Sonoma Housing Bubble

Pulling the cork out of Sonoma's bubbly housing foolishness

Sunday, March 26, 2006

Ready, Set, Grab Your Magic 8 Ball

"With all the economic reports that the government and private agencies produce, sometimes it seems a Magic 8 Ball would do just as good a job in helping investors predict the Federal Reserve's next move."

"Just take the data seen over the past few weeks in the housing sector, which is particularly rate-sensitive. Overall home prices are up and existing home sales are strong, yet sales of new homes are substantially lower."

Actually, the national median is down a bit... currently it is $209,000 down from $220,000 in August 2005. In the west it’s $306,000, down from $327,000 last August. The northeast had an increase though and was at a high of $263,000 from $250,000 this month last year. Not only was the median price in the west down, sales were also down by 10.6% over all for the region. That didn't stop headlines making silly claims about sales surging though...

"Sales of existing homes surged surprisingly in February after falling for five months in a row, the National Association of Realtors reported."

"Sales climbed 5.2 percent last month, to an annual pace of 6.91 million homes, after falling 8.9 percent in the prior five months."

The NAR loves to release statistics, but since they switch data more often than they change clothes their data is nothing if not highly suspect. First of all, 5.2% did not portend an increase in demand, sales were simply up 5.2% over the previous month- and the previous month was the 4th month in a row of declining sales.

NAR had a pattern of using YOY numbers but now that it no longer suits their goal of keeping the housing market afloat on a great big lie enticing bigger fools into the market... they have switched to monthly comparisons and proclaim a 5% increase in sales... um... that was 5% higher than the month they just restated DOWNWARD which was already down month over month for 4 months.

There are 700,000 more houses for sale than a year ago, and prices have been falling for months. What also is rising like a foul odor from the NAR data is they are now using monthly comparisons for the very months they described as notoriously unreliable. Better get your hip waders and shovels, the chit is getting deep.

In the West, existing-home sales increased 5.1 percent from January's number that turned out to be lower than stated upon close inspection, but sales were actually 10.6 percent below February 2005.

Everything that was stated in the articles about the recent sales points to a drop in demand. There may still be some sales, but only because some sellers are reducing their prices and some may think they are getting a better deal than they are, but there has not been an increase in demand.

"Sales of new U.S. homes plunged 10.5 percent in February, the biggest drop in nearly nine years, while prices fell and the number of homes on the market hit a record high, the government said on Friday in a report signaling significant slowing in the housing market."

"While sales slowed, supply surged. The number of new homes available for sale climbed to a record 548,000 by the end of the month. At the current sales pace, that represents 6.3 months' supply -- the largest inventory of new homes since January 1996, the government report showed."

"The slowdown was driven by weak buying in the U.S. West and South -- regions that have posted some of the biggest gains in home prices over the five-year rally in the housing sector. Sales fell 29.4 percent in the West, the sharpest decline in more than 24 years. Sales in the South fell 6.4 percent, the report said."

"The new home market looks like it is starting to stagger," said Joel Naroff, chief economist at Naroff Economic Advisers, a Pennsylvania forecasting firm. "Bubbles do burst, they really do."

"Analysts believe that the growing backlog of unsold homes will add to downward pressure on prices in the months ahead."

"The housing market is fading fast and the prospect is it will weaken further as rates move higher," said Mark Zandi, chief economist at Moody's

Meanwhile houses may have been bought and sold in record numbers in recent years, but home ownership in California is still one of the lowest in the country.

"California has a 57 percent homeownership rate -- the second lowest behind New York -- lags far behind the national average of nearly 70 percent. In the 1950s and 1960s, California's homeownership rate was equal to the United States' as a whole."

"We may be producing some of America's best college graduates, but we're exporting them to states where owning a home is more than just a fantasy," said Alan Nevin, chief economist at the California Building Industry Association in Sacramento.

In Sonoma County

"A year ago, the county's housing market was hot with bidding battles that pushed prices to new highs, reaching $619,000 in August.Then rising mortgage rates and already sinking affordability triggered a slowdown.Prices have flattened. Sales so far this year have dropped off more than expected."

"Buyers face fewer bidding battles and can negotiate price cuts and other concessions. But they still face near-record prices and rising interest rates, which are driving up monthly mortgage payments. Sales could fall as much as 8 percent or more this year, analysts and economists forecast."

The reporter actually claims that prices are still expected to rise though... just not in the double digits like recent years. We will see...

"Inventories have built back to a four- to five-month supply of homes for sale for the first time since 1997."

The reporter claims this is a balanced market- due to the inventory numbers, and quotes his local real estate industry sources to back up such claims. I challenge that it will be a balanced market when the prices are closer to those in 1997. This reporter quoted real estate industry people and the clients they represent for this entire article (I use the term article loosely)

"Slowing price gains also have buyers more cautious about stretching their finances to get into a home. In the past, they could count on soaring prices to build up equity. But increasingly, they should prepare to pay down their mortgages to build the value of their investment.For their part, sellers must price more competitively or risk having homes languish on the market. Sellers also must be ready to negotiate over repairs, closing costs and other concessions."

"Things have softened a little. There's more competition," said Chuck Begun, who listed his Santa Rosa home for sale more than two months ago.

"Affordability has long been a hurdle to homeownership in Sonoma County and the Bay Area. With the run-up in home prices, only 7 to 10 percent of county households are able to afford the median home price here, according to the latest studies.The combination of high prices and rising interest rates has pushed buyers out of the market."

"With appreciation slowing, foreclosure activity is on the rise because households facing financial trouble may have more difficulty selling homes.The number of default notices sent by lenders to California homeowners increased more than 15 percent at the end of last year compared with a year earlier. The number of foreclosure notices in Sonoma County increased 32 percent, according to DataQuick Information Systems."


At 3/26/2006 07:10:00 PM , Anonymous tomstone said...

i guess you read that bizarre special real estate insert in the press democrat too.these people must be getting their drugs from george bush.i also looked at homes sold in oakland ca,since i lived there for many years and saw that 900. 106th ave sold for $312,000,668 sq ft ,.04 acre lot,built in 1949,whoever bought this woul be better off if they did get their drugs from W.has to be fraud here this is as bad an area as you can find in oakland.

At 3/26/2006 07:36:00 PM , Blogger Athena said...

Oh yes... I read it alright, and laughed all the way through it. I kept thinking of a professor I had in college who taught a series of critical thinking courses, and at least one course was a requirement for graduation... so I can't think for the life of me how this reporter can look himself in the mirror knowing his article is chock full of sources that lack credibility. Unreal.

You know, that Oakland house doesn't surprise me one bit, and somehow I think the buyers are probably at a party somewhere bragging about how they got the last "steal" in the East Bay for under half a million dollars.

There ARE still some big fat fools out there that are going to be the ones buying still... I met an actual real life "flipper" and his mortgage broker wife at a party on Saturday night in Marin. He was actually introduced to me AS a flipper, and you would all be proud of how I kept a straight face.

My daughter went to a party today in marin and SHE came home talking about the vapid girl who was talking up being her uncle's apprentice and he was teaching her how to flip houses.

They key she told my daughter is to raise the price. Buy the house in foreclosure and put it back on the market for MORE than the previous seller had it listed, and keep raising the price. This girl said that people are DUMB, and they see the seller raising the price and they rush in to buy it before he does it again. ;-)

People ARE dumb indeed.

At 3/27/2006 06:01:00 PM , Blogger sf jack said...

athena -

Those two stories of yours are great.

The one about your daughter's new acquaintance made me LOL!


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