm sure that's mostly true. Of course, I always wonder if the local governments welcome high-end growth, since it equates to more tax revenue? Those billboards seem to entice people to move there. Perhaps that's part of the reason why the Sonoma square became so developed, not to mention those new high-profile residences in outlying areas.

As a balance to the snobbery, I would also think some move to Sonoma (county) not so much to transform the area, but to live in an area that's more affordable for their family. That's the case for family who live there and work in the wine industry.


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