Sonoma Housing Bubble

Pulling the cork out of Sonoma's bubbly housing foolishness

Monday, March 06, 2006

A Ripple in the Bubble...

Got to love the AP catching on... (even if they did a pretty good job back peddling all the way through the tough facts.)

"The five-year housing boom is indeed over, judging from growing statistical evidence and the performance of some of the nation's leading builders, and the slowdown is already rippling through the economy."

"Housing has played a major role in the economic recovery since 2001, so even slower growth in home sales and prices could have major repercussions."

"Asha Bangalore, an economist for The Northern Trust Co. in Chicago, estimates housing created 43 percent of all new jobs from late 2001 until mid-2005. That included the obvious, such as jobs in construction and mortgage services, but also retail and service jobs that were created because consumers tapped their rising home equity to buy more things."

"Rising prices and interest rates pushed more buyers out of the market. When prices finally did cool, sellers couldn't command a high enough price on their old house to buy the new one, said Marceau, who believes the slowdown is temporary."

"Builders don't like to cut prices — it angers customers who paid more — but last week, Centex Corp. advertised $25,000 off on select homes in the Dallas area after making a successful similar offer in California. Around the country, builders are throwing in incentives ranging from financing help to free upgrades like swimming pools and granite countertops. Some equal 10 percent of the home's list price."

"We started to see the strain in July and August, and by the fourth quarter the market definitely had slowed," said Layne Marceau, president of the Northern California region for Shea Homes, one of the nation's largest private builders.

David Seiders, chief economist for the National Association of Home Builders, said California, Las Vegas, Florida and the Washington, D.C., area "have the largest potential for a price slowdown."

"The rising prices in those markets were fed by speculators who bought homes intending to "flip" or sell them for a quick profit, Seiders said. "The biggest fear I have is investor-owned units coming back on the market in large numbers," he said."

"Alex Barron, an analyst in San Francisco for JMP Securities, said builder stocks have been trading at relatively low multiples of their earnings since the late 1990s because investors always believed the strong housing market was too good to last."

"Investors kept saying, 'Next year housing will go down,'" Barron said. "I guess they're finally right."

"In the last week, the Commerce Department reported that January sales of new single-family homes fell 5 percent — the fourth decline in seven months — and the backlog of unsold new homes hit a record."

But of course we already knew this...

Remember that comment by Greenspan where he made reference that he thought some markets had gotten a little "frothy?"

From American Heritage Dictionary

froth·y (frôth, frth)
ADJECTIVE: froth·i·er , froth·i·est
1. Made of, covered with, or resembling froth; foamy.
2. Playfully frivolous in character or content

froth (frôth, frth)

1. A mass of bubbles in or on a liquid; foam.
2. Salivary foam released as a result of disease or exhaustion.
3. Something unsubstantial or trivial.

My question is... do you think this guy might have some economic frame of reference for saying such a thing?

So what is wrong with those in denial?

I saw a great ad in the Sonoma Index Tribune Real Estate section yesterday... from a real estate agent no less asking: "What Bubble?"

So Greenspan sees froth in the market. The market is made up of numbers.

Who's math do you think is more reliable?


At 3/06/2006 08:45:00 PM , Blogger moonvalley said...

glad you posted this. I had a big conversation last night with that same neighbor I mentioned before who thinks things will only keep going up here. We had some friends over for dinner and to watch the Awards last night, this guy just would not belive me when I said no, things are going down. I was almost on the verge of taking him into my office and showing him your blog, but I could see he just didnt want to hear about it.

At 3/07/2006 10:12:00 AM , Anonymous Anonymous said...

I could see he just didnt want to hear about it.

"General Custer, I don't think these Sioux will run when provoked"

"Mr. Andrews, you assert your Titanic is unsinkable, simply because it 'cannot sink'?"

"what they perceive as newly abundant liquidity can readily disappear. … history has not dealt kindly with the aftermath of protracted periods of low risk premiums."

At 3/09/2006 11:54:00 PM , Blogger Athena said...

No history has not dealt kindly indeed.

but you know what? Ask any person you know what subject bores them the most... guess what they are most likely to say?


I had this great professor at SRJC a long time ago. Gus P'Manolis and one of his favorite sayings when discussing how the more things change the more they stay the same was:

"History un-learned, repeats itself."

So I zillowed a friend's house the other night. The purchase price of it in 2004 was somewhere in the high 300'sk

Zillow shows that in the past 30 days his house value is down by 2%. The whole zipcode of 95476 is down 1.1% and Sonoma county as a whole is down 1.4%

and here is some history...

in 1993 the house was sold for near $175k

in 1997 just four years later it was sold for near 120k

over four years time the price actually WENT DOWN.

Wait... I thought real estate always goes up?

in 1998 just a year after the last sale it sold for about 30k more than 1997.

Then 7 years later it sold for near $380k in 2004

What will history tell us next do you think?

At 3/11/2006 06:49:00 PM , Blogger confused said...

I was foolish not to buy a year ago when prices for condos were still in the 200 range. At the time a condo of 205.000 with a down paymnent of 30% would stil have cost me $6000.00 in maintance and $5000.00 in taxes. That same condo I am renting for $1,85.00 p/m from the person who did buy it ( the flipper ).As many in my position I like to read articles on the bursting bubble but I am scared that it might not. My husband and I have 1 daughter and earn $68k per year between the both of us. This is way above the median income for Miami and even though we live a modest life (I drive an old paid off car as does he, no credit card debt, daugher's college paid for, no hobbies, we eat out once a month, no medical bills), we still could not afford a much higher rent. What hardly ever gets mentioned is that most buildings have maintanance fees of around $500 the property taxes are 2.57% and unless you are on a permanent diet and don't do anything how can anyone afford a home here???? I just don't get it. I make $40.k a year and am a manager of a department (tourism).
It just does not compute. I look on the internet and every other place is renting 2 br apts starting at around $1350.. Less rentals available more inventory,.... are we going to end up with a bunch of empty houses and condos??

At 3/11/2006 06:50:00 PM , Blogger confused said...

sorry mistake,, the condo I am renting is $1,185.00

At 3/11/2006 08:44:00 PM , Blogger Athena said...

Well Confused... the thing is, you seem to have been raised not to live above your means.

That is not true of the home debtors since the free money from Greenspan days... the people who jumped on the housing bubble train financed themselves into the lifestyles they wished to become accustomed to...

The problem is... their hog like desire to become accustomed to the lifestyle they posed themselves into has turned into a sense of entitlement.

But guess what? Just because they feel entitled, doesn't mean the economy will support their desire.

People are going to catch on. These folks have not been "affording" houses. They have been selling their souls to their mortgage, and maxing out their equity and splurging on a lifestyle that they too cannot afford.

The only thing that has made it possible are the buyers who gladly took their debt off their hands and were willing to give up the majority of their incomes to do it.

People who have to shoehorn themselves into a mortgage payment they can barely meet are not investors, they are not home owners. They are the biggest fools left holding the bag for the biggest debtors.

At one time people who didn't pay their debts had to file bankruptcy... now they slap a for sale sign on their debts and call it the Real Estate Market.

These people have been living well above their means, and when people stop rushing in and rewarding them for it- they will have to pay the piper.

It is much easier to live within your means than it is to always have to be shistering for a bigger fool trying to hold on to what you don't really have in the first place.


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